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Antitrust Patent Law Pharma

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

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.

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Copyright Patent Law Pharma

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

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.”

Categories
Patents

New CPIP Policy Brief: Barnett on the End of Patent Groupthink

a hand reaching for a shining key hanging among dull keysIn a new CPIP policy brief entitled The End of Patent Groupthink, CPIP Senior Fellow for Innovation Policy Jonathan Barnett highlights some cracks that have emerged in the recent policy consensus that the U.S. patent system is “broken” and it is necessary to “fix” it. Policymakers have long operated on the basis of mostly unquestioned assumptions about the supposed explosion of low quality patents and the concomitant patent litigation that purportedly threaten the foundation of the innovation ecosystem. These assumptions have led to real-world policy actions that have weakened patent rights. But as Prof. Barnett discusses in the policy brief, that “groupthink” is now eroding as empirical evidence shows that the rhetoric doesn’t quite match up to the reality. This has translated into incremental but significant movements away from the patent-skeptical trajectory that has prevailed at the Supreme Court, the USPTO, and the federal antitrust agencies.

Prof. Barnett first looks at how, for the past decade or so, the groupthink about “royalty stacking” and “patent holdup” has led to efforts by the FTC and DOJ Antitrust to limit the enforceability and licensing of standard-essential patents (SEPs) that underlie the global smartphone market. However, this past December, the DOJ and USPTO changed course, saying now that SEP owners should be treated just like any other patent owner and instead expressing concerns about the possibility of “patent holdout” by well-resourced infringers. As Prof. Barnett explains, the theories and stylized models that influenced these federal agencies are now being displaced by empirical data and real-world models that better reflect how the smartphone market actually operates.

Turning to the Supreme Court, Prof. Barnett discusses the overlooked dissent in Oil States by Justice Gorsuch, which was joined by Chief Justice Roberts, in 2018. On the one hand, the Oil States majority continued the Court’s recent spate of cases reflecting the groupthink skepticism towards patents. Justice Gorsuch’s dissent, on the other hand, perhaps reflects a nascent movement among some members of the Court to revisit this conventional wisdom. Prof. Barnett points out other underdiscussed examples of this growing phenomenon within the Court, from cabining the powers of the PTAB in SAS Institute, to questioning the PTAB’s immunization from judicial review in Cuozzo, to finding that federal agencies lack standing to invoke AIA challenges in Return Mail.

Finally, Prof. Barnett addresses the current move away from the old groupthink at the USPTO, where the current leadership has expressed its support of robust patent protection. For starters, empirical evidence has discredited the widely-repeated view that the USPTO is a “rubber stamp” that approves almost all patent applications. As to inter partes reviews (IPRs), Prof. Barnett notes that, early on, institutions and invalidations were the common outcome. While this could support the conclusion that “bad” patents were being struck down, the data is also consistent with the conclusion that the process is sometimes being used opportunistically to invalidate “good” patents. Responding to this concern, recent changes in the examination process, such as the narrower claim construction standard and broader claim amendment opportunities, may enable patentees to survive unjustified validity challenges at the PTAB.

Moving forward, Prof. Barnett suggests that the tide may be turning in the patent policy world as widely shared assumptions behind patent-skeptical groupthink are subjected to rigorous empirical scrutiny. The inescapable truth is that the U.S. innovation economy has flourished while commentators have suggested it should have languished under the supposed burdens of strong patent protection. Prof. Barnett points out that skeptics may have failed to appreciate how robust patents support private incentives to bear the high costs and risks of innovation and commercialization. Current signs of a “redirect” from the old groupthink are a welcome change for preserving the intricate infrastructure that supports a vigorous innovation ecosystem.

To read the policy brief, please click here.

Categories
Antitrust Patent Licensing

Department of Justice Recognizes Importance of Reliable Patent Rights in Innovation Economy

dictionary entry for the word "innovate"It is undeniable that the patent system has been under stress for the past decade, as courts, regulators, and even the Patent Office itself (as the newly confirmed Director Andrei Iancu has acknowledged) have sowed legal uncertainty, weakened patent rights, and even outright eliminated patent rights. This is why a series of recent speeches by Assistant Attorney General Makan Delrahim—head of the Antitrust Division at the Department of Justice—have signaled an important and welcome policy change from the past decade. It’s just one step, but it’s an important first step to restoring reliability and predictability to property rights in patents, which, as Director Iancu has also been saying in recent speeches, drives innovation and economic growth by promoting investments by inventors, venture capitalists, and companies in the new inventions that make modern life a veritable miracle today.

Delrahim’s speeches are important because one significant point of stress for the patent system and the innovation economy over the past decade has occurred at the intersection of antitrust law and the licensing of patents in standard setting organizations (SSOs). Many people are unaware of this particular issue, and it’s understandable why it flies under the radar screen. The technical standards set by SSOs are the things that make everything work, such as electrical plugs, toasters, and pencils, among millions of other products and services, but they are not obvious to everyday consumers who use these products. Also, antitrust law is a complex domain of lawyers, policy-makers and economists. Still, the patented innovation that comprises technical standards, such as 4G, WiFi, USB, memory storage chips, and other key features of our smart phones and computers, have been essential drivers of innovation in the telecommunications revolution of the past several decades.

In a series of recent speeches, Delrahim has signaled an important and welcome change from his predecessors in how antitrust law will be applied to patented technology that is contributed to the standards that drive innovation in the high-tech industry. Delrahim’s predecessors at the DOJ gave many speeches criticizing (and instigating investigations of) alleged “anti-competitive behavior” by patent owners on technical standards. The DOJ’s approach was one-sided, unbalanced, and lacked evidence confirming the allegations of anti-competitive behavior. Instead, Delrahim is emphasizing the key importance of promoting and properly securing to innovators the technology they create through their long-term, risky, and multi-billion-dollar R&D investments (as succinctly described in two paragraphs here about Qualcomm’s R&D in 5G by an official at the Department of Treasury).

Delrahim has announced that he will return to an evidence-based, balanced antitrust policy at the DOJ. He will not take action against innovators unless there is real-world evidence of consumer harm or proven harm to the development of innovation. The absence of such evidence is well known among scholars and policy-makers. In February 2018, for instance, a group of scholars, former government officials, and judges wrote that “no empirical study has demonstrated that a patent-owner’s request for injunctive relief after a finding of a defendant’s infringement of its property rights has ever resulted either in consumer harm or in slowing down the pace of technological innovation.” It’s significant that Delrahim has announced that the DOJ will constrain its enforcement actions with basic procedural and substantive safeguards long provided to citizens in courts, such as requiring actual evidence to prove assertions of harm. This guards against unfettered and arbitrary regulatory overreach against innocent owners of private property rights. This self-restraint is even more important when overreach negatively impacts innovation, which portends badly for economic growth and the flourishing lives we have all come to expect with our high-tech products and services.

For example, Delrahim has rightly recognized that “patent holdup” theory is just that—a theory about systemic market failure that remains unproven by extensive empirical studies. Even more concerning, “patent holdup” theory—the theory that patent owners will exploit their ability to seek injunctions to protect their property rights and thus “holdup” commercial implementers by demanding exorbitantly high royalties for the use of their technology—is directly contradicted by the economic evidence of the smart phone industry itself. The smart phone industry is one of the most patent-intensive industries in the U.S. innovation economy; thus, “patent holdup” theory hypothesizes that there will be higher prices, slower technological development, and less and less new development of products and services. Instead, as everyone knows, smart phones—such as the Apple iPhone and the Samsung Galaxy, among many others—are defined by rapidly dropping quality-controlled prices, explosive growth in products and services, and incredibly fast technological innovation. The 5G revolution is right around the corner, which will finally make real the promise of the Internet of Things.

In sum, Delrahim has repeatedly stated that antitrust officials must respect the equal rights of all stakeholders in the innovation industries—the inventors creating fundamental technological innovation, the rights of the companies who implement this innovation, and the consumers who purchase these products and services. This requires restraining investigations and enforcement actions to evidence, and not acting solely on the basis of unproven theories, colorful anecdotes, or rhetorical narratives developed inside D.C. by lobbyists and activists (such as “patent trolls”). This is good governance, which is what fosters ongoing investments in the R&D that makes possible the inventions that drives new technological innovation in smart phones and in the innovation economy more generally.

We will delve more deeply into the substantive issues and implications of Delrahim’s recent speeches in follow-on essays. Since his speeches have been delivered over the course of the past six months, we have aggregated them here in one source. Read them and come back for further analyses of these important speeches (and more speeches that will likely come, which we will keep adding to the list below):

  • November 10, 2017. In a speech at the University of Southern California, Gould School of Law, Assistant Attorney General Delrahim discussed why patent holdout is a bigger problem than patent hold-up. “[T]he hold-up and hold-out problems are not symmetric. What do I mean by that? It is important to recognize that innovators make an investment before they know whether that investment will ever pay off. If the implementers hold out, the innovator has no recourse, even if the innovation is successful.” He further noted that antitrust law has a role to play in preventing the concerted anticompetitive actions that occur during holdout.
  • February 1, 2018. In a speech at the U.S. Embassy in Beijing, Delrahim noted that the proper antitrust focus should be on protecting the innovative process, not “short-term pricing” considerations. With this focus, using antitrust remedies should be approached with “caution.”
  • February 21, 2018. In a speech at the College of Europe, in Brussels Belgium, Delrahim observed that antitrust enforcers have aggressively tried to police patent license terms deemed excessive, and “have strayed too far in the direction of accommodating the concerns of technology licensees who participate in standard setting bodies, very likely at the risk of undermining incentives for the creation of new and innovative technologies.” The real problem and solution he noted is that the “dueling interests of innovators and implementers always are in tension, but the tension is best resolved through free market competition and bargaining.”
  • March 16, 2018. In a speech at the University of Pennsylvania Law School, Delrahim expanded on his detailed remarks from his talk at USC by adding some historical context from the founding fathers. He also made the core point that “patent hold-up is not an antitrust problem,” noting that FRAND commitments from patent owners are part of the normal competitive process and are therefore appropriately policed by contract and common law remedies. He further describes the necessary impacts of having a right to exclude in the patent right, including that the “unilateral and unconditional refusal to license a patent should be considered per se”
  • April 10, 2018. In a keynote address at the LeadershIP Conference on IP, Antitrust, and Innovation Policy in Washington, D.C., Delrahim emphasized the harm that can occur when “advocacy positions lead to unsupportable or even detrimental legal theories when taken out of context.” He specifically noted that some advocacy about patent hold-up could undermine standard setting as “putative licensees have been emboldened to stretch antitrust theories beyond their rightful application, and that courts have indulged these theories at the risk of undermining patent holders’ incentives to participate in standard setting at all.”
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Copyright Copyright Licensing

SONA and Songwriters Fight DOJ’s Misguided 100% Licensing Rule

Things are heating up in the lawsuit filed by Songwriters of North America and three of its members (SONA) challenging the new gloss of the Department of Justice (DOJ) on the 75-year-old consent decrees that govern the licensing practices of ASCAP and BMI, the two largest performance rights organizations (PROs). SONA sued the DOJ on September 13, 2016, questioning the DOJ’s reinterpretation of the consent decrees to require the PROs to license all of the works in their repertories on a 100% basis. As reported by Billboard yesterday, CPIP Senior Scholar & Director, Copyright Research and Policy Sandra Aistars is assisting SONA’s legal team at Gerard Fox Law PC in the litigation.

After completing a two-year review of the ASCAP and BMI consent decrees, the DOJ issued a statement on August 4, 2016, concluding that the decrees require the two PROs to offer only “full-work licenses.” On this view, the PROs would not be able to continue licensing the fractional interests in the musical compositions owned by the songwriters they represent. As the U.S. Copyright Office noted in early-2016, such fractional licensing is a “longstanding practice of the music industry.” Nevertheless, the DOJ claimed that the change “should not meaningfully disrupt the status quo in the licensing of public performance rights.”

This assertion was immediately challenged by the PROs. ASCAP President Paul Williams issued a statement that same day vowing to work with BMI “to overturn the DOJ’s decision” in both Congress and the courts. BMI filed a letter with District Judge Louis L. Stanton, who oversees BMI’s consent decree, announcing its intention to seek a declaration that the decree “does not require 100% licensing.” Six weeks later, Judge Stanton issued an opinion declaring that BMI’s consent decree “neither bars fractional licensing nor requires full-work licensing.” The victory was celebrated as a win for songwriters, and both ASCAP and BMI issued statements praising the decision. The DOJ has since appealed the issue to the Second Circuit.

In its complaint filed in the District of Columbia, SONA argues that the DOJ’s 100% licensing rule violates songwriters’ due process rights, both substantive and procedural, under the Fifth Amendment as well as the Administrative Procedures Act. Calling the DOJ’s rule “a dramatic departure from the status quo,” SONA points out that it will “limit and undermine the creative and economic activities” of songwriters by forcing them to “undertake the burdensome and potentially costly process of revisiting and amending their core business practices, private contracts, and collaborative relationships” in order to comply.

Arguing that the case should be dismissed, the DOJ challenges the standing of SONA to even invoke the court’s jurisdiction. The DOJ claims that any harm caused by the consent decrees is too speculative and remote to create an actual case or controversy, and it suggests that no songwriters have been deprived of any protected liberty or property interest under the Due Process Clause. In its opposition brief filed this past Tuesday, SONA strongly opposes that contention:

[P]laintiffs have alleged and will prove at trial that [the DOJ’s] new rule has caused immediate injuries and will cause imminent injuries to each plaintiff, thus establishing standing. Plaintiffs have also pleaded facts sufficient to show that the government’s action is interfering with their freedom to contract, freedom of association, and freedom of speech, and that the government has taken their valuable intellectual-property rights without compensation, thus violating plaintiffs’ substantive and procedural due-process rights.

Admonishing the DOJ’s “casual disregard for the welfare and livelihoods of America’s songwriters,” SONA points out that, under the DOJ’s new rule, songwriters will:

  • Be deprived of the ability to choose the PRO that will license their shares of coauthored works;
  • Be required to withdraw works from representation by ASCAP or BMI;
  • Have songs that they must license outside of the PRO system;
  • Need to cede administrative control over their copyrights, including the right to collect royalties, to unaffiliated third parties;
  • Be compelled to renegotiate existing contractual relationships on a song-by-song basis;
  • Be forced to consider whether they should decline to collaborate with creators who are not members of the same PRO; and
  • Have reason to consider withdrawing from ASCAP or BMI altogether.

    • Now that President Trump is in office, there is new leadership at the DOJ. Jeff Sessions was sworn in as the U.S. Attorney General earlier today, and Brent Snyder took over as acting director of the DOJ’s Antitrust Division less than three weeks ago. Just last week, the DOJ asked the Second Circuit for an extra 90 days to file its opening brief in its appeal of Judge Stanton’s ruling that the BMI consent decree does not require 100% licensing. According to the DOJ, the “requested extension is necessary to allow new leadership in the Department of Justice adequate time to familiarize themselves with the issues.” Perhaps there is hope that the DOJ will discontinue its misguided push for a 100% licensing rule that will inevitably threaten the livelihoods of songwriters.