Month: August 2015

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Patent Law Uncategorized

#AliceStorm: July is Smoking Hot, Hot, Hot…and Versata is Not, Not, Not

The following guest post from Robert R. Sachs, Partner at Fenwick & West LLP, first appeared on the Bilski Blog, and it is reposted here with permission.

By Robert R. Sachs

July invokes images of hot days, cool nights, and fireworks. When it comes to #Alicestorm, the fireworks are happening in the courts, with the Federal Circuit lighting up the sky.

Table1

In just the first ten days of July, there have been twelve decisions on patent eligibility—more decisions in the first ten days of any month since the dawn of time. At this pace, we could see some twenty to thirty decisions this month. #AliceStorm is accelerating.

Here are the numbers by motion type:

Motions

Here are the numbers for all the courts, by tribunal:

Courts

Finally, here’s a summary of the number of Section 101 decisions by the various judges on the Federal Circuit since Alice:

Fed cir

I leave the interpretation of this graph as an exercise for the reader.

Versata: The Federal Circuit is Large and In Charge

While the indices are steady, the recent decisions are very interesting. Most importantly, there have been two Federal Circuit decisions in July, Versata Development Group v. SAP Am., Inc. and Intellectual Ventures I LLC v. Capital One Bank (USA), both of which found the patents in suit ineligible. Today, I’ll focus on Versata.

Versata was a closely watched appeal since it was the first appeal to the Federal Circuit of a Covered Business Methods review. The Court covered a lot of ground including 1) whether it could review PTAB’s determination that Versata’s patent was eligible for CBM review, 2) what is the meaning of “covered business method patent,” including whether USPTO’s definitions of a “financial product or service” and “technological invention” were correct, 3) what is the appropriate standard for claim construction, broadest reasonable interpretation or one correct construction, and 4) an evaluation of the merits. Briefly, the court decided:

  • The Court can review PTAB final decisions, even when they touch upon the same legal issues that lead to the institution decision (which the Federal Circuit does not have authority to review), including whether a patent qualifies as a covered business method patent;
  • The USPTO’s definitions of covered business method patent (which simply copies the statutory language without any definition at all) are just fine.
  • PTAB can use broadest reasonable construction; and
  • Versata’s patent is for a financial service, not a technological invention and is an ineligible abstract idea.

I’m not going to do an extensive analysis of the Federal Circuit’s handling of all these issues. Essentially, the Federal Circuit is saying: PTAB, keep up the good work of invalidating patents, but just remember, we’re still in charge. Instead, I’m going just to highlight some of the issues in the Court’s reasoning regarding the definitions of a covered business method patent.

As background, Versata’s patent is a way of determining prices where you have a very complex collection of products types and business groups, all overlapping and intersecting. Consider a company like General Motors with dozens of divisions and subsidiaries, hundreds of cars, and millions of parts. The problem is that conventional systems use multiple database tables to track and compute prices, requiring significant storage and reducing run-time performance. In a nutshell, Versata used hierarchical data structures representing product and business organizational hierarchies to store and compute product prices. By using hierarchical data structures, Versata’s invention saved memory and resulted in faster run-time performance than existing approaches.

What Is a Financial Product or Service?

Section 18(d)(1) of the statute that authorizes the CBM review states that a covered business method patent is:

a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions

The question is what is a financial product or service. The Court adopted the USPTO’s parsing of the phrase into financial and product or service. In doing so, the Court adopted PTAB’s incorrect grammatical parsing of the statute, which looked at the definition of financial apart from products and services. According to PTAB, “The term financial is an adjective that simply means relating to monetary matters.”

Running with this analysis the court concludes:

We agree with the USPTO that, as a matter of statutory construction, the definition of “covered business method patent” is not limited to products and services of only the financial industry, or to patents owned by or directly affecting the activities of financial institutions such as banks and brokerage houses. The plain text of the statutory definition contained in § 18(d)(1)— “performing . . . operations used in the practice, administration, or management of a financial product or service”— on its face covers a wide range of finance-related activities. The statutory definition makes no reference to financial institutions as such, and does not limit itself only to those institutions.

To limit the definition as Versata argues would require reading limitations into the statute that are not there.

This analysis is incorrect. The phrase financial product or service is not just the adjective financial modifying the nouns products and services—it’s not like sweet pastries and pies or funny songs and videos or complex issues and problems. Rather, financial product and financial service are open compound nouns, like high school, cell phone, and half sister. The meaning of these nouns is not determined by looking at the meaning of the individual words; the entire noun has its own meaning. When you attended high school, you did not go to a school that was “of great vertical extent”; when you speak on your cell phone you’re not talking on a telephone made of “the smallest structural and functional unit of an organism.” And when you offer to introduce me to your half sister, I don’t ask “Left or right?”

The term financial product means something specific and different from the simple combination of financial and product. It’s important to remember that the Covered Business Method program was pushed by three of the largest financial lobbying groups: the Financial Services Roundtable, the Independent Community of Banks of America, and the Securities Industry and Financial Markets Association. In the financial industry, financial products and services has a specific meaning.

Consider the following definitions of financial product:

a product that is connected with the way in which you manage and use your money, such as a bank account, a credit card, insurance, etc.
Cambridge Dictionary of Business English

Financial products refer to instruments that help you save, invest, get insurance or get a mortgage. These are issued by various banks, financial institutions, stock brokerages, insurance providers, credit card agencies and government sponsored entities. Financial products are categorised in terms of their type or underlying asset class, volatility, risk and return.
EconomyWatch

Better yet, look at the U.S. Treasury’s definition:

The overarching definition of financial product will focus on the key attributes of, and functions performed by, financial products. A financial product will be defined as:

A facility or arrangement through which a person does one or more of the following:

— Makes a financial investment;
— Manages a financial risk;
— Obtains credit; or
— Obtains or receives a means of payment.

The facility or arrangement may be provided by means of a contract or agreement or a number of contracts or agreements.

The term financial services is equally specific

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, investment funds, real estate funds and some government sponsored enterprises.
Wikipedia, “Financial services”

Financial Services is a term used to refer to the services provided by the finance market. Financial Services is also the term used to describe organizations that deal with the management of money. Examples are the Banks, investment banks, insurance companies, credit card companies and stock brokerages.
Streetdictionary.com, “What exactly does financial services mean?”

The USPTO and the Federal Circuit ignored these definitions of financial products and services as used by the very industries that sought protection from abusive business methods patents. The Court even notes that “It is often said, whether accurate or not, that Congress is presumed to know the background against which it is legislating.” Indeed, it did here, but the Court simply chooses to discount both that background and correct English language usage.

The Court further argues that the statutory definition makes no reference to financial institutions as such, implying that Congress did not intend to limit financial products and services to the financial services industries. To riff off the logical fallacy—evidence of an absence is not the absence of evidence. There was no need to mention explicitly the financial industry in the statute because the industry context is built into the terms themselves. Contrary to the Court’s final statement, the limitations are already in “the plain text of the statute.”

In short, looking up the Random House definition of the adjective financial apart from financial products and services is like extracting greasy from spoon and concluding that a greasy spoon is an oily small, shallow oval or round bowl on a long handle.

Spoons

Whether you are talking business or busing tables, you must interpret words according to the relevant context, the relevant grammar, and the relevant dictionary.

Deference to the USPTO’s Expertise: Only Sometimes

In concluding its analysis of the meaning of a covered business method patent, the Court relies on a deference argument. In its final paragraph regarding the propriety of USPTO’s definition of financial product and services, the Court says:

Furthermore, the expertise of the USPTO entitles the agency to substantial deference in how it defines its mission.

The overall mission of the USPTO is to issue patents for inventions. The Ninth Circuit made a similar observation about the Copyright Office. In Garcia v. Google, the Copyright Office refused to register Garcia’s five-second appearance in a film. The Ninth Circuit noted “We credit this expert opinion of the Copyright Office—the office charged with administration and enforcement of the copyright laws and registration.” And thus the Ninth Circuit found it appropriate to defer to the office’s expertise in deciding copyrightable subject matter. The parallel could not be more perfect: the USPTO is the office charged with the administration and enforcement of the patent laws and registration. Likewise, the courts should defer to its expertise as well.

Here, when the USPTO comes up with a definition of technology in its interpretation of Section 18(d)(1) of the patent statute–a very small part of its mission–the Federal Circuit says that the Office is due substantial deference. Yet, when the Office comes up with a definition of Section 101–the section of the statute most fundamental to its mission–and when an examiner implements that definition and determines that a particular claim satisfies Section 101, that definition and that decision is given no deference at all.

Thus, I find it rather inconsistent of the Court to be deferential the USPTO’s definition of technology in a very narrow context, but entirely dismissive of the USPTO’s historical expertise in identifying patent eligible subject matter. When it comes to patents, the USPTO is like Rodney Dangerfield: it gets no respect.

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Patent Licensing and Secondary Markets in the Nineteenth Century

The following post comes from CPIP Programs and Research Associate Terrica Carrington, a rising 3L at George Mason University School of Law, and Devlin Hartline, Assistant Director at CPIP. They review a paper from CPIP’s 2014 Fall Conference, Common Ground: How Intellectual Property Unites Creators and Innovators, that was recently published in the George Mason Law Review.

By Terrica Carrington & Devlin Hartline

In his paper, Patent Licensing and Secondary Markets in the Nineteenth Century, CPIP Senior Scholar Adam Mossoff gives important historical context to the ongoing debate over patent licensing firms. He explains that some of the biggest misconceptions about such firms are that the patent licensing business model and the secondary market for patents are relatively new phenomena. On the contrary, Mossoff shows that “famous nineteenth-century American inventors,” such as Charles Goodyear, Elias Howe, and Thomas Edison, “wholeheartedly embraced patent licensing to commercialize their inventions.” Moreover, he demonstrates that there was “a vibrant secondary market” where patents were bought and sold with regularity.

Like many inventors, Mossoff explains, it was curiosity—rather than market success—that drove Charles Goodyear to create. Despite having invented the process for vulcanized rubber, Goodyear “never manufactured or sold rubber products.” While he enjoyed finding new uses for the material, commercialization was not his niche. Instead, Goodyear “transferred his rights in his patented innovation to other individuals and firms” so that they could capitalize on his inventions. “As the archetypal obsessive inventor,” notes Mossoff, “Goodyear was not interested in manufacturing or selling his patented innovations.” In fact, his assignees and licensees “filed hundreds of lawsuits in the nineteenth century,” demonstrating that “patent licensing companies are nothing new in America’s innovation economy.”

Mossoff next looks at Elias Howe, best known for his invention of the sewing machine lockstitch in 1843, who “licensed his patented innovation for most of his life.” Howe was also famous for “suing commercial firms and individuals for patent infringement” and then entering into royalty agreements with them. It was Howe’s troubles with “noncompliant infringers” that “precipitated the first ‘patent war’ in the American patent system—called, at the time, the Sewing Machine War.” Howe engaged in “practices that are alleged to be relatively novel today,” such as “third-party litigation financing,” and he even joined “the first patent pool formed in American history,” known as “the Sewing Machine Combination of 1856.”

Finally, Mossoff discusses Thomas Edison, whom many consider to be “an early exemplar of the patent licensing business model.” Edison sold and licensed his patents, especially early on, so that he could fund his research and development. However, Edison is a “mixed historical example” since “he manufactured and sold some of his patented innovation to consumers, such as the electric light bulb and the phonograph.” Moreover, despite his “path-breaking inventions,” the marketplace was often dominated by his competitors. Mossoff notes that Edison was a better inventor than businessman: “At the end of the day, Edison should have stuck to the patent licensing business model that brought him his justly earned fame as a young innovator at Menlo Park.”

While some might call these inventors anomalies, Mossoff reveals that they were in good company with others who utilized the patent licensing business model to serve “one of the key policy functions of the patent system by commercializing patented innovation in the United States.” These include “William Woodworth (planing machine), Thomas Blanchard (lathe), and Obed Hussey and Cyrus McCormick (mechanical reaper)” and many others who “sold or licensed their patent rights in addition to engaging in manufacturing and other commercial activities.” This licensing business model continues to be used today by innovative firms such as Bell Labs, IBM, Apple, and Nokia.

Mossoff next rebuts the “oft-repeated claim” made by many law professors that “large-scale selling and licensing of patents in a secondary market is a recent phenomenon.” This claim is as “profoundly mistaken as the related assertion that the patent licensing business model is novel.” Mossoff notes that during the Sewing Machine War of the Antebellum Era, “the various patents obtained by different inventors on different components of the sewing machine were purchased or exchanged between a variety of individuals and firms.” As early as the 1840s, individuals acquired patents in the secondary market and used them to sue infringers.

In fact, Mossoff points out that it was not uncommon to see newspaper ads offering patents for sale in the nineteenth century:

The classified ads in Scientific American provide a window into this vibrant and widespread secondary market. In an 1869 issue of Scientific American, among ads touting the value to purchasers of “Woodbury’s Patent Planing and Matching and Moulding Machines” and ads declaring “AGENTS WANTED—To sell H.V. Van Etten’s Patent Device for Catching and Holding Domestic Animals,” one finds ads offering patents and rights in patents for sale:

Such ads were ubiquitous in the nineteenth century, says Mossoff, and they “belie any assertions about the absence of such historical secondary markets by commentators today.” Similarly, Mossoff points to research showing the “fundamental and significant role” performed by intermediaries known as “patent agents,” the “predecessors of today’s patent aggregators.” These patent agents invested in a wide range of products and industries—a remarkable feat given the “constraints of primitive, nineteenth-century corporate law and the limited financial capabilities of market actors at that time.”

In his brief yet insightful account of the history of patent licensing firms, Mossoff refutes the modern misconception that “the patent licensing business model and secondary markets in patents are novel practices today.” It’s important to set the record straight, especially as many in modern patent policy debates rely on erroneous historical accounts to make negative inferences. The evidence from the nineteenth century isn’t that surprising since it reflects “the basic economic principle of the division of labor that Adam Smith famously recognized as essential to a successful free market and flourishing economy.” Casting “aspersions on this basic economic principle,” Mossoff concludes, “strikes at the very core of what it means to secure property rights in innovation through the patent system.”

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#AliceStorm In June: A Deeper Dive into Court Trends, and New Data On Alice inside the USPTO

The following guest post from Robert R. Sachs, Partner at Fenwick & West LLP, first appeared on the Bilski Blog, and it is reposted here with permission.

By Robert R. Sachs

The most important thing that happened in June was not the invalidation of yet another pile of patents, but the rather more consequential decision of the Supreme Court to recognize the right of same-sex couples to marry. Unlike patent law issues, when it comes to constitutional law, the Court can recognize the complexity and depth of the issue and, not surprisingly, the Court is deeply divided. That the Court is unanimous on equally complex and divisive issues in patent law—such as eligibility—speaks to me that they do not have the same deep understanding of the domain.

Now, let’s do the #AliceStorm numbers. First, the federal courts:

Table1

Since my May 28 update, there have been 19 § 101 decisions including two Federal Circuit decisions, Internet Patents Corp. v. Active Network, Inc. and Ariosa Diagnostics, Inc. v. Sequenom, Inc., both holding the challenged patents ineligible. Overall, the Federal Court index is up 3.1% in decisions and an (un?)healthy 6.2% in patents. The Motions on Pleading index is holding steady; the last five decisions on § 101 motions to dismiss have found the patents in suit invalid.

We can look more specifically at the invalidity rate by type of motion and tribunal:

Table2

For example, the 73.1% invalidity rate in the federal courts breaks down into 70.2% (66 of 96) in the district courts and a stunning 92.9% in the Federal Circuit (13 for 14). Motions on the pleadings and motions to dismiss are running equally, at a 69% defense win rate.

The 73.7% summary judgment success rate is consistent with the high rate on motions to dismiss. Since the courts have taken the position that there are no relevant facts to patent eligibility and there is no actual presumption of validity in practice, there is now little difference between the underlying showings required for the two types of motions. That’s odd since on the motions to dismiss the court is to look only at the pleadings, while on summary judgment they have the full file history, expert testimony, the inventor’s testimony and other evidence before them. Why such evidence is not helping—and indeed appears to be hurting—patentees is because the court is evaluating it from their lay perspective. In my opinion, the correct perspective is that of a person of ordinary skill in the art (POSITA). What a court may consider merely abstract may be easily recognized as a real-world technology by an engineer; a claim term that appears trivial to a court (“lookup table”, “isolated”) or may be significant to the expert.

We can also evaluate how individual the various district courts are doing.

Table3

(The (-1) values in the bottom five rows indicate that the court held that patent was not invalid).

Of the 66 district court decisions since Alice that have invalidated patents on § 101, Delaware, the Central and Northern Districts of California account for 58% of the decisions. The most prolific judges are shown here:

Table4

Yet, when it comes to finding abstract ideas, the USPTO remains the champ. The best avenue to attack a patent under § 101 is through the Covered Business Method (CBM) review program. A challenger files an institution petition before the Patent Trial and Appeal Board (PTAB) arguing that the challenged patent is directed to a financial product or service, and setting forth their ineligibility arguments. PTAB then issues an institution decision as to whether to grant the petition or not. The standard at this stage is whether it is more likely than not that the claims are ineligible. Once instituted, there is a full proceeding leading up to a final decision as to whether or not the patent is invalid.

At PTAB, CBM institution decisions are up (19 since May 28), and PTAB leads the race with the courts with an 88.6% invalidity rate on CBM institutions, and an unbeatable 100% rate (unchanged) on CBM final decisions.

Table5

If only the SF Giants could play their game this well.

Alice and the Patent Prosecutor

In my previous post, I drilled down in the impact of Alice on prosecution in terms of office action rejections and abandonments. My dataset was some 300,000 applications for the pre- and post-Alice period prepared for me by the team at Patent Advisor. Since then, I’ve received an additional 190,000 samples, comprising all office actions issued by the USPTO in September and October 2014. Together, the data set has over 490,000 office actions and notices of allowances:

Table6

The additional data from September and October fill in the trends in § 101 rejections that I showed before. As I explained, Tech Center 3600 includes more than just business methods, including literally down-to-earth technologies like earth moving and well boring. The § 101 rejections are concentrated in three E-commerce work groups:

Table7

There is some good news for software. The computer-related art units, TC 2100 and TC 2400, show considerably lower and steady § 101 rejection rates pre- and post-Alice.

Table8

After Alice, I think most software prosecutors expected to get non-final § 101 rejections, and consistent with past practice, expected to overcome them by amendment and argument. That would lead to final rejection based on prior art or an allowance. And that’s generally been true—except in a number of areas. In this following table, I compare the percentage of final office actions with § 101 rejections before and after Alice, in various Tech Centers and within TC 3600.

Table9

It’s important to remember the obvious: that you don’t get to a final rejection on § 101 without a first having a non-final rejection. Thus, this comparison shows how successful prosecutors were in overcoming non-final § 101 rejections before and after Alice—or equally how aggressive examiners were in maintaining these rejections. For example, before Alice 8.1% of final rejections in TC 1600 included a § 101 rejection, doubling to 16.7% after Alice—thus indicating that examiners were much more likely to maintain the rejection after Alice, but still a relatively low rate overall. By comparison in TC 2600, the rate of final rejections on § 101 declined after Alice, from 10% to 7.7%. This could be because it’s easier to explain why an invention in more traditional fields is an improvement in technology, one of the Alice safe harbors.

But when it comes to business methods, we see the killer statistics: prior to Alice, prosecutors overcame the non-final § 101 rejections generally about 62% of the time, leading to final rejection rates in the 23-46% range; thus prosecutors had more or less even odds of getting over the rejection. What is shocking is that after Alice, the final rejection rate soared into the 90% range. If you felt frustrated that your crafted (or crafty) arguments failed to impress the Examiner, get in line.

Now I’ve reviewed several hundred post-Alice rejections, and I’ve talked to a large number of prosecutors. What I’ve found is that majority of the non-final § 101 rejections were relatively formalistic, with little actual substantive analysis. Likewise, in a review of 87 office actions issued in November 2014 with § 101 rejections, Scott Alter and Richard Marsh found that 63 percent of those actions were “boilerplate” rejections. In my view, most prosecutors put forward at least a decent argument to show that the claims are not abstract, have at least one significant limitation, and do not preempt the abstract idea. Response arguments to § 101 rejections tend to run longer than response to prior art rejections, and I’ve seen many that resemble appeal briefs if not legal treatises, all to overcome a one paragraph rejection. They all presented at least enough of an argument to overcome the prima facie case for the rejection. And yet the final rejections keep coming—and often with little or no substantive rebuttal of the prosecutor’s arguments.

Outside of business methods, I found only two technology areas that had post-Alice rejection rates in excess of 30%: Amusement and Education devices in Tech Center 3700 (bottom row above) and molecular biology/bioinformatics/genetics in TC 1600 (not shown). This is a peculiar side effect of Alice. Historically, games and educational devices are classic fields of invention. There are thousands of patents on games, such as card games, board games, physical games, and the like. What is now hurting these applications are two aberrations in the law of patent eligibility: mental steps and methods of organizing human activity. The majority of § 101 rejections for games argue that the rules that define a game are simply ways of organizing human activity and can be performed by mental steps. Examiners typically cite the Federal Circuit’s Planet Bingo v. VKGS decision for the proposition that a game is an abstract idea and can be performed mentally. Only a small problem here: Planet Bingo is non-precedential and thus limited to its facts. In particular, the court did not hold that the game of bingo was an abstract idea. Instead, the alleged abstract idea was of “solving a tampering problem and also minimizing other security risks during bingo ticket purchases.” Thus, the case cannot be extended by examiners to argue that all games are abstract ideas.

As to methods of organizing human activity, it cannot be the case that all such methods are ineligible, since a vast array of such methods are in fact patented in fields such as farming, metalworking, sewing, manufacturing, tooling, conveying, and the like. This is just another example how simplistic rules of patent eligibility, taken out of context from one court opinion and repurposed generally, are at complete odds with the reality of invention.

Here is another view of the final rejection data on § 101, this time organized by the technology groups most negatively impacted by Alice (left side) and most positively impacted (right side).

Table10

The data here is organized by the percentage change in § 101 final rejection rates post-Alice. The group on the left is all of the technology areas that have had more than a 10% increase in final § 101 since Alice. Every other technology work group in the USPTO had less than 10% change in final rejection rates. On the right, we find the groups that seemed to benefit from Alice, in that the final rejection rates on § 101 declined. Most of these groups are in the computer area—and I’m sure that many of their applications have claims for purely software operations that could just as easily be argued to be mere data gathering, mental steps, or fundamental practices. And yet the examiners in these groups do not on average impose such blanket formulations on the claims, but appear overall to treat these inventions for what they are: real technology solving real world problems with real commercial applications.

To me, the data points to a clear conclusion. Contrary to what the USPTO’s Interim Guidance states as policy–that there is no per se exception for business methods–the behavior of examiners suggests that precisely such an exception is being applied in fact.

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Innovation Legislation Patent Law Uncategorized

Will Increasing the Term of Data Exclusivity for Biologic Drugs in the TPP Reduce Access to Medicines?

The following guest post comes from Philip Stevens, Director of the Geneva Network, a research and advocacy organization working on international health, trade, and intellectual property issues. The original research note can be found here.

By Philip Stevens

scientist looking through a microscopeIn the Trans-Pacific Partnership (TPP) negotiations, the U.S. and Japan have proposed that TPP partners increase their period of regulatory data protection (RDP) for biologic medicines to align with practice in other countries. These proposals have been strongly opposed by a number of academics, who claim that such a move would significantly increase public spending on medicines, thereby potentially limiting access.[1], [2]

Past experiences in Canada and Japan, which lengthened their respective terms of RDP some years ago, however, indicate that these fears of budget increases are unlikely to materialise.

Canada and Japan increased RDP[i] substantially but did not experience increases in expenditures for medicines

Like several TPP countries, the governments of Canada and Japan have national health insurance systems, and cover most health care costs, including medicines. Unlike other TPP countries, Canada and Japan have in the past decade adopted substantially longer terms of RDP. Their experiences, captured in the data provided below, show that expenditures on medicines did not change appreciably from previous trends.

In 2006 Canada changed its regulations in a way that effectively increased their RDP term from 0 years to 8 years.[ii] As shown in Figure 1 (based on 2014 OECD data[iii]), pharmaceutical spending as a percentage of total health spending has actually decreased since then.

Figure 1: Pharmaceutical expenditure as a percentage of Canada’s healthcare expenditure (2005-2011)

Canada - OECD Health Data 2014. Pharma spend as % of total health spend. 2005: 17.2. 2006: 17.4 (Note: RDP Increased). 2007: 17.2. 2008: 17.0. 2009: 17.0. 2010. 16.6. 2011: 17.1.

As indicated in Figure 2 below, over the same period (2005-2011) pharmaceutical expenditure as a percentage of GDP (blue bars) remained relatively stable after RDP was increased in Canada in 2006, whereas overall health spending as a percentage of GDP in Canada has gradually increased (red bars).

Figure 2: Health and pharmaceutical expenditure as a percentage of Canada’s GDP (2005-2011)

Canada - OECD Health Data 2013. Red=Health spend as % of GDP. Blue=Pharma spend as % of GDP. 2005: Red, 9.8; Blue, 1.69. 2006: Red: 10.1; Blue 1.73. 2007: Red: 10.0; Blue: 1.73. 2008: Red: 10.3; Blue: 1.74. 2009: Red: 11.4; Blue: 1.93. 2010: Red: 11.4; Blue: 1.89. 2011: Red, 11.2; Blue: 1.86.

Similarly, Japan increased data protection in 2007 from 6 to 8 years (effectively 9 years).[iv] As indicated by Figure 3, fluctuations in expenditures after that time have been in line with growth in health care spending as a percentage of GDP. In fact, in 2010 pharmaceutical spending decreased in a year where health care spending increased.

Figure 3: Pharmaceutical expenditure as a percentage of Japan’s health care expenditure (2005-2010)

Japan - OECD Health Data 2014. Pharma spend as % of total health spend. 2005: 19.7. 2006: 19.5. 2007: 19.9 (Note: RDP Increased). 2008: 19.7. 2009: 20.7. 2010. 20.3.6. 2011: 20.8.

Figure 4 shows that the gradual increases in pharmaceutical expenditure as a percentage of GDP in Japan between 2005 and 2010 (blue bars) was in line with the overall increase in health spending as a percentage of GDP in Japan over the same period (red bars).

Figure 4: Health and pharmaceutical expenditure as a percentage of Japan’s GDP (2005-2010)

Japan - OECD Health Data 2013. Red=Health spend as % of GDP. Blue=Pharma spend as % of GDP. 2005: Red, 8.2; Blue, 1.62. 2006: Red: 8.2; Blue 1.60. 2007: Red: 8.2 (Note: RDP increased); Blue: 1.63. 2008: Red: 8.6; Blue: 1.70. 2009: Red: 9.5; Blue: 1.97. 2010: Red: 11.4; Blue: 1.89. 2011: Red, 9.6; Blue: 1.94.

Conclusion

The past experiences of Canada and Japan described above indicate that increases in RDP terms do not result in meaningful increases in health care expenditures or expenditures on medicines relative to overall health care spending. There could be many explanations for this result, ranging from changes in procurement policies, to increases in the number of medicines whose patent terms have expired. The evidence presented above, however, suggests that those concerned about access to medicines and the financial sustainability of public healthcare systems should focus their attention on policies other than Regulatory Data Protection for medicines.

[1] Moir et al, (2014) “Proposals for extending data protection for biologics in the TPPA: Potential consequences for Australia”, Submission to the Department of Foreign Affairs and Trade, available at http://dfat.gov.au/trade/agreements/tpp/submissions/Documents/tpp_sub_gleeson_lopert_moir.pdf

[2] Gleeson, D, Lopert, R, and Reid, P, (2013), “How the Trans Pacific Partnership Agreement could undermine PHARMAC and threaten access to affordable medicines and health equity in New Zealand”, Health Policy, 116:2-3

[i] Japan has a “post marketing surveillance system” which we consider a surrogate for RDP and use the term RDP in this paper to include Japan’s approach.

[ii] Canada’s 5-year data protection term was made ineffective by a 1998 Federal Court interpretation of regulations. Bayer Inc. v. Canada (Attorney General), 84 C.P.R. (3d) 129, aff’d 87 C.P.R. (3d) 293, leave to appeal to SCC refused, [1999] S.C.C.A. No. 386. The Federal Court held that RDP protection in Canada was not triggered if a generic applicant could demonstrate bioequivalence without requiring the Health Minister to consult the data submitted by the innovative company. Because that was a common occurrence, RDP rarely applied under the pre-2006 regulations.

[iii] 2013/14 OECD data on Canada and Japan is found at: http://www.oecd-ilibrary.org/social-issues-migration-health/health-key-tables-from-oecd_20758480;jsessionid=k26q30wbgljb.x-oecd-live-02.

[iv] Japan’s system prevents filing applications for follow-on approval for eight years after the innovator’s approval. An additional year after that is required for the regulatory approval process to conclude.

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Commercialization Copyright Copyright Licensing History of Intellectual Property Innovation Internet Legislation Uncategorized

Making Copyright Work for Creative Upstarts

The following post is by CPIP Research Associate Matt McIntee, a rising 2L at George Mason University School of Law. McIntee reviews a paper from CPIP’s 2014 Fall Conference, Common Ground: How Intellectual Property Unites Creators and Innovators.

By Matt McIntee

cameraIn Making Copyright Work for Creative Upstarts, recently published in the George Mason Law Review, Professor Sean Pager demonstrates how the current copyright system can be improved to better support creative upstarts. Pager defines “creative upstarts” to include “independent creators and producers who (a) are commercially-motivated; (b) operate largely outside the rubric of the mainstream commercial content industries; and (c) therefore lack the kind of copyright-related knowledge, resources, and capabilities that mainstream players take for granted.” Though these upstarts depend on their copyrights to make a living, they often find it difficult to effectively navigate the copyright system.

Pager explains how the copyright system generally benefits sophisticated users. For example, the Copyright Act contains hyper-technical language that can be difficult for naïve users to traverse. Pager pilots through this strikingly complex legal regime and determines that there are ample opportunities to afford better copyright protection to creative upstarts without diluting the copyrights held by others. He offers several proposals geared towards protecting the interests of creative upstarts, and he explains how the copyright system was designed without these features in mind.

One of Pager’s proposals is that we lower copyright registration costs, which potentially deter creative upstarts from registering their works. He notes that registration, obtaining accurate copyright information, and clearing copyrights are among the chief costs associated with obtaining copyright protection. A $35 registration fee may seem insignificant due to the benefits that come with it, but these costs can add up quickly for creative upstarts who generate large volumes of works. For example, graphic artists typically create many original works in order to build their portfolios, and the registration costs could be prohibitive.

Pager also notes that the Copyright Office’s searchable database increases costs for creative upstarts by adding valuable time to the process. The database is supposed to be complete and catalogued so that persons can easily search for accurate copyright information, but unfortunately this is not always the case. As a result, many creative upstarts have to spend precious time sifting their way through incomplete records and clearing copyrights instead of spending their time creating.

Tracing the history of the current regime, Pager explains how the copyright system assumes that artists seeking copyright protection have ample resources, such as lawyers, production facilities, manufacturers, and money. When the system was designed, policymakers structured it to support a “capital intensive process” that required significant investment and risk. But as Pager notes, the industry has shifted, and creative upstarts now form the bulk of content creators. A copyright system designed for artists recording on 8-track tapes is no longer appropriate in the digital age.

Pager offers a number of incremental steps to reform copyright law with the goal of making it more favorable to creative upstarts while still protecting the other players in the field. Though he acknowledges that there is no “magic bullet” solution, Pager argues that “improvements must come through a combination of substantive, procedural, and institutional reforms that yield incremental improvements across the entire copyright system.” And with such a comprehensive approach, he notes that certain tradeoffs will have to be made.

Substantively, Pager discusses how reducing systemic complexity is “deceptively simple.” While replacing “fuzzy standards with bright-line rules” would to some degree enhance certainty, Pager notes that “bright lines quickly become blurred” in a “world of fast-changing technologies and business practices.” He proposes instead that a “more realistic fallback goal would be to couple open-ended standards with clear safe harbor provisions or explicit examples.” Under this system, “standards would have room to evolve” while “their core meaning would be anchored as a starting point.”

Regarding procedural reforms, Pager suggests a “small claims dispute resolution” mechanism to drastically reduce costs for creative upstarts by providing them with a quick way to pursue infringement claims. Right now, copyright claims are exclusively within the jurisdiction of the federal district courts, an impractical and expensive route for independent artists. The Copyright Office has put forth a proposal for such a mechanism, but Pager argues that there is a “fatal flaw” since the process “would only be available on a voluntary basis.” By allowing “better-resourced adversaries” to opt out, the Office’s proposal leaves creative upstarts vulnerable.

Pager proposes that the Section 512 notice-and-takedown procedures could be improved to better support creative upstarts. Currently, creators are burdened by both the number of takedown notices required and the lack of access to the “trusted sender” facilities available to major participants. As Pager notes, the House Judiciary Committee addressed these issues as recently as March of 2014, but questions remain concerning who will bear the costs and how the transition will be implemented.

Turning to the registration system, Pager suggests three reforms that would benefit creative upstarts. First, having a single registry for authors to register their works, rather than a multitude of public and private registries, would reduce administrative burdens. Second, registration records would be more efficiently maintained through a tiered-fee system that charges more to larger content creators in order to subsidize the costs of smaller upstarts. Lastly, removing the timely registration requirement for enhanced damages, coupled with small claims dispute resolution reform, would provide cost-effective enforcement mechanisms.

Finally, Pager explains how technology can play a pivotal role in helping creative upstarts. One example is updating the Copyright Office website to provide more basic information about the copyright system. This information is currently scattered all over the Internet, and it could be organized to make it more user-friendly and less “lawyerly.” Another example is implementing software similar to TurboTax that actively assists authors when registering their copyrights. There would first have to be substantive changes in the law to allow for such software, but Pager believes that this technology would be incredibly helpful to those navigating the registration system.

Creative Upstarts is a fascinating look into the world of creative upstarts. With their interests and the interests of the larger copyright ecosystem in mind, Pager skillfully traverses our complicated copyright regime and identifies ample opportunities to improve copyright protections for creative upstarts. The twenty-first century is a digital age, and creators and innovators have the technological ability to produce creative works right on their laptops. Pager’s hope is the Copyright Act will be updated to address the realities of this modern world for creative upstarts.