Category: Patent Law

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Patent Law Patent Litigation

TPLFA: Protecting Predatory Infringers

Blog post by Michael Doane

The CEO of a small technology-based company with many groundbreaking patents in its field once asked me what the point was of obtaining patents when the company simply did not have the resources to enforce them. Although patents provide many benefits, the ability to enforce them against infringers is paramount. Patent infringement litigation is euphemistically referred to as “The Sport of Kings” due to the burden imposed by massive legal fees and the redirection of resources away from the core business to litigation support. The American Intellectual Property Law Association estimates that the median cost of patent litigation is approximately $5 million with a median cost of $600,000 for cases in which less than $1 million is at risk.[1] The cost of patent litigation is inflated by large well-funded infringers engaging in what they prefer to call efficient infringement but is more properly called predatory infringement. From their perspective, it is more efficient to infringe and engage in protracted litigation in district court and before the U.S. Patent and Trademark Office (USPTO) than to compensate the innovator at a properly negotiated market rate. Because of the high cost of litigation, they infringe because “they can get away with it . . .”[2] facing at worst a long delayed and potentially lower court-imposed royalty rate, assuming the patent owner survives the expense of litigation. Litigation funding or, in other words, third party investment in the potential outcome of litigation, is a step toward levelling the playing field by providing access to small innovators to the expensive enforcement mechanisms that are supposed to be available to all patent owners and not just a select few.

As if predatory infringement were not enough, a patent owner with limited internal resources now faces the prospect of third-party litigation funding being made unavailable to them. Recently, Senator Tillis tacked a bill known as the Tackling Predatory Litigation Funding Act (TPLFA) onto the One Big Beautiful Bill. Although it was ultimately removed on procedural grounds, it is highly likely that the TPLFA will be introduced as a standalone bill in the near future. Interestingly, the TPLFA does not make litigation funding illegal; instead it seeks to make litigation funding unprofitable. To discourage litigation funding, “qualified litigation proceeds” are to be taxed at “the highest rate of tax imposed by section 1 for such taxable year, plus 3.8 percentage points.”[3] In other words a penalty in excess of 40% is imposed on the proceeds of any litigation funding agreement paid to any third party that is not an attorney representing the party.[4]

Although the term “predatory” is in its title, the TPLFA does not purport to define or identify that which is predatory, but rather simply imposes this penalty on the proceeds from any litigation funding regardless of the nature and purpose of the litigation. Is it predatory for a small innovator to obtain the necessary resources to enforce its patents against a large well-funded infringer? Why should legitimate patent litigation be deemed predatory simply because the patent owner must seek outside resources to enforce its rights?

The other justification for TPLFA is China. The spectacle of purported Chinese investors targeting U.S. business through litigation funding is used as a strawman by those seeking limits on litigation funding to jury-rig some type of national security argument. Alleged fears of foreign investors gaining access to confidential information are properly and effectively handled by protective orders which limit access to attorneys. Ironically, most if not all the predatory infringers raising such concerns manufacture the vast majority of their products in China and certainly almost none manufacture in the United States.

In addition to the TPLFA, efforts are being made to impose disclosure requirements on those relying on litigation funding. The Litigation Transparency Act of 2025 would require an innovator relying on litigation funding to “disclose in writing to the court and all other named parties to the civil action the identity of any person (other than counsel of record) that has a right to receive any payment or thing of value that is contingent on the outcome of the civil action. . .”[5] along with a copy of the agreement. These disclosure requirements are meant to discourage litigation funding by imposing additional burdens on the patent owner while acting as a distraction from the real issue in such cases—patent infringement.  As noted in the E-Discovery Model Order developed by the Federal Circuit Advisory Council the key and most consequential issues in patent litigation are:

  • what the patent states,
  • how the accused products work,
  • what the prior art discloses, and
  • the proper calculation of damages.[6]

The identity of those that may or may not be providing financial support for the litigation could not be more irrelevant to these issues.

The TPLFA and Litigation Transparency Act are being touted as litigation reform but are actually designed to limit the ability of small, less-resourced innovators to obtain the funding necessary to enforce their patent rights. Predatory infringers wish to maintain the expensive patent litigation system to enforce their own intellectual property rights, including against each other, without the annoyance of small innovators enforcing their intellectual property rights. Thus, they pursue their claimed reform around the edges by making intellectual property enforcement expensive and unprofitable. If the true goal is to eliminate predatory litigation funding, such activity should be specifically defined and identified so it can be properly addressed. Adopting the overbroad expedient of imposing an absurdly high tax on all litigation funding revenue to render it unprofitable further restricts access to the U.S. judicial system by small innovators. Requiring disclosure from the plaintiff, but not the defendant, imposes another burden and also provides the defendant with an expectation of exactly how long they will need to protract litigation … just long enough to use up the funding. The effect of these bills would be to keep patent litigation a Sport of Kings.

[1] 2023 Report of the Economic Survey, American Intellectual Property Law Association.

[2] Colleen V. Chien, Holding Up and Holding Out, 21 MICH. TELECOMM. & TECH. L. REV. 1, 20 (2014).

[3] Id. at Sec. 2: Litigation Financing, Pg. 2, 7-17.

[4][4] Id. at Sec. 2: Litigation Financing, Pg. 3, 9-17.

[5] H.R. 1109, 119th Cong. (2025) (Litigation Transparency Act of 2025).

[6]  Federal Circuit Advisory Council, An E-Discovery Model Order and Model Order Regarding E-Discovery In Patent Cases at 2 (2011).

The arguments and views in this blog post are the author’s own and do not necessarily reflect those of IPPI or of any other organization.

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Biotech Healthcare Innovation International Law IPPI News Patent Law Patents Pharma

IPPI Cautions that Pharmaceutical Tariffs Would Harm Patients and U.S. Innovation Leadership

IPPI has submitted formal comments to the U.S. Department of Commerce regarding its Section 232 investigation of pharmaceutical imports, cautioning against imposing tariffs on medicines and their ingredients.

In our submission, IPPI scholars Mark Schultz, Emily Michiko Morris, and Joshua Kresh explain that imposing such tariffs would have severe negative consequences for American patients, healthcare affordability, and U.S. pharmaceutical innovation leadership.

Drawing on extensive research, particularly Geneva Network’s 2021 study modeling the effects of a 25% pharmaceutical tariff, our comments highlight five critical concerns:

  1. Higher Drug Prices for Patients: Research demonstrates that pharmaceutical tariffs create a “compounding effect” as each link in the supply chain adds markup to the tariff-inflated price, potentially increasing final costs by up to 80% for consumers.
  2. Drug Shortages Risk: With over 90% of U.S. prescriptions being for generic drugs and 83% of top generics having no domestic source, tariffs would disrupt existing supply chains and potentially force manufacturers to exit certain market segments.
  3. Ineffective for Boosting Domestic Manufacturing: Building pharmaceutical manufacturing facilities in the U.S. requires billions of dollars and 5-10 years to accomplish—making tariffs ineffective for addressing immediate or even medium-term supply concerns.
  4. International Retaliation Threats: Our comments note that major trading partners including China, Brazil, and the EU are already considering pharmaceutical IP rights suspensions and other countermeasures in response to U.S. tariff actions.
  5. Government Cost Implications: Paradoxically, the U.S. government could end up paying 2-6 times more through Medicare and Medicaid for tariff-inflated drugs than it collects in tariff revenue.

“Imposing tariffs on medicines would be counterproductive to U.S. interests,” said Mark Schultz, Faculty Chair of IPPI. “Such measures would ultimately undermine, rather than enhance, American healthcare security while threatening our position as the world leader in pharmaceutical innovation.”

The full text of IPPI’s comments is available here.

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Patent Law

RESTORE, PERA and PREVAIL: Bills that fix problems with the patent system

Blog Post by Kristen Jakobsen Osenga

As the 118th Congress drew to a close at the end of 2024, there was a spate of intellectual property activity on Capitol Hill. I was fortunate enough to be part of one of these exciting events. On December 18, 2024, the IP Subcommittee of the Senate Judiciary Committee held a hearing on the RESTORE Patent Rights Act. I was one of four witnesses testifying at that hearing, alongside fellow professor Jorge Contreras. The other two witnesses were Jacob Babcock, CEO of NuCurrent, and Joshua Landau, Senior Counsel, Innovation Policy, at the Computer & Communications Industry Association (CCIA). Video of the hearing is available here. My written testimony is also published.

In addition to the hearing on the RESTORE Patent Rights Act, the Senate Judiciary Committee also voted to advance the PREVAIL Act to the full Senate in November 2024. The PREVAIL Act addresses a number of abuses plaguing PTAB proceedings. In addition to RESTORE and PREVAIL, other IP-related bills were introduced last Congress, including the PERA Act to clarify patent-eligible subject matter. All of these activities gave hope that Congress was ready to fix issues that interfered with innovators being able to obtain and enforce effective and reliable patent rights. As 2025 began and the new Congress was sworn in, patent advocates wished for them to pick up where the 118th Congress left off.

Thankfully, we did not have to wait long. On February 25, 2025, Senators Coons and Cotton and Representatives Moran and Dean re-introduced the RESTORE Patent Rights Act, which provides a presumption of injunctive relief when a patent is found to be valid and infringed. This bill fixes a string of events that began with the Supreme Court’s 2006 decision in eBay v. MercExchange that has led to not just fewer injunctions being granted, but also fewer companies even seeking injunctive relief. (See article by Dr. Kristina M.L. Acri née Lybecker.) Because a patent only provides the right to exclude, if a patent owner cannot obtain an injunction, the patent loses much of its value. The presumptive injunction of the RESTORE Act would, as the name suggests, restore a patent’s exclusive right, as well as its value.

Further reading:

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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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Biotech Patent Law Patent Licensing Patents Pharma

Pharmaceutical “Nominal Patent Life” Versus “Effective Patent Life,” Revisited

By Emily Michiko Morris and Joshua Kresh

Executive summary: Many critics of pharmaceutical companies argue that they abuse the patent system through “evergreening” or “thickets” to increase the amount of time they can avoid generic competition and keep drug prices high. Those critics have not looked at the real-world effects of pharmaceutical patents on generic entry, however. Our review of actual time to generic entry for more than one hundred of 2012’s top-selling drugs shows that:

    • The average effective patent life, as opposed to nominal patent life, of our dataset is 13.35 years, consistent previous studies on effective patent life;
    • Patents and exclusivities added to the Orange Book after a drug’s market entry does little to extend effective patent life; and
    • The number of patents protecting a brand-name drug has no significant correlation with effective patent life.

Thus, our study suggests that “evergreening” does not stop generic entry and that “thickets”—if they even exist—appear to be rather easy to circumvent.

The topic on everyone’s minds lately is drug prices and the fact that most Americans believe that drug prices in the United States are too high. Drug prices, like other health care costs, are a multifactorial and incredibly complex subject. Most of the current discussion on drug prices focuses on the role of patent protections, however, to the exclusion of almost everything else. In particular, a major criticism of the pharmaceutical industry is that it is abusing the patent system by filing for serial patents to prolong its ability to charge supracompetitive prices for the drugs that it has developed.

To prove the existence of such “evergreening” through patents, a number of studies focus on nominal patent life, based on the expected expiration date of the last patent on a given set of drugs. The later the expiration date, according to evergreening theory, the longer a brand-name drug can fend off entry by price-lowering generic versions. The most well-known—and certainly the most thorough—study applying this approach is Prof. Robin Feldman’s “Evergreen Drug Patent Database” (often informally referred to as the “Hastings Database,” after UC Law San Francisco’s former name).

The Hastings Database contains an exhaustive list of not only all patents but also any regulatory exclusivities granted by the FDA, both of which can stall generic drug approval and thus market entry as well. The Database then identifies “evergreening” by looking at how many additional patents or exclusivities are added to the “Orange Book,” the FDA’s list of patents and exclusivities that pharmaceutical companies assert cover their brand-name small-molecule drugs (SMDs).[1] Specifically, the Hastings Database counts how many patents and exclusivities are added after what the database labels as the “protection cliff” for each drug, as defined by all patents and exclusivities added to the Orange Book by two months after FDA approval.[2] According to the Hastings Database’s calculations, companies extend the patent lives of their drugs for several years by adding such later filed patents and exclusivities.

This calculation presents merely the nominal patent life of a given drug, however, not the period of time during which patents actually protect a drug from generic market entry. The latter, or effective patent life, is a more accurate and more meaningful measure of how long brand-name drug companies can fend off generic market entry. Unlike nominal patent life, effective patent life (EPL) does not focus on patent terms. Instead, EPL focuses on the time between a brand-name drug’s approval and first market entry and generic market entry because this is the only time in which the brand-name company might be able to charge supracompetitive prices. The differences between nominal patent life and effective patent life can be quite large, as generics often enter the market regardless of whether the brand-name still has patent term remaining.[3] This is a point that many earlier studies have shown.[4]

To reaffirm this point, we did our own study of the nominal patent lives listed in the Hastings Database. For our sample set, we looked at the top-selling small-molecule drug products from 2012, based on the idea that flagship brand-name products are most likely to draw generic market entry and that drugs from 2012 would now have had twelve years in which generics could do so. To select the drug products for our sample, we used the list of the top 200 drugs by total U.S. retail sales in 2012 assembled by the Njardarson Group at the University of Arizona.[5] After we eliminated any biologics, as well as any SMDs not included in the Hastings Database, we had a sample size of 131 drug products.

We then added data from the Hastings Database. These data included each drug product’s FDA approval date, the expiration dates for both the earliest and latest patent or regulatory exclusivity listed in the Orange Book for each drug product, and each product’s “protection cliff” dates. We also included any further time past those protection cliff dates that the Hastings Database identifies added by patents or exclusivities beyond those that comprise each protection cliff. This latter set of data, which the Hastings Database labels as “Additional Prot(ection) Time,” is important because it is how Hastings calculates alleged “evergreening.”

To these data from the Hastings Database we then added data from other resources as well: both the date on which each Reference List Drug (RLD) began marketing (i.e., the date on which the relevant brand name entered the market), and similarly the date on which the first generic for each RLD entered the market. We added these market entry dates from the earliest listed dates included in the National Drug Code Directory’s Structured Product Labeling Resources (SPL) database[6] for the earliest approved New Drug Application (NDA) listed in the Hastings Database. (A large number of drug products have multiple NDAs and multiple market entry dates, so we used the earliest RLD market entry dates for the earliest approved NDAs to err on the side of the longest EPLs for each product.) Based on these dates, we calculated the EPL for each drug product based on the time between the product’s first marketing date and the date on which the first generic for that product entered the market.

Because the Hastings Database defines evergreening as protection beyond its “protection cliff” rather than as nominal patent life, we computed two further datapoints. First, to compare directly with the Hastings Database’s “Additional Prot(ection) Time,” we also calculated EPL based not on RLD market entry dates but on Hastings’ protection cliff dates—that is, we calculated the effective patent life for each drug product beyond its protection cliff. This allowed us to compare what is in effect Hastings’ nominal “Additional Prot(ection) Time” with what is in effect our sample’s effective “Additional Prot(ection) Time.” Second, to make the Hastings Database more comparable with nominal patent life (NPL) determinations in other studies, we also derived the NPL for each drug product based on the time between its RLD market entry date and the latest expiration date of any patent or exclusivity listed in the Hastings Database for the product.

Our analysis of our sample set is ongoing, but some of the initial results are significant. Not surprisingly, the average EPL from our sample—including the 14 drug products for which the FDA currently lists no generic versions—is several years shorter than the average NPL we computed from the Hastings Database. The average NPL from Hastings is 19.14 years (median = 19.20), but the average EPL from our sample is 13.35 years (median = 14.01). Our sample’s average EPL is thus consistent with EPLs from other studies.

More interesting, however, is that our sample’s average effective “Additional Prot(ection) Time”—1.61 years (median = 1.19)—is also much shorter than Hastings’ nominal “Additional Prot(ection) Time”—13.34 years (median = 13.52). In other words, the effective patent life of our sample, on average, extends only 1.61 years past Hastings’ “protection cliff.” This means that most of the mean EPL from our sample stems from the patents and exclusivities that comprise Hastings’ protection cliff (those listed in the Orange Book up to two months after FDA approval). This in turn shows that if, as is frequently claimed, patents and exclusivities are later added for brand-name drug products simply to avoid their protection cliffs, that particular tactic is ineffective.[7]

That being said, many of the drug products in our sample may have had shortened EPLs because generics were able to enter the market early through Paragraph IV certifications contesting either the infringement or validity of the latest expiring patents for those drugs. We therefore looked at the approval letters for as many of the earliest entering generics as we could find on the Drugs@FDA: FDA-Approved Drugs online database. The FDA’s approval letters typically include whether the approved generic has filed a Paragraph IV challenge and which patents it were challenging. We were able to pull up generic approval letters for 87 of the drug products in our sample. Of those products, 16 either faced no Paragraph IV challenges at all or at least none challenging the latest expiring patent. For another 26 of the 87 drug products, their patent owners did not sue the first-to-file generic even though the generic filed a Paragraph IV challenge to the latest expiring patent. This does not mean that the first-to-file generic did not itself then file a declaratory judgment action against the latest expiring or other patents, but it does mean that the patent owner did not think it worthwhile to sue the Paragraph IV generic early enough to obtain a 30-month stay on that generic’s FDA approval. Several of the 87 products, however, had multiple first-to-enter generics entering the market on the same day, but the FDA database did not display the approval letters for all those generics. We may therefore be underestimating the number of products that faced Paragraph IV challenges.

It is also possible that the time needed to resolve Paragraph IV challenges by itself may have delayed generic entry in many cases. Similarly, it is possible that the mere existence of later-expiring patents deterred potential generics from even trying to enter the market early. We therefore used Hastings’ raw data to derive the number of patents protecting each drug product in our sample. We counted all individual patents listed, treating any pediatric extension, patent term restoration, or other patent term extension as a separate patent if it had the potential to extend nominal patent life. We then looked for any correlation between the number of patents per drug product and the effective patent life for each product but found no statistically significant difference from a null hypothesis of zero correlation. This again suggests that simply adding more patents, regardless of whether they are listed in the Orange Book later or earlier, is not an effective tactic for delaying generic market entry.

Perhaps most significantly, our findings suggest once again that looking at only patents and patent terms reveals little to nothing about how long brand-name drug products can stave off generic entry. Nominal patent life, for example, tells us little about the actual effect patents have because nominal patent life fails to consider the scope of each patent. Many patents, especially later-filed patents, on new indications for which a drug patent can be used or new ways of manufacturing a product, can either be carved out of a generic’s FDA application or designed around. Even new dosage patents may not stop generic entry if physicians can simply split or multiply the dosage of a generic to achieve the newly patented dosage. Much the same can be said of new formulation patents as well. And even if other types of patents can be avoided only through Paragraph IV challenges, these challenges may have little effect in extending effective patent life, as suggested by our data.

[1] Small-molecule drugs are small and simple substances that can be synthesized though chemical reactions, unlike “biologics,” which are a relatively new class of therapeutics that are much larger and more complex molecules that are synthesizable only through biological processes.

[2] The Hastings Database also calculates for each drug the length of time between the expiration of its first patent or regulatory exclusivity and the expiration of its last.

[3] See, e.g., C. Scott Hemphill & Bhaven N. Sampat, When Do Generics Challenge Drug Patents?, 8 J. Empirical L. Stud. 613, 643 (2011) (noting that effective patent lives are shorter than nominal patent lives).

[4] See, e.g., Henry G. Grabowski et al., Continuing Trends in U.S. brand-Name and Generic Drug Competition, 24 J. Med. Econ. 908, 916 (2021) (calculating to EPL – or “market exclusivity period” (MEP) – as only 13.0 to 14.1 years for new chemical entities); C. Scott Hemphill & Bhaven M. Sampat, 31 J. Health Econ. 327, 330 (2012) (finding EPL of 12.15 years versus NPL of 15.89 years for new chemical entities).

[5] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://sites.arizona.edu/njardarson-lab/files/2023/11/Top-200-Pharmaceutical-Products-by-US-Retail-Sales-in-2011_small_0.pdf.

[6] https://www.fda.gov/industry/structured-product-labeling-resources/nsde

[7] The difference between average EPL and NPL for the products in our sample is statistically significant, based on a paired two-tail t-test with p value <<0.01. The same is true of the difference between effective and nominal “Additional Prot(ection) Time” for our sample.

Categories
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
FTC Patent Law Patents

FTC Chair and Commissioners Weigh in on SEP Litigation at the ITC

The following post comes from Jack Ring, a rising 2L at Scalia Law and a Research Assistant at C-IP2.

a gavel lying on a table in front of booksI. INTRODUCTION

In a previous blog post, we discussed the dispute surrounding standard essential patents (SEPs) between Philips and Thales. That dispute included an investigation before the United States International Trade Commission (ITC).[1] As part of that investigation, Chair Lina Khan and Commissioner Rebecca Slaughter of the Federal Trade Commission (FTC) submitted a public interest statement to the ITC (Public Interest Statement or Statement).[2] Commissioner Christine Wilson responded to the Statement in a speech at the “IP & Antitrust: Hot Issues” Conference Organized by Concurrences Review (Response or Remarks).[3]

These competing statements by FTC commissioners illustrate a point of contention regarding SEP policy. The Public Interest Statement, submitted by Chair Khan and Commissioner Slaughter, took a policy stance that an exclusion order against an SEP implementer unfairly favors the SEP holder. Meanwhile, Commissioner Wilson’s Response countered that this policy instead tips the balance heavily in favor of implementers, which in her opinion could stifle SEP-holder innovation. This dichotomy of policy goals underlays some of the decisions discussed in the previous blog post about the Philips v. Thales appeal. There, Chief Judge Colm Connolly of the United States District Court for the District of Delaware avoided making policy in his decision, explicitly reserving that for a higher court.[4] The ITC’s Commission opinion in the ITC Investigation took no position on many issues, potentially to avoid tackling these tough issues.[5] And finally, the Federal Circuit affirmed Chief Judge Connolly’s order on the narrowest grounds, likewise sidestepping the policy concerns debated in the Public Interest Statement and Response.[6]

Additionally, as Commissioner Wilson’s Remarks note, Apple and Ericsson are now involved in SEP litigation spanning U.S. courts, international courts, and the ITC.[7] This will once again provide ample opportunity for multiple jurisdictions, including the ITC, to weigh these policy and public interest concerns.

II. CHAIR KHAN AND COMMISSIONER SLAUGHTER’S PUBLIC INTEREST STATEMENT

Chair Khan and Commission Slaughter’s Statement advanced a broad policy argument through the lens of an “increasing[] concern that SEP holders . . .  are seeking exclusionary orders . . . for the purpose of gaining leverage.” Through that lens, the Public Interest Statement sought to answer the question, “Is it in the public interest to issue an ITC exclusion order based on a standard essential patent (SEP) where a United States district court has been asked to determine fair, reasonable, and non-discriminatory (FRAND) licensing terms?” Answering its own posed question, the Statement urged the ITC to consider the statutory public interest factors[8] with particular attention to the impact an exclusion order obtained by a SEP owner against an SEP implementer would have on competition and consumers in the United States.

Chair Khan and Commissioner Slaughter’s concern focuses heavily on misconduct—hold-up—by SEP owners. Hold-up refers to an SEP holder’s demand for a royalty rate in excess of a FRAND rate after an implementer is locked into the standard. Alternatively, hold-out refers to an implementer’s bad faith delaying of constructive licensing negotiations or unilaterally rejecting of a license.

The Public Interest Statement argues that an SEP owner seeking an exclusion order of SEPs at the ITC perpetuates an imbalance in bargaining power. Chair Khan and Commissioner Slaughter recognize that opportunism may arise from either side, but they view an exclusion order as granting unfair leverage for an SEP holder. This one-sided view was discussed by Commissioner Wilson in her Response and will be discussed below.

The Public Interest Statement further recognized the ITC’s enforcement role in intellectual property rights and the ITC’s view on that enforcement in footnote twelve. However, Chair Khan and Commissioner Slaughter argue that SEPs present different issues than other patents. In their opinion, a royalty negotiation under threat of an exclusion order tips the scale in favor of the SEP owner, who made a FRAND commitment—a commitment that may have helped them get the standardization in the first place. In their view, the exclusion of firms that are willing and able to take FRAND licenses discourages investment in standard driven products and technology.

Additionally, hidden in the first footnote, the Statement declined to address whether “seeking an exclusion order for FRAND-encumbered SEPs would violate Section 5 of the Federal Trade Commission Act.” Section 5 of the FTC act covers unfair acts and practices. If the FTC began enforcing Section 5 against SEP owners seeking exclusion orders in the ITC, that would have some of the most drastic short-term changes in SEP policy. Whether that short-term policy change would stand up to judicial review or be the best policy for cultivating innovation remains to be seen.

The Public Interest Statement ultimately moves on to a larger policy rejecting exclusion orders—the only remedy available from the ITC—whenever a court has been asked to set FRAND terms and can make SEP holders whole. (“As a general matter, exclusionary relief is incongruent and against the public interest where a court has been asked to resolve FRAND terms and can make the SEP holder whole.”) In closing, the Public Interest Statement urges the ITC to take its advice that “under no circumstances should Section 337 remedies . . . take effect” until a court asked to resolve the FRAND rate has rendered its decision.

III. COMMISSIONER WILSON’S RESPONSE

Shortly after Chair Khan and Commissioner Slaughter filed their Statement, Commissioner Wilson of the FTC responded with her own critiques. Her Response recognized the same issues but approached those issues from a balancing standpoint. The Response advocated for weighing the rights of SEP holders and implementers and considering both short- and long-term goals.

Commissioner Wilson expressed concern that Chair Khan and Commissioner Slaughter only view hold-up as an antitrust issue. (“In other words, the actions of SEP holders may be unlawful under the antitrust laws, but the actions of patent implementers are immune from scrutiny under those same laws.”) Commissioner Wilson’s Remarks generally pushed the FTC to embrace a balanced approach that favors neither innovators nor implementers but instead focused on incentivizing competition and innovation.

Responding directly to the Public Interest Statement’s call for the ITC to reject exclusion orders where a court has been asked to set FRAND rates, Commissioner Wilson reasoned that the ITC’s public interest analysis already accounts for this type of analysis. Quoting an article from former ITC commissioner and chair Deanna Tanner Okun, the Response explained that the ITC’s public interest factors and process allow allegedly infringing parties the opportunity to argue the SEP holder violated its commitments to the standard setting organization[9] (the point being, why set a blanket prohibition on exclusion orders when the ITC’s processes already account for considering multiple factors in its public interest analysis?).

Commissioner Wilson’s Remarks also touched on the Apple and Ericsson SEP litigation presently occurring in multiple venues, including the ITC. Those proceedings offer another chance for the ITC to consider the Statement and Response’s policy arguments. However, as Commissioner Wilson flagged, unlike in the Philips proceedings, Apple has not committed to accepting the District Court’s FRAND rate. Apple’s non-commitment could be evidence of hold-out, which Commissioner Wilson specifically raised in her Remarks. This change in the fact pattern from the Philips/Thales dispute illustrates how complex and fact-specific SEP proceedings can be.

At bottom, the Response is concerned that the Public Interest Statement’s proposal would tip the balance in favor of SEP implementers when—in Commissioner Wilson’s view—there should be no thumb on the scale. The Response expressed concern with adoption of a one-size-fits-all approach of denying exclusion orders at the ITC whenever a court has been asked to set a FRAND rate. Rather, she posits that the ITC’s public interest factors anticipated complex litigations like those discussed above. Therefore, by the time a case has reached the final stages at the ITC, the Commission or administrative law judge has the necessary information to evaluate the public interest.

IV. TAKEAWAYS

These two policy proposals from FTC commissioners illustrate the complexity of the SEP policy debate, particularly regarding exclusion orders at the ITC. Moving forward, the Apple and Ericsson disputes in multiple courts including the ITC will provide another opportunity for multiple forums to grapple with these competing policies.

[1] Certain UMTS & LTE Cellular Communications Modules & Products Containing the Same, Inv. No. 337-TA-1240 (USITC).

[2] Written Submission on the Public Interest of Federal Trade Commission Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter, in the Matter of Certain UMTS and LTE Cellular Communication Modules and Products Containing the Same, Inv. No. 337-TA-1240 (USITC May 16, 2022),

https://www.ftc.gov/system/files/ftc_gov/pdf/Written_Submission_on_the_Public_Interest_if_Chair_Khan_and_Co mmissioner_Slaughter_to_ITC.pdf.

[3] Christine Wilson, Comm’r, Fed. Trade Comm’n, Remarks at “IP & Antitrust: Hot Issues” Conference Organized by Concurrences Review (June 8, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Wilson-SEPs-speech_FINAL-06-13-2022.pdf.

[4] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, C.A. 20-1713 (D. Del. May 21, 2021).

[5] Certain UMTS & LTE Cellular Communications Modules & Products Containing the Same, Inv. No. 337-TA-1240, Comm’n Notice (USITC July 6, 2022) (EDIS No. 774681).

[6] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, No. 2021-2106 (Fed. Cir. July 13, 2022).

[7] Certain Mobile Telephones, Tablet Computers With Cellular Connectivity, & Smart Watches With Cellular Connectivity, Components Thereof, & Products Containing the Same, Inv. No. 337-TA-1299 (USITC).

[8] 19 U.S.C. §§ 1337(d)(1), (f)(1).

[9] Deanna Tanner Okun, Policy Shift Against SEP Rights Poses Risks for U.S. Innovation and Undermines Mandate of the ITC, IPWATCHDOG (May 18, 2022), https://www.ipwatchdog.com/2022/05/18/policy-shift-sep-rights-poses­risks-u-s-innovation-undermines-mandate-itc/id=149116/.

Categories
International Law Patent Law Patent Litigation

Hudson Institute Panel Focuses on Patent Litigation in China

The following post comes from Wade Cribbs, a 2L at Scalia Law and a Research Assistant at CPIP.

a gavel lying on a desk in front of booksBy Wade Cribbs

Questions about how Chinese patent protection operates in the international patent landscape are relevant to both companies doing business in China and policymakers in the United States. China is becoming an increasingly frequent patent litigation location for major international corporations. With this new forum for patent disputes come questions about how China can handle anti-suit injunctions and parallel proceedings regarding fair, reasonable, and non-discriminatory (FRAND) agreements for standard-essential patents (SEPs).

To discuss these questions, the Hudson Institute hosted a virtual panel presentation last week entitled Patent Litigation in China: Navigating a Changing Environment. The panel, which was moderated by Hudson Institute Senior Fellow Urška Petrovčič, included Mark Cohen (Distinguished Senior Fellow, University of California Berkeley; Director, Berkeley Center for Law & Technology, Asia Intellectual Property Project), Vivienne Bath (Professor of Chinese International and Business Law, University of Sydney), and He Jing (Founder, GEN Law Firm; Executive Director, Beijing Zhongguancun Intellectual Property Strategy Research Institute).

Mr. Cohen sees differences in patent litigation between western countries—such as the United States and the European Union—and China, particularly with injunctions due to China’s quasi-civil law system and the Chinese economy’s size. He does not view the recent emergence of anti-suit injunctions in China as unusual because they were not necessary, given that China readily awards injunctive relief. It is not unusual for the courts to get through litigation and appeal in China before a U.S. court has commenced discovery. Therefore, a litigant could initiate proceedings in China after suing in the United States and receive an injunction from the Chinese court, using it to compel the party to settle any parallel proceedings.

Mr. Cohen sees no real difference between the current practice of anti-suit injunctions and Chinese courts’ prior practice of ignoring any parallel proceeding. He agrees with Prof. Bath that the shift of Chinese courts to anti-suit injunctions is motivated by judicial sovereignty and the desire to exercise power over international FRAND rate disputes in order to protect Chinese business interests. Mr. Cohen is concerned that this desire is expanding to dictate international behavior in technological markets by leveraging SEP holders.

Mr. Jing believes that the most important SEP disputes in China are focused on the issuance by Chinese courts of anti-suit injunctions, which he notes are relatively recent for these courts. Chinese courts award these injunctions in such circumstances as preventing Huawei from enforcing a German court’s holding of a FRAND rate that was significantly higher than the rate issued by the Chinese courts. Similarly, Chinese courts have issued preliminary anti-suit injunctions against Sharp Corporation, preventing Sharp from initiating litigation in Germany after it began litigation in China.

Mr. Jing admits the logic is straightforward in the case of cell phone manufacturing, since most of the global manufacturing occurs in China. Therefore, he posits that China should have a say in cell phone SEP FRAND rates. However, he is unsure whether there is proper jurisdiction for such cases. To claim jurisdiction in some cases, Chinese courts docket FRAND disputes as contract cases. Mr. Jing’s problem with FRAND as a contract is that there is no concluded contract, and he is not convinced that such disputes meet the specific legal standard required by Chinese law to hear foreign and international contract disputes. Mr. Jing is concerned that Chinese courts are stretching beyond their bounds for jurisdiction and service to hear cases.

Prof. Bath observes that since the Chinese court systems are now fully equipped to handle IP cases, they are incredibly litigious. In this setting, the Chinese Communist Party is trying to tighten its control over the courts’ behavior as the courts streamline the process and improve injunctive enforcement. Prof. Bath sees these two forces resulting in the Chinese court system seeking to use Chinese law in an international setting through attracting dispute resolution to China. The China International Commercial Court and the one-stop diversified dispute resolution, which combine mediation and litigation in the court system, are examples of how the Chinese government is trying to attract foreign arbitration to China.

However, when it comes to international agreements, Prof. Bath notes, China has tended to agree to international instruments only where it is exempt from intellectual property judgments. Prof. Bath warns that, while China is taking steps to make its courts more available for international litigation, it is necessary to remember that the court does not always decide adjudication. Senior judges who did not sit for the case may make the final adjudicative decision, and this risks politicizing any crucial adjudication rulings.

Professor Bath sees the Chinese courts’ problem with parallel proceedings in the form of anti-suit injunctions stemming from its focus on judicial sovereignty. This focus results in China not having many tools to handle parallel proceedings. The Chinese courts will hear almost any suit brought before the court and will not refuse the case because it is already being heard elsewhere, unless a foreign judgment has already been issued and enforced in China. These practices result in foreign judgments being rarely enforced in China as a result of a Chinese court’s having already begun proceedings.

To watch the video of the panel discussion, please click here.