Category: Innovation

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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.

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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

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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.

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C-IP2 News High Tech Industry Innovation Internet Patent Law Patents Software Patent

C-IP2 Celebrates the Release of Book 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things[1]

The following post comes from Jack Ring, a 3L at Scalia Law and a Research Assistant at C-IP2.

 On April 15, 2024, C-IP2 scholars and contributors to 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things met for a live-streamed book launch event.[2] Professor Jonathan Barnett, one of the books two co-editors, described the book as “break[ing] the boundaries between the learning that academics have the luxury of acquiring” while being “informed by the realities of business markets” and “the insights of policy makers.” The book achieved this by purposefully bringing together decades—possibly centuries—worth of knowledge in the standardization field, including pieces from academics, policy makers, and industry practitioners.

The book’s impressive contributors include former USPTO Directors David Kappos and Andrei Iancu, former FTC Commissioner and Acting Chair Maureen Ohlhausen, former ITC Commissioner F. Scott Kieff, and J. Gregory Sidak, all of whom spoke at the event. Professors Jonathan M. Barnett and Seán M. O’Connor, the book’s co-editors, moderated and also gave remarks during the event. Beyond those who participated in a panel at the book release, chapter contributors included Mark A. Cohen, Alexander Galetovic, Thomas D. Grant, Stephen Haber, Bowman Heiden, Fabian Hoffmann, Igor Nikolic, Kristen Osenga, Jorge Padilla, Ruud Peters, Jana I. Seidl, David J. Teece, Nikolaus Thumm, Andrew Tuffin, and Lew Zaretzki. For a full list of all contributors’ titles and organizations, see the book’s “Contributors” page.[3]

The first panel included the Honorable Andrei Iancu[4] and the Honorable F. Scott Kieff.[5] Mr. Iancu, who authored the foreword to the book,[6] began with the observation that innovation in the United States is at a crossroads, with its leadership in technology and innovation being questioned for the first time. He emphasized the need for a robust patent system to incentivize innovation and technology developments. Indeed, his foreword makes this point very directly: “A patent serves little purpose if others can ignore it and the owner cannot practically stop them or secure timely and adequate compensation.”[7] In Mr. Iancu’s view, “[p]atents can and should serve [the] role” of incentivizing and overcoming the risks of innovation.[8] He closed his remarks by noting that the “bottom line is, if the United States is going to continue its technological leadership . . . our leaders absolutely must recognize that that cannot be done here without a robust patent system.” Mr. Iancu also responded to questions about the effects of eBay v. MercExchange during the panel.

Professor Kieff, who co-authored the last chapter of the book,[9] explained his chapter as looking “at concepts like invention; concepts like the difference between a reward system, a prize system, and a patent system; concepts like . . . a more predictable enforcement system and a less predictable enforcement system.” Following his opening remarks, Professor Kieff expanded on a metaphor used in his chapter about the patent system as a beacon. The chapter discusses how, in a commercialization approach to IP, the IP rights are like “‘beacons in the dark,’ drawing to themselves potential complementary users” of the IP.[10] This leads to the bargaining process and “the possibility of striking contracts with one another.”[11] Professor Kieff also responded to an audience-member comment regarding injunction bonds.

The Honorable Maureen Ohlhausen[12] spoke on the second panel about her chapter, which she co-authored with Jana Seidl.[13] Ms. Ohlhausen’s chapter focuses on the geopolitical factors surrounding IP and standards policies, particularly the interplay between IP and antitrust. It traces the roots of IP and antitrust enforcement, largely beginning in the 1970s.[14] But her panel comments focused on the current enforcement landscape by looking to recent executive orders, DOJ policy statements, and speeches by government officials. She suggested that the United States is seeing “movement towards adopting a broader antitrust liability standard across the board,” not just limited to IP. The FTC’s enforcement of IP rights through its unfair methods of competition authority—which, she explained, construes this authority as extremely broad—illustrates this point.

Ms. Ohlhausen touched on the FTC’s unfair competition rulemaking surrounding non-competes, predicting that this same authority—if upheld—would likely be used to bring antitrust and unfair competition lawsuits against SEP holders seeking injunctions.[15] Following her remarks, Ms. Ohlhausen responded to questions about the chilling effects a regulation may have on parties, even if the regulation at issue is unlikely to stand up to a court challenge and to a question about the EU’s regulatory approach.

The final panel included J. Gregory Sidak[16] and the Honorable David Kappos.[17] Mr. Sidak, who authored the book’s fourth chapter, spoke first.[18] His remarks largely focused on good faith, which was one of the two main topics discussed in his chapter. He discussed the differences in the approaches to the FRAND contract between American and European lawyers and judges. This point is well-made in his chapter: “Judicial opinions in SEP cases also refer to the duty to negotiate a FRAND license in good faith, but judges so far have failed to explain that duty’s precise origin or its metes and bounds.”[19] Mr. Sidak’s chapter analyzes the different approaches taken by specific German, English, and American court decisions.[20] More generally, during his remarks, Mr. Sidak discussed the different stopping rules for American and European negotiations. The American approach is brief: “[I]f a good faith offer is made and it’s not accepted, then the game is over.” Conversely, the European approach is a more iterative back-and-forth process. Mr. Sidak emphasized the need for a “stopping rule”—which he referred to as a “closing rule” in his chapter—and analogized this to the Federal Communications Commission’s auctioning of spectrums.[21]

Mr. Kappos, who co-authored a chapter with co-editor Professor Barnett, spoke second.[22] He focused on the “next-best alternative” to a legislative correction in a post-eBay world: enhanced damages. In the chapter, he and Professor Barnett walk through four case studies of efficient infringement in action.[23] The chapter also discusses two forms of enhanced damages, attorney fee shifting and treble damages, both of which already exist.[24] In fact, as the chapter points out, the 1793 patent statute mandated treble damages, even absent a showing of willfulness, and provided judges the authority to impose a higher damages multiplier.[25] The chapter closes by attempting to balance the incentives between implementer and patent holder.

Following Mr. Sidak and Mr. Kappos’s remarks, they fielded questions about private ordering from Professor Barnett and Lew Zaretzki, who also authored a chapter in the book with Stephen Haber and the late Alexander Galetovic.[26] In response to the questions, Mr. Sidak analogized the present incentives to those faced in binding arbitrations under the Telecommunications Act of 1996. He further noted that there is an enormous and successful functioning SEP licensing market. He pointed to the fact that there are no examples of inabilities to license relevant technology. Mr. Kappos suggested that there has already been extensive private ordering, pointing to the Avanci 5G licensing regime.[27]

The book 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things is available online for free through open access at Cambridge University Press; a hard copy is also available to order at the same link. A recording of the book launch event is available on YouTube.

[1] 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things (Jonathan M. Barnett & Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023). The book is available online through open access at https://www.cambridge.org/core/books/5g-and-beyond/AFF9EE741CD0CF1B28E8B698F985E0C1. Hard copies are available at the same link or from other booksellers.

[2] A recording of the event is available at: https://www.youtube.com/watch?v=6ir08SXj7Ts.

[3] 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things ix-x (Jonathan M. Barnett & Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/23B8A5FB02B3C0C8EE9DCC22E562BA52/9781009274272loc_ix-x.pdf/contributors.pdf.

[4] Mr. Iancu’s remarks begin at 5:02. https://youtu.be/6ir08SXj7Ts?si=XLUT2BAlyzP699ic&t=303.

[5] Professor Kieff’s remarks begin at 12:32. https://youtu.be/6ir08SXj7Ts?si=We_AgSyTe2pKlfQi&t=752.

[6] Andrei Iancu, Foreword: Why Patents Are Critical for Standard-Based Technologies, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things xi-xiv (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/8816915941D08B63BDDD7670A574AB09/9781009274272fwd_xi-xiv.pdf/foreword.pdf.

[7] Id. at xiii.

[8] Id. at xii.

[9] F. Scott Kieff & Thomas Grant, Patents and Competition: Commercializing Innovation in the Global Ecosystem for 5G and the Internet of Things, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 242-262 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/B32E45469995B5649034AAE47660EAE8/9781009274272c11_242-262.pdf/patents_and_competition.pdf.

[10] Id. at 249.

[11] Id.

[12] Ms. Ohlhausen’s remarks begin at 37:46. https://youtu.be/6ir08SXj7Ts?si=W28CIZSO5wQ_M7jr&t=2266.

[13] Maureen Ohlhausen & Jana Seidl, Antitrust Convergence on Substantive Norms for SEP Licensing Negotiations: Should and Could It Be?, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 33-50 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/A97F752332F8BD95A9E98D87E5C9F070/9781009274272c2_33-50.pdf/antitrust_convergence_on_substantive_norms_for_sep_licensing_negotiations.pdf.

[14] See id. at 34-35.

[15] Just over a week after Ms. Ohlhausen made her remarks, the FTC released its final rule on non-competes. See Press Release, FTC Announces Rule Banning Noncompetes, Fed. Trade Comm’n (Apr. 23, 2024).

[16] Mr. Sidak’s remarks begin at 58:33. https://youtu.be/6ir08SXj7Ts?si=REhrf3tx5ufwoGGJ&t=3511.

[17] Mr. Kappos’s remarks begin at 1:03:23. https://youtu.be/6ir08SXj7Ts?si=njsiknZV9UjEQCer&t=4103.

[18] J. Gregory Sidak, The Fair Division of Surplus from a FRAND License Negotiated in Good Faith, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 79-108 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/0FE57AE13642207F55C1DB5FCAE74470/9781009274272c4_79-108.pdf/fair_division_of_surplus_from_a_frand_license_negotiated_in_good_faith.pdf.

[19] Id. at 80.

[20] Id. at 80-81, 86-88.

[21] Id. at 82-86.

[22] Jonathan M. Barnett & David J. Kappos, Restoring Deterrence: The Case for Enhanced Damages in a No-Injunction Patent System, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 129-52 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge University Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/7300CC1E1279179F57B099E478E3170F/9781009274272c6_129-152.pdf/restoring_deterrence.pdf.

[23] Id. at 138-42.

[24] Id. at 134-38.

[25] Id. at 144.

[26] Alexander Galetovic, Stephen Haber & Lew Zaretski, Cellular SEP Royalties: What Should Competition Policy Be?, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 53-78 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/8755988D408D15C5BD5F64C7DAFA9696/9781009274272c3_53-78.pdf/cellular_sep_royalties_and_5g.pdf.

[27] Avanci 5G Vehicle, Avanci, https://www.avanci.com/vehicle/5gvehicle/ (last visited Apr. 22, 2024).

Categories
Innovation Patents

Professor Tabrez Ebrahim on Clean and Sustainable Technological Innovation

The following post comes from Associate Professor of Law Tabrez Ebrahim of California Western School of Law in San Diego, California.

one lit lightbulb hanging near unlit bulbsBy Tabrez Ebrahim

What role should patent law have in promoting environmentally friendly, clean, and sustainable technology innovation? Does patent law provide adequate incentives for inventions and innovation that address environmental problems?

Clean technology refers to measures, products, or services that reduce or eliminate pollution or waste. Sustainable technology refers to the design of products that offer environmentally friendly alternatives that prevent waste, are less toxic, use renewable feedstock, use safer solvents and reaction conditions, or increase energy efficiency. In my new paper, Clean and Sustainable Technology Innovation, I provide a narrative review of various environmental innovation approaches and incentives for technology development and diffusion. Scholars and commentators have analyzed the role of patents in facilitating technological development to mitigate climate change, including an eco-patent commons, a fast track program, a patent rewards system, and a collaborative and cooperative platform.

I analyze the literature to show that patent law offers certain underutilized opportunities to promote technological innovation that has environmental benefits. I conducted a semi-systematic review on academic papers concerning clean and sustainable technologies and various patent law-related innovation proposals. In so doing, I provide a synthesis of law and policy papers to identify and understand scholarly views of patents in inducing environmental innovation.

The importance of developing clean and sustainable technologies has included government-driven initiatives to accelerate patenting procedures and expediting of patent application examination of such technologies. The United States Patent & Trademark Office (USPTO) had a fast-track program, the Green Technology Pilot Program, which had reduced the time to attaining a patent for environmental innovations, but this program ended in 2012. Other proposals have included international initiatives that foster a collaborative and cooperative platform to make clean and sustainable technologies more freely available through the sharing of patents that were involved or created during the cooperation and through mechanism to promote mutually agreeable terms. The deployment of clean and sustainable technologies could depend on whether these technologies are patented, licensed, or shared in a pool, and on what technological substitutes are available.

The theoretical underpinning of clean and sustainable inventions is their ability to produce positive externalities, a term which refers to the producing of environmental benefits beyond the implementing firm. Environmental-centric inventions and innovations could generate salutary effects for members of society far beyond the inventor or firm that implements the invention. As a result, more investors may be interested in startups that develop environmental solutions, and business activity in this sector should multiply. While the time and cost of clean and sustainable deployment and climate change mitigation can be an important consideration, the opportunities to provide environmental benefits should be of greater importance. There are a number of innovation policy issues for incentivizing inventors, innovators, and businesses to continue to develop environmental solutions.

I discuss more about these issues in my paper, which was selected by a faculty editorial board and was part of a faculty-edited blind peer review process. This paper is published in Current Opinion in Environmental Sustainability and can be downloaded here.

Categories
Antitrust Innovation Patent Licensing

Jonathan Barnett on the “License as Tax” Fallacy and the Real-World Benefits of Licensing

The following post comes from David Ward, a rising 2L at Scalia Law and a Research Assistant at CPIP.

the dictionary entry for the word "innovate"By David Ward

“Casual metaphors can have dangerous consequences.” CPIP Senior Fellow for Innovation Policy Jonathan Barnett’s new paper, The ‘License as Tax’ Fallacy, seeks to undo what he considers to be a dangerous, casual metaphor, namely, that intellectual property is a “state-granted monopoly” and therefore licensing is a “monopolistic tax” on consumers. Instead, Prof. Barnett explains that licensing is a tool that creates value for consumers and producers alike.

Historical Roller Coaster

This “IP = monopoly” metaphor has seen a bit of a jurisprudential roller coaster over the past century. Its origin is tied to monopoly-busting antitrust cases, as one might expect, starting around the end of the New Deal era of the late 1930s. Many of the battles were over the practice of “tying” patented products to other products in bundles. For those unaware, in antitrust, “tying” is essentially an arrangement that requires the buyer of one product to buy something else as well, and this often can be viewed as anticompetitive. These patent-tying cases led to the Supreme Court making a hard-and-fast rule in the 1962 case United States v. Loews. The Loews case effectively outlawed tying arrangements in patent licenses as anticompetitive, without having to prove any actual anticompetitive consequences.

This pivotal case cemented a metaphorical assumption that intellectual property is a state-granted monopoly. Further evolution of this mindset led to an effective halt of many licensing transaction options that were once available to sellers in the IP market. Prof. Barnett points out that this ended up harming consumers rather than protecting them. Sellers wishing to license their intellectual property, but restrict how it was used, would often not sell rather than risk getting hit with an antitrust lawsuit under the not-so-IP-friendly antitrust rules in the courts. And those that did license charged higher prices since they could not enforce value-saving restrictions.

The roller coaster didn’t stop there, though, as the late 1970s Supreme Court moved away from the stifling hard-and-fast rules in two new decisions, U.S. Steel and Sylvania. Instead of assuming that many IP license provisions (such as tying) were anticompetitive on their face, the Court began requiring proof that the provision in question was actually anticompetitive—just as in nearly every other antitrust case. This more license-friendly trend toward requiring proof of anticompetitive IP practices culminated in the 1995 U.S. Department of Justice Antitrust Guidelines for Licensing of Intellectual Property, which concluded that antitrust challenges to licensing transactions have to provide evidence of harm to the market. The bright line licensing rules of the past were effectively gone.

Recent Years: The Lexmark Case

But the coaster did not stop there either, as the mid-2000s and recent years have seen a resurgence of more hard-and-fast IP licensing rules. A great example of the resurgence of these rules is the 2017 case Impression Products v. Lexmark International, which involved the oft-dreaded purchasing of printer ink cartridges. Lexmark sold two types of ink cartridges: expensive ones that users could refill, and cheap ones that users were not allowed to refill. The cheap cartridges included a licensing provision that did not allow users to refill the cartridge in exchange for the lower cost. Impression Products, however, bought the empty, cheap cartridges from third party resellers, refilled them, and sold them for a profit, despite being aware of this license provision that prohibited refilling them.

Impression Products leaned on what is called the “patent exhaustion doctrine” to win the case. This doctrine can end a patent owner’s right to control a product once it has been sold, much in the same way that used bookstores don’t have to get a copyright license to sell a used book. However, the Court overturned a long-standing, fact-specific rule that required examining the market impact of such provisions in patent reseller cases. Instead, it adopted a hard-line rule that does not allow patent owners to enforce their licensing provisions on products that have already been sold, without any analysis on the market impact.

This illustrative example of a return to the hard-and-fast rules of the past is exactly what Prof. Barnett warns against. In the instance of printer ink cartridges, companies now provide fewer options at a higher price since they can’t enforce a provision that allows them to offer a lower-value, lower-cost alternative. But the anticompetitive implications of the Lexmark decision can have far-reaching effects on intellectual property as a whole; hard-line rules that prohibit the enforcement of licensing provisions without any analysis of the impact on the market creates less choice and higher cost for consumers. This, of course, is exactly the opposite of the aim of the antitrust laws.

The Need for Evidence

It’s important to note that Prof. Barnett acknowledges that intellectual property can cause anticompetitive practices that harm consumers. But he contends that there needs to be evidence showing that specific intellectual property licenses have anti-consumer implications, as there is in most other antitrust cases. The theoretical fear of intellectual property licensing clogging up markets with exorbitant rates (the “licensing tax”), if it has any merit, should be backed up by evidence.

A great case study for this issue comes from the smartphone market. In the smartphone industry, there are countless “standards” for wireless signals and products, such as 4G, that are required for our many devices to interact in a uniform manner. The inventors of these standards have what are called “standard essential patents,” or SEPs. There is a great fear that these patents, being quite literally essential to smartphone manufacturers, will allow their owners to exploit markets and charge anticompetitive pricing.

The great mystery is that, despite this, there isn’t evidence that this hypothetical scenario exists. Prof. Barnett examines three decades of market performance in this industry and shows that SEP licensing royalties account for a modest three to five percent of global handset revenues. This is in stark contrast to the hypothetical models that anticipated double-digit royalty percentages because of the “IP licensing tax.”

Prof. Barnett attributes this disconnect to several factors, but most importantly he points to the fact that regulators, legislatures, and judges should be focusing on real-world impacts from actual evidence and data when contemplating new rules and regulations.

The Real-World Benefits of Licensing

Although some assume that licensing will create anticompetitive environments, there is ample evidence to show that licensing enables competition and diverse markets. Prof. Barnett uses several real-life models to demonstrate this point.

The first model is the “Hub-and-Spoke” structure, where several smaller intellectual property owners license their IP to large companies with commercial power and reach. The best example of this is in the movie business, where outside production companies license their works to large studios. Each party specializes in something different, and a mutually beneficial relationship occurs. If IP licensing agreements cannot be enforced, such as in Impression Products, then content production would consolidate vertically to larger in-house organizations as firms look to protect their creative property. Essentially, not allowing licensing enforcement in this setting actually consolidates the market, rather than diversifying it.

The second model is the reverse of this, where large, usually research-based, firms license their innovations to many different commercialized entities. A prime example of this is Qualcomm, which licenses its wireless communications technology to many smartphone device manufacturers. Rather than hoard their technologies, these firms want to use licensing mechanisms to reach as many users as possible; more users equal more royalties, so there is an incentive to license to many manufacturers at affordable rates. This creates a positive feedback for more R&D and innovation, rather than an “IP = monopoly” hypothetical scenario where innovators gouge licensees.

The third model involves hybrid pooling and anti-licenses. Patent pools and other aggregate entities like music performing rights organizations create ecosystems of mutual benefit to help navigate dense “thickets” of intellectual property. For instance, rather than needing to get a license for every song played at a music venue, the venue can simply get one “blanket license” from a performing rights organization that licenses thousands of songs from the organization’s musicians at once. And somewhat more surprising is the complete lack of licenses at all. Many IT companies give away licenses for free to build a consumer base of users as an early adoption strategy. Contrary to the license-as-tax view, there is no necessary basis to even assume licenses are always used or even the best option for an owner.

Licenses Aren’t Taxes

The theoretical boogeyman of IP licensing creating monopolistic “taxes” has not held up to the intense scrutiny of the evidence, Prof. Barnett concludes. Any restrictions of IP licensing should be based in evidence and not be a knee-jerk reaction to hypothetical scenarios that have not come to pass, such as in the smartphone industry. There is far more evidence to show that licensing creates value for the market than there is evidence to show it “taxes” the market. And thus, this dangerous, common metaphor of “IP = monopoly” should be put to rest.

Categories
Innovation Patent Law

New CPIP Policy Brief: The Long Shadow of the Blackberry Shutdown That Wasn’t

CPIP logoCPIP has published a new policy brief by CPIP Senior Fellow for Innovation Policy Jonathan Barnett entitled The Long Shadow of the Blackberry Shutdown That Wasn’t. The policy brief looks at how the Blackberry litigation and the “patent troll” narrative ultimately contributed to the Supreme Court’s 2006 decision in eBay v. MercExchange that limited the availability of injunctive relief for successful patentees.

Professor Barnett then examines the problematic legacy of the post-eBay case law, which significantly shifted the legal infrastructure supporting the U.S. innovation markets. In particular, he explains how this shift has led to opportunistic infringement that favors downstream incumbents with the resources to fund extensive litigation at the expense of upstream innovators—a dynamic that is exemplified in the recent litigation between Sonos and Google.

The introduction is copied below:

Introduction

In early 2006, there was widespread public interest in a seemingly arcane patent infringement litigation brought by a small IP licensing entity, NTP, Inc., against Research in Motion (or “RIM”), the maker of the then-ubiquitous Blackberry mobile communications device. The reason: NTP alleged that the Blackberry device and service infringed upon its patents relating to wireless email communications. In the district court litigation, NTP had secured a judgment of willful patent infringement against RIM, entitling NTP to treble damages, attorneys’ fees, and a permanent injunction (stayed pending appeal) that placed at risk the continued operation of the Blackberry service.

Given NTP’s success at the district court, and uncertainty surrounding RIM’s ability to design a non-infringing alternative, there seemed to be a material risk that the appeals court would sustain the lower court’s rulings and, most importantly, the injunction order. Faced with this predicament, RIM settled all claims with NTP in March 2006 for the impressive sum of $612.5 million.

In this contribution, I revisit the almost 15-year-old Blackberry litigation and its connection with both the Supreme Court’s 2006 decision in eBay, Inc. v. MercExchange LLC, which limited patent owners’ ability to secure injunctions, and ongoing infringement litigation (commenced in January 2020) involving Google and Sonos, a leading innovator and supplier of wireless audio systems. While the eBay decision may have deterred certain opportunistic uses of patent infringement litigation, there are growing indications that it has had a significant adverse effect on the innovation ecosystem.

As illustrated by the Google/Sonos litigation, eBay and post-eBay case law has enabled incumbents that maintain key technology platforms and distribution pathways to infringe upon patent-protected technologies held by others at relatively modest legal and business risk. The increasing normalization of patent infringement as a rational business strategy endangers the property-rights infrastructure behind important segments of the U.S. innovation economy.

To read the policy brief, please click here.

Categories
Copyright Innovation Patents Pharma

IP Industries Step Up in This Time of Crisis

the word "inspiration" typed on a typewriterThe global COVID-19 pandemic has challenged multiple aspects of modern society in a short time. Health and public safety, education, commerce, research, arts, and even basic government functions have had to change dramatically in the space of a couple months. Some good news in all this is the response of many companies in the intellectual property (IP) industries: they are stepping up to make sure crucial information and materials are available to speed research and development (R&D) towards vaccines, therapeutics, and medical devices. This blog post gives a sampling of the current initiatives facilitating the best innovative work the world has to offer.

Bio-pharmaceutical companies

Bio-pharmaceutical (bio-pharma) companies have been leading the charge, collaborating with academic and government partners to advance vaccine and therapy candidates on a fast track. While there have been isolated stories of some IP-related issues for rapid deployment and use of medical devices such as ventilators, the overall message is clear that research, development, and deployment have not been hindered by IP rightsholders. In fact, problems for distribution of medicines, personal protective equipment, and medical devices have little to do with IP rights but rather with hoarding and nationalistic impulses by governments.

Examples of rapid response are abundant. In February, the Department of Health and Human Services and its Biomedical Advanced Research and Development Authority (BARDA) partnered with the Janssen Research & Development unit of Johnson & Johnson to investigate a promising vaccine candidate. Janssen also committed to invest in the scale-up of production and manufacturing capacities to produce the vaccine candidate if it succeeds through clinical trials. By mid-March, 50 drugs that might fight the virus had been identified by collaborations of hundreds of scientists. Research continues apace and 80 clinical trials are proceeding, some on fast track status including a potential vaccine.

Beyond its core R&D, regulatory, manufacturing, and distribution mission, the bio-pharma industry is providing direct support to many places in need. This includes donations of medical supplies and personal protective equipment (PPE), existing treatments and medicines, and monetary and in-kind support.

At the same time, private incentives are more important than ever to get novel vaccines, drugs, and devices out to the world in safe, efficacious form and at scale. Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, has long recognized that exclusive licenses of IP to bio-pharma industry partners are necessary to get innovative vaccines and drugs to the public:

“We always need a pharmaceutical partner,” [Fauci] told CQ Roll Call in October 2017. “I can’t think of a vaccine, even one in which we’ve put substantial intellectual and resource input, that was brought to the goal line without a partnership with industry. So this is a very natural process that we’re doing right now.”

He argued that for vaccines like Zika, which might predominantly be used in low-income countries, drugmakers don’t see a lot of financial incentive to get involved, which is why the NIH needs to grant exclusive licenses. But he argued that the process hasn’t had an impact on vaccine affordability.

“I have not seen in my experience situations in which we were involved in the development of a vaccine, particularly for low- and middle-income countries that really needed it, where the pharmaceutical companies priced it out of their reach,” Fauci said.

Likewise, as noted innovation scholars Daniel J. Hemel and Lisa Larrimore Ouellette point out in a recent article, Innovation Policy Pluralism, multiple vectors of public and private incentives and resources work together to advance pioneering innovation. Even in countries with a national health or single payer system, the government health program does not manufacture vaccines, drugs, or devices. Instead, it relies on private firms that in turn work closely and well with public and academic researchers to identify pressing problems, locate relevant basic science advances, and then translate those into actual vaccines, therapies, or devices.

The myth of patients and the public “paying twice” for bio-pharma innovation arising from public-private partnerships is pernicious. It conflates the distinction between basic science research and drug or vaccine candidates, on the one hand, with compounds that can be produced at scale, distributed safely, and that have passed arduous clinical trials to demonstrate safety and efficacy. In the United States, private companies must foot the entire bill for these clinical trials, which run into hundreds of millions of dollars over three phases that enroll thousands of subjects. Simply stated, publicly funded research does not result in a substance or compound that can be manufactured and distributed as is with no further R&D or clinical trials.

A related myth is that governments should use compulsory licenses and similar mechanisms to bypass IP rights holders in an effort to speed research and delivery of drugs and vaccines—when they emerge—to the public at low to no cost. First, there are important distinctions between compulsory licenses, U.S. Bayh-Dole style march-in rights, and government use under statutory provisions like 28 USC 1498, which we have outlined here. But across all of them, IP rights holders must still be compensated at a fair market license rate. Thus, there are no “savings” of IP royalties that could lower the price of vaccines or drugs. This makes sense as we don’t force manufacturers to produce drugs or vaccines for free. Even the Defense Production Act merely directs production, it does not require manufacturers to produce goods for free.

Finally, even if patents could be disregarded, we should be careful about encouraging “open source” or amateur production of regulated devices like ventilators. While the FDA has authorized some limited modifications of approved ventilators to accommodate the exigencies of COVID-19, this does not create a free-for-all in which wholesale changes or entirely new designs of the device or its components can be used. We need to take care that these modifications or new designs are actually safe and efficacious. Thus, while innovation like that of famed inventor James Dyson is most welcome, it does not actually solve the immediate problem of a shortage of ventilators as national regulators must still test and approve these untested devices for medical use. And at any rate, Dyson is not offering their new ventilators for free, even as they are designed to be produced at lower costs and sell at a lower point price in the market.

Thus, we need the bio-pharma industry more than ever to get through this pandemic. Large established firms and nimble start-ups have the resources and expertise to innovate and produce vaccines, drugs, and devices that will pass regulatory muster for safety and efficacy. Now is not the time to attack the patent system and weaken incentives for full-steam-ahead bio-pharma and medical device R&D.

Scientific publishing

Similar to the bio-pharma companies, publishers have been leading the way in making crucial scientific and technological information widely available in order to help fight the global coronavirus pandemic. An open letter from Kelvin Droegemeier, Director of the White House Office of Science and Technology Policy (OSTP) and member of President Trump’s Coronavirus Task Force, issued the call to arms last month (for example, see here, here, and here). Joined by government science leaders from eleven other countries—Australia, Brazil, Canada, Germany, India, Italy, Japan, Republic of Korea, New Zealand, Singapore, and United Kingdom—the letter called for publishers to make all research and data related to the coronavirus available immediately to the public. Publishers were quick to respond positively to the letter, pointing out that many journals had already been opened up to the public in an effort to support the dissemination of important scientific research and data when it is needed the most.

In the letter, the government science leaders stated: “To assist efforts to contain and mitigate the rapidly evolving COVID-19 pandemic, basic science research and innovation will be vital to addressing this global crisis. Given the urgency of the situation, it is particularly important that scientists and the public can access research outcomes as soon as possible.” The leaders asked the publishers to voluntarily agree to make their coronavirus-related publications, and the data supporting them, immediately accessible in PubMed Central and other public repositories. PubMed Central refers to the digital archive of biomedical and life sciences journal literature at the U.S. National Institutes of Health’s National Library of Medicine. The leaders also requested that the information be made available in both human and machine-readable format to allow for text and data mining using artificial intelligence.

The same day that the government science leaders sent their letter, Maria Pallante, President and CEO of the Association of American Publishers (AAP), issued a statement noting that the organization and its members would be happy to continue doing their part in making the research and data available to the public:

Publishers purposefully and continuously contribute to the advancement of science and medicine by investing billions of dollars in producing and disseminating high-quality, peer-reviewed journal articles. In this urgent and serious environment, we are grateful to the many publishers who are doing their part to communicate valuable discoveries, analyses, and data as quickly as possible, including by making their copyrighted articles pertaining to the virus freely available for public use during this crisis, in both text and machine-readable formats. Many publishers – both commercial companies and nonprofit societies – have been doing so for weeks.

 

Likewise, Elsevier, which specializes in publishing global information on science and health, has taken the lead in ensuring that relevant scientific information is available to the public. Back in January, Elsevier set up its Novel Coronavirus Information Center, offering free health and medical research information on the coronavirus and COVID-19, the disease that is causes. The Information Center is updated daily with the latest research information, including links to nearly 20,000 peer-reviewed journal articles on its ScienceDirect platform that are curated by clinicians and other experts. The information is intended for use by practitioners, such as nurses and doctors, as well by patients and their families. In response to the letter from the government science leaders, Elsevier announced in a press release that same day that the information would be made available to PubMed Central and other publicly funded repositories, including in machine-readable format that could be used for full text and data mining.

Kumsal Bayazit, the CEO of Elsevier, also released a statement that day underscoring Elsevier’s continued leadership on this front and concluding:

In working with the White House to improve the discoverability and utility of this important body of knowledge, we are now making it available to PubMed Central and other publicly funded repositories such as the WHO COVID database for full text and data mining and without any limitations for as long as needed while the public health emergency is ongoing. Through this partnership we hope to help researchers to keep up with the rapidly growing body of literature and identify trends as countries around the world address this global health crisis.

 

Numerous other publishers have stepped up as well. Wiley announced that it “is making all current and future research content and data on the COVID-19 Resource Site available to PubMed Central” and “other publicly funded repositories, such as the World Health Organization (WHO) COVID-19 database and Wellcome Trust.” The Resource Site was set up by Wiley in February in order to ensure rapid, public access to COVID-19 research, and in response to the request of the government science leaders, Wiley is now inputting that information into PubMed Central and other publicly-accessible databases. Likewise, Springer Nature stated: “We have made available, for free, all relevant research we have published and continue to publish, [and] are strongly urging our authors submitting articles related to this emergency to share underlying datasets relating to the outbreak as rapidly and widely as possible.” Other publishers, such as American Chemical Society, PLOS, STM Publishing, IOP Publishing, Emerald Group Publishing, F1000 Research, and eLife Research, have committed themselves to the cause of making their coronavirus research and data available publicly.

It is not just scientific research that is being freely shared by publishers. Textbooks for students affected by the pandemic have been made available as well. Wiley recognized the need “to ensure instructors who need to teach remotely have the necessary tools to help their students,” and it opened up its online textbooks so that instructors “can receive free access for their students for the remainder of the Spring 2020 term.” Barnes & Noble announced that it was joining VitalSource and other leading publishers to provide free online textbooks for students at schools where it operates a campus bookstore. Michael P. Huseby, CEO and Chairman of Barnes & Noble Education, said: “Our top priority remains providing schools and students with solutions during this time of unprecedented disruption, while simultaneously protecting the health and safety of our employees and customers.” Other textbook publishers, including Cengage, Gale, Cambridge University Press, among many others, have done the same in order to make the transition to online learning as smooth as possible by ensuring that students have online access to the textbooks that they need.

Categories
Innovation

U.S. Rise in International IP Index Signals Progress in Ongoing Effort to Restore Faith in the Patent System

dictionary entry for the word "innovate"Last week, the U.S. Chamber of Commerce, Global Innovation Policy Center (GIPC) released the seventh edition of the International IP Index for 2019, Inspiring Tomorrow. The report provides some long sought good news for the innovation community, as the U.S. rose from 12th to 2nd in the patent system rankings. But while the move signals an IP and economic transformation stemming from inspired IP leadership and a sensible approach to domestic and international IP policy, more work must be done to fully restore the global leadership position of the United States.

GIPC notes:

With this 7th edition, the U.S. Chamber International IP Index: Inspiring Tomorrow shows how intellectual property (IP) systems have been a driving force behind this transformation. Effective IP protections create a climate that drives the world’s innovators and creators to pursue a better tomorrow. Indeed, IP-driven innovation and creativity have ensured that our standards continue to rise.

The U.S. is ranked number one with the highest overall economy score; it is also ranked number one with respect to copyrights. As noted above, the U.S. moved to 2nd place in the annual patent rankings, up from 12th place last year (it is tied for the second place ranking with a number of E.U. nations and Japan). Yet, this is mixed news overall, and more work remains. The trend over the past several years has been downward for the U.S. patent system. The U.S. fell from first place in patents three years ago and was at 10th place in 2017.

The move upward is a result of ongoing efforts by top U.S. IP officials to improve domestic policies and international trade. The GIPC report explains the U.S.’s strong overall rating is based on its framework for legal protections for copyrights, patents, trade secrets, and its recent IP trade policies. The United States-Mexico-Canada Agreement (USMCA) is praised as raising the bar to set the new global standard for international IP protection.

Further, the report commends the USPTO leadership for addressing uncertainty around patent rights by recent reforms of its opposition system (e.g., through the Patent Trial and Appeal Board (PTAB) and inter partes review (IPR)). In his first year, USPTO Director Andrei Iancu launched several initiatives to address long-standing issues hampering U.S. innovation, including issuing new patent eligibility review guidelines for patent examiners and overhauling the PTAB review invalidation proceedings that can create uncertainty for parties. The report explains that these reforms will “creat[e] greater certainty around the inter partes review (IPR) process [and] reduce unpredictability in the patent opposition system.”

Historically, the U.S. has been a front-runner in worldwide innovation; just last year, the USPTO unveiled its 10 millionth U.S. patent. But misguided policies from courts and Congress have resulted in uncertainty for patent owners over the past 15 years (e.g., the systemically ill-advised PTAB opinions spurring our #FixPTAB posts). The GIPC report is a welcome reminder that sensible leadership and even modest reforms can return us to our historic front-runner position in innovation.

Despite more clarity and the recent USPTO reforms, patent owners require additional certainty and reform to ensure ongoing inventive activity, such as building new venture start-ups. CPIP and its network of scholars will continue to study how the new patent guidance and judicial jurisprudence can restore America’s global innovation leadership for the future. Hopefully, the U.S. can soon once again claim the unqualified number one spot.

To see the 2019 rankings, please click here.

To read GIPC’s 2019 Report, please click here.

Categories
FTC Innovation

Unverified Theory Continues to Inform FTC’s Policies Toward Patent Owners

dictionary entry for the word "innovate"The Federal Trade Commission’s unfair competition case against Qualcomm, Inc., has now concluded. The parties gave their closing arguments on Tuesday, January 29, and all that remains is Judge Lucy Koh’s ruling. To prevail, the FTC needed to demonstrate actual, quantifiable harm. It completely failed to do so.

The FTC’s complaint charged Qualcomm with using anticompetitive tactics to maintain its alleged monopoly position as a supplier of certain baseband processors (chips that manage cellular communications in mobile products). Specifically, the FTC alleged that Qualcomm engaged in “exclusionary conduct” through a “no license, no chips” policy in which it supplied CDMA[1] and Premium LTE chips[2] only on the condition that cell phone manufacturers agreed to Qualcomm’s license terms. The FTC claimed that Qualcomm’s conduct reduced competitors’ ability and incentive to innovate and raised prices paid by consumers for cellular devices.

In support of this position, the FTC offered Carl Shapiro, an Economics Professor from Berkeley, as an expert witness. Shapiro argued that Qualcomm’s “no license, no chips” policy gave it the market power to demand “supra-FRAND”[3] royalties. He claimed these royalties harmed competition by raising rivals’ costs, weakening them as competitors, and deterring them from doing R&D. Shapiro asserted that Qualcomm had monopoly power over CDMA and Premium LTE markets through 2016.

There are (at least) two glaring errors regarding the FTC’s and Shapiro’s arguments. First, the relevant market definitions for “CDMA” and “Premium LTE” chips are fatally flawed. Regarding CDMA, the FTC defined the relevant market solely as CDMA chips, yet the market includes both CDMA and WCDMA[4] chips, with WCDMA selling 5x more chips than CDMA. Regarding Premium LTE, there is no “premium” chip market separate from other mobile chips. What the FTC and Shapiro define as “premium” actually represents the end-result of a normal product evolution where newer, more innovative chips are incorporated first into higher-end devices. And even if one considers only Premium LTE chips, Qualcomm had a first-mover advantage because it invented the technology. A first-mover advantage is not an antitrust violation. The result of both flawed market definitions is an economic theoretical shell-game to divert attention from the fact that there is simply no evidence of harm to the properly defined actual market.[5]

And this leads to the second and even more critical point: the FTC presented no real-world evidence of harm to competitors or consumers from Qualcomm’s alleged exclusionary conduct. If R&D had been deterred by Qualcomm’s licensing practices, as Shapiro argued, he should have been able to identify at least one actual example.[6] Under his theory, the lack of ongoing R&D and harm to competitors should have resulted in an increasing number of inferior cell phones provided by a decreasing number of companies. To the contrary, more and more competitors have been entering the chip market with more and more innovations as cellular technology has advanced from 3G to 4G. Cell phone quality has dramatically increased over time, without concomitant quality-adjusted price increases.[7]

Notwithstanding the flawed market definition and lack of harm, the FTC has misconstrued the underlying basis for Qualcomm’s “no license, no chips” licensing policy, teeing it up as objectively anticompetitive and onerous. Yet, Qualcomm’s policy simply seeks to prevent “patent holdout” as a legitimate business strategy. Without this policy, device manufacturers could build phones using Qualcomm’s chips, then simply refuse to pay Qualcomm for its telecommunications patents. Qualcomm’s only recourse would be to sue for patent infringement, while the device manufacturers continue to profit from use of the chips. The “no-license, no chips” policy ensures that device manufacturers negotiate necessary patent licenses before receiving chips to build phones.

Assistant Attorney General for the Department of Justice, Makan Delrahim, has stated that condemning this kind of licensing practice, in isolation, as an antitrust violation, while ignoring equal incentives for patent holdout, “risks creating ‘false positive’ errors of over-enforcement that would discourage valuable innovation.” (Delrahim also recently criticized the FTC’s entire case saying that disputes about patent licensing should not be decided by antitrust law.)

The FTC, its experts, and its industry witnesses, however, are basically advocating for patent holdout as a legally legitimate, even preferable, strategy for dealing with patent owners like Qualcomm. Professor Shapiro’s model, in particular, advanced patent holdout in lieu of up-front patent licensing. Shapiro would require a patent owner to wait and then sue for infringement as a prerequisite to any license negotiations. But forcing the patent owner to pursue judicial recourse through a time-consuming and costly patent infringement suit leverages the cost of litigation to artificially decrease the ultimate reward to the patentee.

At the close of this case, one is left wondering why. Why did the FTC pursue a “midnight” filing at the tail end of the Obama Administration, just days before President Trump took office? Why did the FTC pursue the case over Commissioner Ohlhausen’s strong dissent in which she argued that the case was based on a flawed legal theory “that lacks economic and evidentiary support” and that “by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide”? And finally, why is the FTC attempting to cripple Qualcomm in the developing 5G technological space in favor of China’s Huawei[8], which will result in actual, quantifiable harm to the U.S.’s competitive advantage over China?

[1] CDMA, which stands for “code-division multiple access,” permits several transmitters to send information over a single communication channel and is a second generation (2G) network used in mobile device.

[2] LTE, which stands for “long term evolution,” is a fourth generation (4G) standard for high-speed wireless communication used in mobile devices.

[3] FRAND stands for “fair, reasonable, and non-discriminatory.”

[4] WCDMA stands for “wide band code division multiple access.” It is a third generation (3G) network used in mobile devices.

[5] This is the same game the FTC played in the 1990s with Microsoft where the FTC defined the relevant market as operating systems for IBM compatible PCs, but that argument only worked if one excluded Apple, Linux, and other operating systems. These type of games about defining the relevant market are common in the high-tech context, and the FTC is repeating it here.

[7] “Several empirical studies demonstrate that the observed pattern in high-tech industries, especially in the smartphone industry, is one of constant lower quality-adjusted prices, increased entry and competition, and higher performance standards.” See: https://cip2.gmu.edu/wp-content/uploads/sites/31/2018/02/Letter-to-DOJ-Supporting-Evidence-Based-Approach-to-Antitrust-Enforcement-of-IP.pdf.

[8] One also wonders why the FTC relied so heavily on Huawei’s testimony in this case given the Trump Administration’s repeated concerns about this company culminating in the Department of Justice’s recent 10-count indictment against Huawei for theft of trade secrets, wire fraud, and obstruction of justice.