Category: Patent Law

Professors Erika Lietzan and Kristina Acri on “Distorted Drug Patents”

Post author By Joshua Grove
Post date February 12, 2021

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

By Austin Shaffer

In their new paper, Distorted Drug Patents, CPIP Senior Scholar Erika Lietzan of Mizzou Law and Kristina Acri of Colorado College explore a paradox in our patent system: Innovators are less motivated to work on drugs that take more time to develop as drug research incentives are being skewed away from the harder problems (e.g., Alzheimer’s disease and interventions at the early stages of cancer). The paper, which was published in the Washington Law Review in late 2020, was supported in part by a CPIP Leonardo da Vinci Fellowship Research Grant.

Although many condemn later-issued drug patents as “insidious,” Profs. Lietzan and Acri argue that those conceptions should be recalibrated, since the use of such patents is fully consistent with the intent of Congress when the Patent Act was amended in 1984 to restore some of the patent term lost to premarket R&D and FDA review. While a few scholars have considered the implications of patent term restoration from an empirical perspective, none have done so to the same extent as Profs. Lietzan and Acri. By using an expansive dataset and including a temporal dimension in the analysis, the scholars offer a fresh assessment of patent restoration and its implications.

How Can Drug Patents be “Distorted”?

Drug research is notoriously risky—investors allocate massive amounts of time and money to a project without knowing whether the drug will succeed in trials or how long the trials could last. Even if trials are successful, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act require premarket approval of new drugs before they can be commercialized. Starting in the 1960s, federal regulatory requirements grew more demanding, and the FDA’s expectations became more rigorous to obtain premarket approval. Given that the FDA approves only finished products, not mere active moieties, drug research is not only expensive but also uncertain. While this process drags out, the clock on the patent continues to run. By the time all is said and done, the effective life of the patent is distorted, an unfortunate reality that further disincentivizes complex drug research. By the 1980s, Congress had addressed this problem by amending the Patent Act to allow entities to apply for patent term restoration.

35 U.S.C. § 156 authorizes the PTO to restore the life of a patent lost to clinical trials and FDA review. However, the PTO has restricted the practicality of these restorations, making them subject to stringent limitations. It restores only half of the testing period after patent issuance and caps restoration at five years, and the effective patent life post-restoration cannot exceed fourteen years. Additionally, the PTO must deny restoration if the FDA has already approved the active ingredient. Only one patent can be extended per regulatory review period, and patents can only be extended under Section 156 once. After a certain point, premarket R&D simply and unavoidably equates to lost patent life. But despite the limitations and restraints on this process, it is widely agreed that the 1984 amendment was a step in the right direction.

The value of patent restoration was complicated, however, by the Uruguay Round Agreements Act (URAA), which revised Section 154 of the Patent Act and altered the length of patent terms. To say the least, the relationship between the URAA extension and patent term restoration was initially muddled, particularly in the context of parent/child applications. Ultimately, it played out that drugs approved since the enactment of Section 156 have been protected by patents subject to three different regimes: (1) the pre-URAA regime, in which patents lasted for seventeen years from issuance; (2) the post-URAA regime, in which patents lasted for twenty years from application or parent application; and (3) the transition regime, in which patents lasted for twenty years post-application or seventeen years post-issuance, whichever came first.

Profs. Lietzan and Acri were motivated to delve deeper into the data behind patent restorations, operating under the hypotheses that longer R&D programs should distort drug patents (even after term restoration), and that restoring a child patent should be associated with longer final effective life if the patent is subject to the seventeen-year term (pre-URAA regime).

Testing the Hypotheses

Profs. Lietzan and Acri generated an unprecedented dataset containing information on 642 approved drugs for which part of the patent life was restored—every instance between the enactment of Section 156 and April 1, 2017. Regulatory information—such as the start of clinical trials, FDA approval date, the length of testing, and the length of the FDA review period—was collected for each drug. On the patent side, the dataset included, among other data points, the following information: (1) the date on which the inventor filed the patent application that led to issuance of the patent; (2) the date that would control calculation of a twenty-year patent term under current law; (3) the date on which the patent issued (or the date on which the original patent issued, in the case of a reissued patent); (4) the type of term the patent enjoyed (seventeen-year, twenty-year, or transitional); (5) the number of days restored by the PTO; and (6) the final patent expiry date after restoration.

The data analysis produced some interesting findings. The average effective patent life without restoration—meaning the time from FDA approval to the original expiration date of the patent—was 8.71 years (median 9.49 years). And while the average clinical development program was 6.04 years, the average amount of patent life restored was only 2.87 years. Seeking to dig deeper into the findings, Profs. Lietzan and Acri performed various regression analyses to assess which variables explain effective patent life before the award of patent term restoration. Thought-provoking graphs and tables are included in the Appendix of the paper for those interested in the data science aspect of the research.

Policy Implications

As expected, Profs. Lietzan and Acri found that our legal system not only distorts drug patents but also provides less effective patent life for drugs that take longer to develop. The current scheme further disincentivizes investors and inventors from undertaking critical drug research because of the associated costs and risks of doing so. By the time our government allows the patent owner to commercialize, much of the patent term has already lapsed. And while the 1984 amendment made positive progress to combat this issue by authorizing patent restoration, that power has not been used to its fullest extent. This means that cures and treatments for a wide range of diseases and illnesses are largely under-researched and under-developed.

To add to the quandary, the changes made in 1994 by the URAA mean that a drug company may need to select a later-issued original patent to achieve fourteen full years of effective patent life. These patents are arguably less valuable to the drug’s inventor because it may be possible for generic and biosimilar applicants to develop versions that satisfy regulatory requirements and yet do not infringe the patent. Policymakers have essentially nullified the original purpose of the 1984 amendment to the Patent Act without meaningful discussion of the implications for drug innovation.

In a society begging for more involved research into complex diseases that affect millions of people, such as Alzheimer’s and various cancers, the current setup of our patent system operates as a hindrance and a deterrent against innovation. The argument can be made that drugs requiring more premarket research and investment should receive longer effective patent lives, but at the very least, they should not receive less because of a burdensome regulatory scheme.

Patent life is essential to innovation in the pharmaceutical industry, perhaps more so than any other industry, and Congress recognized that notion by adopting Section 156 to the Patent Act. The fact that the PTO uses its promulgated authority so selectively, combined with further complications stemming from Congress’s changes to the way patent terms are calculated in 1994, leaves drug companies in a predicament. While some policymakers and scholars complain when those companies secure later-expiring patents, the extensive research and analysis by Profs. Lietzan and Acri suggest that those patents may be necessary to accomplish the intentions of the Congress with the 1984 amendment.

Tags Austin Shaffer, drug patents, drug research, Erika Lietzan, FDA, incentives, Kristina Acri, patent life, patent system, patent term, patents, PTO, research and development, URAA, Uruguay Round Agreements Act

Biotech Patent Law

Forty Years Since Diamond v. Chakrabarty: Legal Underpinnings and its Impact on the Biotechnology Industry and Society

Post author By Joshua Grove
Post date January 29, 2021

U.S. Supreme Court building CPIP has published a new policy brief celebrating the fortieth anniversary of the Diamond v. Chakrabarty decision, where the Supreme Court in 1980 held that a genetically modified bacteria was patentable subject matter. The brief, entitled Forty Years Since Diamond v. Chakrabarty: Legal Underpinnings and its Impact on the Biotechnology Industry and Society and written by Matthew Jordan, Neil Davey, Maheshkumar P. Joshi, and Raj Davé, is dedicated to the late Dr. Ananda Chakrabarty, a pioneer in the biotechnology world, who passed away in July 2020.

Chakrabarty had a great impact on the biotechnology revolution, ushering in a new era of technological advances that have benefited humankind. Through interviews with Randall Rader, former Chief Judge of the Federal Circuit, and Dr. Chakrabarty himself, as well as case studies on genetically modified seeds, polymerase chain reactions, and monoclonal antibody therapies, the policy brief explores the importance and enduring implications for society of the Chakrabarty decision.

The introduction and conclusion sections are copied below:

***

I. Introduction: The Diamond v. Chakrabarty (1980) Supreme Court Decision

In 1972, Ananda Chakrabarty—a genetic engineer at General Electric—filed a patent application for genetically modified bacteria capable of breaking down crude oil. Dr. Chakrabarty introduced genetic fragments into the Pseudomonas bacterium, altering the bacteria to decompose hydrocarbon components of crude oil. Dr. Chakrabarty intended the bacteria to assist in cleaning up oil spills. The engineered bacteria were especially suited for bioremediation given their resistance to adverse environments and safety as a non-pathogen.

The examiner rejected the application under Section 101 of the Patent Act, which covers patentable subject matter, because living things were not patentable. The Board of Patent Appeals and Interferences (now known as the Patent Trial and Appeal Board) affirmed the examiner’s decision, however, the U.S. Court of Customs and Patent Appeals (now part of the U.S. Court of Appeals for the Federal Circuit) sided with Dr. Chakrabarty. The Court of Customs, in an opinion by Judge Giles Rich, reasoned that only naturally occurring articles, not all living things, were ineligible for patenting. Importantly, the court said, “the fact that microorganisms are alive is a distinction without legal significance” for purposes of the patent law. Then, U.S. Patent and Trademark Office (USPTO) Commissioner Sidney Diamond appealed the case to the Supreme Court.

The Supreme Court of the United States held that Dr. Chakrabarty’s invention consisted of patentable subject matter. Section 101 states: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” The Court ruled in a landmark 5-4 decision that Dr. Chakrabarty’s invention was a patentable, manmade, “composition of matter” or “manufacture.” Chief Justice Warren Burger famously quoted a Senate Report that was part of the legislative history for the Patent Act of 1952: patentable subject matter included “anything under the sun that is made by man.”

This decision had immense implications for biotechnology. It resulted in patents for genetically modified seeds, DNA amplification technology, and monoclonal antibody therapy. The rise of biotechnology has impacted many technological fields and society as a whole. The Supreme Court’s distinction between manmade and naturally occurring phenomena was clarified in Mayo v. Prometheus and AMP v. Myriad. The Court found that naturally occurring biological relationships and isolated DNA sequences were not eligible for patenting.

***

V. Conclusion

Diamond v. Chakrabarty revolutionized the biotechnology industry in the United States by incentivizing the advancement of inventions that are beneficial to human life. However, as noted by Judge Randall Rader: “This whole patent eligibility question—which was so clear and well-defined, was practically implementable and understandable, and gave life to our whole biotech industry after Chakrabarty—now has had a heavy cloud cast over it in recent jurisprudence such as Myriad.”

When asked if our legislature should take action to clear up the confusion, Judge Rader stated: “If the statute was the written law that was being interpreted by the Supreme Court, we wouldn’t need legislative change. But the sad truth is that the Supreme Court has created a whole overlay of doctrine that makes the statute almost irrelevant. And now we don’t look at whether there’s a process, a machine, an article of manufacture, or a composition of matter. Instead, we look at whether there’s something more beyond the conventional and the routine and the well-known. We argue over what is something and what is more, and what is an inventive concept. And so in that state of confusion, yes, we’re probably going to need legislation.”

Within the dire context of the COVID-19 pandemic and other countries racing past the United States in biotechnology, it is crucial for Congress to clarify what currently qualifies as patentable subject matter.

***

To read the policy brief, please click here.

Tags "patent trolls", Ananda Chakrabarty, biotech, Diamond v. Chakrabarty, Maheshkumar P. Joshi, Matthew Jordan, Neil Davey, patent, patentable subject matter, Raj Davé

Antitrust Patent Law Pharma

USPTO-DOJ Workshop on Promoting Innovation in the Life Science Sector: Day Two Recap

Post author By Joshua Grove
Post date January 13, 2021

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

night view of Washington, D.C. By Austin Shaffer

This past fall, the Department of Justice (DOJ) and U.S. Patent and Trademark Office (USPTO) hosted day two of their public workshop to discuss the importance of intellectual property rights and pro-competitive collaborations for life sciences companies, research institutions, and American consumers. While day one focused on how patents and copyrights impact collaboration and innovation for business development in life science technologies, day two concentrated on competition, collaboration, and licensing, and how those tools can promote access to therapeutics, diagnostics, and vaccines. Video of day two of the workshop is available here, and our summary of day one is available here.

Welcome Remarks, Fireside Chat, and Program Overview

Makan Delrahim, Assistant Attorney General for the DOJ Antitrust Division, kicked off day two with some opening remarks, emphasizing the significant role that IP and antitrust play to encourage innovation and healthy competition as entities around the globe race to find a COVID vaccine.

Mr. Delrahim was then joined by USPTO Director Andrei Iancu for a fireside chat, moderated by Judge Kathleen O’Malley of the U.S. Court of Appeals for the Federal Circuit. Mr. Iancu spoke to the critical pro-competitive role of patents at this time, as they incentivize innovation and disclosure and create transferrable financial instruments. Indeed, obtaining a patent boosts viability and employment growth, particularly for small companies. Additionally, Mr. Iancu highlighted some of the measures that the USPTO is taking to foster innovation and collaboration in the life science sector. One such measure, the Patents 4 Partnerships program, provides the public with a user-friendly, searchable repository of patents and published applications related to the COVID pandemic that are available for licensing. Additionally, the USPTO has extended deadlines and discounted application fees pursuant to the CARES Act.

Following the fireside chat, David Lawrence, Chief, Competition Policy & Advocacy Section at the DOJ, gave a brief overview of the day’s program. Mr. Lawrence noted that the life science sector relies on both competition and collaboration—the key question throughout the upcoming panels is where to draw the line at the cross-section of those factors to promote efficiency and effectiveness.

Session V: Collaboration and Licensing Strategies

Partnerships can serve as a key tool in the development of therapeutics and vaccines from initial research, through product development and clinical trials, and into the market-ready stage. These partnerships and various licensing strategies are particularly relevant to addressing the current pandemic. This panel focused on public-private partnerships, private partnerships, exclusive versus non-exclusive licensing, ownership rights, and information pooling.

The panel included Laura Coruzzi of Regenxbio, Lauren Foster from MIT, Prof. Sheridan Miyamoto from Penn State University, Mita Mukherjee of Emergent BioSolutions, Mark Rohrbaugh of the NIH, and Dick Wilder of the Coalition for Epidemic Preparedness Innovations, and it was moderated by DOJ Deputy Associate Attorney General Brian Pandya.

Each panelist took a turn discussing the role of collaboration in the development of therapeutics and vaccines. Ms. Coruzzi said that while collaboration is important throughout product development, it is particularly critical in the early research stage. Gene therapy research is precariously risky, and investors tend to stay away from those endeavors. Collaboration between multiple entities leads to a higher success rate, thereby providing a greater incentive for investors to get on board. Ms. Mukherjee explained that while big pharma has the expertise in researching and developing a marketable product, the initial work is often more appropriate for smaller, niche companies.

Ms. Foster explained that at MIT, the mission is to make technology broadly available, and by prudently engaging in a collaborative relationship, they can better ensure advancement. While the NIH approaches licensing in a similar manner to MIT, Mr. Rohrbaugh noted some of the statutory requirements and regulations that govern the NIH’s ability to license, such as the requirement to post on the Federal Register for comment. Mr. Wilder argued that the key to successful collaboration is to manage projects on a collective basis to ensuring that the resulting IP is used properly.

Turning to recent developments in licensing structures, Mr. Pandya noted the recent increase in invalidation of IP rights and posed the question: How has this negatively impacted licensing? Ms. Coruzzi cited Mayo v. Prometheus, a 2012 Supreme Court case which held that a natural phenomenon must be sufficiently added upon or transformed in order to make an idea, formula, mechanism, or test patentable. That decision, she argued, has squandered tax-funded university research and placed the U.S. at a competitive disadvantage with other countries that protect purified or engineered natural products. She called on the legislature to fix a decision that “knocked the legs out of patents.”

Session VI: How do Regulation and Antitrust Enforcement Impact Competition and Incentives for Innovation?

The extent to which regulation and antitrust enforcement are necessary to maintain competition is a contested issue, and the answer can have a significant impact on the incentives for innovation. The panelists in this session considered the tradeoffs between the two and the resulting consequences, especially within the context of a pandemic.

The panel included Alden Abbott of the FTC, Prof. Ernst Berndt from MIT, David Kappos of Cravath, Swaine & Moore, Prof. William Kovacic from George Washington University Law School, and Dick Wilder of the Coalition for Epidemic Preparedness Innovations, and it was moderated by Deputy Assistant Attorney General Alexander Okuliar.

Mr. Kappos argued that the patent system has been disabled and marginalized in its role of incentivizing innovation and bringing ideas from the university level to the marketplace for a variety of reasons. Mentioning a host of companies that agree, Mr. Kappos deemed the patent system broken, calling on congressional reform of 35 U.S.C. § 101. From his observations, our restricted statutory scheme has caused investment to flee elsewhere, recent Supreme Court decisions have resulted in decreased overall investment, and venture capital funding is decreasing in patent-reliant sectors.

Pertinent to regulation and antitrust enforcement concerns, several of the panelists pointed to the March 2020 FTC-DOJ Joint Statement as a positive step forward. The statement outlined ways that firms, including competitors, can engage in collaboration for the purpose of public health and safety protection without violating the antitrust laws. Mr. Kovacic called on further FTC and DOJ action, explicating that those agencies have the capacity to analyze the effects of previous policymaking on the life science sector that can provide useful guidance moving forward.

Session VII: Competition and Collaboration: Examining Competitive Effects and Antitrust Risks Associated with Collaborations

In this session, the panelists discussed what makes a collaboration or partnership successful and procompetitive, antitrust concerns that can arise, and potential safeguards that can reduce antitrust risk.

The panel included William Diaz of Amgen, Andrew Finch of Paul Weiss, Prof. Luba Greenwood from Harvard University, and Chuck Loughlin of Hogan Lovells, and it was moderated by the DOJ’s Jennifer Dixton, Special Counsel for Policy & Intellectual Property, Antitrust Division.

Mr. Finch started off the penultimate panel by identifying the hallmarks of a successful joint venture: mechanisms that enable participants in the venture to increase output, clear boundaries as to the scope of the venture, and safeguards to make sure the venture stays “on the rails.” He proposed a “red-yellow-green” system that lawyers can articulate to business clients to let them know what can and cannot be shared, and when to seek advice from counsel for further guidance. Mr. Diaz echoed those sentiments, adding that ventures need a clear charter from the onset of the relationship that provides comprehensive plans for what to do in a variety of scenarios. Also, he continued, it is imperative to keep detailed meeting agendas to avoid members straying into discussions that might raise antitrust concerns.

The panelists went on to commend the usefulness of the DOJ’s Business Review Letters, which provide unusually expedited advisory guidance to firms wondering whether their collaborations will pass antitrust muster. Ms. Dixton, fielding those comments as moderator and in her capacity at the DOJ, then posed a final question to the panel: What else could the Department be doing? The panelists called for updates to the FTC-DOJ Antitrust Guidelines for Collaborations Among Competitors. While still useful, the Guidelines have not been updated in twenty years, leaving many gray areas in today’s world.

Keynote Speech

The keynote speech was delivered by Dr. Elias Zerhouni, Emeritus Professor of Radiology and Biomedical Engineering and Senior Advisor at Johns Hopkins Medicine.

Dr. Zerhouni shared his wealth of life science knowledge and experience in the day’s keynote speech. He made a key point when it comes to the need for collaboration to combat COVID: no single university, single company, or even single country is able to address modern biological issues by themselves—the amount of data generated in the life science sector is simply beyond the capabilities of one player.

Dr. Zerhouni agreed with some of the previous panelists that developments in the patent system have changed the structure of innovation and created a difficult market to negotiate in. He argued for statutory reform that will allow US innovators to pool their IP together to operate more effectively. Although there are many contributing factors to the current state of the patent system, Dr. Zerhouni referred to the Federal Circuit’s 2002 decision in Madey v. Duke University as an inhibitor to pre-competitive innovation. (Madey held that the experimental use defense applied only to acts taken for amusement, to satisfy curiosity, or for strictly philosophical inquiry).

Session VIII: Academics’ and Economists’ Views on Collaboration and Competition

The final panel featured the perspectives of experts from academia and the field of economics, including Prof. Rena Conti from Boston University, Prof. Scott Hemphill from NYU School of Law, Richard Manning of Bates White Economic Consulting, and Prof. Joanna Shepherd from Emory Law School, and it was moderated by Patrick Greenlee, Economist with the DOJ’s Antitrust Division.

Mr. Greenlee asked one question of the final panel: Are the current prices for life sector IP too high? That question fielded diverse opinions and evaluations. Mr. Manning said there is no cause for worry because the profit margins “aren’t that big.” Prof. Shepherd agreed, citing historically low lifetime revenues for new drugs, resulting in decreasing returns on R&D for pharmaceutical companies. Prof. Hemphill took a step back, arguing that our economic knowledge is still too limited to know the optimal level for the collaboration-competition tradeoff. Prof. Conti contended that we may be looking at the system entirely wrong—when evaluating mergers and the value of IP assets, the value of labor and manufacturing assets and access to raw materials is often overlooked.

Conclusion

Overall, the second day of the DOJ-USPTO workshop on promoting innovation in the life science sector left us with a lot to consider in the coming months as COVID vaccinations continue to be developed and distributed. What is the optimal level of antitrust enforcement? How can firms effectively, and legally, take advantage of licensing strategies and collaboration to expedite development? Does our patent system need to be reformed in the wake of the pandemic? These are questions of the upmost importance for our industry leaders and policymakers to consider and solve.

Tags Antitrust, COVID-19, DOJ, Joanna Shepherd, life sciences, Makan Delrahim, pandemic, patents, pharma, pharmaceutical patents, USPTO

USPTO-DOJ Workshop on Promoting Innovation in the Life Science Sector: Day One Recap

Post author By Joshua Grove
Post date January 12, 2021

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

night view of Washington, D.C. By Colin Kreutzer

This past fall, the United States Patent and Trademark Office (USPTO) hosted a joint workshop with the Department of Justice (DOJ) entitled Promoting Innovation in the Life Sciences Sector and Supporting Pro-Competitive Collaborations: The Role of Intellectual Property. Nyeemah Grazier and Brian Yeh (USPTO Office of Policy and International Affairs (OPIA)) emceed the day’s events, which focused on the impact of patents and copyrights on collaboration and innovation in the life sciences sector. The goal was to promote dialogue between members of the innovation and legal communities working in the life sciences sector to combat the COVID-19 pandemic. Video of day one of the workshop is available here, and our summary of day two is available here.

Opening Remarks

In his opening remarks, Andrei Iancu (USPTO Director and Under Secretary of Commerce for Intellectual Property ) discussed the main purpose of the workshop—to find ways of accelerating American innovation in the life sciences. “Our goal is to enhance collaboration among innovative companies and researchers to solve one of the most vexing health problems we have faced as a country in the past century.” He highlighted the ongoing collaboration between the USPTO and DOJ as “truly innovative.”

Director Iancu also emphasized the positive impact of the patent system on our economy and quality of life throughout American history. He cited the discovery and development of insulin treatments as an example of how innovations have alleviated suffering and helped treat diseases. As an economic example, he noted the massive biopharmaceutical company Amgen, whose co-founder Dr. Marvin Caruthers had once told him that patents are so critical to life sciences development that, without them, the U.S. “would not have a serious biotechnology industry.” Finally, Director Iancu pointed out a number of pandemic-era efforts that the USPTO has undertaken to keep innovation moving forward.

Session I: The role of patents in research and development of therapeutics, diagnostics, and vaccines, particularly during pandemics

In the first session of the day, Ms. Genia Long (Senior Advisor, Analysis Group) gave a presentation on the relationship between patents and innovation, and the value of innovation in improving the diagnostic and therapeutic arena of public health.

Ms. Long explained that technological innovation is a key determinant of economic and public health progress. Disease and morbidity rates have consistently declined over the last thirty years for many serious illnesses such as heart disease, cancer, HIV, and hepatitis. Much of the overall increase in life expectancy in the United States is attributable to pharmaceutical developments. These sorts of improvements are expected to continue into the future, so long as we continue to incentivize and support development in cutting-edge technologies such as gene and cell therapies.

Ms. Long built on Director Iancu’s comments about the core reason that patents are essential in drug development. The cost of developing a drug is extremely high, while the cost of copying a successful drug is very low. Without granting pharmaceutical companies a limited period of exclusivity in which their costs may be recovered, those massive R&D investments are guaranteed to be a losing bet. Realizing this in advance, of course, companies would choose not to make such investments in the first place. And we would have to do without many of the life-enhancing treatments that we now enjoy.

Ms. Long also discussed the importance of collaboration between all government actors who play a role in this innovation ecosystem. In addition to the patenting process, FDA approval takes a large part of the time and money in bringing a drug to market. The Hatch-Waxman Act provided a patent restoration period, adding time to the end of a patent life to compensate for time lost while seeking approval. But the market exclusivity period has remained steady at about 12 to 13 years. Meanwhile, patent challenges from generic drug makers have increased dramatically. Collaboration is important because pharmaceutical patents are “embedded within a larger and somewhat complex system of rules and incentives which act together to yield market results.”

Session II: Update on USPTO guidance on patentability of life science inventions

Next, Ali R. Salimi (Senior Legal Advisor, Office of Patent Legal Administration (OPLA), USPTO) gave an overview of the most recent USPTO guidance to examiners on disclosure and subject matter eligibility analysis.

Mr. Salimi first discussed the rather convoluted history of patent eligibility under 35 U.S.C. § 101. In brief, the Supreme Court has developed a set of judicial exceptions to the four statutory categories of patent-eligible subject matter: process, machine, manufacture, and composition of matter. The Court views these exceptions as necessary to prevent the basic tools of scientific and technical work from becoming inaccessible. As currently written, those exceptions are laws of nature, natural phenomena, and abstract ideas.

Mr. Salimi outlined the 2012-2014 decisions in Mayo v. Prometheus, AMP v. Myriad Genetics, and Alice Corp. v. CLS Bank, as well as the responses by the USPTO in updating its guidance to examiners. The final result was the 2019 updated patent eligibility guidance (PEG) version of the Alice-Mayo test.

The current form of the test is given in a flow chart shown at 42:50 of the video presentation. Step One of the test asks whether the claim is directed to a statutory category. If so, Step Two then asks if a judicial exception renders the claim ineligible—if the claim does recite a judicial exception, it will still satisfy §101 so long as it integrates the exception into a practical application and recites “additional elements that amount to significantly more” than the exception.

Mr. Salimi finished by briefly discussing the three disclosure requirements under § 112: written description (whether the disclosure demonstrates that the inventor actually had possession of the invention), enablement (whether the description enables a person of ordinary skill to make and use the invention), and best mode (whether the inventor knows and discloses the best mode of carrying out the invention).

Overall, he says the 2019 PEG has been well received by both examiners and practitioners, and it has done much to further the goals of clarity and certainty in patent prosecution.

Session III: Life science patents in practice

In this session, two speakers shared their own experiences with how the patent system protects inventions in the life sciences, promotes innovation and facilitates collaboration in life sciences.

David E. Korn (VP of Intellectual Property and Law at PhRMA) spoke first. As a representative of a trade association of leading biotech firms, he elaborated on the concerns about recovering large investments made in the prior remarks of Director Iancu and Ms. Long.

Mr. Korn explained that not only is the drug development process lengthy and costly, but it is also uncertain. Discovery of an active compound is just the beginning. It is followed by initial laboratory and animal testing. If successful, the developer may file an Investigational New Drug (IND) application and begin phase I and phase II clinical trials. This is followed by larger and longer phase III trials involving thousands of patients. If that is successful, the developer may file a new drug application (NDA) to the FDA and seek approval. Only after this process is the drug ready, and drugs can fail at every step along the way. Mr. Korn said the cost of developing a successful drug can be as much as $2.6 billion when accounting for unsuccessful candidates. He likened the process to a rocket mission in which “everything needs to work perfectly at each stage.”

Moreover, Mr. Korn continued, R&D doesn’t stop after FDA approval. There is ongoing research into new forms, new indications, methods of delivery, and multiple therapies. All of these innovations require additional investment and further FDA approval. He credited a number of laws with supporting pharma innovation and collaboration, including the Hatch-Waxman Act, the Orphan Drug Act, and the Bayh-Dole Act.

Next, Dr. Gaby Longsworth (Director, Sterne Kessler Goldstein & Fox) discussed life sciences patents from the perspective of a practicing patent attorney. Patents do more than allow drug developers to recoup their investments. By offering an alternative to holding information as a trade secret, they allow for more open collaboration and licensing in order to “build a common innovation instead of battling it out in litigation.” Patents can also be sold or used as collateral for a bank loan, providing research incentives and support to smaller companies.

First, Dr. Longsworth gave an overview of the three main forms of small molecule drug applications under the Federal Food, Drug, and Cosmetic Act. An NDA can be filed under § 505(b)(1) for new drug compounds, as well as new formulations or indications of an existing drug. A second type is found under § 505(b)(2), known as the paper NDA, for modifications of previously approved drugs based on safety and effectiveness data of the prior drug. Finally, there is the Abbreviated NDA (ANDA) under § 505(j). This is a duplicate application used by generic manufacturers, and it relies on studies provided in the NDA for the original drug.

Next, Dr. Longsworth discussed the general protection strategies of drug innovators. One goal is to build a strong blocking patent. She explained the importance of understanding the different types of patents available when drafting the application in order to obtain claims that will not be easily designed around. Another goal is to create a patent thicket to deter competition. It can become very difficult and expensive for generic competitors to file an ANDA when there are many patents to analyze, and it becomes more difficult for competing innovators to mount successful attacks at the Patent Trial and Appeal Board.

Panel Discussion I: Are changes to U.S. patent law needed to better support innovation in life sciences and the development of COVID-19 solutions?

After hearing several presentations on the effect of economic incentives on innovation, a panel discussion addressed the question of whether changes are needed to improve innovation, collaboration, or access to medicines. Moderated by Director Iancu, the panel featured: The Honorable Paul R. Michel (Chief Judge, U.S. Court of Appeals for the Federal Circuit (CAFC) (Ret.)), Steven Caltrider (VP and General Patent Counsel, Eli Lilly & Co.), Karin Hessler (Assistant General Counsel, Association for Accessible Medicines (AAM)), Arti Rai (Elvin R. Latty Professor of Law and Director, Center for Innovation Policy, Duke University School of Law), Corey Salsberg (VP, Global Head IP Affairs, Novartis), Hans Sauer (Deputy General Counsel and VP, Biotechnology Innovation Organization), and Hiba Zarour (Head of IP Department, Hikma Pharmaceuticals).

Judge Michel noted the problems with uncertainty in § 101 eligibility of patent claims, which he referred to as a “systemic failure” of the courts. If businesses and venture capitalists cannot reliably predict whether a claim will survive § 101, there is less appetite for investment in R&D, less commercialization, and ultimately fewer new medicines. He credited the 2019 USPTO guidance as an improvement but lamented that the Federal Circuit had not gone along with it. The best hope for clarity would not come from the courts, he said, but through new legislation.

Mr. Salsberg noted that from a medical standpoint, the two most important elements for getting through the pandemic are innovation and collaboration. He said the patent system is the reason we entered this pandemic with “libraries of millions of novel compounds that are ready to test right now.” Likewise, it is why we have the tools to sort through these compounds and identify those that can help with COVID-19.

Speaking for generic manufacturers, Ms. Zarour argued that innovation is not solely dependent upon IP protection: “Innovation will happen.” And while previous speakers had argued that it increases innovation, she cited a study from the Swiss Federal Institute of Intellectual Property that found an upper limit on the benefits of patent protection. At a certain point, the stifling effects of IP protection outweigh the benefits of incentivizing investments. She proposed a solution in which the initial patent for a drug would grant the inventor a period of exclusivity (e.g., 15 years) but subsequent or ancillary patents to the same drug would go into a pool that could be voluntarily licensed. This would strike a balance between the need for innovation with the need for access, and it could prevent the “evergreening” of drug patents.

Ms. Hessler also advocated for such a balance. She agreed that strong innovation incentives are responsible for the thousands of COVID-19 compounds that are already in late-stage clinical trials. At the same time, she used an example previously cited by Dr. Longsworth—a 1,000-patent thicket for a biologic manufacturing process—to argue that excessive protection can unduly impede medical access. She mentioned a proposal to cap the number of patents that can be inserted into the biologics patent dance as being a potential solution.

Ms. Hessler also said that settlement of patent litigation is becoming increasingly difficult due to “a patchwork of inconsistent regulations” and disagreement between state and federal laws. Legal settlements can expedite access of generic and biosimilar drugs by over a decade. Mr. Caltrider agreed that the settlement issue is of great importance, and that states such as California are creating laws that interfere with the federal world of patents.

Mr. Sauer said that collaboration is important in biotech because many companies in that field are small. Licensing and technology transfer are critical to the proper function of our biotech ecosystem. The small innovators must have a secure means of profitably transferring their technology to the larger manufacturers who are better equipped to fully develop and deliver the product to the public.

Mr. Caltrider pointed out that the USPTO has remained open for business since the very beginning of the COVID pandemic. Touching on the initiatives that Director Iancu had mentioned in the opening remarks, he praised the certainty and reliability of our patent system as essential to keep “the machinery working” to promote collaboration and innovation.

Prof. Rai pointed to a recent DOJ business review letter which declined to raise antitrust issues over a collaboration between large manufacturers of monoclonal antibodies. She said that from a COVID perspective, the patent system has been doing great. But she echoed Judge Michel’s remarks about § 101, calling the situation a “mess that needs to be fixed.” Finally, she described a forthcoming study on biologics litigation and a proposal regarding manufacturing process patents that are filed after FDA approval.

Session IV: Copyright and innovation in the life sciences

The final sessions of the day shifted to the role of copyright law in the life sciences. Session IV include three short presentations from: Michael W. Carroll (Professor of Law and Faculty Director, Program on Information Justice and Intellectual Property (PIJIP), American University Washington College of Law (WCL)), Mark Seeley (Consultant, SciPubLaw LLC and Adjunct Faculty, Suffolk University Law School), and Bhamati Viswanathan (Affiliate Professor, Emerson College).

Ms. Viswanathan began with a brief overview of copyright law and the balancing act it performs. Most people think of copyrights in terms of music and literature, but it can also protect software, databases, and other compilations of information. Like the patent system, one goal of copyright law is to promote innovations and investment in copyrightable works. And like patents, there exists an issue of balancing the incentive of ownership rights with access to those works. In the scientific community, copyright law seeks to balance the tendency for sharing and collaboration with the rights of the creators of original works.

Mr. Seely discussed two areas of scientific interest that are protected by copyright: scientific journals and searchable data repositories. He says that scientific knowledge is most valuable “when it is organized, standardized, updated, and indexed.” Publishers of scientific data are a crucial component of the current effort against COVID-19 because they provide useable data about known drugs, potential reactions, and other adverse events. By combining “published content, patents, with tactical mining capabilities and analytics,” these works support the pipeline of new treatments.

Prof. Carroll talked about the manner of distributing research outputs within the copyright system. The internet age has brought opportunities for vast dissemination of information. The challenge presented by open access movements has been in finding ways to utilize the internet’s potential while still protecting the IP rights of authors. Open access promotes innovation because it increases exposure of publications to readers beyond those within the narrow discipline from which the publications come, sparking new ideas in an interdisciplinary environment. It also provides information to under-resourced readers in low-income areas or developing nations. Prof. Carroll presented the standardized copyright licenses he helped develop with the Creative Commons organization, which allow authors to choose the particular terms and conditions under which their works are reused or distributed.

Panel Discussion II: Copyright discussion: Enhancing access to life science: How copyright can create incentives or barriers to building data or information pools, and related licensing

Session IV led immediately to a panel discussion by the presenters. Moderator Susan Allen (Attorney-Advisor, OPIA, USPTO) led a discussion of the role of copyright in disseminating information and supporting licensing models.

COVID-19 has resulted in many publishers voluntarily releasing relevant copyrighted information. Asked how this would affect publishing systems long term, Mr. Seeley was doubtful of any major impact. But he noted that downloads of information were much higher due to this change. If society decides, after the fact, that the emergency release was highly beneficial, it could impact future decisions about information sharing.

Prof. Carroll took the increase as an affirmation that open access systems are helping to fill an unmet need. He added that the pandemic has accelerated another trend towards the growth of pre-print servers—publication vehicles for preliminary results and yet unreviewed materials—but noted the growing pains associated with a public that is not accustomed to this type of early information sharing: “clinically actionable unreviewed results that then make it into the media can actually be harmful.”

Asked what role the government can play in supporting copyrights and information sharing, each panelist weighed in. Mr. Seeley said it’s important that governments do more than mandate certain types of publication and sharing—it should be coupled with funding to help make it happen. Prof. Carroll pointed to the recommendations he and others presented as part of the National Academies of Science, Engineering, and Medicine. He echoed Mr. Seely’s call for better funding of information infrastructure such as repositories, as well as better standardization. Ms. Viswanathan voiced support for initiatives like the Open Science Policy Platform (OSPP) and said she would like to see more empirical research on the impact that it has on business models of various stakeholders.

Closing Remarks

In closing, Mr. Yeh thanked the participants and encouraged all to tune in for day two of the conference, which would “explore different ways to expedite the development and use of therapeutics, diagnostics, and vaccines through competition, collaboration, and licensing.”

Tags Andrei Iancu. COVID-19, DOJ, intellectual property, life sciences, pandemic, USPTO

Patent Law

Professor Daryl Lim Explores the Doctrine of Equivalents and Equitable Triggers

Post author By Joshua Grove
Post date December 17, 2020

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

files labeled as "patents" By Yumi Oda

The term “claims” may not mean much to many, but it means the world to most patent practitioners. As Judge Giles Rich once observed, “[t]he name of the game is the claim.” Claims are the “metes and bounds” of a patent application, essentially defining what the inventor invented. In this sense, claims have a notice function to demarcate the scope of the claimed invention, which in turn allows subsequent inventors to “design around” the disclosed invention and come up with new inventions. This is exactly the type of incentive the U.S. Constitution envisioned “[t]o promote the Progress of . . . useful Arts.”

The interpretation of claims (i.e., claim construction) often becomes a central issue in patent litigation. Notably, patent protection is not limited to literal infringement, but may extend to “equivalents” of the patented invention. Rooted in equity, the doctrine of equivalents (DOE) asks whether the accused device contains elements “equivalent” to each claimed element of the patented invention. However, since the DOE affords courts flexibility in expanding claims and undermining the notice function of patent claims, practitioners and judges have long struggled with its inherent conflict.

This is the challenge tackled in a recent paper that was published in the Santa Clara High Technology Law Journal entitled Judging Equivalents by Professor Daryl Lim, a Professor of Law at John Marshall Law School. The paper, which comes from CPIP’s Thomas Edison Innovation Fellowship program, provides a contemporaneous, empirical survey of the law and literature on the DOE over the past 150 years in order to help contextualize its nature and evolution and to chart its future.

The Doctrine of Equivalents

Prof. Lim starts by looking at the origins and scope of the DOE. Claims were in fact not required in earlier patent legislation, so infringement at the time focused on the “essence” of the patented device through an inquiry into equivalence. This earlier tradition persisted even after the requirement for claims was established in 1836. However, with the introduction of “peripheral claims” (claims setting forth the exact boundary of the claimed invention) by 1870, the focus shifted to the literal language of the claims, with equivalents invoked only when required by equity.

Due to what Prof. Lim calls “ad hoc and amorphous boundaries,” as well as the fact-intensive inquiry involved, the DOE remains unruly and challenging to administer. Originally, the Supreme Court formally recognized the DOE in 1853, which may have been justified by the Lockean theory of justly rewarding inventors for their labor. However, in 1950, the Supreme Court shifted its focus and justified the DOE as an equitable safeguard for the defendant’s unjust enrichment. Nevertheless, the DOE was met with skepticism from its early days, and the creation of the Federal Circuit in 1982, although meant to resolve circuit splits, only added to the existing confusion. Moreover, when the Supreme Court set out a couple of limitations to the doctrine in 1997, questions regarding the applicability of these limitations further deepened the division.

Prof. Lim then moves on to describe the history and development of the doctrine in three words: incoherence, incompetence, and irrelevance.

To begin, “incoherence” refers to the courts’ “perennial struggle for clarity.” The Supreme Court has so far employed two alternative tests—“function-way-result” test and “insubstantial differences” test—without clarifying which test should be chosen. Additionally, the Federal Circuit has also failed to provide guidance regarding an appropriate formula, which in turn has forced lower courts to determine equivalents on an ad hoc basis. Prof. Lim partly attributes this “incoherence” to the inherently ambiguous nature of claim construction, which involves a question of law (what the claims mean to a hypothetical “person of ordinary skill in the art”) and a question of fact (whether the accused device falls within the scope of the claim, literally or under the DOE).

This ambiguity has long raised concern in the courts about the jury’s competence in comparing the construed claims to the accused device, which leads to the next issue of “incompetence.” The jurors’ expected incompetence in the face of the complexity of their given task, combined with their substitution bias generally favoring inventors and the Patent Office and procedural limitations resulting in the unreviewable status of their general verdicts, led to the conventional wisdom that judges, who are often “repeat players” in patent litigation, are better suited for this task. However, Prof. Lim’s data notably shows that the jury’s incompetence may in fact have little factual basis.

Finally, Prof. Lim describes a substantial decline in cases where the DOE applies. This “irrelevance” of the DOE now leads us to the question of what role equitable triggers play in this decline.

Equitable Triggers

Equitable triggers can affect how widely or narrowly courts apply the DOE. Surprisingly enough, most (i.e., over 70%) of the cases examined did not even mention equity in any form, despite the doctrine’s equitable origin, suggesting the equitable nature of the cases did not determine their outcomes.

1. Copying. Copying is permitted as an intermediate step of designing around the patent as long as the defendant can show his or her new device “does more than just narrowly escape the claim.” Overall, copying has not been a prominent type of trigger, but it played a significant role in rivalry. In fact, among different types of equitable triggers, patentees were most favored with copying.2. Design-Arounds and Independent Invention. Design-arounds and independent invention (rivals producing their devices without knowledge or notice of the patented device) are justified by the basis of leapfrogging. Consistent with the copying cases, non-rival defendants were significantly more likely to prevail compared to rival defendants.

3. Pioneer Inventions. In contrast, pioneer inventions are justified because of a wide gap between the claimed invention and the prior art. Prof. Lim concludes that pioneer inventions were extremely rare, and no meaningful conclusion was drawn here, indicating that there is little incentive for patentees to even assert pioneer status.

In addition to these equitable triggers, Prof. Lim carefully draws a distinction between the DOE and means-plus-function (MPF), which is another common deviation from the literal meaning of the claims. MPF under 35 U.S.C. § 112(f) allows the scope of claims to be expanded from their literal meaning to capture similar structures described in the specification, performing the same function as the structure recited in the claim, and known at the time of patent filing. In contrast, the DOE expands beyond what has been described in the specification, and limits equivalence to newer technologies developed after the patent grant.

Limitations

Subsequently, Prof. Lim looks at four court-established bars to the DOE, each penalizing patentees “for sloppy or overly aggressive patent drafting and for strategic behaviors that shift the cost of information . . . from an inventor to the Patent Office and the public.” In practice, these limitations allow judges to absolve defendants from baseless patent infringement claims, as shown by summary judgment being the dominant procedural posture.

1. Prosecution History Estoppel. Prosecution history estoppel (PHE) prevents patentees who made a certain type of narrowing amendment from exploiting the DOE and asserting a contradictory, broadening scope of the claims later. Overall, defendants were on the winning side across the almost entire 10-year period in cases where PHE was employed, confirming the conventional wisdom that patentees generally do worse than defendants.2. “All-Elements” Rule. The “all-elements” rule requires the DOE to be applied to individual limitations of the claim, rather than to the invention as a whole. While patentees generally did worse than defendants in these cases, patentees did significantly better in 2009-2018 compared to earlier years.

3. Prior Art Bar. The prior art bar limits patentees to a scope that avoids prior art. Patentees won by a slight margin here—by far the best among the four limitations to the doctrine—because of the patentees’ expertise to navigate prior art arguments and survive summary judgment motions filed by defendants.

4. Public Dedication Rule. The public dedication rule assumes that, when a patentee discloses but fails to claim subject matter, the unclaimed subject matter is dedicated to the public. This is to prevent patentees from filing broad disclosure, while presenting only narrow claims (to avoid the claims being examined in view of more prior art), and then exploiting the DOE later only to capture the broad disclosure. While this rule continues to play a relatively small role, patentees did better more recently, as with PHE and the “all-elements” rule.

In conclusion, Prof. Lim’s paper offers a contemporaneous, doctrinal, and empirical survey of the doctrine of equivalents. And as the first empirical study on “equitable triggers,” it can fill a significant gap in the literature and help evidence-based decisionmaking in patent law and policy.

Tags Daryl Lim, doctrine of equivalents, patents, Yumi Oda

Patent Law

Professor Tabrez Ebrahim on Artificial Intelligence Inventions

Post author By Joshua Grove
Post date November 24, 2020

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

By Tabrez Ebrahim

Artificial intelligence (AI) is a major concern to the United States Patent and Trademark Office (USPTO), for patent theory and policy, and for society. The USPTO requested comments from stakeholders about AI and released a report titled “Public Views on Artificial Intelligence and Intellectual Property Policy.” Patent law scholars have written about AI’s impact on inventorship and non-obviousness, and they have acknowledged that the patent system is vital for the development and use of AI. However, there is prevailing gap and understudied phenomenon of AI on patent disclosure. The Center for Protection for Intellectual Property (CPIP) supported my research in this vein through the Thomas Edison Innovation Fellowship.

In my new paper, Artificial Intelligence Inventions & Patent Disclosure, I claim that AI fundamentally challenges disclosure in patent law, which has not kept up with rapid advancements in AI, and I seek to invigorate the goals that patent law’s disclosure function is thought to serve for society. In so doing, I assess the role that AI plays in the inventive process, how AI can produce AI-generated output (that can be claimed in a patent application), and why it should matter for patent policy and for society. I introduce a taxonomy comprising AI-based tools and AI-generated output that I map with social-policy-related considerations, theoretical justifications and normative reasoning concerning disclosure for the use of AI in the inventive process, and proposals for enhancing disclosure and the impact on patent protection and trade secrecy.

AI refers to mathematical and statistical inference techniques that identify correlations within datasets to imitate decision making. An AI-based invention can be either: (1) an invention that is produced by AI; (2) an invention that applies AI to other fields; (3) an invention that embodies an advancement in the field of AI; or (4) some combination of the aforementioned. I focus on the first of these concerning the use of AI (what I term an “AI-based tool”) to produce output to be claimed as an invention in a patent application (what I term “AI-generated output”).

The use of AI in patent applications presents capabilities that were not envisioned for the U.S. patent system and allows for inventions based on AI-generated output that appear as if they were invented by a human. Inventors may not disclose the use of AI to the USPTO, but even if they were to do so, the lack of transparency and difficulty in replication with the use of AI presents challenges to the U.S. patent system and for the USPTO.

As a result of the use of AI-based tools in the inventive process, inventions may be fictitious or imaginary, but appear as if they had been created by humans (such as in the physical world) and still meet the enablement and written descriptions requirements. These inventions may be considered as being either imaginary, never-achieved, or unworkable to the inventor, but may appear as if they were created, tested, or made workable to reasonable onlookers or to patent examiners.

The current standard for disclosure in patent law is the same for an invention produced by the use of AI as any invention generated by a human being without the use of AI. However, the use of AI in the inventive process should necessitate a reevaluation of patent law’s disclosure function because: (1) AI can produce a volume of such fictitious or imaginary patent applications (that meet enablement and written descriptions requirements) that would stress the USPTO and the patent system; and (2) advanced AI in the form of deep learning, which is not well understood (due to hidden layers with weights that evolve) may insufficiently describe the making and using of the invention (even with disclosure of diagrams showing a representation of the utilized AI).

Such AI capabilities challenge the current purposes of patent law, and require assessing and answering the following questions for societal reasons: Should patent law embrace the unreal fictitious and imaginary AI-generated output, and if so how can the unreal be detected in patent examination from disclosure of that created by a human? Should inventors be required to disclose the use of AI in the inventive process, and should it matter for society?

Patents are conditioned on inventors describing their inventions, and patent law’s enablement doctrine focuses on the particular result of the invention process. While patent doctrine focuses on the end state and not the tool used in the process of inventing, in contrast, I argue that the use of AI in inventing profoundly and fundamentally challenges disclosure theory in patent law.

AI transforms inventing for two reasons that address the aforementioned reasons for reevaluation of patent law’s disclosure function: (1) The use of an AI-based tool in the invention process can make it appear as if the AI-generated output was produced by a human, when in fact, it was not so; and (2) even if an inventor disclosed the use of an AI-based tool, others may not be able to make or use the invention since the AI-based tool’s operation may not be transparent and replicable. These complexities require enhancing the disclosure requirement, and in so doing, present patent and trade secret considerations for society and for inventors.

The USPTO cannot reasonably expect patent examiners to confirm whether the patent application is for an invention that is fictitious or unexplainable in an era of increasing use of AI-based tools in the inventive process, and heightened disclosure provides a better verification mechanism for society. I argue that enhanced patent disclosure for AI has an important role to play in equilibrating an appropriate level of quid pro quo.

While there are trade-offs to explaining how the applied AI-based tools develop AI-generated output, I argue for: (1) a range of incentive options for enhanced AI patent disclosure, and (2) establishing a data deposit requirement as an alternative disclosure. My article’s theoretical contributions define a framework for subsequent empirical verification of whether an inventor will opt for trade secrecy or patent protection when there is use of AI-based tools in the inventive process, and if so, for which aspects of the invention.

There are a plethora of issues that the patent system and the USPTO should consider as inventors continue to use AI, and consideration should be given to disclosure as AI technology develops and is used even more in the inventive process.

Tags AI, artificial intelligence, disclosure, Edison Fellowship, patent, Tabrez Ebrahim

Patent Law Patent Theory

Rethinking § 101: Professor Talha Syed Takes a Different Look at Subject Matter Eligibility

Post author By Joshua Grove
Post date November 19, 2020

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

shelves full of books By Colin Kreutzer

When most people think of patentability requirements, they think of whether an invention has been “done before.” Novelty and non-obviousness under 35 U.S.C. §§ 102 and 103 are certainly key hurdles to obtaining a patent. But courts are often tied up over the more fundamental issues presented in § 101. That provision addresses patent eligibility itself—whether an idea, new or not, falls within some class of inventions that qualify for patent protection.

Section 101 of the Patent Act of 1952 says that a patent may be issued to “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter.” It seems fairly straightforward. But the common law decisions, both pre- and post-1952, are riddled with exceptions and questions that the statute hasn’t resolved on its own. How do we treat intangible notions, such as scientific principles or other abstract ideas? Is a business method a patentable process? What property rights can be granted to an inventor who discovers a fundamental law of nature? And should we treat the realm of pure mathematics as being fundamental to nature itself? As we move deeper into the information age, these questions aren’t getting any simpler.

In a new paper from CPIP’s Thomas Edison Innovation Fellowship program entitled Owning Knowledge: A Unified Theory of Patent Eligibility, Professor Talha Syed of Berkeley Law argues that the confusion surrounding this issue is two-fold. First, it results from our failure to develop a functionality doctrine that can clearly distinguish technological applications of knowledge from other forms of knowledge. Second, he offers a root cause of this failure. There is a distracting preoccupation in patent law with “physicalism,” that is, the notion that a patent is awarded for a thing (tangible or not) rather than for knowledge of that thing.

In order to move forward, Prof. Syed states that we must first unwind the physicalist assumptions that are tangled up in our § 101 analyses. Only then can we develop a functionality doctrine free of those encumbrances. As he puts it, “[r]econstructing eligibility doctrine requires, then, extricating incipient functionality concerns from the physicalist thicket, developing their independent basis, and properly following through on their doctrinal implications.”

On its face, when someone proposes that we fundamentally rethink a subject, it sounds as if they are calling for some kind of seismic shift. But Prof. Syed argues that his proposal merely provides a clearer perspective on a subject that has long needed clarity. Rather than requiring any major statutory reforms or total abandonment of our jurisprudence, he says that the “dephysicalization” of patent eligibility serves to better integrate our existing statutory and common law frameworks.

How We Got Here

The questions mentioned above are not new. To understand the current state of things, Prof. Syed first details some of the cases that led us here, beginning with Neilson v. Harford, Le Roy v. Tatham, Boulton & Watt v. Bull, among others.

Neilson is instructive. It was an 1841 English case that dealt with an improvement to an industrial process. The applicant’s invention involved pre-heating air before it was injected it into an iron furnace. The Court of Exchequer expressed some doubts as to whether this intangible aspect of an industrial process was truly patentable. In the end, it only granted a patent because the inventive principle—that the pre-heated air provides better ignition efficiency than cold air—was embodied in a physical machine designed for that purpose. The patentee “does not merely claim a principle, but a machine embodying a principle.”

Neilson and the others influenced a number of cases in the 20th century American courts. Prof. Syed points to three variants of the general rationale. While a principle on its own is not patent eligible, it becomes so: (1) in an embodied application of the principle, (2) if it is delimited to a specific zone of industry, or (3) in an “inventive” mode of application.

These variants illustrate a schism already appearing by the end of the 19th century as to why an “abstract” idea may be unpatentable. If “abstract” is taken in the dephysicalized sense, then the problem may only be cured by applying the idea in some physical form. Alternatively, it could be abstract in the sense that it is a pure unapplied principle. In this case, patent eligibility may not require a tangible form, but instead some delimitation to a specific industrial zone of applicability. Prof. Syed attributes what came next at least partly on a failure to recognize and fully develop these distinctions.

Principles, in the abstract, were but one concern. The eligibility problem was compounded by similar questions about patent rights over natural phenomena. In the 1948 case of Funk Brothers Seed Co. v. Kalo Inoculant Co., the Supreme Court considered whether a set of naturally occurring bacterial strains—unmodified except by their selective combination—was a patentable invention. They answered “no.” Citing Le Roy, the Funk Bros. Court ruled that “patents cannot issue for the discovery of the phenomena of nature. . . . The qualities of these bacteria, like the heat of the sun, . . . are part of the storehouse of knowledge of all men.” Therefore, an invention based on a natural phenomenon must do more than rely upon “the handiwork of nature” in order to become patentable.

Then the waters got even muddier. At the crossroads of abstract principles and natural phenomena lies the fundamental concept of mathematics itself. In Gottschalk v. Benson, the Court addressed an algorithm for converting signals from one numerical form into a computer-friendly binary form. In Parker v. Flook, it was an algorithm for updating threshold alarm limits while monitoring certain chemical processes. In both cases, the Court held that the claimed invention was not a patentable process, but merely a mathematical formula which belonged to the “basic tools of scientific and technological work.”

However, both cases offered a different manner of distinguishing these abstract concepts from patentable inventions. Benson mentioned, but did not require, that an eligible process should transform a particular article or require a particular machine (much later, the Federal Circuit imposed the “machine-or-transformation test” as the sole test for eligibility, only to have it demoted to “useful tool” by the Supreme Court). Flook, on the other hand, looked for some “inventive” aspect that went beyond the algorithm itself.

The whole story is too convoluted to do it justice here. The strength of these various eligibility bars has fluctuated over the years. But through these cases and more, we arrived at the modern two-part test under Mayo Collab. Svcs v. Prometheus Labs, Ass’n for Molecular Pathology, Inc. v. Myriad Genetics, and Alice Corp. v. CLS Bank.

Quoting Alice, Prof. Syed lays out the test as:

(1) Step 1: First, we ask “whether the claims at issue are directed to” a law of nature, natural phenomenon, or abstract idea.(2) Step 2: If so, “we then ask, ‘what else is there in the claims before us,’” considering “the elements of each claim both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.” Step two of this analysis is “a search for an ‘inventive concept.’”

Critique of the Modern Test, and a New Proposal

Prof. Syed cites a fundamental disconnect in this test between its “why” and “how,” that is, why an invention is ineligible at all (claiming “basic building blocks” of scientific and technological work) and how it may become eligible (by containing an “inventive concept in application”). He asks, “[i]f the reason certain spaces of knowledge are ineligible is because they are ‘basic,’ then why doesn’t delimiting the claims to a zone of ‘application’ suffice for eligibility?”

Prof. Syed says that at each stage of our § 101 development, courts have touched on proper functionality issues only to leave them obscured by physicalist notions. He moves to recast the three exceptions as “laws of nature, products of nature, and abstract formulas.” More importantly, he insists that when discussing eligible categories or their exceptions, we preface them with the phrase “knowledge of.” So, knowledge of a law of nature can include discovered knowledge of some natural process. To analyze whether that knowledge should be patent-eligible, we should focus on the functional application of that knowledge. The inventor must go from “knowing that” to “knowing how.”

Prof. Syed uses Neilson as an example to distinguish between understanding (having basic knowledge) and intervening (having applied knowledge). A claim to “[k]nowledge of the principle that heated air promotes ignition better than cold” is not patent eligible. But why? Not because it is an abstract idea, but because it claims the sheer knowledge that some process exists rather than knowledge of how to do something with it. This may not seem like a huge difference from the analysis we have now in the Alice/Mayo test. It isn’t. But it might arguably be a clearer way of looking at things.

Prof. Syed’s version of the Alice framework would ask, at step one, whether the claim seeks to cover knowledge of a law of nature, product of nature, or abstract formula. If so, then step two asks whether the claim delimits the ambit of its coverage to a zone of practical application. Finally, he urges (as others have) that the § 101 analysis be kept separate from analyses of substantive issues under §§ 102 and 103: “claims should be truly evaluated ‘as a whole’ so that, for instance, a claim whose delimited application is obvious, but which also involves a nonobvious basic contribution, should pass matter under § 103 just as easily as one whose delimited application is itself nonobvious.”

Conclusion: Reconstructing § 101

Taking these considerations, Prof. Syed reconstructs § 101 into three patentability requirements for “inventions” or “discoveries” in the “useful arts”:

(1) Such “inventions” or “discoveries” must be conceived in a thoroughly dephysicalized way, as spaces of “knowledge of” a “process, machine, manufacture, or composition of matter.”(2) Such spaces of knowledge must be spaces of “useful”—i.e., applied or functional—knowledge.

(3) Finally, such candidate functional spaces of knowledge still need to satisfy the substantive requirements laid out in the rest of the statute to qualify for protection.

Prof. Syed further recasts the statutory categories of subject matter eligibility. Where the “process, machine, manufacture, or composition of matter” comprises one intangible process category and three tangible product categories, his version is the opposite. There are three distinct process categories and one category for knowledge of physical things:

(1) “Knowledge of” a way of doing something (so-called “functional” claims)(2) “Knowledge of” some thing, its structure, and at least one property (“product” claims)

(3) “Knowledge of” a way of making something (method-of-making process patents)

(4) “Knowledge of” a way of using something (method-of-use process patents)

This reconstruction reflects the two fundamental concepts of Prof. Syed’s paper—physicalism and functionality. In order to see the latter clearly, one must abandon the former. But Prof. Syed says that’s easier said than done: “What gives physicalism its lasting power in patents—what makes the spell linger—is, in fact, precisely functionality: it is precisely because patents properly obtain only in spaces of functional knowledge, or knowing how to do something, that it becomes easy to forget that they nevertheless still only obtain in spaces of functional knowledge, or knowing how to do something.” That could help explain why courts have long struggled with this deceptively complicated subject.

To read the paper, please click here.

Tags patent eligibility, patentability, Section 101, Supreme Court, Talha Syed

Patent Law

Christa Laser on Patent Law’s Equitable Defenses

Post author By Joshua Grove
Post date November 12, 2020

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

By Wade Cribbs

In patent law, equitable defenses can play an essential role in multi-million-dollar patent infringement cases. Unclean hands, misuse, or estoppel can render a potential verdict unenforceable. CPIP Edison Fellow and Assistant Professor of Law at Cleveland-Marshall College of Law Christa J. Laser dives into the unique and unsettled role of equity in her Edison Fellowship paper, Equitable Defenses in Patent Law, which is forthcoming in the University of Miami Law Review.

Professor Laser compares two theories to determine how courts might interpret undefined language governing equitable defenses in patent statutes, given that the Supreme Court has repeatedly dodged the issue. One interpretive method is a traditional point of view, the faithful agent approach, that advocates for courts to only interpret the statutes’ scope from the legislature’s intent when crafting them. The alternative approach, referred to as dynamic statutory interpretation, suggests that courts should determine what the law ought to be given the vague nature of patent statutes. The unique relationship between patent law and equity and the historically broad language of patent statutes frame the discussion about how courts should interpret equitable patent defenses.

Professor Laser sets the stage by discussing the historical distinction between law and equity before merging in 1938. The distinction in patent law is that most patent claims had been brought in equity since 1870. In the Patent Act of 1870, Congress granted equity courts the ability to award actual damages in addition to equitable remedies, effectively giving equity courts the power of law and equity regarding patents.

This early delegation of patent law to equity courts fits with Congress’s lack of specific rules for patents. Equity has historically been more flexible than law. A common argument is that Congress’s lack of specific rules for patents is to enable a common law approach to patents. Congress establishes the rough outlines of the law while leaving the finer contours for the courts, and flexibility is a necessary trait in establishing these contours. However, even if that was once the case, equity has been constrained to standards that resemble the law. In 1952, Congress amended the Patent Act in an attempt to stabilize the common law approach by codifying it.

The question now is, did Congress codify preexisting decisional law or expand it? Also, what methods should courts take to determine the answer? The confusion and its specific relation to equity arose out of the 1952 amendment removing the specifically delineated equitable defenses established under the 1870 Act and replacing them with a defense of unenforceability. Further confusion arose because Congress eliminated the statement that the listed “defenses may be pleaded in any suit in equity for relief against alleged infringement” and left it to state only that “the following shall be a defense in any action.” While committee notes clarified that unenforceability covered the previously recognized equitable defenses, there was no comment on what “defenses in any action” meant. Previously, all equitable defenses were not understood to bar all claims under both law and equity. For example, estoppel barred claims in law and equity, but laches was limited to actions at law.

Professor Laser proposes three possible interpretations of the “defenses in any action” language. The phrase could mean that the defenses would apply equally in law and equity, that the equitable defenses would only bar claims in equity, or that courts should adopt a case-by-case approach, drawing guidance from prior case law. Professor Laser tosses out the first two alternatives as too stark a change from established law, given the lack of legislative comment. The case-by-case approach is unproblematic when it comes to laches and estoppel because their applications to law and equity claims is well delineated. However, for unclean hands, inequitable conduct, and patent misuse, the case law is much less clear, and the disagreement over statutory interpretation is necessary.

As a case-by-case approach is necessary, Professor Laser outlines the case law before 1952 and the impact the amendment had on unclean hands, inequitable conduct, and patent misuse defenses.

For prior case law on unclean hands, Professor Laser looks at Keystone, Hazel-Atlas, and Precision Instruments. Keystone highlights that unclean hands can serve as a bar to equitable relief when plaintiffs commit acts such as bribery or suppression of evidence. Hazel-Atlas allowed unclean hands to bar a judgment at law in an infringement suit because the plaintiff based both the patent itself and the infringement case upon bribery and fraud. In Precision Instruments, the court dismissed the case because blackmail by the plaintiff was an act related to the cause of action that transgressed equitable principles. The case law before 1952 illustrates that equitable claims are barred when a party commits an unconscionable act related to the cause of action, and legal claims are barred if fraud leads to a legal judgment.

After the 1952 amendment, the Federal Circuit has expanded unclean hands to bar both legal and equitable relief without the related cause of action requirement. In Gilead v. Merck, the Federal Circuit held that unclean hands constituted grounds for summary judgment on both legal and equitable claims where an attorney had given false testimony in support of unethically obtained patent strategy information. Pre-1952 case law did not bar legal relief when the conduct was not inequitable, but in Gilead, the court held that conduct that was unclean hands—but that was not inequitable—still barred legal relief.

Some courts believe that inequitable conduct arose out of the unclean hands doctrine. However, inequitable conduct was a defense against patent claims in the first Patent Act passed in 1790. Inequitable conduct and invalidity overlap heavily. Inequitable conduct requires a deceptive intent with misleading information to render a patent invalid. Invalidity requires no such intent. Previously, the reasoning for pleading inequitable conduct instead of invalidity was that inequitable conduct had infectious invalidity. If a claim was invalid, only that claim was invalid and did not affect any other claim in the patent. However, inequitable conduct in a claim would infect the entire patent making it invalid. Congress removed this distinction in 2011 when it passed the America Invents Act and removed the infectious invalidity result from inequitable conduct. The doctrines is now no longer distinguishable from invalidity.

Patent misuse is improperly using a patent outside of the scope of the patent grant. The Supreme Court, in Continental Paper Bag, held that an unused patent was not a misused patent. On the other hand, in Morton Salt and B.B. Chemical, the Supreme Court found that product tying did qualify as patent misuse, and selling a patented machine cannot be tied to the sale of an unpatented dependent product. Before 1952, patent misuse was only an equitable defense to prevent infringing injunctions. There has not been a patent misuse Supreme Court case since 1952, so how the amendment affected the doctrine has yet to be seen.

The policy arguments supporting a dynamic statutory interpretation are that courts more readily see the impact of policy decisions and therefore are better suited to craft policy. Also, Congress acts too slowly to handle the rapid advancement of the latest technology.

The counterpoint, Professor Laser explains, is that slow and deliberate policymaking is advantageous in patent law. Much of a patent’s value comes from the predictability of patents. A single case changing the landscape of an industry or invalidating hundreds or thousands of patents would ruin faith in the patent industry. Congress is slow because it takes time to gather information in ways that courts cannot. This ability to obtain the necessary knowledge to craft patent legislation is essential in the highly technical application of broad policy. Finally, courts are not policymakers, and judges who are not practiced in crafting policy may prove hesitant or rash in their decisions. While rash decisions have apparent consequences, even inaction will lead to unintentional policy. Judges are accustomed to making decisions based on precedent, not broad policy implications.

Professor Laser closes by suggesting a third strategy. Congress could delegate its authority to an agency to handle the ever-changing patent landscape. This would have the positives of superior access to knowledge and practiced policymakers without Congress’s gridlock and combative lobbying forces. The fact is, until the Supreme Court or Congress provides guidance on how to handle the vague nature of patent statutes, lower courts are left on their own to consider an ever-growing list of factors when determining equity’s impact on patent litigation.

To read Professor Laser’s paper, please click here.

Tags Christa Laser, equitable defense, equitable remedy, patent law, Wade Cribbs

C-IP2 News Patent Law

CPIP 2020 Fall Conference: Day Two Recap

Post author By Joshua Grove
Post date October 22, 2020

The following post comes from Wade Cribbs, a 2L at Scalia Law and a Research Assistant at CPIP. This is the second of two posts (see day one recap) summarizing our two-day 5G at the Nexus of IP, Antitrust, and Technology Leadership conference that was held online from George Mason University Antonin Scalia Law School on October 7-8, 2020.

By Wade Cribbs

On October 7-8, 2020, CPIP hosted its Eighth Annual Fall Conference, 5G at the Nexus of IP, Antitrust, and Technology Leadership, online from George Mason University Antonin Scalia Law School in Arlington, Virginia. The conference featured a keynote address by the Honorable Andrei Iancu, and it was co-hosted by Scalia Law’s National Security Institute (NSI).

This conference addressed fast-emerging intellectual property (IP), antitrust, and technology leadership issues in the 5G and “Internet of Things” innovation ecosystem. Coverage included standard-essential patents (SEPs) along with established and emerging markets on a regional and global basis. Speakers were drawn from the academic, industry, and policymaking communities, with an emphasis on using objective fact-based analysis to explore points of convergence among legal, economic, and geopolitical perspectives on the IP and regulatory infrastructures that underlie these critical industries.

SESSION 3: MARKETS WORK: PRIVATE ORDERING MECHANISMS IN PATENT-INTENSIVE MARKETS

The first panel of the day consisted of academics and industry experts discussing the path moving forward for intellectual property licensing and how it relates to 5G technology. CPIP Executive Director Sean O’Conner moderated the panel, directing a conversation on the mechanisms for controlling intellectual property licensing and the conflict between antitrust policy and private-ordering initiatives. Panelists included Prof. Jonathan Barnett of the University of Southern California, Dr. Bowman Heiden of the University of California, Berkeley, David Kappos of Cravath, Swain & Moore, and Luke McLeroy of Avanci.

Prof. Barnett opened the panel with a discussion of the difference between the theoretical models of IP licensing and the actual standard-essential patent market. According to the models, the burden of many standard-essential patents involved in developing a smartphone should cripple the smartphone market. Smartphones should cost thousands of dollars due only to the cost of royalties necessary for production. However, as Prof. Barnett pointed out, smartphones are more available than ever and at every price point. The empirical evidence confirms the theoretical models’ fears are inaccurate as the aggregate royalty burden is in the single digits.

Prof. Barnett went on to illustrate how this empirical evidence is shaping the DOJ Antitrust Division’s view of IP licensing. The fear has shifted from patent holdup, large patent royalties preventing innovation and competition, to a fear of patent holdout. Prof. Barnett explained that patent holdout is becoming common place in the market where a company’s most efficient method of obtaining an IP license is through litigation as opposed to negotiating a competitive licensing fee. Prof. Barnett concluded by suggesting that patent holdout occurs where property rights are not strong and clear. Where injunctive relief is awarded readily and aggressively to license owners, in the United Kingdom and Europe, patent holdout is not a prevalent issue.

Dr. Bowman framed the issue as an interplay between the public and private spheres. For the private sphere to produce, protection of its investment in the form of patents is necessary. The conflict is the public’s access to the private sector’s production is easily frustrated by a large number of standard-essential patents in an industry. Because access to the product is in the interest of the private sphere, the private sphere has solved its own problem. Industries require an agreement from a patent owner to license its patents on terms that are fair, reasonable, and non-discriminatory (FRAND). Without a FRAND agreement, a patent cannot be a standard-essential patent.

Dr. Bowman then examined the implementation of FRANDs in the wireless communication ecosystem. He argued that the inherent vagueness of FRANDs are a necessary feature as it allows for varied and customized solutions. Additionally, the public sphere, or other members of the private sphere, can obtain an advantage through antitrust authorities. However, innovation on the private side is always preferable to antitrust regulations.

Mr. Kappos began by emphasizing the need for balance between innovators and implementers. Current innovation-based standards create enormous consumer surplus, totaling nearly four trillion dollars in the wireless communication industry. He went on to say that innovation-based standards are far superior to previous proprietary, winner-take-all standards that produced limited consumer surplus.

Mr. Kappos further developed Prof. Barnett’s point about the need for injunctive relief to protect innovators. He highlighted that preliminary injunctive relief is available in other IP hubs, such as China and Germany, but that the United States has all but given up on awarding injunctive relief to innovators. In many cases, even when injunctive remedies are available, more is needed to compensate innovators for the lost opportunity, income, and effort. He then added that there needs to be a new recognition in license negotiations. Those who delay or try to avoid paying for licenses should be forced to pay a premium once they finally comply.

Mr. McLeroy discussed the nature of his licensing company Avanci. The company streamlines licensing of cellular standard-essential patents for internet connectivity in commercial products such as cars. It simplifies licensing by compacting all standard-essential licenses, from multiple patent owners, necessary for a product and offering them to companies in the industry at a flat rate. Avanci lowers the transaction costs by removing the time needed to identify the patents necessary and evaluate what the proper fee should be. This reduction in transaction costs allows the innovator to spend money that would have been spent on searching and negotiation back into research and development.

In response to a question, Mr. McLeroy discussed the way that 5G licensing will be administered. One potential method is based on usage. He compared a water meter intermittently transmitting data with autonomous cars constantly interacting with other vehicles and intersection equipment. The licensing fee for the water meter would be much lower than for the autonomous car due to the significantly lower scale of data transfer necessary to operate it.

All panelists agreed that strong and clear property rights in innovation are necessary for a productive global licensing market. Injunctive relief is also a necessary tool that must be made available to those developing innovative standard-essential patents.

SESSION 4: TECHNOLOGY LEADERSHIP IN 5G/IOT MARKETS

The second panel of the day focused on what steps should be taken to protect American leadership in the innovative technology sectors such as 5G networks. Moderator Jamil Jaffer, Founder & Executive Director of the National Security Institute (NSI), led the discussion on how the federal government can best handle the global development of 5G standards and protect American innovation from the competitive threat of China. Panelists included Megan Brown of Wiley Rain, Dr. Jonathan Putnam of Competition Dynamics, the Hon. Randall Rader of the Federal Circuit, and Andy Keiser of Navigators Global.

Dr. Putnam opened the discussion by addressing China’s patent program. Dr. Putnam described a model he created using research and development, gross national product, population, and other national indicators of inventive behavior. He noted that China subsidizes patent applications, resulting in the largest number of patents worldwide. Dr. Putnam addressed whether China has become the world leader in innovative technology. The model shows that while Chinese patent application numbers are dramatically increasing, the quality of those patents are notably lower than the rest of the world.

Dr. Putnam proposed three methods for the United States government to protect domestic interests without following the Chinese model of subsidizing innovators. First, the U.S. should unify its fractured view of antitrust on the global market. Presenting a common understanding of antitrust principles would remove a substantive fracture in U.S. foreign policy that works to China’s advantage. Second, the U.S. should take a more aggressive stance in enforcing fair trade on the world stage. There is systemic theft of foreign patent technology that must be curtailed. Third, in the pharmaceutical industry, private companies can take advantage of basic research conducted by the National Institute for Health. Applying this model to other technological sectors would be beneficial for American innovation as basic research is the foundation for most innovation.

Judge Rader agreed with Dr. Putnam that a large quantity of inferior patents is produced by China. However, Judge Rader distinguished the average patent seeker from the Chinese mega-corporations such as Huawei that produce innovation technology. Chinese mega-corporations are like American innovation leaders such as Qualcomm. Judge Rader explained that China built its platform out of subsidies in the past, but currently individual companies like Huawei devote large percentages of their gross budget to research and development that makes China a competitive innovator. China cannot be dismissed as a competitor built on unfair advantage. Instead, he urged, China must be confronted as an innovative equal that is willing to spend and supply the technology of the future.

Mr. Keiser identified China’s unique control over its market through tariffs, credit, and market manipulation. Unlike any other economy of similar size, its unique control positions China perfectly to advance its interests in innovation. Given that China is the United States’ biggest geopolitical competitor, China poses a serious threat to national security. Mr. Keiser pushed back against Judge Rader’s equal competitor view of China. He cited cases from both the United States and Poland where Huawei was found to have committed espionage and theft of competitors’ patents. Regardless of how China arrived at its current state, he said that Chinese 5G networks are not trustworthy due to consistent exploitation of foreign patents.

Ms. Brown voiced her concerns regarding the impulse to respond to China’s action by nationalizing 5G. She suggested optimizing regulation by removing the fragmented regime currently impeding innovation. The hands-off approach of Congress has facilitated longstanding U.S. leadership in innovation, and unprecedented congressional involvement would only harm American innovators. Ms. Brown framed Mr. Keiser’s point about the trustworthiness of Chinese 5G equipment and networks as a question of government intervention. Assuming these networks cannot be trusted, she asked how much the government should intervene to address the problem. In response to Dr. Putnam’s proposal of government-subsidized basic research, Ms. Brown argued that the focus should be real-world research and development with telecommunication carriers.

Ms. Brown warned that, specifically relating to 5G standard setting, the government must be careful to expend influence in its natural spheres. The 3rd Generation Partnership Project (3GPP) is a private sector, global body that leads the development of standards in 5G technology. As a global private sector organization, the federal government, in the form of the Department of Defense, has no business influencing 3GPP policy. If any government activity is warranted, she continued, it should incentivize more private American businesses to participate in and influence private organizations like 3GPP.

All the panelists agreed that the focus should be on American policy promoting domestic innovation as opposed to overreacting to the imposing threat of China. Foremost on policy makers minds must be preserving and promoting innovation from garage inventors to Qualcomm. However, Mr. Keiser stated that the scale of theft of intellectual property by China is too large to be ignored. Congressional protection in the form of laws such as the CHIPS Act, a bill to incentivize and subsidize research into semiconductors, is necessary.

CLOSING REMARKS

CPIP Executive Director Sean O’Connor and CPIP Deputy Director Joshua Kresh closed out the two-day conference by thanking all of the moderators, panelists, and attendees for making the conference such a huge success. They also thanked CPIP staff members, including Kristina Pietro, Devlin Hartline, and Mary Clare Durel, for working behind the scenes and the generous sponsors of the conference whose financial support made it possible.

Tags 5G, CPIP, Internet of Things, Joshua Kresh, Judge Rader, Sean O'Connor, Wade Cribbs

Conferences Patent Law

CPIP 2020 Fall Conference: Day One Recap

Post author By Joshua Grove
Post date October 20, 2020

The following post comes from Terence Yen, a 4E at Scalia Law and a Research Assistant at CPIP. This is the first of two posts (see day two recap) summarizing our two-day 5G at the Nexus of IP, Antitrust, and Technology Leadership conference that was held online from George Mason University Antonin Scalia Law School on October 7-8, 2020.

CPIP 2020 Fall Conference flyer By Terence Yen

OPENING REMARKS & INTRODUCTIONS

CPIP Executive Director Sean O’Connor opened the conference by welcoming everyone to this year’s event and explaining that the conference was limited to a few hours each day to avoid “Zoom burnout.” Prof. O’Connor discussed the developing technologies of 5G and Internet of Things (IOT), which represents the systems that connect everyday objects and allow them to communicate with each other in real time. This technology increases the capability of a wide variety of industries, including automotives, home appliances, healthcare systems, and more.

CPIP Deputy Director Joshua Kresh then highlighted the various topics that would be covered during the four panel sessions and the keynote address and fireside chat by USPTO Director Andrei Iancu. Mr. Kresh also thanked the CPIP team, including Kristina Pietro, Devlin Hartline, and Mary Clare Durel, and the conference sponsors for making the conference possible.

SESSION 1: USING DATA TO INFORM POLICY: EMPIRICAL EVIDENCE ON SEPS, SSOS AND FRAND ROYALTIES

The first panel focused on the use of data to inform policy, compared with the use of theoretical models for standard-essential patents (SEPs), standard setting organizations (SSOs), and fair reasonable and non-discriminatory (FRAND) commitments. The panelists included Dr. Anne Layne-Farrar of Charles River Associates, Prof. Stephen Haber of Stanford University, and Prof. Daniel Spulber of Northwestern University, and the panel was moderated by Ted Essex of Hogan Lovells.

The panelists discussed how one of the biggest issues in this field is the setting up of royalty rates for industries such as the automotive sector, which utilize 5G and IOT. In the past, economists have warned the public about the looming problem of royalty stacking. Royalty stacking is a theory about industry collapse, wherein market power is exercised excessively and repeatedly. The theory is based on the concept that one monopoly is bad, two monopolies is worse, three monopolies is even worse, and so on. The fundamental concept is that each monopolist sets its price without taking into consideration the prices charged by other monopolists, leading to a situation where, as the number of patent owners increases, the aggregate royalty grows unsustainably and output collapses.

Despite the fears generated by royalty stacking models, however, this issue has not seemed to materialize in the real world. For example, the actual cumulative royalty yield on a smartphone is less than one-twentieth of that predicted by royalty stacking models. The reason we don’t observe this in the real world is that the theory is built on the notion of “one-time” play, meaning the people setting royalties do so independently of each other. As the data shows, this is an inaccurate portrayal of how royalty rates are set up.

The panel then went on to explain that it is important to check theories against data and real results. At the beginning of FRAND litigation, courts worried that implementers were being anticompetitively harmed by high royalty prices. As such, decisions were issued with the policy goal of protecting implementers. Over time, however, we have begun to see more balance from the courts and a higher demand for data prior to the acceptance of theoretical models.

Courts have now recognized that there is a very real problem of people using products without licenses, and that strategic or opportunistic behaviors can happen on either side of the bargaining table. As such, they are now more willing to act as gatekeepers to enforce good faith on both sides, often falling back to comparable licenses as a basic standard.

With this new emphasis on fair play from the courts, most royalty decisions are now being settled through out-of-court negotiations. Evidence shows that practically all SEP licenses are now subject to negotiation. While patent pools are often cited as the main exception, even they generally still have the option of negotiation. Evidence also suggests that SSOs develop standards through consensus decisions that are procompetitive, and most SEP licenses are mostly negotiated and enforced with contract law, making litigation rare. FRAND commitments have generally been found to be clear and effective, and it is believed that excessive regulation and antitrust intervention would impede standardization. Data shows that FRAND commitments encourage the adoption of standards, do not generate market power, and are consistent with invention and innovation.

The increase in negotiation eliminates many predicted outcomes for theories, which makes data even more important. Accurate real-life data informs public policy, and research in this field is shifting towards new techniques for gathering and analyzing big data, as well as increased use of AI and big data.

This trend helps to avoid policy decisions based on guesswork and provides evidence-based analysis helpful to courts and agencies.

KEYNOTE ADDRESS & FIRESIDE CHAT

“IP controls the destiny of virtually every industry.” Andrei Iancu, Under Secretary of Commerce for Intellectual Property and Director of the USPTO, started his keynote address with this bold statement. Advanced digital technologies are transforming virtually every product, manufacturing process, and logistical system, and protecting the IP rights to those technologies is not only a right mentioned in the Constitution, but is the foundation of wealth creation for our nation.

As Director Iancu explained, the advancement of 5G and IOT technology will form the backbone of a new system of autonomous vehicles, smart cities, intelligent appliances, telerobotic surgeries, precision agriculture, and much more. However, our nation faces the reality that the United States is falling behind in the intellectual property arms race.

Twenty years ago, the number of patent applications being filed by Chinese citizens was practically zero. By 2018, however, that number reached almost 1.5 million per year, approximately three times the number of American applications. Chinese applications have increased at an average rate of 26% each year, as opposed to a 2-3% annual increase for the U.S. While some may call into question the quality of these Chinese patent applications, Director Iancu noted that the sheer magnitude indicates that China is at minimum attending diligently to its intellectual property portfolios in areas critical to the next technological revolution. This remarkable trend can in part be attributed to China’s extensive system of government incentives for IP, which include tax incentives, subsidies for patents, and other monetary and nonmonetary rewards. As foreign nations like China continue to outperform the U.S. in amassing a rich depth of technological patents, U.S. companies may end up paying billions in royalties as those patents become increasingly vital to the upcoming technological revolution.

Director Iancu went on the explain that the U.S. must take steps to ensure that American technology is able to keep up with foreign technological development. To do so, we must have a robust system of predictable patent rights to maintain the incentives to innovate. If we are forced to use only technologies that are in the public domain, standards will inevitably be stunted.

Recognizing that private sector inventions are the primary source of SEPs, Director Iancu explained the need for a market-driven licensing system and the role of the government in the transition to 5G. He emphasized that it is the Patent Office’s goal to maintain balance between licensors and licensees, and he ended his presentation with the promise that the “USPTO will be steadfast in ensuring that we have a fair and balanced licensing system driven by the needs of the industry.”

Director Iancu then went on to have a fireside chat with CPIP Executive Director Sean O’Connor, taking questions from the audience at the end.

SESSION 2: IP MEETS ANTITRUST AROUND THE GLOBE: POLICY DEVELOPMENTS IN THE LEGAL TREATMENT OF SEPS AND FRAND

The final session of the day included panelists Maureen Ohlhausen of Baker Botts, Dr. Urška Petrovčič of the Hudson Institute, Prof. Daniel Sokol of the University of Florida, and Prof. John Yun of Scalia Law. The panel was moderated by Prof. Henry Butler, Dean of Scalia Law and Executive Director of the law school’s Law & Economics Center.

The panelists discussed how innovation is crucial to the U.S. economy and how IP has been one of the primary drivers of the economy for the last 60 years. Throughout that time, IP and antitrust law have consistently been found to be complementary fields, as both are aimed at encouraging innovation, industry, and competition.

FRAND issues arise in the context of standards setting, as SDOs commonly adopt patent policies to promote access after a standard is adopted. In tech areas especially, hundreds of patents are often necessary to create a working product. This requires standards for fair and reasonable licensing policies, though there is some dispute as to whether the breach of FRAND commitments is an antitrust concern. Blanket licensing policies can offer higher efficiencies related to reduced transaction costs and patent peace, but the concern is that it may be a form of tying arrangement. However, it should be noted that U.S. antitrust agencies have long acknowledged that blanket licensing does not always raise antitrust concerns.

One issue of contention is the topic of injunctions. The confusions raised on the subject have drawn the attentions of the DOJ and FTC, most recently with their post-Madison approach. The DOJ holds that patent holdup is not an antitrust problem and that SSOs should better protect against holdout to ensure maximum incentives to innovate. It believes that patent owner injunction rights should be protected, not persecuted, and that a unilateral and unconditional refusal to license a valid patent should be per se legal. The FTC agrees with some of that approach, with the opinion that breach of FRAND alone is not an antitrust problem, but both hold-out and hold-up can raise serious concerns.

As a general trend, U.S. courts have begun to move away from the idea that IP owners are very constrained by antitrust and must license. However, the advent of 5G is sure to raise a whole new slew of issues, and the 5G battle will be a very different conflict from what we have seen before. Up until now, many of the most politically connected companies around the world have not played a significant role in this debate. With 5G being the future of IOT, however, many more elements of the supply chain will be involved on this issue, and many previously uninvolved players will want to shake up the case law in their favor.

Thus far, European courts have also moved towards the trend of acknowledging that FRAND compliance may make injunctions more difficult, but there are no rules specifically barring injunctions, so the option remains on the table. European courts have generally put forth the opinion that they want to protect the interests of both implementers and SEP owners, and they are currently less willing to adopt conclusions based on categorical rules or abstract theories, preferring evidence-based analysis instead.

At the center of this multisided issue is SSOs. SSOs balance the interests of two competing groups with different incentives: the innovators and the implementers. By design, SSOs are avoiding cracking down on the issue with bold decisions so as not to disrupt the balance between two sides.

The panelists agreed that, as of right now, nothing is set in stone. Antitrust, especially in combination with IP and contract law, remains in a state of flux. This has led to a lot of uncertainty in investments, which may impact our ability to innovate. Amongst its concluding thoughts on the issue, the panel noted that there are titanic conflicts yet to come, and as far as this field is concerned, “winter is coming.”

Tags 5G, Andrei Iancu, Internet of Things, Joshua Kresh, patent holdout, patent holdup, Sean O'Connor

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