Month: November 2024

Categories
Conferences High Tech Industry Innovation Patent Law Patents Software Patent

Panel on “SEP Current & Proposed Regulations” at C-IP2’s 2024 Annual Fall Conference

By Keith Mallinson

It was my pleasure to participate in a panel session on “SEP Current & Proposed Regulations” last month at the George Mason University Antonin Scalia Law School Center for Intellectual Property x Innovation Policy (C-IP2) Annual Fall Conference entitled “The Importance of Exclusive Rights.” The other panelists were Angela Barr, Mark Cohen, and David Kappos. Our moderator was Kristen Osenga.

We compared SEP policies and developments in various jurisdictions including the United States, China, the EU, Germany and the UK. Discussion encompassed many aspects of SEP licensing including availability of injunctions, patent pooling, use of international arbitration, what constitutes discriminatory licensing, and rate setting such as that using the top-down approach.

I started by describing the European Commission’s audacious proposed new SEP regulation. I said this is bold, risky, reckless, and will be counter-productive to the Commission’s new industrial policy to slash red tape, promote innovation and improve global competitiveness. With the purported objective of increasing transparency and predictability in SEP licensing, the proposed legislation requires registration of patents, subjecting these to essentiality checking and rate regulation with the setting of an aggregate royalty and the apportionment of that based on patent counting using the top-down approach. The proposed rate setting is non-binding but introduces a 9-month delay, for example, before SEP owners can pursue litigation for infringement and unwillingness to pay FRAND royalties.

The proposed regulation — still in the works also with the European Parliament and Council — is contentious because the SEP licensing business model that prevails in smartphone licensing is in fundamental and major conflict to the way use of patented intellectual property has been licensed, indemnified, and monetized (or not) elsewhere, such as in the automotive industry.

David Kappos highlighted the global ramifications for the proposed EU regulation, reiterated that the EU’s impact assessment found no harm to rectify, and he questioned whether political support for the policy would be sustained with changing leadership in Europe. He identified fundamental deficiency in what is being proposed, including disregard for patent validity in proposed valuation assessments.

The United States has withdrawn from having an SEP policy — having wandered from side to side like the crab, according to Kappos. Proposed rate setting regulation has not been pursued in the United States. He also had much to say about the need for injunction availability — “the importance of exclusive rights,” as is the title of this conference. For example, availability in Germany versus the United States where it is difficult for SEP owners to obtain FRAND licenses.

Mark Cohen said that China, with its judicial-made civil law “sets its own course,” has no disclosed SEP policy and has been very unpredictable. For example, its pursuit of anti-suit injunctions a couple of years ago was a surprise. But these stopped after the EU filed a complaint against China at the WTO. China even interprets the meaning for FRAND in its own way. It is “highly experimental” there regarding SEPs. Once highly territorial, China acts with global considerations now. China is favoring the top-down approach in SEP valuation. If the EU adopts its proposed regulation, that will accelerate what China is doing. On the other hand, he noted that as Chinese companies such as Huawei become increasingly SEP licensors, rather than mostly licensees, China might well reconsider the generally low SEP valuations it derives.

Angela Barr explained InterDigital’s focus on standardized technologies and position as major a global licensor. She emphasised extensive work and long timescales in the technical developments, standard development and patent prosecution, with financial returns from licensing coming much later. She voiced concern about prospective price fixing with proposed SEP regulation. She believes that Europe is leading in SEP policy setting, but it is doing that in the wrong direction. There is a strong ecosystem in standard development and SEP licensing — things are not broken and don’t need fixing.

Here is some additional support to what was said in this panel session.

The United States officially has no SEP policy. A June 2022 joint press release by the DoJ, USPTO, and NIST — following issuance of their 2021 draft policy on SEPs —notes that the withdrawal of 2013 and 2019 SEP policies “Best serves the Interests of Innovation and Competition.”

I also compared the proposed EU regulation with developments in the United States and in China in a paper I published in the Antonin Scalia Law School’s Journal of Law, Economics and Policy in February 2024.

In September 2024, I co-authored an op-ed about the proposed EU regulation, how it is a solution absent a problem to fix, and how it is in conflict with the new Commission’s industrial strategy, as previously explained. Despite the European Commission’s own Impact Assessment finding no harm, the Commission is in the throes of outsourcing the task of identifying which standards and applications to regulate based on a new blanket test and the contractor’s opinion of where “severe distortion of internal market due to inefficiencies in licensing” has occurred or is expected to occur. This will be a very bureaucratic, burdensome, and contentious demand on SEP owners.

There are also new academic publications on the controversial issue of availability and use of injunctions in SEP litigation. Empirical Analysis of the German Caselaw on SEP Injunctions after Huawei v ZTE by Justus Baron, Santiago Bergallo, and Eric Sergheraert can be found on SSRN. A paper by Kristina Acri née Lybecker*, also on SSRN, explores Injunctive Relief in Patent Cases: the Impact of eBay. She also moderated the panel session on “Cross-Industry Exclusive Rights” at the conference. For example, John Kolakowski of Nokia explained at 44:18 why injunctive relief is vital for SEP owners.

*Update November 22, 2024: Dr. Acri’s new policy brief, The Importance of Injunctive Relief and the RESTORE Patent Rights Act, is also now available.

Categories
Conferences Innovation Inventors Patent Law Patents

Panelists at George Mason’s IP conference debate litigation funding

By Kristen Osenga

I recently had the pleasure of participating in a panel on third-party litigation funding (TPLF), which was part of the Annual Fall Conference at George Mason University’s Center for Intellectual Property x Innovation Policy.

The panel included experts from both industry and academia, highlighted the growing debate around TPLF, and crystallized why this financing tool is so crucial for America’s innovators and inventors.

At its core, TPLF enables outside investors to fund litigation, and in return receive a portion of any money recovered. While this practice has applications across many areas of law, its impact has been especially notable in patent litigation, where it helps put small startups on a level playing field with much larger companies.

Without outside funds, small companies with unique inventions are at the mercy of big businesses that copy their products.[1] Large tech companies engage in this so-called “efficient infringement” deliberately, knowing that the smaller competitors can’t afford to pursue them in court. TPLF helps inventors protect their intellectual property rights.

During our panel, opponents of TPLF raised concerns that the practice has national-security implications and leads to frivolous lawsuits. They suggested that foreign adversaries, particularly China, might fund litigation, either to access sensitive information or burden American companies with legal costs driven by frivolous litigation.

However, these arguments don’t withstand scrutiny.

First of all, the notion that foreign entities would fund patent litigation to access confidential information is far-fetched and impractical if not impossible. As we discussed on the panel, courts enforce rigorous protections to make sure information on disputed intellectual property isn’t shared. Violations carry severe consequences.[2]

It’s true that sovereign wealth funds — which are owned by governments — sometimes invest in litigation funding. But they do so as passive investors, with no control over cases (or the law firms hired) or access to information. They’re simply seeking returns, just like any other institutional investor. If foreign adversaries want to steal American IP, they have far more direct methods at their disposal, including cyber penetration and traditional corporate espionage.[3]

Second, the argument that TPLF leads to frivolous litigation isn’t supported by the data. Patent litigation has decreased by nearly 50% over the past decade, even as TPLF has grown.[4] This shouldn’t be surprising, as litigation funders only succeed when their cases have merit. They conduct extensive due diligence and reject the vast majority of potential cases. In fact, a panelist who worked at a major TPLF funder noted that his firm rejected 95.5% of potential cases. Put simply, no one makes money funding frivolous lawsuits.

The most telling moment in our discussion came when we explored the real dynamics at play. Opponents of TPLF, often large corporations, push for mandatory disclosure requirements that would expose funding arrangements, including investors’ identities.[5] This might sound reasonable on the surface, but it’s actually a tactical move designed to disadvantage patent owners. Such disclosures would allow the infringing companies to gauge their opponents’ resources and adjust litigation strategies accordingly — often by attempting to outspend and outlast smaller inventors. Disclosure of investor identities would enable investor harassment, driving investment away from third party funding.  This is what opponents of TPLF really want.

The reality is that TPLF isn’t just about money, but about access to justice. Patents grant the exclusive right to make and profit from one’s invention. But if a startup can’t enforce that right because it can’t afford litigation, the patent is worthless. Without TPLF, we’d be left with a two-tiered system in which large corporations could enforce their rights while smaller inventors could not; and large corporations could misappropriate without consequence.

This would have real consequences for innovation. “Efficient infringement” doesn’t just hurt individual inventors, but undermines the entire patent system. It discourages inventors from starting companies, and small companies from putting time and resources into innovation. TPLF helps maintain the incentives that drive technological progress.

As our panel discussion wrapped up, it became clear that the debate over TPLF isn’t really about national security or frivolous litigation. It’s about whether we want our patent system to work for everyone — or just for those who can afford to participate.

If you’re interested in learning more about these issues, I encourage you to watch the full panel discussion, where we delve deep into the role of TPLF in our intellectual-property landscape.

[1]  https://cip2.gmu.edu/2017/05/11/explaining-efficient-infringement/

[2]  https://www.smartbiggar.ca/insights/publication/the-federal-court-is-back-on-track-ip-holders-will-continue-to-benefit-from-protective-orders-in-intellectual-property-litigation

[3]  https://www.worldipreview.com/trade-secrets/the-stakes-cant-be-overstated-ip-theft-in-the-us

[4]  https://www.aoshearman.com/en/insights/shifting-strategies-in-us-intellectual-property-disputes-lessons-from-2023

[5]   https://www.law.nyu.edu/sites/default/files/CCJ%20Mandatory%20Disclosure%20Book.pdf

Categories
Biotech Healthcare Innovation Patent Law Patents Pharma

What the FTC Gets Wrong About the FDA’s Orange Book

By Emily Michiko Morris & Douglas Park

The high cost of some pharmaceuticals is a complex issue, but the Federal Trade Commission’s (FTC’s) most recent criticism of pharmaceutical patents’ role is misguided. The FTC has criticized the listing of drug product device patents in the FDA’s “Orange Book,” a listing of patents related to various FDA-approved drug products. The FTC claims that listing these device patents serves merely to delay generic market entry, but they overlook key legal and practical details of how generic drugs enter the market and how listing in the Orange Book actually promotes generic competition by informing manufacturers of which patents cover branded drugs. Here’s a breakdown of where the FTC’s reasoning falls short.

30-Month Stays Do Not Delay Generic Market Entry

One of the FTC’s main concerns is the 30-month stay provision under the Drug Price Competition and Patent Term Restoration Act of 1984 (better known as the Hatch-Waxman Act), which temporarily halts FDA approval of a generic drug when a brand-name company sues the generic for patent infringement. The stay applies only to infringement suits over patents listed in the Orange Book. The FTC therefore argues that brand-name companies list device patents in the Orange Book simply to use this stay to delay generic entry into the market. However, this interpretation is outdated and inaccurate.

First, the FTC’s objection to these device patents appears to be based on a 22-year-old FTC study that has since been made obsolete by 2003 changes to the Hatch-Waxman Act. Prior to 2003, brand-name pharmaceutical patent owners could secure a 30-month stay for each patent that they added to their infringement suit. The 2003 modifications to Hatch-Waxman now allow patentees only a single stay.

Second, although even a single 30-month stay could delay generic market entry, the Hatch-Waxman Act already protects against this by expressly giving federal district courts discretion to lengthen or shorten the stay, thus allowing courts to curtail the stay if patent is invalid or clearly not infringed. This likewise curtails a patentee’s ability to abuse the 30-month stay by listing in the Orange Book patents that actually do not cover the drug product for which they are listed.

Third, recent research shows that the 30-month stay has little to no effect in delaying generic market entry. A study by Kannapan et al. found that generics usually take years to enter the market – long after the 30-month stay expired – due  least in small part to the fact that FDA final approval itself on average takes more than 30 months. (Hatch-Waxman’s 30-month stay prevents only final FDA approval, such that the FDA can proceed with review of a generic’s application even during the stay.) Moreover, as the Kannapan study notes, almost 40% of brand-name patentees decline to file suit within that 45-day period, thus failing to trigger any 30-month stay.

Listing Patents in the Orange Book Facilitates Generic Patent Challenges

Perhaps more importantly, the FTC’s focus on the 30-month stay also misses the value of the Orange Book in providing not only a risk-free but often lucrative legal framework for generic drug manufacturers to challenge patents.

First, listing patents in the Orange Book also saves generics the often large costs of searching for and identifying any patents their drug products might infringe. Some commentators lament the fact that biosimilar manufacturers do not have a similar list of patents to help them plan their marketing strategy.

Second, while applying for FDA approval, generic manufacturers can file what are known as Paragraph IV certifications claiming that any patents listed in the Orange Book for the drug product at issue are invalid or uninfringed. These certifications constitute patent “infringement,” allowing brand-name manufacturers to sue the generics. This saves the generic from the risks of damages and other losses they otherwise might incur.

In addition, as an incentive to challenge patents, this system also grants the first successful generic challenger 180 days of market exclusivity as the only generic on the market. These exclusivity periods in some cases can be worth billions of dollars, making Paragraph IV challenges potentially quite lucrative. Not surprisingly, Paragraph IV certifications – even when not sued upon by brand-name patentees – appear to be quite successful in clearing the way generic market entry.

For patents not listed in the Orange Book, however, generics who challenge brand-name drug patents enjoy none of these benefits. When a patent is not listed in the Orange Book listings, a generic loses this risk-free opportunity to challenge patents, making generic entry more dangerous than many can afford. Even if a patent related to a drug product is not listed in the Orange Book, brand-name patentees can sue generic manufacturers for infringement and can do so even after the FDA has approved the generic for marketing. The generic is therefore at risk of liability for not only potentially millions of dollars of infringement damages but also loss of their investments in manufacturing and marketing the drugs at issue.

De-listing device patents would thus deprive potential generic manufacturers not only of notice but also of the protections of Paragraph IV certifications.

Device Patents Are Critical for Drug-Device Products But Are Difficult to Copy

The FTC nonetheless seems to believe that the targeted device patents are merely peripheral in importance and therefore should not be listed. For drug-device products like inhalers or auto-injectors, however, the device is crucial to efficacy and even safety.

For inhalers, for example, some devices are designed for children, while others are suitable only for adults. Some designs are specific to the condition being treated and the area of the throat that they target. Some designs are easier to use than others and therefore more likely to yield consistently sufficient dosages. Some designs also vaporize drugs into smaller particles that travel further and are more easily absorbed, making them more effective for some indications.

Similarly, the auto-injector device design is critical to the safety and operation of the oft-criticized EpiPen. Even small design changes can lead to large differences in safety – indeed, part of the reason why the EpiPen auto-injector device has multiple patents on it is that the design itself has been modified many times to address various safety concerns.

Because small differences in structure can lead to large changes in efficacy and safety, trying to create generic versions of EpiPen or other such complex drug-device products can be immensely difficult, leading to significant delays in market entry. For example, even though Teva had Mylan’s permission to create a generic version of EpiPen, Teva still had difficulty in doing so and received FDA approval only after multiple attempts and a two-year delay. For this reason, the FDA has developed guidelines specifically for generics trying to develop generic epinephrine autoinjectors, as well as specific guidelines for albuterol inhalers and other such drug-device products. 

The FTC’s Strategy Could Backfire

Far from stifling competition, listing patents in the Orange Book helps generic manufacturers challenge patents by reducing the risks of entering the market. Removing these patents would reduce generics’ ability to compete, ultimately harming consumers.