Month: June 2020

Categories
Biotech Patents

(Patented) Life Begins at Forty: CPIP Celebrates the Ongoing Legacy of Diamond v. Chakrabarty

The following post comes from Colin Kreutzer, a rising 2E at Scalia Law and a Research Assistant at CPIP.

gloved hand assembling or dissembling a model of DNABy Colin Kreutzer

It’s been forty years since the Supreme Court ruled in favor of patentability for a GE scientist and the oil-eating bacterium he’d created, greatly expanding the scope of living matter that was eligible to be patented. Previously, patents on living things were limited to botanical inventions such as novel plant varieties, but the Court in Diamond v. Chakrabarty opened the door to genetically modified living matter. Writing for the majority, Chief Justice Burger held that because the bacteria were human-made and did not exist in nature, they fell under both the “manufacture” and “composition of matter” categories of invention per 35 U.S.C. § 101. The promise of IP protection for engineered microbial life gave a secure path to returns on investments, and it opened the floodgates to R&D in everything from life-saving drugs and cancer-screening tests, to Flavr Savr tomatoes and crop yields that promised to keep pace with a growing human population. The impact of this decision on biotech and related industries cannot be overstated.

But the legacy of Chakrabarty is still going strong. On Wednesday, June 17, CPIP and the Smithsonian’s Lemelson Center for the Study of Invention and Innovation jointly hosted a panel of experts to discuss the landmark ruling. Moderated by Lemelson Director Arthur Daemmrich and with closing remarks by CPIP Executive Director Sean O’Connor, the panel featured: Dan Charles, science writer, National Public Radio food and agriculture correspondent; Daniel Kevles, Stanley Woodward Professor Emeritus of History, History of Medicine & American Studies, Yale University; Jennie Schmidt, farmer, registered dietitian nutritionist, and blogger at The Foodie Farmer; and the inventor, Dr. Ananda Chakrabarty, now a distinguished professor of microbiology and immunology at the University of Illinois College of Medicine. The panel reflected on how the ruling in Chakrabarty has affected intellectual property and the biotech industry, and some of the issues that leave room for improvement. See the full video here.

History

In the early 1970s, Dr. Chakrabarty was working with several strains of naturally occurring Pseudomonas bacteria, known for their potential in cleaning oil spills. Each strain was able to break down one of the various hydrocarbon types found within crude oil. In theory, combining them could break down all the major components of an oil spill and convert them into benign materials, such as food for aquatic life. But there was a problem: simply mixing different bacterial strains did not achieve a complete oil consumption profile. Some strains would dominate the mixture because every strain thrived under slightly different environmental conditions, and much of the oil would be untouched.

Dr. Chakrabarty determined that the key elements in each bacterium were sets of extra DNA called plasmids. Each bacterial strain had different plasmids that would break down different hydrocarbons. He used a UV radiation technique to transfer plasmids from one strain to another until he had a single bacterial strain with a preferred set of plasmids. This unified strain could consume a wide hydrocarbon profile without developing a plasmid imbalance. The end product was distinct from any naturally occurring bacterium, and GE filed a patent application for the invention on June 7, 1972.

The USPTO examiner allowed some of the patent claims: namely, a method of producing the bacteria; along with, an inoculum having the bacteria as one component. But claims directed solely to the bacterium were rejected on the grounds that 35 U.S.C. § 101 does not allow pure living matter to be patented. Protections for plants, while alive, are granted under different statutes: the 1930 Plant Patent Act deals with asexually-reproduced novel plants, and the 1970 Plant Variety Protection Act grants similar rights on other selectively bred species. Following affirmation at the BPAI and a reversal at the Court of Customs and Patent Appeals, the Supreme Court granted certiorari. It heard the case on March 17, 1980, and issued an opinion on June 16, 1980.

Chief Justice Burger took issue with the Patent Office’s arguments that Congress, in drafting § 101, never gave express authorization to patent living things, and he didn’t see the plant exceptions as evidence that it never intended to. He countered that Congress had deliberately created a very expansive scope in § 101, and the Court was obliged to interpret it that way. The language was as clear as it was broad, and if the judiciary were going too far in its interpretation, the legislature would be free to correct the mistake. Further arguments, directed to the existential perils of genetic engineering, were met with similar skepticism.

Ultimately, the Chief Justice settled the argument in rather simple terms: that § 101 broadly covers a process, machine, manufacture, composition of matter, or collectively, “anything under the sun that is made by man.” Since Dr. Chakrabarty’s work fell within those boundaries, the subject matter was patent eligible­—living or not.

Microbial Research

Dr. Chakrabarty and Daniel Kevles kicked off the discussion with a review of the scientific and legal history of the case. There was broad agreement among panelists that for microbial research, medicine, and the pharmaceutical industry, the ruling was a game-changer. Forty years ago, USPTO officials weren’t the only ones who believed that microbial lifeforms couldn’t be patented. Prof. Kevles, recounting a prior conversation with Dr. Chakrabarty, wondered if GE’s “patent everything” attitude and relative lack of biotech experience made it more willing to even attempt such a thing in an industry where many assumed it wasn’t allowed. Prof. Kevles also pointed to the precedential effect on contemporary developments, such as Stanford’s Cohen-Boyer recombinant DNA patents, which weren’t granted until after the Chakrabarty decision. And while the nation used the ruling to fuel an emerging industry, Dr. Chakrabarty (then a university professor) expanded his Pseudomonas research into treatments of cystic fibrosis and cancer cells.

Agriculture

Discussions of the state of agriculture were more mixed. Jennie Schmidt began with a big thanks for including a farmer’s voice on the panel. She spoke about several advancements that genetic engineering has brought to agriculture, and how they factored into her family business’ comprehensive farming approach, which include conventional and organic farming along with biotech. The adoption of biotech seeds has spread far more rapidly than the previous technological leap of hybridization in the 1920s and 1930s, and she deemed it essential to the survival of family farms in modern America. Biotech seeds are more resistant to herbicides, allow for the use of softer chemicals, and are better suited to no-till practices. Tillage, Ms. Schmidt noted, was a major cause of erosion and loss of sediment, phosphorus, and other nutrients to the nearby Chesapeake Bay. She also mentioned engineered products such as Bt-corn, which can reduce the need for pesticides that kill far more species than they target.

Dan Charles expressed concerns about the number of useable innovations in agriculture, compared to what had been promised in exchange for the added intrusion of corporate control into farming. He questioned how transformative GMOs have truly been by boiling the developments down to two major traits—herbicide resistance and pest resistance—and noting that pests already appear to be overcoming the latter. National Academy of Sciences studies, he said, had failed to identify any major difference in the crop yield trends between the pre- and post-GMO eras (likely referencing this study; see for example the summary at p.14).

Prof. Kevles conceded that he’d rather see more developments focused on increasing the vitamin and nutrient content of crops, rather than on sheer yields. To date, the bulk of the technological benefits have gone to reducing costs rather than to increasing consumer health. But he tempered this observation by putting it into the greater context of all genetic applications and emphasized the unquestionable impact that the Chakrabarty decision had on technology as a whole.

Ms. Schmidt also acknowledged Mr. Charles’s concerns and felt that things might be very different if the first GMO breakthroughs had been consumer-facing, rather than farm-facing, developments. She noted that IP issues have affected traditional farming practices such as seed saving, but she added that proprietary issues span the range of farming technologies and are not limited to biotech. She also pointed out that IP isn’t the only reason that seed-saving is a threatened practice: hybrid seeds, a long-established technology, are generally unsuitable for saving regardless of whether farmers may legally do so. Her farm still practices seed-saving when possible.

Mr. Charles agreed that the proprietary issues extend beyond biotech, and indeed pose problems for researchers wishing to access to the latest generation of seed technology, even for scholarly purposes. Further, he noted that decreasing access has led to problems of international agricultural cooperation.

On the subject of international issues, Dr. Chakrabarty stressed the importance of IP to developing countries in bringing their products to the market. He has been active for many years in advancing both biotech and IP as a means for less-developed nations to build wealth.

The State of R&D, Post-Chakrabarty

Another avenue of the discussion centered on the state of R&D then and now, in terms of large corporate laboratories versus the multitude of start-ups we often see today. Prof. Kevles was quick to point out that there is still a lot of research coming from the big firms, not only in chemistry and biotech, but also in the worlds of information technology and others. As far as the emergence of start-ups was concerned, credit also went appropriately to the Bayh-Dole Act. This helped universities retain IP rights to inventions that came from federally funded research and stimulated further growth of university tech transfer offices. The Chakrabarty decision and Bayh-Dole are both credited as significant events in the strengthening of America’s IP system.

Closing

Prof. O’Connor concluded with an in-depth explanation of the legal and scientific theories that separated the Chakrabarty decision from plant patents. He also addressed some of the fears that arise when discussing property rights on genetically engineered lifeforms. He emphasized that patent laws don’t grant the right to make or use something, but rather the right to exclude others from making or using it. As such, patent law can easily be superseded by other laws, such as those barring indentured servitude or the ownership of “all or part” of a human being. A more common example came from pharmaceuticals—a patent on a new drug is no good if the FDA won’t approve it.

Dr. Chakrabarty knows these problems all too well. Attendees asked him why his invention, the subject of the landmark ruling, didn’t itself go to market. It seems that IP wasn’t the only legal hurdle standing in the way of commercialization. Regulators were fearful of what might happen to the natural order if genetically modified bacteria were introduced into the ocean. Without sufficient data to prove that, for example, the engineered traits wouldn’t be acquired by harmful pathogens, they were unwilling to let it go forward.

The panel closed with a virtual exhibit presented by Smithsonian curator Peter Liebhold. He took panelists and attendees on a walk through the history of agricultural and genetic research, using a series of photos and artifacts that would have been shown in-person if COVID-19 hadn’t moved the program online. Hopefully, the biotech world, buoyed by a strong IP framework, will soon develop vaccines and treatments that can get us all back to normal.

The Chakrabarty case is a prime example of the vital role IP protection plays in fostering innovation and growth. It also serves as a reminder of why Congress intentionally granted such an expansive scope in 35 U.S.C. § 101: because it knew it wouldn’t be possible to envision the technology of the future, and it declined to stand in the way of whatever strange new wonders awaited the human imagination. CPIP is thrilled to have shared the stage with the Lemelson Center and the distinguished panelists as we observed the 40th birthday of this landmark ruling, and we wish to give a special thanks to Dr. Chakrabarty for joining us.

Categories
Patent Law Patent Theory

New Paper Explores Possibility of Gold-Plated Patents Beyond the PTAB’s Reach

files labeled as "patents"What if there is a way for a patent applicant to obtain a “gold-plated patent” that is immune to administrative cancellation before the Patent Trial and Appeal Board (PTAB) at the U.S. Patent and Trademark Office (PTO)? This intriguing notion is the subject of a recent paper by Professor Michael S. Greve of Scalia Law, titled Exceptional, After All and After Oil States: Judicial Review and the Patent System and published in the Winter 2020 edition of the Boston University Journal of Science and Technology Law. Prof. Greve presented an early draft of this paper at the “Perspectives on the PTAB: The New Role of the Administrative State in the Innovation Economy” conference that was co-hosted by CPIP and the Gray Center at Scalia Law.

Examining the PTAB through his administrative law lens, Prof. Greve spots what he calls a “Sandy,” that is, a hypothetical, newly discovered relative of an ancient animal species that was thought to have gone extinct. This clever conceit with “Sandy,” which runs through the paper, refers to a Section 145 action to obtain a patent in the Eastern District of Virginia. This particular “Sandy,” Prof. Greve explains, “is unknown to, and greatly at variance with, contemporary administrative law, which operates on the principles of agency adjudication and deferential, on-the-record appellate review.” He argues that Article III prevents a patent obtained through a Section 145 action from subsequently being cancelled at the PTAB—in other words, “Sandy” gives a successful plaintiff a “gold-plated patent.”

To set the stage, Prof. Greve runs through the history of Section 145, placing it within the Patent Act’s current statutory scheme for reviewing validity determinations and the administrative state more broadly. A vestige of the Patent Act of 1836, Section 145 provides that an “applicant dissatisfied” with an appeal to the PTAB following an examiner’s rejection “may . . . have remedy by civil action” against the Director of the PTO. If the court adjudges “that such applicant is entitled to receive a patent for his inventions,” the “adjudication shall authorize the Director to issue” the patent. The alternative pathway for a “dissatisfied” applicant is an appeal directly to the Federal Circuit under Section 141.

The two provisions are markedly different. An applicant that chooses a Section 141 appeal to the Federal Circuit waives the right to proceed under Section 145 before the district court. Like agency adjudication generally, a Section 141 appeal is on the record—no new evidence may be introduced—and deference is given to the PTAB. The decision is then remanded to the PTO for further proceedings. Section 145 actions, by contrast, allow the introduction of new evidence, and the district court can adjudicate validity de novo—without deference to the PTAB. If the plaintiff is successful, the district court directs the PTO to issue the patent. According to Prof. Greve, the lack of deference to the PTO and the ability to introduce new evidence seems foreign—a mythical creature in the modern administrative state.

Turning to the case law, Prof. Greve looks at Dickinson v. Zurko, where the Supreme Court in 1999 held that the Federal Circuit must follow the Administrative Procedure Act (APA) framework when reviewing the PTO’s findings of fact in a Section 141 appeal. The Federal Circuit had applied the Federal Rules of Civil Procedure, which state that a reviewing court must not set aside a district court’s factual findings unless they are clearly erroneous. The Court held that the more deferential review standard of the APA should instead be applied to the PTO. As Prof. Greve explains, the Federal Circuit later extended the Court’s holding, thus directing district courts to apply a deferential standard of review to the PTO’s factual findings in a Section 145 action.

This push to impose the APA standard of review onto Section 145 was short lived. In 2012, the Supreme Court in Kappos v. Hyatt rejected the notion that background principles of administrative law dictate that Section 145 requires a district court to review the PTO’s factual findings deferentially. The Court also rejected the argument that plaintiffs in Section 145 actions should be permitted to introduce new evidence only if they did not have the opportunity to present it to the PTO. Thus, Section 145 plaintiffs may introduce new evidence subject only the ordinary rules of evidence and procedure, and the district court may review these new facts de novo. In other words, appeals under Section 141 are very different than direct actions under Section 145. As Prof. Greve remarks of Hyatt, “Welcome back, Sandy.”

In Oil States v. Greene’s Energy, the Supreme Court in 2018 laid to rest the argument that an inter partes review (IPR) before the PTAB violates Article III. Invoking the public rights doctrine, the Court characterized an IPR as the PTAB’s decision to reconsider the PTO’s earlier grant of a patent—not as a decision to annul a property interest that has already vested. This same sort of reasoning, Prof. Greve points out, has led to decisions that allow the PTAB to cancel patents that have been upheld in infringement actions before the federal courts. He argues that those decisions are inapplicable when it comes to a “gold-plated patent” under Section 145—an issue that surprisingly has not yet been litigated. Such patents, Prof. Greve asserts, cannot be revoked by the PTAB under Article III.

Prof. Greve explains that the validity of a patent cannot conclusively be established in an infringement action in the federal courts. Indeed, this explains why subsequent PTAB cancellations are constitutional. However, the same is not true for patents secured in a Section 145 action. Under Hyatt, Prof. Greve contends, a successful plaintiff is entitled to the patent “as a matter of right,” and the unsuccessful Director of the PTO, by contrast, is “duty-bound” to issue the patent. Unlike with infringement actions, the very point of a Section 145 action is to conclusively establish the patentability of the claims at issue. And this difference, Prof. Greve avers, is critical. Section 145 patents are issued “as the consequence of a conclusive, binding judgment of an Article III court,” and Supreme Court case law prevents final judgments of Article III courts from being “subject to executive revision.”

Prof. Greve explains:

If that reading of Hyatt is right, a patent issued pursuant to a § 145 proceeding cannot be subject to the AIA’s review and reexamination procedures. If § 145 patents issue as of right and neither require nor, in the ordinary course, permit further administrative proceedings, it follows a fortiori that the Director cannot then entertain or initiate an administrative review or reexamination proceeding that would divest the patentee of the benefits of a conclusive Article III judgment. . . . Once the initial patent grant pursuant to § 145 has become final, it has res judicata and estoppel effect in any court; and that preclusive effect cannot be circumvented by means of an administrative reversal and subsequent (deferential) appellate review. The short of it is that “§ 145 patents” are immune from administrative review and reexamination except under the most unusual circumstances.

 

If the issue of subsequent administrative cancellation of a Section 145 patent were to reach the Supreme Court, Prof. Greve believes that the Court will reaffirm the “gold-plated” nature of such a patent in light of Hyatt. He further suggests that if this is true, it seems likely that more applicants will choose the Section 145 route. As things are now, very few people choose this option. Indeed, presumably to discourage the filing of such actions, the PTO recently took the position that Section 145 plaintiffs must pay the pro-rated salaries of the government’s lawyers—a notion the Supreme Court rejected last year in Peter v. Nantkwest. Regardless, a Section 145 action before the district court and the inevitable appeal to the Federal Circuit are risky, expensive, and time-consuming. However, if this route really does produce a “gold-plated patent” that the PTAB cannot strike down, Prof. Greve predicts that “Sandy may yet shine a light into our stoned faces.”

Categories
Copyright

Senate IP Subcommittee Hearing on DMCA Exposes Notice-and-Takedown Problems for Artists and Authors

The following post comes from Yumi Oda, an LLM Candidate at Scalia Law and a Research Assistant at CPIP.

U.S. Capitol buildingBy Yumi Oda

On June 2, the Senate Subcommittee on Intellectual Property held a virtual online hearing entitled Is the DMCA’s Notice-and-Takedown System Working in the 21st Century? The hearing focused on the effectiveness of the Section 512 notice-and-takedown system under the Digital Millennium Copyright Act (DMCA). In what he described as “the longest opening statement” he had ever made, Chairman Thom Tillis (R-NC) first acknowledged the pressing issues of police brutality against African American communities and the COVID-19 crisis. He also emphasized the urgency of the hearing’s agenda considering creators’ ever-increasing dependency on the internet ecosystem during the pandemic. Notably, the deep sorrow over racial injustice and pledge of solidarity was shared among and acknowledged by each panelist throughout the hearing.

The panelists included: Don Henley, Musician and Songwriter; Jonathan Berroya, Interim President and CEO of Internet Association; Douglas Preston, President of The Authors Guild; David Hansen, Associate University Librarian and Lead Copyright & Information Policy Officer of Duke University; Abigail Rives, IP Counsel of Engine; Kerry Muzzey, Independent Classical & Film Composer of Kirbyko Music LLC; Meredith Rose, Policy Counsel of Public Knowledge; and Jeff Sedlik, President of Sedlik Photography. These panelists represented content creators and users of all sizes, highlighting the different types of stakeholders who are impacted by Section 512.

Originally seen as a compromise between copyright owners and online service providers (OSPs), Section 512 limits OSPs’ liability for copyright infringement in exchange for their reasonable efforts to police online piracy, including the duty to remove pirated content promptly once notified. However, as the recent Section 512 report by U.S. Copyright Office concluded, the notice-and-takedown system “is not achieving the balance Congress originally intended.” As such, this was the third hearing of a year-long review of the DMCA, which was expected to offer more practical—and potentially more divisive—insight into the notice-and-takedown system as compared to the first two hearings that were more academic in nature.

Senator Tillis stressed the issue of scale, which was highlighted in the first hearing this past February where CPIP’s Sandra Aistars and Mark Schultz both testified. There, Professor Rebecca Tushnet of Harvard Law School argued that small and medium entities typically only receive a small number of takedown notices, and an additional mandate could drive them out of business and increase market concentration. To conclude his opening statement, Senator Tillis maintained that the current system is badly failing both content creators and users, potentially requiring an entirely new system to tackle online piracy. To this end, he noted that he and Senator Patrick Leahy (D-VT) sent a letter to the Copyright Office asking for its input on how to best design an anti-piracy takedown system.

On the first panel, Eagles member Mr. Henley and bestselling author and journalist Mr. Preston spoke on behalf of creators, asking for DMCA reform and advocating for a notice-and-staydown system. Mr. Henley described how he was compelled to testify for the sake of millions of people working in the music industry whose voices are unheard, stating: “I come here out of a sense of duty and obligation to those artists, those creators who paved the road for me and my contemporaries, and for those who will travel this road after us.” He further vowed not to be silenced by what he conceived as a targeted attack by “Big Tech,” referring to a Washington Post op-ed that was published a couple of days before the hearing.

Describing it as “a relic of a MySpace era in a TikTok world,” Mr. Henley testified that the DMCA is outdated, patently unfair for music creators, and has been abused by “Big Tech” for over 20 years. In particular, he blamed large digital platforms for turning a blind eye to online piracy in the hopes of keeping traffic and ad income, hiding behind the Section 512 safe harbor protections, paying license fees well below the market price, and failing to share the fair burden of policing (despite having such capability) at the cost of the creative community. Mr. Henley emphasized the need for equitable compensation to be awarded to creators amid the pandemic because digital platforms will be the only reliable sources of income for music creators for some time.

Mr. Preston echoed Mr. Henley’s frustration over the one-sided system. Remembering the traumatic, sickening feeling of first encountering a book piracy website that listed his whole life’s work, Mr. Preston described how the current notice-and-takedown system leaves many creators in “enraging and disheartening” situations with no solution, analogous to “being mugged every single day.” Especially, Mr. Preston explained how he came to give up on filing notices after seeing the same pirated content promptly and repeatedly resurfacing under a different URL. He noted that rampant piracy has led to a 42% decrease in full-time U.S. authors’ writing income in the last decade, making it almost impossible for anyone to make a living writing books.

In contrast, Mr. Berroya, representing internet companies, and Mr. Hansen, representing research libraries and universities, claimed that the DMCA is working just fine. Mr. Berroya contended that the DMCA works as Congress intended, and the Copyright Office’s Section 512 report was inconsistent with his professional experiences. He alleged that the notice-and-takedown system allows copyright owners (whom he believed should be responsible for policing their own works) to take down their content quickly, incentivizes users’ creation and distribution, and encourages tech companies to develop tools beyond DMCA compliance, resulting in the present “golden age of content creation.” He emphasized that the DMCA merely sets a floor, not a ceiling, leaving potential room for further cooperation between creators and digital platforms.

Similarly, Mr. Hansen argued that Section 512 generally works as designed. To facilitate distribution of educational and research content, he would favor a system where content stays online unless a clear showing of infringement is made. He requested Congress to consider the “unintentional consequences” of revising Section 512, hoping that academia would not be an “afterthought” for them.

Mr. Berroya was in the hot seat most frequently on the first panel. His position supporting the status quo directly contradicted the shared, inherent belief that the DMCA should be revised, drawing questions from Senator Tillis, Ranking Member Christopher Coons (D-DE), and Senator Richard Blumenthal (D-CT). His argument largely and repeatedly relied on the potential for old fashioned dialogue, but some Senators were evidently not convinced in light of the other witnesses’ testimonies.

On the second panel, Mr. Muzzey and Mr. Sedlik represented independent artists making a living by creating and licensing their works. While recognizing the effectiveness of YouTube’s Content ID, to which he said he was “very lucky” to have access, Mr. Muzzey described how the DMCA is like “a tiny David” facing “tech Goliaths.” Specifically, in response to each takedown notice for 110,000 infringing videos located on YouTube, he received a counternotice claiming fair use incorrectly “100% of the time,” at which point he is given 10 days to file a lawsuit or the content is reinstated. This means, for a one-person, small business owner like Mr. Muzzey, the DMCA practically offers “no remedy.”

Mr. Sedlik is another artist who has had to spend countless, unproductive hours submitting takedown notices. He explained the dilemma he constantly faces: He needs to enforce his copyrights to maintain their values, but these lost hours leave him less time to create new works. Noting that the the presence of innumerable takedown notices by no means indicates success, Mr. Sedlik proposed several possible revisions to the DMCA.

On the other side of the table was Ms. Rives in support of startups and Ms. Rose on behalf of Public Knowledge. Ms. Rives contended that Section 512 is generally working well, without which many online platforms would not have existed. Referencing points made by Professor Tushnet, she argued that revising the DMCA, even slightly, would “shift the ground underneath today’s startups.” For example, she contended that imposing a duty to monitor, such as with filtering tools, would be ineffective or too costly for most startups.

Ms. Rose shifted the discussion by listing three situations where the current notice-and-takedown system puts users’ freedom of speech at risk, namely, bad DMCA takedown notices, problematic algorithmic enforcement, and most importantly, the inappropriateness of letting a private third party remove someone’s access to broadband without due process. Siding with the status quo, she warned that “asking for greater power and fewer safeguards is akin to discarding a tank and asking for a nuke.”

At the conclusion of the hearing, Senator Tillis reiterated the need to recognize the scale of infringement, and he promised to seek a path forward that would let copyright owners flag clearly infringing content so that it stays down—but without causing an undue burden on businesses and individual users.

Categories
Copyright

Senator Ron Wyden, Stop Harming Independent Creators

the word "copyright" typed on a typewriterHere’s a brief excerpt of a post by CPIP Senior Scholar Eric Priest and Professor Sean Pager that was published at IPWatchdog:

As the current pandemic eviscerates jobs throughout our economy, Congress has a rare opportunity to improve the lot of one long-besieged group of workers: creators. Authors, songwriters, photographers, artists, filmmakers, and many other creative professionals are the lifeblood of American cultural innovation. For decades, however, unfettered copyright infringement online has undermined their livelihoods. The effect is especially pronounced for “creative upstarts”—independent creators who rely on copyright income. Many creative upstarts report widespread piracy of their works but feel powerless to stop it. Now, Senator Ron Wyden (D-OR) seems intent on unilaterally terminating a bill that if passed would give indie creators—thousands of whom live in Wyden’s state of Oregon—much needed access to justice. ***

Right now, Congress can fix this problem and offer much-needed support to creators by passing the Copyright Alternative in Small-Claims Enforcement (CASE) Act. This bill would create a voluntary, low-cost small claims system for copyright cases. The CASE Act provides for simplified procedures that the average person could navigate without an attorney, greatly reducing costs. The bill also contains a progressive feature critical for access to justice: cases would be handled remotely, further reducing the cost and burden for both parties. And the process is voluntary so each party can weigh for itself the pros and cons of participating.

To read the rest of the post at IPWatchdog, please click here.

Categories
Intellectual Property Theory

Sean O’Connor’s Historical Take on Different Types of Intellectual Property

The following post comes from Professor Camilla Hrdy of Akron Law. It originally appeared on Written Description, and it is reposted here with permission.

a pair of glasses, an apple, and a stack of booksBy Camilla Hrdy

I truly enjoyed Sean O’Connor’s new paper, forthcoming in the George Mason Law Review, called “Distinguishing Different Kinds of Property in Patents and Copyrights.” It is somewhat sui generis. But I guess I would describe it as a ‘legal-historical take on how people perceived intellectual property in the past, with theoretical implications for IP today.’

In O’Connor’s overarching framework, there are two kinds of IP. On one side, are preexisting state-of-nature rights in secret technical know-how and unpublished expression that is maintained through labor and attempts at secrecy. (I’ll call this type 1 IP). On the other side, are state-sanctioned patents and copyrights that are obtained in exchange for revealing those first rights to the public. (I’ll call this type 2 IP).

These two forms of IP are separated from one another by the act of “publication” on the part the author or creator, which transfers the rights from the private to the public sphere; and by the involvement of government, which protects exclusivity in order to encourage the act of publication and transfer to the public sphere.

O’Connor paints this distinction between type 1 and type 2 IP in a historical light, suggesting that the first came first, and the second came second. People have always had “de jure or de facto rights to maintain secrecy and exclusivity of private knowledge and skills[,]” he writes. The second type of property came only later, when “states formalized ad hoc exclusive patent and copyright grants into roughly standardized, deeded, and assignable property.” (3-4)

There is way too much good in this article to give it justice in a summary. It is full of insights on medieval publishing practices and Venetian patents, and is beautifully written. I highly recommend the full article for anyone looking for “something completely different.”

In my read, the big upshot for current IP theory is O’Connor’s view that the historic purpose of patents and copyright was “not to incentivize the authorship or invention of new things. Such creation had been taking place, often quite prodigiously, throughout human history.” (2). Instead, it was to encourage sharing those things by transferring them from the private to the public sphere. “From at least Greco-Roman antiquity,” O’Connor writes, “an important divide was acknowledged between the private and public spheres. An intentional act of publicare was required to transfer something from the private to the public.” (2). He argues that this transfer would not occur as frequently as desirable without patents and copyrights.

The lesson from this historical account, suggests O’Connor, is that if patents and copyrights were abolished or weakened, we might get more secrecy and less publicness.

“[W]e could inadvertently recreate the excessive use of secrecy that arguably hindered progress—in the sense of building off of existing knowledge available in the public sphere—in the time before proto-patents and proto-copyrights emerged in the Renaissance. Robust IP protections, together with appropriate limits on abuses of state-granted exclusive rights, will encourage more creators and innovators to choose the public disclosure and commercialization route.” (54).

 

This normative account seems similar to the oft-stated “exchange for secrets“/disclosure function of patents, as well as the Kitchian commercialization/coordination function. But O’Connor suggests that the “exchange for secrets” premise and its brethren are more central than is appreciated. The message I get is: lest we return to the Dark Ages, we must retain incentives to make secret knowledge and expression public.

Another upshot, albeit not much emphasized in the paper, seems to be that the “monopoly” concern many have with intellectual property is generated primarily when the state takes back what people know or already have access to — in other words, where one person’s patent or copyright impinges on other peoples’ preexisting rights to what they previously knew or used commercially. O’Connor refers to this briefly, writing (in his discussion of post-sale restrictions on chattels and the like)

[t]his view adopted Lord Coke’s sense of “monopoly”—as a legal term of art—as meaning only instances where the state took something back from the public that it previously had (most relevantly, when exclusive rights were given to a few individuals for a commodity or commercial trade that the public freely used or practiced before). (47).

 

I thought this interesting tension between type 1 IP and type 2 IP could have been drawn out more.

The main quibble some people might have with the article is at odds with why I personally like it. I like it because it’s original and out-of-the-box, and isn’t shy about reaching bold normative conclusions and engaging in some speculation. O’Connor sometimes provides extensive insights into what people thought about IP, going back as far as ancient and even hunter-gatherer times. (See, e.g. p. 22). But of course we can’t know that much about what people thought about IP, especially not at the theoretical depth O’Connor engages in, except what we can glean from the sources where certain individuals discussed it. I am often amazed at how many relatively rich accounts we have from Jefferson, Washington, and others during the creation of the American patent and copyright regimes in the late eighteenth century, and it still seems like it’s not enough, with conflicting versions coming out all the time. On the other hand, maybe O’Connor’s willingness to take creative leaps is better than saying “well I can’t tell you what I think they thought because I don’t have the data.”

Categories
Copyright

The AM-FM Bill and the Status of Terrestrial Music Broadcast Performance Rights

The following post comes from David Ward, a rising 2L at Scalia Law who is working as a Research Assistant this summer at CPIP.

U.S. Capitol buildingBy David Ward

This past Wednesday, the Senate Intellectual Property Subcommittee, led by its Chairman, Senator Thom Tillis (R-NC), held a virtual online briefing on the current state of music rights. Specifically, members of the music and broadcast industry debated a bill called the Ask Musicians for Music Act (AM-FM Act), which would create new terrestrial broadcast performance royalties for sound recordings. Some of the biggest names in the music and broadcast industry were invited to testify, including: Harvey Mason Jr., CEO of the Recording Academy; Curtis LeGeyt, COO of the National Association of Broadcasters (NAB); Dr. Richard Burgess, CEO of the American Association of Independent Music (A2IM); Scott Hunter, Executive Director of the National Religious Broadcasters Music License Committee (NRBMLC); and Colin Rushing, Chief Legal Officer of SoundExchange. These panelists represented both musicians and broadcasters, big and small, who have been engaged in a sometimes-tense dialogue about the future of terrestrial broadcasting rights.

For a bit of background, all music we hear on the radio has two copyrights: a copyright for the musical work (lyrics, notes, melodies, chords that an artist writes), and a copyright for the sound recording itself (that a producer or sound engineer usually helps create). The scope of the discussion here is about performance royalties for the sound recording, not the musical work. It should be noted, however, that radio stations still need licenses to play musical works over the air. These are usually obtained in the form of blanket licenses from performance rights organizations (PROs) such as ASCAP or BMI. Blanket licenses allow radio stations to broadcast musical works from the PRO’s repertoire, within the scope of their agreement.

Under the current system, though, radio stations are not required to pay a per-performance royalty when they broadcast a sound recording over a terrestrial broadcast, such as AM or FM radio. However, stations that broadcast over the internet, or any other entity that broadcasts performances digitally (such as a webcast), are required to pay digital performance royalties for the sound recordings they play. This being the 100th anniversary of broadcast radio, the AM-FM Act currently being debated aims to end this exemption that radio broadcasters have enjoyed for exactly 100 years.

Curtis LeGeyt from the NAB and Scott Hunter from the NRBMLC represented the interests of broadcasters who have long opposed the introduction of such a royalty on their expense reports. Mr. Hunter testified that a terrestrial sound recording performance royalty is “unwarranted” and “unnecessary,” and that Congress has repeatedly declined to create such a right even as recently as 2018. In 2018, Congress passed the Music Modernization Act, which made major reforms to music copyrights, including extensive reforms of how royalties are set and split for both musical work and sound recording copyrights. Mr. LeGeyt argued that Congress could have created a terrestrial performance royalty for recordings then, but did not. He further argued that copyrights are statutory devices intended to promote the creation and distribution of works, and that allowing radio to freely broadcast sound recordings best serves the purposes of copyright law.

Both Mr. LeGeyt and Mr. Hunter characterized the exemption as a mutually beneficial promotional tool for performers and broadcasters. They warned of a decline in local radio programming and further financial instability of the industry if new royalties were mandated. Noting the financial instability caused by the coronavirus pandemic, they argued this could be fatal to many local radio stations in the short term as well as disrupt radio business models in the long term.

On the other side of the issue were Harvey Mason Jr. from the Recording Academy, Dr. Richard Burgess from A2IM, and Colin Rushing from SoundExchange. Mr. Mason began his testimony by contrasting our current system with the rest of the world’s; namely, most other major countries have sound recording performance royalties for terrestrial broadcasters. Musicians are some of the hardest hit in the economy during the pandemic, and despite this, Mr. Mason testified, they are still playing free online shows for the benefit of others. This situation underscored the need to do away with the outdated exemption from paying sound recording performance royalties enjoyed by terrestrial broadcasters. Mr. Mason suggested that the AM-FM bill could be included in a new coronavirus relief package, so musicians can recoup some of the losses they have recently experienced.

Dr. Burgess of A2IM echoed these sentiments, adding that musicians are the only copyright owners that are not allowed to profit from the performance of their works over terrestrial broadcasts. In Dr. Burgess’ view, musicians are being forced to subsidize the radio industry even though their own revenues have been decimated.

Colin Rushing of SoundExchange, the company that collects digital performance royalties for sound recordings suggested there are few, if any, major differences between digital and terrestrial broadcasts in the modern age. Most broadcasters are simulcasting online, which already requires them to pay digital (but not terrestrial) performance fees. Many apps and devices also seamlessly transition between digital and terrestrial broadcasts. He testified that the lack of terrestrial performance rights creates a loophole that distorts the market and creates an incentive to invest in old technologies, making it harder for new platforms to compete. Echoing many of his colleagues’ sentiments, he also reiterated that the U.S. is an outlier on this issue and that this harms music creators who are generating value for broadcasters, now more than ever.

Questioning by Senate offices drew out the sharpest differences in positions. Mr. LeGeyt of the NAB and Dr. Burgess of A2IM engaged in a (sometimes terse) dialogue. Mr. LeGeyt painted a picture of mom and pop broadcasters forced to consolidate operations and lay off workers, even before the pandemic, while Dr. Burgess was not persuaded that struggling musicians should therefore be forced to take promotion and exposure as the only consideration for radio plays.

Senator Coons’ office (D-DE) began the staff questioning with something that was likely on everyone’s mind: what level of royalties are at issue. Being the expert in performance royalties, Mr. Rushing from SoundExchange chimed in with a short “we’re not sure” answer. In his mind, and even in the minds of the broadcasters, it would be impossible to speculate. Either the free market would dictate the rates, or some other rate-setting entity would set the rate based on the current market rates. Since the current market rate is zero in the U.S., defining any number would be speculation. However, Mr. LeGeyt was quick to draw a comparison to the royalties they already pay for digital performances, and that they already inhibit the growth of mid- and small-sized broadcasters.

The costs incurred by mid- and small-sized broadcasters was another topic that came up frequently in responses. Mr. Mason of the Recording Academy made a point to share that the proposal would put a cap of $1.50 per day on terrestrial performance royalties for true small and local radio stations. Mr. Rushing of SoundExchange added to this, stating that even most larger radio stations would likely be paying less than $500 per year. The broadcasting representatives again pointed out the already constrained budgets of many stations and that any increase in costs would hurt the industry.

Perhaps the most contentious issue was the purpose of terrestrial radio in the music ecosystem, and the role of “promotion” in that ecosystem. Broadcasters argued that terrestrial radio is and always has been a public service. It provides weather, news, and other important public service announcements for free while also promoting musicians’ work. Therefore, broadcasters should not have to pay performance royalties, as they have not for a century. Music industry representatives, however, argued that providing a public service does not warrant profiting off others’ work for free.

Senator Tillis’ office asked the question that got to the heart of the “promotion” issue: whether radio mainly plays music that is already popular and does not need promotion, or whether sound recordings become popular because they are promoted on the radio. Mr. Rushing of SoundExchange offered his view that it is a bit of both. He and his colleagues did not contest that many artists benefit from the promotion and exposure of broadcast radio plays, but not all of them do. In their opinions, the free market should decide what the rates should be for sound recording performance royalties so that any artists who want to provide their product for free in exchange for promotion and exposure would be able to make that choice. The broadcasters argued that broadcast radio is different than other forms of media, and that the value of promotion has been time-tested.

Although all participants committed to continue good faith discussions on the matter, it does not bode well for a quick agreement that the radio sound recording royalty exemption has already reached its century mark.