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tag:blogger.com,1999:blog-29772979317313465242016-06-27T16:26:32.193-04:00Written DescriptionPatent & IP blog, discussing recent news & scholarship on patents, IP theory & innovation.Lisa Larrimore email@example.com:blogger.com,1999:blog-2977297931731346524.post-81600005630774326832016-06-27T15:21:00.001-04:002016-06-27T16:26:32.207-04:00Can You Induce Yourself to Infringe? The Supreme Court granted certiorari in Life Tech v. Promega Corp. today to resolve an interesting conundrum of statutory interpretation having to do with foreign infringement. I won't provide all the details here - as Jason Rantanen and Dennis Crouch have ably done so. [Note: it turns out that the issue on which the court granted cert. is the one I find less interesting. Thus, I've edited this!]

The question is deceptively simple: when a manufacturer creates an infringing product in a foreign country, here a "kit," is it infringement of the patent for the manufacturer to buy or make a key component of that kit and then export it from the U.S. to the foreign manufacturing facility?

You'd think there would be a clear answer to this question, but there isn't. The statute, 35 U.S.C. § 271(f)(1), states:

Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.
I had always assumed that the exported product is a substantial portion. The jury found it was, and if it turns out it wasn't, then that's just not that interesting a question. But I guess not - as this is the question that the court granted cert on. Indeed, on this issue only, as discussed further below.

The only thing that's interesting about the substantial portion question is that the exported product is a commodity, and thus 35 U.S.C. § 271(f)(2) - which enforces liability for exporting specially made products used for contributory infringement - doesn't apply. In other words, this is an interesting case because inducement liability is the only type of liability available, and inducement liability is really hard to prove, especially with a commodity.

But inducement is much easier here, theoretically, because the exporter is the same company as the foreign manufacturer. In other words, you can assume that the intent of the export was to combine the product into the infringing combination. And, yet, the court did not grant cert on that issue.

Instead, it will have to answer the question in a roundabout way - whether self-inducement is possible, but not when the component is a commodity. I suppose the Court could say, well, it's not the commodity that matters, but that it was too small a component. But isn't that a jury question? It seems to me that the only way the Court can reasonable make a distinction is either to make some new threshhold for what "substantial" is, or say that a commodity can never qualify. I don't like either of those options much, though - as I note below - the commodity angle has more legs given that the same commodity could be purchased from a third party without liability.

When this type of combination is done by a single manufacturer in the U.S., we call it direct infringement under § 271(a). The concept of inducement simply never comes up, and thus all the precedent to date discusses inducing another and spends no time on the importance of each component (indeed, § 271(b) says you can induce without selling anything!). So, to say that Life Tech is liable under § 271(f)(1) is to say that it has induced itself to infringe by exporting the commodity component that it could have bought from someone else who would not have induced it.

I don't think this was such a clear cut case on the self-inducing point, and I think that granting cert. on only the substantial component issue muddles the question. I offer two opposing viewpoints.

On the one hand, of course one can induce oneself for this statute. Foreign infringement liability was written in order to stop parties from avoiding the reach of a U.S. patent by shipping parts overseas to be assembled there. Viewed from this angle, it is not only rational but mandated that a company be held liable for shipping components overseas for the purpose of combining them into an infringing product. From this perspective, the policy goals of the statute dictate liability - even if the component shipped is a commodity.

On the other hand, the key component is a commodity, supplied by any number of companies. If Life Tech had only ordered the commodity from one of the other companies for shipment from the U.S., rather than supplying it from it's U.S. arm, it surely would not be liable. Viewed from this perspective, the extraterritorial reach of the statute makes little sense -- is a little silly even -- if it turns on a detail as minute as whether a company bought a commodity and shipped it overseas to itself or whether it bought a commodity and had the seller ship it overseas to itself.

My gut says follow the statute and find liability, even if avoiding liability is ridiculously easy. There are lots of statutes like that, and there's no reason why this shouldn't be one of them. In that sense, the Court's denial of cert. on the self-inducement issue makes sense, but I don't know what to make of the issue on which it did grant review.Michael Rischhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-43494975222990049312016-06-23T16:07:00.000-04:002016-06-23T16:08:51.722-04:00Cuozzo v. Lee and the Potential for Patent Law Deference MistakesI wrote a short post on Monday's decision in Cuozzo v. Lee for Stanford's Legal Aggregate blog, which I'm reposting here. My co-blogger Michael Risch has already posted his initial reactions to the opinion on Monday, and he also wrote about deference mistakes in the context of the "broadest reasonable interpretation" standard in an earlier article, The Failure of Public Notice in Patent Prosecution.

The Federal Circuit's patent law losing streak was broken Monday with the Supreme Court's decision in Cuozzo v. Lee. At issue were two provisions of the 2011 America Invents Act related to the new "inter partes review" (IPR) procedure for challenging granted patents before the Patent and Trademark Office. IPR proceedings have been melodramatically termed "death squads" for patents—only 14% of patents that have been through completed trials have emerged unscathed—but the Supreme Court dashed patent owners' hopes by upholding the status quo. Patent commentators are divided on whether the ease of invalidating patents through IPR spurs or hinders innovation, but I have a more subtle concern: the Supreme Court's affirmance means that the PTO and the courts will evaluate the validity of granted patents under different standards of review and different interpretive rules, providing ample possibilities for what Prof. Jonathan Masur and I have termed "deference mistakes" if decisionmakers aren't careful about distinguishing them.

The first issue in Cuozzo—which doesn't implicate the "deference mistake" problem—is whether the PTO's decision on an IPR petition is in fact, as the statute says, "final and nonappealable." (In this case, only one claim of Cuozzo's speed limit indicator patent was challenged, but the PTO instituted review of three claims—and invalidated all of them as obvious.) Justice Breyer's opinion for the Court holds that the "strong presumption" favoring judicial review is overcome by the clear statutory language, though he notes that review may be allowed for constitutional questions or actions "in excess of statutory jurisdiction." In dissent, Justice Alito (joined by Justice Sotomayor—patent law makes strange bedfellows!) would allow judicial review of final PTO decisions to avoid shielding PTO "shenanigans" from judicial scrutiny.

The second, and more significant, issue in Cuozzo is the standard for evaluating patent claims during IPR. For readers not steeped in patent jargon, the "claims" are the highly technical statements at the end of a patent that define the scope of the patentee's legal rights, and "claim construction" (translating the claims into more understandable English) is one of the most contested parts of patent litigation. When the PTO examines applications in the first place, it applies the "broadest reasonable construction" standard; broader claims are more likely to be unpatentable (e.g., for being obvious in light of prior references), and the idea is to give claims a broad interpretation while patent applicants have ample opportunities to amend. In contrast, during patent litigation in the courts, claims are given their "ordinary meaning" to a researcher in that field.

Which standard governs IPR? Congress directed the PTO to "prescribe regulations … establishing and governing inter partes review under this chapter," and the PTO decided to apply the broadest reasonable construction standard, making it easier for challenged patents to be invalidated. Cuozzo and its pro-patent amici argued that this is wrong as a matter of statutory interpretation, but the Supreme Court unanimously upheld the PTO's rule. Justice Breyer's opinion treated this as a straightforward Chevron case: the statute is ambiguous; it expressly authorizes the PTO to fill such gaps; and the PTO's choice of a standard is not unreasonable. (As an aside, this case was an odd vehicle because Cuozzo actually wanted a broader interpretation of a claim term than that used by the PTO, which would make it more likely that the claim is obvious.) Of course, treating this as a Chevron issue means the PTO also has discretion to change the standard, or Congress could mandate a different standard by statute, so the fight may not be over. But for now, the patent community is left with the status quo.

As the popularity of IPR continues to grow, this means that the validity of granted patents will be increasingly evaluated under two very different sets of rules. During patent litigation in the courts, claims are entitled to a presumption of validity and are construed based on the ordinary meaning standard. But IPR looks like patent examination: in these proceedings (and subsequent appeals to the Federal Circuit), the presumption of validity does not apply and claims are interpreted more broadly. It would thus be a mistake for the PTO to rely on a precedent from district court litigation—or for a district court to rely on a precedent from IPR proceedings—without accounting for the different standards of review and interpretive rules in the different contexts. But in our article Deference Mistakes, Jonathan Masur and I found that courts make these kinds of mistakes all the time. And these mistakes have real consequences: if courts use IPR precedents during litigation, they might unwittlingly invalidate too many patents; if the reverse, they might unwittlingly uphold too many patents. And Masur and I explain that such mistakes will not be confined to individual cases: they have the potential to generate systematic shifts in legal doctrine.

Suppose, for example, that the Federal Circuit starts applying a de facto looser standard of patentability to IPR appeals, either because it makes deference mistakes in analogizing these cases to precedents from the infringement context, or because some judges simply want to rein in IPR's "death squad" reputation. (Indeed, I think it makes good policy sense to have a laxer standard for patents that have already been granted and that have generated reliance interests.) But the PTO has chosen the stricter standards of examination for IPR, and if the Federal Circuit undermines this standard sub silentio, it will have a more pernicious effect than simply affecting future IPR proceedings—the PTO would also be obligated to follow these precedents in the examination context, leading to a loosening of patentability standards overall.

This is a problem with no easy fix, though Masur and I suggest that it should become standard citation practice to parenthetically note the deference regime governing the legal question at issue in a cited case. Given the variety of deference regimes the Federal Circuit will be juggling, judges might ask their law clerks to adopt this practice in bench memos—which might also help force law clerks to consider the full context of an opinion they are citing, rather than simply using electronic keyword searching to jump to the most relevant language. And litigants before the Federal Circuit should also police each other, such as by pointing out when the opposing party is relying on a case decided under a less favorable deference regime.

Justice Breyer's Cuozzo opinion acknowledged that "the use of the broadest reasonable construction standard in inter partes review, together with use of an ordinary meaning standard in district court, may produce inconsistent results and cause added confusion," such as a patent claim being upheld in district court and later invalidated by the PTO, but the Supreme Court concluded that this possibility "is inherent to Congress' regulatory design." Let's hope the PTO and the courts can limit the resulting confusion by keeping these different contexts straight.Lisa Ouellettehttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-16475295184376246312016-06-20T13:34:00.000-04:002016-06-20T13:34:19.619-04:00Cuozzo: So Right, Yet So WrongThe Supreme Court issued its basically unanimous opinion in Cuozzo today. I won't give a lot of background here; anyone taking the time to read this likely understands the issues. The gist of the ruling is this: USPTO institution decisions in inter partes review (IPR) are unappealable, and the PTO can set the claim construction rules for IPR's, and thus the current broadest reasonable construction rule will surely remain unchanged.

I have just a few thoughts on the ruling, which I'll discuss here briefly.

First, the unappealability ruling seems right to me. That is, what part of "final and non-appealable" do we not understand? Of course, this leads to a partial dissent, that it means no interlocutory appeals, but you can appeal upon a final disposition. But that's just a statutory interpretation difference in my book. I'm not a general admin law expert, but the core of the reading, that Congress can give the right to institute a proceeding and make it unreviewable, so long as the outcome of the proceeding is reviewable, seems well within the range of rationality here.

But, even so, the ruling is unpalatable based on what I know about some of the decisions that have been made by the PTO. (Side note, my student won the NYIPLA writing competition based on a paper discussing this issue.) The court dismisses patentee's complaint that the PTO might institute on claims that weren't even petitioned for review as simply quibbling with the particularity of the petition and not raising any constitutional issue. This is troublesome, and it sure doesn't ring true in light of Twiqbal.

Second, the broadest reasonable construction ruling seems entirely, well, broadly reasonable. The PTO uses that method already in assessing claims, and it has wide discretion in the procedures it uses to determine patentability. Of course the PTO can do this.

But, still, it's so wrong. The Court understates, I believe, the difficulty of obtaining amendments during IPR. The Court also points to the opportunity to amend during the initial prosecution; of course, the art in the IPR is now newly being applied - so it is not as if the BRC rule had been used in prosecution to narrow the claim. Which is the entire point of the rule - to read claims broadly to invalidate them, so that they may be narrowed during prosecution. But this goal often fails, as I wrote in my job talk article: The Failure of Public Notice in Patent Prosecution, in which I suggested dumping the BRC rule about 10 years ago.

Whatever the merits of the BRC rule in prosecution, they are lost in IPR, where the goal is to test a patent for validity, not to engage in an iterative process of narrowing the claims with an examiner. I think more liberal allowance of amendments (which is happening a bit) would solve some of the problems of the rule in IPRs.

Thus, my takeaway is a simple one: sometimes the law doesn't line up with preferred policy. It's something you see on the Supreme Court a lot. See, e.g. Justice Sotomayor's dissent today in Utah v. StrieffMichael Rischhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-47232711550801811882016-06-16T16:55:00.002-04:002016-06-23T16:09:18.178-04:00Halo v. Pulse and the Increased Risks of Reading PatentsI wrote a short post on Monday's decision in Halo v. Pulse for Stanford's Legal Aggregate blog, which I'm reposting here.

The Supreme Court just made it easier for patent plaintiffs to get enhanced damages—but perhaps at the cost of limiting the teaching benefit patents can provide to other researchers. Chief Justice Robert's opinion in Halo v. Pulse marks yet another case in which the Supreme Court has unanimously rejected the Federal Circuit's efforts to create clearer rules for patent litigants. Unlike most other Supreme Court patent decisions over the past decade, however, Halo v. Pulse serves to strengthen rather than weaken patent rights.

Patent plaintiffs typically may recover only their lost profits or a "reasonable royalty" to compensate for the infringement, but § 284 of the Patent Act states that "the court may increase the damages up to three times the amount found or assessed." In the absence of statutory guidance on when the court may award these enhanced damages, the Federal Circuit created a two-part test in its 2007 en banc Seagate opinion, holding that the patentee must show both "objective recklessness" and "subjective knowledge" on the part of the infringer. The Supreme Court has now replaced this "unduly rigid" rule with a more uncertain standard, holding that district courts have wide discretion "to punish the full range of culpable behavior" though "such punishment should generally be reserved for egregious cases."

Given how closely the Court's reasoning tracks its 2014 decisions on attorney's fees in patent cases, Ronald Mann detects "a tone of impatience on the part of the Chief Justice that the Federal Circuit is just not getting the message." But to be fair to the Federal Circuit, Judge Taranto wrote a compelling concurrence from the denial of rehearing en banc in Halo explaining that although this was not the right case, many § 284 issues could merit en banc review. I was surprised the Court did not give the Federal Circuit time to work this out.

It remains to be seen how much Halo v. Pulse will lower the bar for receiving enhanced damages. There are good policy justifications for much more frequent treble-damage awards. Jonathan Masur has persuasively argued that "any defendant who challenges a strong and worthwhile patent by infringing, and loses at trial, should be made to pay for having created a risk that the patent will be mistakenly invalidated." And this win for patent plaintiffs might help stem what Mark Lemley has dubbed a potential "crisis of underprotection" for patentees.

But there are also costs to this higher risk of liability. Justice Breyer's concurrence, joined by Justices Kennedy and Alito, asserts that enhanced damages should remain exceptional. He repeatedly cites the Brief of Amici Curiae Internet Companies (authored by Mark Lemley) and other amicus briefs to note the risk that increased treble damages awards could cause any firm that receives an overreaching demand letter to simply "abandon any challenged activity."

One cost that received little attention from the Court is the possibility that innovators will avoid learning about patents in the first place—which would limit the teaching benefit that patents can provide. To be sure, there are already some companies that dissuade their researchers from reading patents. But as explained by a former Chief Judge of the Federal Circuit, the risk of liability under Seagate was minimal: "The people who say, 'Don't read your rival company's patents because you'll get hung for willful infringement'—I think that's ridiculous." My own prior survey work has shown that patents serve a valuable information-disclosure function: some researchers do read patents and do find useful technical information in them that is not duplicative of the scientific literature, and very few of my respondents were dissuaded from reading patents based on fear of enhanced damages. I'm now following this prior work up with a broader survey, and my preliminary results are similar.

My research does not imply that the disclosure function of patents is perfect: many patents are far from a model of clarity, and I am working on how patent disclosures could be improved. But the Supreme Court itself has recognized this information-disclosure function as one of the main purposes of the patent system in many cases. And I hope that as lower courts flesh out the meaning of Halo, they recognize the potential harm from firms deciding that the risks of enhanced liability from reading patents outweigh the teaching benefit those patents could otherwise provide.Lisa Ouellettehttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-33445366514291008602016-06-13T09:00:00.000-04:002016-06-13T09:00:26.725-04:00On Empirical Studies of Judicial OpinionsI've always found it odd that we (and I include myself in this category) perform empirical studies of outcomes in judicial cases. There's plenty to be gleaned from studying the internals of opinions - citation analysis, judge voting, issue handling, etc., but outcomes are what they are. It should simply be tallying up what happened. Further, modeling those outcomes on the internals becomes the realest of realist pursuits.

And, yet, we undertake the effort, in large part because someone has to. Otherwise, we have no idea what is happening out there in the real world of litigation (and yes, I know there are detractors who say that even this isn't sufficient to describe reality because of selection effects).

But as data is easier to come by, studies have become easier. When I started gathering data for Patent Troll Myths in 2009, there was literally no publicly aggregated data about NPE activity. By the time my third article in the series, The Layered Patent System, hit the presses last month (it had been on SSRN for 16 months, mind you) there was a veritable cottage industry of litigation reporting - studies published by my IP colleagues at other schools, annual reports by firms, etc.

Even so, they all measure things differently, even when they are measuring the same thing. This is where Jason Rantanen's new paper comes in. It's called Empirical Analyses of Judicial Opinions: Methodology, Metrics and the Federal Circuit, and the abstract follows:

Despite the popularity of empirical studies of the Federal Circuit's patent law decisions, a comprehensive picture of those decisions has only recently begun to emerge. Historically, the literature has largely consisted of individual studies that provide just a narrow slice of quantitative data relating to a specific patent law doctrine. Even studies that take a more holistic approach to the Federal Circuit's jurisprudence primarily focus on their own results and address only briefly the findings of other studies. While recent developments in the field hold great promise, one important but yet unexplored dimension is the use of multiple studies to form a complete and rigorously supported understanding of particular attributes of the court's decisions.

Drawing upon the empirical literature as a whole, this Article examines the degree to which the reported data can be considered in collective terms. It focuses specifically on the rates at which the Federal Circuit reverses lower tribunals — a subject whose importance is likely to continue to grow as scholars, judges, and practitioners attempt to ascertain the impact of the Supreme Court's recent decisions addressing the standard of review applied by the Federal Circuit, including in the highly contentious area of claim construction. The existence of multiple studies purportedly measuring the same thing should give a sense of the degree to which researchers can measure that attribute.

Surprisingly, as this examination reveals, there is often substantial variation of reported results within the empirical literature, even when the same parameter is measured. Such variation presents a substantial hurdle to meaningful use of metrics such as reversal rates. This article explores the sources of this variability, assesses its impact on the literature and proposes ways for future researchers to ensure that their studies can add meaningful data (as opposed to just noise) to the collective understanding of both reversal rate studies and quantitative studies of appellate jurisprudence more broadly. Although its focus is on the Federal Circuit, a highly studied court, the insights of this Article are applicable to virtually all empirical studies of judicial opinions.
I liked this paper. It provides a very helpful overview of the different types of decisions researchers make that can affected how their empirical "measurement" (read counting) can be affect and thus inconsistent with others. It also provides some suggestions for solving this issue in the future.

My final takeaway is mixed, however. On the one hand, Rantanen is right that the different methodologies make it hard to combine studies to get a complete picture. More consistent measures would be helpful. On the other hand, many folks count the way they do because they see deficiencies with past methodologies. I know I did. For example, when counting outcomes, I was sure to count how many cases settled without a merits ruling either way (almost all of them). Why? Because "half of patents are invalidated" is very different than "half of the 10% of patents ever challenged are invalidated" are two very different outcomes.

Thus, I suspect one reason we see inconsistency is that each later researcher has improved on the methodology of those who went before, at least in his or her own mind. If that's true, the only way we get to consistency now is if we are in some sort of "post-experimental" world of counting. And if that's true, then I suspect we won't see multiple studies in the first place (at least not for the same time period). Why bother counting the same thing the same way a second time?Michael Rischhttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-34093118510361357592016-06-10T12:40:00.000-04:002016-06-10T12:40:07.693-04:00Patent Damages Conference at Texas LawNumerous patent academics, practitioners, and judges gathered in Austin at the University of Texas School of Law yesterday and today for a conference on patent damages, organized by Prof. John Golden and supported by a gift from Intel. Here's a quick overview of the 12 papers that were presented, the suggestions from the paper commenters, and some notes from the Q&A. (We're following a modified Chatham House Rules in which only statements from academics can be attributed, but it was great having others in the room.)

Jason Bartlett & Jorge Contreras, Interpleader and FRAND Royalties – There is no reason to believe the sum of the bottom-up royalty determinations from FRAND proceedings will be reasonable in terms of the overall value the patents contribute to the standard. To fix this, statutory interpleader should be used to join all patent owners for a particular standard into a single proceeding that starts with a top-down approach. Arti Rai asks whether the bottom-up approach really creates such significant problems. Why can't courts doing the bottom-up approach look at what prior courts have done? And doesn't this vary depending on what product you're talking about? But ultimately, this is a voluntary proposal that individual clients could test out. Doug Melamed notes that even if royalties in individual cases are excessive, standard implementers won't have an incentive to interplead unless their aggregate burden is excessive—and given the large number of "sleeping dog" patents, it's not clear that's true.

Ted Sichelman, Innovation Factors for Reasonable Royalties – Instead of calculating royalties based on the infringer's revenues, let's use the patentee's R&D costs (including related failures and commercialization costs) and award reasonable rate of return. Better aligned with innovation-focused goals of patent law. Becky Eisenberg notes that it is stunning that patentee costs aren't in the kitchen-sink Georgia-Pacific list, and she thinks idea of moving toward a cost-based approach more broadly has significant normative appeal, but she doesn't think it's easier to apply (see, e.g., criticisms of DiMasi estimates of pharmaceutical R&D costs). I think this paper is tapping into the benefits of R&D tax credits as an innovation reward. Daniel Hemel and I have compared the cost-based reward of R&D tax credits with the typical patent reward (in a paper Ted has generously reviewed), and it seems worth thinking more about whether and when it makes sense to move this cost-based reward into the patent system.

Drew Amerson & Robin Feldman, Gatekeeping Trends in Reasonable Royalty Cases – This paper surveys Daubert decisions involving reasonable royalty determinations from Jan. 1, 2008 to May 31, 2016, and concludes that there has been little change in grant rates for these motions, despite significant changes from the Federal Circuit. (Of course, there are selection effect issues here.) They suggest that baseball-style arbitration rules might encourage more realistic damages calculations. Peter Lee questions whether arbitration would solve anything. He also observed that in damages, the Federal Circuit has taken a different approach from its general preference for bright-line rules over flexible, multi-factor standards (which he has written about).

John Golden & Karen Sandrik, A Restitution Perspective on Reasonable Royalties – Reasonable royalty damages are similar to damages based on restitution: they provide relief when proof is lacking with respect to other damage measures. The Third Restatement of Restitution and Unjust Enrichment provides liability for infringement (§42), discusses different classes of responsibility (innocent recipients (§50), unwitting infringers (§51(2)), conscious wrongdoers (§51(3)), and negligent defendants (§52)), and discusses measures of enrichment (§49(3)-(5), with the choice based on blameworthiness). Tying back to Ted Sichelman's paper, those measures can include the cost to the claimant of conferring the benefit. Keith Robinson likes the idea of introducing consideration of fault and wonders to what degree courts do this already. Herb Hovenkamp says that consideration of some of these factors in copyright cases make him pessimistic about how well this will work. Jonathan Masur notes two potential problems: that consideration of fault would lead to increased reliance on opinion letters, and looking to infringers' profits may under-compensate because they are competitive rather than supracompetitive profits.

Erik Hovenkamp & Herbert Hovenkamp, Buying Monopoly: Antitrust Limits on Damages for Externally Acquired Patents – Patent acquisitions violate antitrust laws when they give the acquiror an unearned monopoly in the technology space, the the proper enforcement mechanism is to withhold damages. Doug Melamed poses three questions about the details: (1) Why limit to the acquired patent? The problem is not the provenance of a patent—it's the amalgamation. (2) Why not classify under patent misuse rather than a whole new doctrinal apparatus? (3) Why doesn't disaggregating complementary patents create the same problem, since for them it is their aggregation that creates efficiency benefits?

Keith Hylton, Enhanced Damages for Patent Infringement: A Normative Approach – At enhancement stage, courts should apply a multi-factor approach as in tort law. And there's no reason to believe that three is the optimal multiplier. Neel Sukhatme likes how this article operationalizes a more technical model into law and thinks this paper should rely more on that prior model rather than analogizing from tort law. Herb Hovenkamp: Shouldn't the probability of detection factor into this, so that infringement of method-of-production patents have a higher multiplier? Ted Sichelman: You can't make the same assumptions as in torts because it's all a proxy for promoting innovation. "I've written on this, Tom Cotter's written on this, and we have completely different views, but you have to engage with the issue."

Sapna Kumar, Patent Damages Without Borders – The Federal Circuit is misusing the presumption against extraterritoriality, which wasn't intended to cover foreign harm that flows from an act of domestic patent infringement. Amy Landers: There are substantial political ramifications to extraterritorial application of U.S. law, so we should be careful before extending it. Glynn Lunney: Is there a natural experiment related to differential rates of innovation in off-shore and near-shore technology?

Michael Meurer, Shared Patent Damages – If ex ante contracting between potential patent defendants occurs, whether damages can be apportioned between a buyer and seller doesn't affect innovation incentives. And control over litigation can affect the bargaining power of the transacting parties relative to the patent owner. Oskar Liivak: Does it matter who plaintiff is? How does it affect the model if we consider complications like varying probabilities of suing the different parties? What about willfulness? Bernard Chao: Model assumes damages from suing buyer and seller are going to be the same, and that isn't generally true. Erik Hovenkamp: Argument is related to strategic delegation literature, which was criticized based on failure to account for renegotiation. (Mike notes that he had an article in this earlier literature, and that there are barriers to renegotiation.)

Colleen Chien, Reconceptualizing Patent "Comparables" – Courts should favor licenses that are about the transfer of technology rather than just the transfer of rights to avoid litigation. When damages are too difficult to calculate, appropriate injunctions can both encourage more data sharing and limit hold-up problems. Chris Cotropia worries that this approach doesn't solve the circularity problem and might be subject to more gaming, and he wonders about the differential impact on fields with lots of technology-transfer licenses, and thinks it might not be so workable in practice to separate the value of the patent out of these licenses. Doug Melamed notes that a delayed injunction doesn't solve the problem of lock-in costs.

Erik Hovenkamp & Jonathan Masur, Reliable Problems from Unreliable Patent Damages – Basing damages on past licenses creates perverse incentives to avoid licensing at anything less than a low rate, thereby cutting off the bottom of the licensing market and creating substantial deadweight loss. Past licenses are also unreliable because they are negotiated under uncertainty regarding whether the patent is valid and infringed. And reliance on past licenses in litigation creates incentives to keep licenses secret, which undermines licensing efficiency. Erik and Jonathan think courts should pretty much never rely on past licenses: it's better that damages be random but unbiased than systematically problematic. Glynn Lunney doesn't think there is any unbiased measure, and he isn't sure that this proposal breaks the circularity problem because legal resolutions will still inform market transactions. Oskar Liivak: Does the same circularity problem affect lost profits? Becky Eisenberg: It is right as an empirical matter that concern about litigation evidence really is discouraging patent licensing? (Jonathan responds: based on the in-house counsel he has talked with, yes.)

Thomas Cotter, Patent Damages Heuristics – Tom was unfortunately not able to make it to Austin, but Saurabh Vishnubhakat and Greg Vetter did a great job presenting his paper, which argues that courts should more readily accept the use of heuristics—shortcuts that speed up decisionmaking—in determining patent damages. I was the paper commenter, and I focused on three points: (1) all legal rules are heuristics and the tradeoffs here have been thoroughly canvased in the vast rules-vs-standards literature which would be worth drawing in; (2) most of the doctrinal fights throughout patent law can be characterized as fights over the extent to which courts should simplify decisionmaking through heuristics, and it's interesting that the Federal Circuit hasn't made the same push toward bright-line rules in general damages calculations that it has in other areas of law; and (3) if we don't know which damages heuristics are most worthwhile, we should at least be thinking more about the second-order question of how to make empirical progress on these questions.

Peter Menell, Preliminary Report of the BCLT Patent Damages Workshop – Peter discussed work with Stuart Graham, Tim Simcoe, and Carl Shapiro in which they brought patent damages professionals together for a workshop at Berkeley under Chatham House Rules to try to get better descriptive evidence on patent damages issues. Since the report still needs to be circulated to participants before being publicly released, I won't discuss the preliminary results here, but I think this is a valuable effort at surfacing some of the concerns that exist among practitioners.Lisa Ouellettehttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-27116622243680710312016-06-07T16:45:00.000-04:002016-06-07T16:45:27.462-04:00Does Europe Have Patent Trolls?There have been countless articles—including in the popular press—about the problems (or lack thereof) with "patent trolls" or "non-practicing entities" (NPEs) or "patent-assertion entities" (PAEs) in the United States. Are PAEs and NPEs a uniquely American phenomenon? Not exactly, says a new book chapter, Patent Assertion Entities in Europe, by Brian Love, Christian Helmers, Fabian Gaessler, and Max Ernicke.

They study all patent suits filed from 2000-2008 in Germany's three busiest courts and most cases filed from 2000-2013 in the UK. They find that PAEs (including failed product companies) account for about 9% of these suits and that NPEs (PAEs plus universities, pre-product startups, individuals, industry consortiums, and IP subsidiaries of product companies) account for about 19%. These are small numbers by U.S. standards, but still significant. Most European PAE suits involve computer and telecom technologies. Compared with the United States, more PAE suits are initiated by the alleged infringer, fewer suits involve validity challenges, fewer suits settle, and more suits involve patentee wins.

Many explanations have been offered for the comparative rarity of PAE suits in Europe, including higher barriers to patenting software, higher enforcement costs, cheaper defense costs, smaller damages awards, and more frequent attorney's fee awards. The authors think their "data suggests that each explanation plays a role," but that "the European practice of routinely awarding attorney's fees stands out the most as a key reason why PAEs tend to avoid Europe."Lisa Ouellettehttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-89249153829805802822016-05-31T19:44:00.002-04:002016-05-31T19:44:41.328-04:00Rachel Sachs: Prizing InsuranceIf anyone is looking for a clear and comprehensive review of the ways in which patents can distort investment in innovation, as well as a summary of the literature on incentives "beyond IP", I highly recommend Rachel Sachs' new article Prizing Insurance: Prescription Drug Insurance as Innovation Incentive, forthcoming in the Harvard Journal of Law & Technology. Sachs' article is specific to the pharmaceutical industry but is very useful for anyone writing on the general topics of non-patent alternatives and patent-caused distortion of innovation. Sachs follows in the footsteps of IP scholars like Amy Kapczynski, along with Rebecca Eisenberg, Nicholson Price, Arti Rai, and Ben Roin–and draws on plentiful literature in the health law field that IP scholars may never see. Her analysis is far more detailed and sophisticated than this brief summary. Read more at the jump.

Patents, as well as other exclusive rights such as FDA-mandated periods of exclusivity, do not simply promote investment in innovation. They also influence which kinds of innovations will emerge to benefit society, and which will never see the light of day. This is patent-caused "distortion" of innovation. Distortion is a problem that many have observed in the patent system, alongside the better-known problem of deadweight loss caused by monopoly pricing.

Sachs identifies three main mechanisms through which patents may distort investment in innovation and in pharmaceutical innovation, in particular. First, patent term length (now 20 years) may lead firms to invest in innovations with shorter time horizons for development in order to preserve exclusivity or to invest in treatments with clear "surrogates" (end points) for non/recovery. Thus, we may see more investment, for instance, in treatments for diseases that kill people very quickly.

Second, what Sachs calls patents' "scope" can cause over or under-investment in certain classes of innovations. By "scope" Sachs does not mean the scope of an individual patent right as determined by the requirements of claiming and disclosure. Rather, she means the sphere of subject matter that is protected, or not protected, as a result of the structural framework through which patents promote innovation. So, for example, because patents operate by the mechanism of excludability, patents are not attractive for innovations that, even when patented, cannot be excluded. Or, for instance, because patents require disclosure, they may lead to underinvestment in manufacturing processes that are better kept secret.

The third way in which patents may distort investment in innovation is that patents rely on the chance for commercial success to encourage investment in research and invention. Obviously commercial success itself is not required up front to get a patent; but the hope for future commercial success is required to make patents work as incentives. As a result, patents may strongly "pull" inventors towards innovations that are likely to be highly profitable–regardless of whether these innovations have the highest possible social value, or any lasting social value at all.

Due to the limitations Sachs identifies, several scholars, such as Lisa Ouellette, Kapcynski, Peter Lee, myself, Jim Bessen, and others at various "Beyond IP" conferences, have explored alternatives to exclusive rights, ranging the gamut from tax incentives, to regulation, to philanthropy, to state venture capital, to education. But Sachs' alternative is both realistic and highly creative: prescription drug insurance.

In nations across the world, government-run health insurance programs provide all people, or certain classes of people, with significant opportunities to have the government, or a private insurer operating within a government-regulated system, pay for all or some of the cost of prescription drugs for treating, curing, or preventing medical ailments. In the United States, prescription drug insurance is now regulated under the scheme created by the Affordable Care Act. But prescription drug insurance has long been a feature of the American healthcare system, and it could, in Sachs' view, be tweaked to make it a more effective public subsidy for innovation than exclusive rights like patents.

The main problem drug insurance solves is governments' lack of information. When government wants to fund innovation directly by, say, using a prize or a research grant, it is difficult to determine which types of innovation to reward and how much to pay for them. Thus, government may end up rewarding some innovations too much and others too little; paying for the wrong kinds of innovation entirely; and generally wasting public resources on stimulating investment in dead-ends rather than the potentially superior alternatives we might otherwise have had. In other words, government funding may distort innovation and create deadweight loss for society in ways that are far more damaging than what we currently see in the patent system.

But Sachs argues that prescription drug insurance "can be structured to avoid the problem of aggregating public and private information that lies at the heart of the patents versus prizes debate. Specifically, the government only needs to be able to observe 1) the social value of a given pharmaceutical and 2) the frequency of its use. If the social value of a pharmaceutical is measured in large part by its effectiveness and the overall healthcare burden it alleviates, the government by virtue of its dual roles as pharmaceutical regulator and health insurer is in a position to observe directly those facts."

In other words, due to government's privileged position as regulator and sometimes-provider, government would be armed with all sorts of information about drugs' efficacy, cost, and frequency of use. As such, government could wield prescription drug insurance much like a prize or research grant in order to direct innovation in one direction or another.

So, for example–and this is my example, not Sachs'–government could order that "henceforth more insurance will be available for prevention of prostate cancer than for elective prostate surgery." This, in turn, should stimulate more demand for, and therefore more investment in, better preventative measures versus innovations related to prostate surgery. A real-world example of the same phenomenon: under ACA, "all new plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or coinsurance." So while patents may lead drug companies to invest in highly excludable drugs to alleviate symptoms that many people won't be able to afford, ACA insurance might lead them instead to invest in preventative solutions.

That said, as Sachs observes, the current U.S. healthcare system also shares some of patent law's precise distortionary effects. For example, Medicare currently covers a whole lot of prescription drugs for people over 65, and some research suggests that, ever since prescription drug insurance for Medicare patients was enhanced in 2006, Medicare itself became responsible for increasing pharmaceutical investment into certain drug classes with higher consumption among the aging Medicare population. Prescription drug coverage for the elderly is obviously a very delicate topic, but this, I think, is an area of the current system that Sachs' proposal might help to productively change.

Sachs notes, as a caveat, that her proposal for prescription-drug-insurance-as-innovation-incentive is likely to fare better "in countries like the United Kingdom, where the health care system has been almost completely nationalized" because in these cases government–not just private insurance companies–"has precise information about the frequency of use of any particular drug. ... This allows the government to observe the frequency of use of the relevant products without relying on self-reported information from the drugmaker."

This is a significant caveat. The United States does not have a fully nationalized healthcare system like the United Kingdom. Private insurance companies still have a tremendous operational role in determining which prescription drugs are covered, and how much they should cost, even when coverage is ultimately provided through government insurance plans. But I would quibble with Sachs that the United States' hybrid public-private healthcare regime is necessarily a drawback when it comes to determining the precise social value of a pharmaceutical and the frequency of its use. Perhaps government operating in partnership with decentralized private companies operating under the discipline of (at least some) competition could do a better job at "prizing insurance" than government operating alone.

At any rate, Sachs is clearly the expert on this topic. Her work will be invaluable for distilling a complex and, to many of us, non-sensical world of medical regulations, and for introducing IP scholars and mainstream legal scholars to the health law literature.

Camilla Alexandra Hrdyhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-83448066934247387082016-05-27T08:00:00.000-04:002016-05-27T18:48:13.584-04:00Thoughts on Google's Fair Use Win in Oracle v. GoogleIt seems like I write a blog post about Oracle v. Google every two years. My last one was on May 9, 2014, so the time seems right (and a fair use jury verdict indicates now or never). It turns out that I really like what I said last time, so I'm going to reprint what I wrote at Madisonian.net a couple years ago at the bottom. Nothing has changed about my my views of the law and of what the Federal Circuit ruled.

So, this was a big win for Google, especially given the damages Oracle was seeking. But it was a costly win. It was expensive to have a trial, and it was particularly expensive to have this trial. But it is also costly because it leaves so little answered: what happens the next time someone wants to do what Google did? I don't know. Quite frankly, I don't know how often people make compatible programs already, how many were holding back, or how many will be deterred.

Google did this a long time ago thinking it was legal. How many others have done similar work that haven't been sued? Given how long has it been since Lotus v. Borland quieted things, has the status quo changed at all? My thoughts after the jump.

Some of my colleagues think the status quo changed because the Federal Circuit got the law of copyrightability wrong. For them, merger should play a much bigger role in copyrightability and it's really important to them that API's be considered uncopyrightable because function merges with expression.

I'm not so sure merger is to be so broadly interpreted. Sure, for an API called "Open" you'll have merger - there are few choices for that expression. But for a large, complex set of APIs, there are surely lots of ways to express the function. For me, the question is copyrightability - is there de minimus creativity that allows someone to own the expression without owning the function? The answer is an obvious yes. You could make a program with APIs like Java using expression different than Java. I am as sure today as I was two years ago that the Federal Circuit got that question right, certainly under prevailing 9th Circuit law.

(Yes, I know there's a method of operation argument as well, but for similar reasons, I think you can practice the method of operation without copying the expression. This isn't a play button or even a simple menu structure. In any event, the 9th Circuit hasn't adopted Lotus v. Borland so clearly anyway).

But that doesn't end the analysis - and here some of my colleagues are reluctantly (some less reluctantly) embracing something I've been saying for at least two years, and more like fifteen. It's not the copyrightability question that matters, it is whether or not we allow reuse. And that's an infringement question (or, as some of my colleagues put it in different theoretical terms, a scope question). As I quote below, the Sega case in the 9th Circuit makes clear that this is an infringement question, and not a copyrightability question. If you listened to oral argument (and read the opinion), you'll hear both the advocates and the court get this point wrong. Google argued that Sega was about 102(b) and non-copyrightability. The court basically ruled that Sega was about fair use (it was, of course, but not the operative quote).

So, my final thought on the jury verdict remains the same as it was two years ago: there never should have been a jury verdict. The court should have ruled that as a matter of law, on these facts, this type of use of an API does not constitute infringement. Whether you get there through abstraction/filtration, thin copyright, privilege, or even presumptive fair use, this should have been an easy question. My regret for the posture that this case was decided and went up on appeal is that it was so focused on copyrightability. That was the wrong question to look at, and it wound up doing a disservice to software developers everywhere, because even though Google won this time, you don't know what will happen next time.

[Edited to add this link to an op-ed at Ars Technica by counsel for Oracle arguing that this ruling will somehow kill open source and the GPL. The comments do a fine job of debunking this specious claim, such as pointing out that the APIs may be copied even if the underlying implementation cannot, that Oracle winning would have been way worse for free and open software, and that the Free Software Foundation came out in favor of a fair use finding once the copyrightability battle was lost.]

And now, my thoughts from the last time around, which I think are as pertinent today as they were then:

Two years to the day since my last blog post on this subject, the Federal Circuit has reversed Judge Alsup's ruling that the Java API (the list of function and variable -a/k/a parameter- names) is uncopyrightable. The Federal Circuit held that the structure, sequence, and organization of the APIs renders them sufficiently original and non-functional to be copyrightable. As such, the case is remanded to determine whether there is fair use by Google in using them wholesale to make Android.

For more background, see my prior post.

The problem with this ruling is twofold. First, it is surely correct. Second, it is surely wrong. Why is it correct? Because structure, sequence, and organization can be creative. This has long been true, and well should be. I won't relitigate that here, but holding that these APIs were simply not copyrightable was a stretch in the 9th Circuit, and the Federal Circuit is correct to say so.

Why is it wrong? Because Google should surely be privileged to do what it did without having to resort to fair use. The court says: "We disagree with Google's suggestion that Sony and Sega created an 'interoperability exception' to copyrightability."

It is here that framing is important. The court's statement is accurate; we don't get rid of copyrightability just to allow interoperability. But Sega is crystal clear that we do allow interoperability reuse: "To the extent that a work is functional or factual, it may be copied,Baker v. Selden, as may those expressive elements of the work that 'must necessarily be used as incident to' expression of the underlying ideas, functional concepts, or facts…." This is not the merger doctrine that the court applied, but rather a defense to infringement.

In short, this should have been an abstraction-filtration-comparison case, and the Federal Circuit makes clear that Judge Alsup did not perform that analysis. The appeals court also makes clear that if the APIs are directly taken, you can jump directly to filtration, but this does not mean you need to hold the APIs uncopyrightable in order to filter them out in the infringement analysis. Instead, Oracle gets its copyright, and Google gets interoperability. It is here that the appellate decision misses the boat.

I hate to be critical after the fact, but this case should never have gone to the jury. It should have been decided as a non-infringement summary judgment case pre-trial where Oracle kept its copyright but infringement was denied as a matter of law due to functional reuse. Maybe that would have been reversed, too, but at least the framing would have been right to better support affirmance.

May 12, 2014 update: Two commenters have gone opposite ways on Sega, so I thought I would expand that discussion a bit:

Sega is about intermediate copying fair use, yes. But that intermediate copying was to get to the underlying interoperability. And I quote the key sentence from Sega above – even if that functionality is bound up with expression (as it is in this case), we still consider that a privileged use (and thus a worthy end to intermediate copying, which is not a privileged use).

Now, in this case, we don't need to get to the intermediate copying part because the interoperability information was published. But the privileged use that allowed the intermediate copying didn't suddenly go away simply because Google didn't have to reverse engineer to expose it. So, so say Sega doesn't apply because it is a fair use case completely misunderstands Sega. The fair use there was not about fair use of the APIs. That use was allowed with a simple hand wave. The fair use was about copying the whole program to get to those APIs, something that is not relevant here. So sending this case back for a fair use determination is odd.

That said, Sega pretty clearly makes the use a defense to infringement, rather than a 102(b) ruling that there can be no copyright.
Michael Rischhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-18432178757999782132016-05-19T11:59:00.001-04:002016-05-19T11:59:33.473-04:00Galasso & Schankerman on the Effect of Patent Invalidation on Subsequent Innovation by the PatenteeIn a paper previously featured on this blog, economists Alberto Galasso (Toronto School of Management) and Mark Schankerman (London School of Economics) pioneered the use of effectively random Federal Circuit panel assignments as an instrumental variable for patent invalidation. That paper looked at the effect of invalidation on citations to the patent; they now have a new paper, Patent Rights and Innovation by Small and Large Firms, examining the effect of invalidation on subsequent innovation by the patent holder. They summarize their results as follows:

Patent invalidation leads to a 50 percent decrease in patenting by the patent holder, on average, but the impact depends critically on characteristics of the patentee and the competitive environment. The effect is entirely driven by small innovative firms in technology fields where they face many large incumbents. Invalidation of patents held by large firms does not change the intensity of their innovation but shifts the technological direction of their subsequent patenting.
Their measure of post-invalidation patenting is the number of applications filed by the patent owner in a 5-year window after the Federal Circuit decision. They also present results suggesting that large firms tend to redirect their research efforts after invalidation of a non-core patent (but not for a core patent), whereas "the loss of a patent leads small firms to reduce innovation across the board, rather than to redirect it." (A "core" patent is one whose two-digit technology field accounts for at least 2/3 of the firm's patenting.)

This is a rich paper with many, many results and nuances and caveats—highly recommended for anyone interested in patent empirics.Lisa Ouellettehttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-27607094955053141972016-05-16T11:58:00.000-04:002016-05-17T17:03:52.141-04:00Rules, Standards, and Change in the Patent System (Keynote Speech Transcript)Last weekend I was honored to give the keynote speech at the Giles S. Rich Inn of Court annual dinner held at the Supreme Court. It was a great time, and I met many judges, lawyers, clerks, and consultants that I had not met before.

Several people asked me what I planned to discuss, so I thought I would post a (very lightly edited) transcription of my talk. I'll note that the kind words I mention at the beginning refer to my introduction, given by Judge Taranto, which really was too kind and generous by at least half.

The text after the jump.

Thank you. Thank you so much for the kind words. Thank you for having me here. I'm honored, I'm pleased, I've had a great time tonight, and I'm thrilled to be here. I want to take a few minutes tonight to talk to you a little bit about the academic's view of change in the patent system. And there has been change in the patent system; I think you all agree. I want to talk about change from the perspective of my writing, important changes that have happened, and what I think it means.

But before I do that, though, I want to look back. When I was first asked to speak, I thought back to the time I spent in my own Inn of Court, the San Francisco Bay Area Intellectual Property American Inn of Court. My first thought was, "That Inn needs a name." You know, it's a little bit long. And I thought back to the time prior to an Inn meeting when I met with Mark Lemley before I went into academia. If you know Mark then it will come as no surprise that he was an active member of the Inn, and he was very helpful.

We talked about what it might be like to go into academia--writing scholarship. I'd been in practice for years before that, and I said glibly that there's probably not too much to write about; everything that there is to say about patent law has already been written, right? He kind of chuckled and said, "No, I don't think so."

And he was right. As it turns out there was a lot to write about, and as an academic you play the long game in your writing -- at least from a theoretical perspective. There is a lot of writing today on empirical work that's not really the long game. That's looking at what happened and analyzing it, and that's very current. But when you are doing theoretical work, as Judge Taranto just mentioned, sometimes what you write about doesn't come up for a while.

So let's take a look at what I wrote about first. My first article was about trade secrets. And suddenly they're relevant! We've got the new DTSA. Though we have to admit to ourselves they were always relevant, weren't they? Trade secrets have always been there, but now they are at the forefront.

My second article was on the broadest reasonable construction rule, also seeing a resurgence. The Supreme Court has agreed to hear a case on that very issue some ten years later.

My third article was about patentable subject matter. Now, that one came on a lot faster than I expected. It turned out I went to print literally the week that the en banc decision was handed down by the Federal Circuit in In re Bilski. I was able to make final edits and I may be the very first person to criticize the machine or transformation test in print.

So, those were my first three articles. For some of them, it took years to come to fruition. Indeed, my very, very first article --one I wrote in law school-- was about the reuse of software elements, and that saw a resurgence some ten or twelve years later in the Oracle v. Google case when that case was first filed. I don't count that article, though, first because I was in law school when I wrote it, and second because I thought software reuse was a live issue at the time I wrote it. It turns out that the issue sort of died away, and the things I thought would be litigated turned out not to be litigated.

In each of these, though, my primary goal was not just to comment on some interesting topic, though that was surely one of the goals. But it was also to fully explore and stake out the theoretical boundaries of the law. And so one finds that there are areas that are ripe for examination, explanation, and solution, even though nobody is talking about those areas yet.

Now, that's the sweet spot for the academic, but sometimes we strike out. Sometimes the ambiguity in the law we think about never comes to fruition. Sometimes the court doesn't buy into our world view. I just read an article today in constitutional law where the author identified a circuit split and said, "This is totally the way this should be resolved," and the Supreme Court went the other way a month later [NB though the article was cited in the dissent]. Sometimes practitioners don't like the academic's view of the law or think it's wrong. A quick look at the comment section on the Patently-O blog will confirm this for you if you don't believe me.

But one thing is certain: there will always be change. And that change keeps academics like me busy just like it keeps practitioners and judges busy. I suspect, though, that we look at these things differently. So I want to spend my remaining time highlighting what I think are a couple of the most important changes and outcomes in each of the years since I pronounced so calmly and so boldly that there was nothing left to write about.

Perhaps you would have picked some of these same ones, or maybe not. When I'm done, I want to give you my takeaway from all of this, which may be different than the conventional wisdom that courts are leaning one way or the other.

So here's my list of some of the major things I see in each of the past 10 or so years:

We start with 2006 – Who could forget eBay? It's much harder to get an injunction. But that year we also saw Illinois Tool Works, which held that patents do not necessarily confer market power, which completely changes how we look at antitrust. Also, we see LabCorp v. Metabolite -- a non-decision that shows that there's a coming change in patentable subject matter.

In 2007, we have KSR v. Teleflex, which returns the Supreme Court to obviousness after a long hiatus. We have Medimmune v. Genentech, saying we can have declaratory relief cases whenever there's a dispute. I put a question mark in my notes on this one. I don't know if that's a big change. I am working on a study to see whether litigation practices changed after MedImmune. When I finish, hopefully I'll publish.

In 2008, we have Quanta, which looks at exhaustion. We have the Cablevision copyright case, which changes how we look at copying that is done remotely - and the voluntariness involved.

In 2009, we return to obviousness with In re Kubin, which is about obvious to try. And Lucent v. Gateway, which ushers in a new era of damages and reasonable royalties.

2010 brings Bilski, a return of the Supreme Court to patentable subject matter -- a return that was just beginning as we'll see in a minute. We have the Ariad case, which settles questions about the role of written description in patents. We have Biosimilars Act, which some say has completely changed the way many drugs are made. And the PTO appoints the first Chief Economist, which changes the way that PTO provides data and information to people who want to study the system. This gives rise to a cottage industry of studies using data.

In 2011, we have Global-Tech, which is about inducement and the intent necessary. We have Uniloc, which throws out the 25% rule of thumb. The FTC issues its Evolving IP Marketplace report, which shines the light on patent plaintiff practices (and patent trolls).

2012 – Inter Partes Review starts in earnest. We also have Mayo v. Prometheus - more patentable subject matter. We have Oracle v. Google: four years ago was that verdict. Also, Apple v. Samsung: the $1 billion verdict was four years ago! Also in 2012: SOPA fails. That was big news for international intellectual property enforcement.

2013 – First to File starts. We have AMP v. Myriad - more patentable subject matter. I think you start seeing a theme here. We also see a crescendo in White House involvement in patents: patents are mentioned in the state of the union, there is discussion of the patent troll debate (in a Google hangout no less!), President Obama vetoes the ITC ban against Apple, and the President appointed a patent person, Colleen Chien, to OSTP. This is more generally indicative of the fact that patent law has now become a mainstream topic. It is no longer in the recesses; it is out there and people are talking about it.

In 2014, we have the Alice case--another patentable subject matter case. We have Octane Fitness, which changes how attorneys fees are going to be assessed. And we have Oracle v. Google (again! this time at the Federal Circuit).

In 2015, Michelle Lee, the first woman to lead the Patent Office is appointed (although she had been working there already-this is the official appointment). Patent invalidation under Alice begins in earnest. The Teva case "ends" de novo review. That's another one of my question marks. We don't know what's actually going to happen, but it theoretically can be a big change. And in trademarks, In re Tam changes what we've seen in trademark law for many, many, many years.

And we're early in 2016, and already the federal trade secrets act has passed, the Court granted cert in Cuozzo to look at how inter partes review will be done, and we have Oracle v. Google going on (again!).

There were other big cases. Some may have touched your practice more directly. For example, the Williamson case and means plus function can change how patents should be read. But I picked these because I believe they reflect systemic changes. Which leads me to the final part of my talk tonight, which is what do we make of these changes. They sound like all sorts of different things.

What I think these changes reflect is an epic battle of rules versus standards. So what do I mean by that? The definition of a rule is something that is a bright line. You either pass it or you don't. So in patent law, think of anticipation. Your prior art is either before the date, or it is not before the date. Compare that to a standard which has a variety of moving parts, and the court can adjust them to come to the right decision. Again with patent law, this is more like obviousness. Would a person having skill consider something obvious? It depends! It depends what the state of the prior art was, it depends on their skill, it depends on how obvious it would have been (not to be circular, but there you have it), how obvious it would have been to combine two references or think of them or to try, it depends on whether you have secondary factors or objective indicia. It all depends...standards.

So what are the benefits of rules? They are easy to apply, but they are over and under inclusive. Lots of things happen that you don't want to happen. What are the benefits of standards? They are hard to apply, but in theory you get a more accurate application of the normative application that you want.

Now the thing about rules and standards is that they don't follow your usual pro- and anti-IP memes.
So, for example, patentees want rules for patenting. They want something clear so they know it is patentable. But they want standards for plaintiff type. For example, they don't want patent trolls to specially disadvantaged. They want you to look at actual behavior.

Defendants, on the other hand, want standards for patenting. They want an obviousness "rule" or patentable subject matter "rule" that allows for some flexibilty. But they want rules for secondary liability. Then want to know whether they will be liable for selling a product.

Now, the hard part is getting the mix right--the mix of rules and standards. So, let's go back to the subject matter example. This is from my article Everything is Patentable. I suggest a rule: everything is patentable. At the time I suggested that, I said everything is patentable if it meets the criteria in the statute: it's a machine, compostion, etc. I said, "Is an abstract idea excluded? We don't count that in the rule. We don't count products of nature." To that date, everyone had said, well sure everything should be allowed except abstract ideas, and I said, "No, that's not a rule! That's a standard."

But in that same paper, I suggested we match my broad rule of patentable subject matter with standards, highly rigorous enforcement of other patentability hurdles, such as obviousness, enablement and others. The Court didn't agree with my suggestion; so it goes. [N.B. those familiar with my work may recognize that I don't actually use the rules/standards framework in Everything is Patentable. In retrospect I should have and it is a theme I have developed later, and I thank TJ Chiang for engaging with that idea, even though we disagree about which subject matter guidelines are rules, which are standards, and which are masquerading as the other.]

But that's really where the battle lines are. Do you use rules, or do you use standards? And even if we have the right mix, do we have rules masquerading as standards or standards masquerading as rules? I'll give three examples.

The first is Octane Fitness, which is about when attorneys fees will be awarded. We have a rule, which is that only in exceptional cases will fees be granted. But do we apply that as a true rule as the Federal Circuit did before Octane Fitness, which made fees very hard to win except in a very specific instance. Or do we have standards, basically what happened after Octane Fitness, which allows the District Court to say, "Well, there's a lot of stuff going on, and we'll make a decision."

Another example, is eBay. We have a standard for injunctions. But before eBay that standard was applied mostly as a rule. The rule was that you almost always got an injunction. So did the Supreme Court change it to a standard? Sort of, only now you almost always don't get an injunction if you are an NPE. So you still have this strange mix of rules and standards and masquerading.

And finally, I'll address patentable subject matter since I've mentioned it several times. We have this two step test: 1) is something an abstract idea? and 2) are there only conventional steps to apply it? It sounds like a rule, but it gets applied as a standard. But because we call it a rule, we have a hard time describing what the rule is, because it's really a standard.

And that's where I'll leave this talk. It's easy to talk about rules and standards when you are an academic. My challenge to you on the front lines is to be cognizant of the rules and standards debate. It doesn't mean you have to pick one side or the other of the patent debate. It just may help guide you in structuring your arguments one way or the other, and to understand what's at stake with each of them.

Thank you very much.Michael Rischhttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-41360352623172720672016-05-11T22:47:00.000-04:002016-05-11T22:47:17.243-04:00Buccafusco, Heald & Bu: Do Pornographic Knock-offs Tarnish the Original Work?Trademark law provides a remedy against "dilution by tarnishment of [a] famous mark" and the extension of copyright term was justified in part by concerns about tarnishment if Mickey Mouse fell into the public domain. But there has been little evidence of what harm (if any) trademark and copyright owners suffer due to unwholesome uses of their works. Chris Buccafusco, Paul Heald, and Wen Bu provide some new experimental evidence on this question in their new article, Testing Tarnishment in Trademark and Copyright Law: The Effect of Pornographic Versions of Protected Marks and Works. In short, they exposed over 1000 MTurk subjects to posters of pornographic versions of popular movies and measured perceptions of the targeted movie. They "find little evidence of tarnishment, except for among the most conservative subjects, and some significant evidence of enhanced consumer preferences for the 'tarnished' movies."

Before describing the experiments, their article begins with a thorough review of tarnishment theory and doctrine, as well as consumer psychology literature on the role of sex in advertising. For both experiments, subjects were shown numerous pairs of movie posters, and were asked questions like which movie a theater should show to maximize profits. In the first experiment, treatment subjects saw a poster for a pornographic version of one of the movies; e.g., before comparing Titanic vs. Good Will Hunting, treatment subjects had to compare the porn parody Bi-Tanic vs. another porn movie. Overall, control subjects chose the target movie (e.g., Titanic) 53% of the time, whereas treatment subjects who saw the porn poster (e.g., Bi-Tanic) chose the target movie 58% of the time, and this increase was statistically significant. Women were no less affected by the pornographic "tarnishment" than men, and familiarity with the target movie did not have any consistent effect.

The second experiment was similar to the first, but at the end, subjects were shown pairs of recent movies that could plausibly generate sequels and asked which they would rather see a sequel of (e.g., Interstellar vs. Prometheus). Treatment subjects had earlier seen a poster for a pornographic version of one of the films (e.g., Enter Stella, with posters created by a graphic designer, as actual porn versions had not yet been produced). In the overall results, whether subjects had seen the porn poster had no statistically significant effect on whether they wanted to see a sequel of that movie, but there was an interesting demographic difference: subjects who described themselves as "very socially conservative" were less likely to choose targeted sequel movies in the treatment condition.

The authors explain that this is "the first systematic attempt to test the tarnishment hypothesis," not "the last word." They note, for example, that subjects only experience the tarnishing works for 5-30 seconds in a private setting, that MTurkers may not be representative of the U.S. public for this effect. But they argue that their results still "cast substantial doubt on the strongest claims of tarnishment theorists" and "should put the ball back in the court of tarnishment theorists to produce empirical support for their claims."

I'll conclude by noting that readers hoping to see lots of racy movie posters by downloading this article will be disappointed. But these results suggest that if someone wants to create an x-rated version of Testing Tarnishment in Trademark and Copyright Law, Buccafusco, Heald, and Bu would be delighted—or at least would have little cause for complaint.Lisa Ouellettehttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-82865158380837746532016-05-08T16:04:00.000-04:002016-05-08T16:04:44.150-04:00Jotwell Post: Is It Time To Overrule the Trademark Classification Scheme?As I've noted before, Jotwell is a great way to keep up with interesting recent scholarship in IP and other areas of law. My latest Jotwell review, of Jake Linford's Are Trademarks Ever Fanciful?, was just published on Friday. As I describe in the post, this is the latest in an impressive trifecta of recent articles that have attacked the Abercrombie spectrum for word marks from all sides. The full review is available here.Lisa Ouellettehttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-37078160450548011782016-05-03T07:43:00.000-04:002016-05-03T07:43:23.938-04:00[with Colleen Chien] Recap of the Berkley Software IP SymposiumSlides and papers from the 20th Annual Berkeley Center for Law and Technology/Berkeley Technology Law Journal Symposium - focused on IP and software are now posted. Colleen Chien and I thought we would discuss a few highlights (with some commentary sprinkled in):

David Hayes' opening keynote on the history of software and IP was terrific. The general tenor was that copyright rose and fell with a lot of uncertainty in between. Just was copyright fell, patent rose, and is now falling, with a lot of uncertainty in between. And trade secret law has remained generally steady throughout. David has long been the Chair of the Intellectual Property Group of Fenwick and West, former home to USPTO Director Michelle Lee, as well as IP professors Brenda Simon, Steve Yelderman, and Colleen Chien and is one of the wisest and most experienced IP counselors in the valley. (Relatedly, Michael Risch's former firm was founded by former Fenwick & West lawyers.)

Peter Menell's masterful presentation on copyright and software spanned decades and ended with a Star Wars message, "May the Fair Use Be With You."

Randall Picker took a different view of copyright and software, focusing instead on whether reuse was simply an add-on/clone or a new platform/core product. Thus, he thought Sega v. Accolade came out wrong because allowing fair use for an unlicensed game undermined the discount pricing for game consoles, but thought Whelan v. Jaslow (a case nearly everyone hates) came out properly because the infringing software was a me-too clone. Borland, on the other hand, created a whole new spreadsheet program to create competition. In related work, Risch published "How can Whelan v. Jaslow and Lotus v. Borland Both be Right?" some 15 years ago.

Felix Wu presented an interesting talk about how the copyright "abstraction-filtration-comparison" test might be used to determine the meaning of "means plus function" claims in patent law.

MIT's Randall Davis's "technical talk" explained how software is made and how abstractions are the essence of software. It's turtles all the way down: one level that seems concrete is merely an abstraction when viewed from the level below. The challenge, it seems, is that calling anything abstract can have wide meaning.

Rob Merges further discussed how we might define abstract. His suggestion was to look at abstract as the opposite of concrete and definite. Thus, patents would need to be far more detailed than many that are being rejected now, but such a standard might be more clear to apply.

Arti Rai discussed a similar solution, noting that lower levels of abstraction were more likely to be affirmed. Furthermore, solutions to computer specific problems seem to hold a key. Rai and Merges should be posting papers on these topics soon.

Kevin Collins presented a draft paper on Williamson v. Citrix Online. He posited that Williamson would present difficult challenges for courts trying to determine structure - including structure that's supposedly present in the claim. He presented some ideas about how to think about solutions to the problem.

Similarly, Lee Van Pelt showed some difficulties with Williamson (including Williamson itself) in practice.

Michael Risch's talk and paper leaves off where Hayes ended, with the fall of patents. It explores whether or not, in the wake of the trouble software patents are in, developers might turn to trade secret to protect visible features, and what the implications might be. It turns out that less than a week after the conference, a software company won a $940m jury verdict on exactly this theory.

Colleen Chien's talk explored, if software is eating the world (H/T MarcAndreesen), how much IP and its default allotments matter, in a world where contract is king, and monopolies are coming from data, network effects, scale (a la Thiel) and, possibly, winner take all dynamics, as discussed on Mike Masnick's recent podcast rather than patents and copyrights. It presents early results and an early draft paper from an analysis of ~2000 technology agreements and some 30k sales involving software, finding evidence of both technology and liability transfers.

Aaron Perzanowski's presentation and forthcoming book with Jason Schultz suggests that perhaps the IoT should be known as IoThings-We-Don't-Own.

Relatedly, John Duffy addressed the first sale doctrine and presented his recent paper with Richard Hynes that shows how commercial law ties to and explains how exhaustion should work. This is relevant to the Federal Circuit's recent decision in the Lexmark case on international exhaustion.

Second day lunchtime keynote, William Raduchel, talked about the importance of culture to innovation and IP. As Mark Zuckerberg mentioned on an investor call, Facebook develops openly (some of it's IT infrastructure and non-core innovation, at least) because that's what it's developers demand and need to get the job done. He also discussed how "deep learning" may change how we consider IP, because computers will now be writing the code that produces creative and inventive output.

The empirical panel provided a helpful overview of recent studies. Pam Samuelson's talk highlighted changes in the software industry, particularly with the growth of software as a service (SaAS), the cloud, the app market, the IoT, and embedded software as well as the software IP protection landscape since the Berkeley Patent Survey was carried out in 2007. Samuelson also discussed how recent invalidations of algorithms and data structure patents will affect copyright. If those features are too abstract for patenting, then we should consider whether they are too abstract for copyright protection, even if they might be expressed in multiple ways. (NB: A return to the old Baker v. Selden conundrum: bookkeeping systems are the province of patents, not copyrights. But can you patent a bookkeeping system? Maybe a long time ago, but surely not today).

John Allison gave an overview of what we know (empirically) about software patents. And the chief IP officers panel was a highlight, as each person had a different perspective on the system based on its own position - though they did agree on a few basics, such as the need for some way to appropriate investments and the preference for clear lines.

There is much more at the link to the symposium, including slides, drafts, and past (but relevant) papers. It's well worth a look! TAP is also running a seven-part series on the conference, starting with this overview of David Hayes' talk. Michael Rischhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-74863378755048418112016-04-30T13:42:00.002-04:002016-04-30T13:43:23.177-04:00A Trend at Pat Con: Regulating Patents EarlierI was thrilled to attend "Pat Con 6" this year at Boston College, thanks to this year's host David Olson, along with Andrew Torrence and David Schwartz. I noted a trend in several of the papers: many sought, either explicitly or implicitly, to shift back the timeline in which bad patents are kicked out of the system or in which low quality patent assertions are halted––presumably in order to avoid the high costs of litigation and the imposition on consumers and downstream innovation. I suppose we can think of this as "ex ante" versus "ex post" regulation of patents. In theory, this is a way to limit the toxic effects of low quality patents, and low quality patent assertions, on the system. Read more at the jump.

Challenging Patents in Post-Grant Administrative Proceedings

The most obvious example of the ex ante regulation trend is IPRs. The AIA reinvigorated the Patent Office's ability to adjudicate post-issuance challenges to patent validity in administrative proceedings, and in theory provides a cheaper and faster way to do so than the courts. Several papers and an entire panel addressed IPRs and how to make them more effective at weeding out invalid patents, while also remaining fair to patent holders.

Greg Dolin and Irina Manta's new paper, following up on Dolin's prior work on the AIA post-issuance proceedings, critically assesses the AIA's reformulation of the IPR procedures for reviewing patents at the Patent Trial and Appeals Board (PTAB). Dolin and Manta argue the AIA generally made it much easier to invalidate a patent through an administrative challenge, in part because they adopt a "broadest reasonable construction" standard for constructing claims but without (much) room to amend. Their creative argument is that this "retroactive" devaluation of patents effectuated a taking under the Fifth Amendment.

I argue in a response along with Ben Picozzi that this argument is actually too creative and faces many legal hurdles. Dmitry Karshtedt, in his excellent commentary on their paper at PatCon, agreed. But while Ben and I focus on the legal problems with the taking argument, Dmitry's major criticism was simply that it's very hard to know whether any particular patent has been made less valuable because of the possibility of invalidation in an IPR––let alone because of the AIA's creation of new procedures like "broadest reasonable construction." Thus, there is no injury for standing purposes to make a takings argument.

Dmitry's point is compelling. Initial statistics do suggest that IPRs (and CBMs) have higher invalidation rates than in district courts. But is this even true? And is "broadest reasonable construction" the culprit? As Scott Kamholz, who has just completed several years of service as an Administrative Patent Judge on the PTAB, put it at the IPR panel: "I want someone to show me how broadest reasonable construction review is different from ordinary meaning review." We will see what the Supreme Court has to say about the impact and legal implications of BRC when it decides Cuozzo.

State Laws Prohibiting "Bad Faith" Patent Assertions

Another example of the focus on "ex ante" regulation were several papers, including Charles Duan and Kerry Sheehan at Public Knowledge and my own, addressing the new state laws that prohibit bringing a patent assertion in "bad faith". The state laws (most modeled on Vermont's) make it possible for "targets" of patent assertions ("Vermont persons") to go to state court and obtain damages and injunctions as soon as a "demand letter" is sent. "Demand letter" is defined broadly as a "letter, e-mail, or other communication asserting or claiming that the target has engaged in patent infringement." This includes situations where the patentee is a long way off from filing a lawsuit or does not intend to file one at all. So, in theory, users of allegedly infringing technologies can take advantage of the state laws to nip a patent dispute in the bud.

I have strong views on this and will blog about it separately to avoid boring those uninterested in the vagaries of preemption and "arising under" jurisdiction. Suffice to say, I disagree with Duan and Sheehan, as well as other academics writing on the subject like Paul Gugliuzza. In my view, the new laws are preempted based on Supreme Court precedent under the IP Clause itself.

Standing for End Users in Declaratory Judgment Actions

Of course the new state laws are not the only way to proactively challenge patent assertions before getting sued. For example, another option is to take the step of filing a declaratory judgment in federal court, seeking to have the court formally invalidate the patent or declare it not infringed. (Invalidating a federal patent is something state courts cannot do. 28 U.S.C. § 1338 clarifies that "[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.")

However, as Gaia Bernstein discussed in a plenary talk on her masterful paper, The End User's Predicament: Standing in Patent Litigation, "end users"––which she defines as "parties that use patented technology for personal consumption and in business"––who get "hauled into patent disputes" face significant challenges in accessing federal courts to challenge a patent's validity. Bernstein's major proposal is to relax standing standards in patent declaratory judgment actions in order enable earlier challenges to patent validity in federal court.

Can We Go Back Farther?

Weeding out invalid patents in administrative proceedings and deterring meritless patent assertions does some good work by keeping patent disputes out of the courts and improving the bargaining position of small businesses in the patent hold-up game. But several other PatCon projects raised the prospect of addressing these problems at an even earlier stage.

Improving Applicants' Incentives to Draft High Quality Patents

For example, in his paper, "Loser Pays" in Patent Examination, Neel U. Sukhatme argues that we should create incentives for patent applicants themselves to improve the quality of their applications by forcing unsuccessful patent applicants to pay higher application fees, thereby subsidizing successful applicants. By importing the "loser pays" concept from litigation, Sukhatme argues, we can create "an efficiency-enhancing chilling effect that disincentives weak applications and improves application quality."

Sukhatme's project nicely compliments R. Polk Wagner's analysis several years ago in Understanding Patent-Quality Mechanisms. In Wanger's view circa 2009, bad incentives on the part of applicants (as well as PTO examiners) was a root cause of the problem of low patent quality. Low patent quality, Wagner wrote, "is supported by a series of powerful incentives, including incentives that encourage patentees to draft patent applications that effectively obscure the true scope of the invention and its relationship to the prior art." Sukhatme's suggestion to require applicants to pay for their drafting failures follows Wagner's advice for improving patent quality: ensure that patentees have "strong, unequivocal incentives to seek patents that clearly meet the standards of patentability, that are explained in the context of the prior art, and that draw clear and unambiguous lines around their subject matter[.]" So maybe we're making Progress.

In all it was a great conference (and the cake was really, really good). Thanks to David Olson and the other PatCon founders for organizing.
Camilla Alexandra Hrdyhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-83793410057457484072016-04-28T19:24:00.000-04:002016-04-28T19:24:24.441-04:00Jonathan Masur on Improving Cost-Benefit Analysis at the PTOFederal agencies are required to use cost-benefit analysis (CBA) for all "economically significant" regulations—those with an impact of at least $100 million. Given the economic importance of patents, even small procedural changes at the PTO likely cross this threshold. But as Jonathan Masur notes in CBA at the PTO, the PTO regularly promulgates regulations without following CBA procedures. The PTO did deem its recent fee-setting regulations economically significant, and Masur writes that "the PTO deserves commendation for attempting CBA in such a difficult field." Yet the resulting analysis "misunderstands basic precepts of patent economics."

CBA is supposed to measure the social costs and benefits of a proposed regulation, not just the private costs and benefits for the agency and the regulated party. The PTO's analysis for its fee-setting regulation correctly counted PTO operating costs as a real administrative cost. But the only other costs and benefits it considered related to the quantity and speed of patent grants—where more/faster patents were viewed as benefits, and fewer/slower patents were viewed as costs. The PTO viewed a "decrease in successful patent application filings" as a "cost to society." As Masur notes, this approach "improperly conflates the private value of patents to their owners with the value of patents to society at large." (As I've previously discussed, this distinction can also be conflated in academic work.) The private value of a patent—the supracompetitive rents it enables—is a transfer from consumers to the patent owner, not a social gain. If there is a social benefit, it is in the dynamic incentives the patent creates.

In addition to making this "fundamental" error about the benefits of patents, the PTO's CBA "entirely ignores the costs that accompany patents" such as deadweight loss and inhibition of follow-on innovation. The PTO did note that uncertainty about the scope of others' patent rights can inhibit innovation, but this was treated "as a cost created by pending patent applications, as if the cost disappears entirely when the patent is granted"—which Masur notes is "entirely backward." In prior work, Masur has explained that high patent filing fees can serve the benefit of screening out low-value inventions. The PTO's CBA, however, "errs by treating lower fees—and greater numbers of patents—as an unalloyed good."

Masur acknowledges that the PTO could be correct in its approach if one assumes that (1) the substantive rules governing patents are correctly calibrated to maximize welfare and (2) patent examiners always properly follow those rules. However, these are "as heroic as assumptions can be," and there is ample evidence to counter each assumption. Masur thus concludes that the PTO's attempt at CBA "is plagued by both conceptual and epistemic errors."

Perhaps even more striking is the PTO's justification for not using CBA when setting forth all the procedural rules for the new proceedings created by the America Invents Act such as inter partes review (IPR). Included in these rules was the decision to give claims their "broadest reasonable interpretation," an issue that is now before the Supreme Court in Cuozzo. Masur writes:

The PTO's analysis of the regulation's economic impact is striking in that it displays a type of myopia very different from that present in its fee-setting CBA. The only costs or benefits the PTO included as part of its economic significance analysis were the costs of filing or defending the IPR petitions. In other words, the agency only tabulated the administrative costs, which fell below $100 million. It ignored entirely the costs and benefits that would result from patents—in some cases very valuable patents—being invalidated (or upheld) in IPR and other proceedings.
It seems clearly right that the invalidation of many patents—particularly pharmaceutical patents—would have a $100 million effect on the economy.

So what should the PTO be doing instead? Masur does not merely criticize the current approach; in Part IV of his article, he also offers some guidance for future CBA at the agency, beginning with a more accurate conceptualization of the costs and benefits of patents, and then walking through how this framework might be applied in the fee-setting case. Masur acknowledges that there is significant uncertainty at each step of this calculation, but "agencies frequently complete cost-benefit analyses where the science and economics are in some dispute." It would likely be better to have educated guesses that are at least focused on the right questions (and that can be updated over time) than to proceed with a CBA approach that bears little relation to the true costs and benefits of PTO rules.Lisa Ouellettehttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-90498023909639122322016-04-26T12:11:00.006-04:002016-04-26T12:11:55.097-04:00The AIA Is Not a TakingI have just published, along with Ben Picozzi, a response to Greg Dolin and Irina Manta's article, Taking Patents. In the response we refute Dolin and Manta's argument that the America Invents Act effectuated a compensable "taking" under the Fifth Amendment by making it easier to invalidate patents in administrative proceedings. The response is particularly timely in light of the Supreme Court's upcoming decision in Cuozzo regarding the propriety of interpreting claims using the "broadest reasonable construction" standard in inter partes review proceedings, and whether the PTAB's decision to institute an IPR must be judicially reviewable. The response is available here: http://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?article=1041&context=wlulr-onlineCamilla Alexandra Hrdyhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-90830613477675391142016-04-20T09:48:00.000-04:002016-04-20T09:48:14.171-04:00McDowell & Vishnubhakat on the USPTO Patent Pro Bono ProgramUntil I came across this new article by Jennifer McDowell (USPTO) and Saurabh Vishnubhakat (Texas A&M), I'll admit I wasn't aware that the USPTO has a pro-bono program to provide free legal assistance to inventors. Here is the abstract:

In recent years, the United States Patent and Trademark Office has systematically been engaging the legal community with inventor assistance beyond the agency's usual business of examining applications for patents and trademarks. The purpose of the USPTO's effort has been to support innovators who are constrained by a lack of resources to pay for patent counsel necessary to protect the full scope of their inventions. This Article describes the brief history, flexible structure, and ongoing growth of that effort, embodied in the USPTO Patent Pro Bono Program. The Patent Pro Bono Program is a national network coordinated by the USPTO to connect inventors and small businesses with registered patent attorneys and agents to assist in the filing and prosecution of patent applications for free. At the regional level, a broad array of non-profit organizations, bar associations, community economic development organizations, and institutions of higher education support the USPTO in matching low-income inventors with experienced patent professionals. At the individual level, volunteer patent attorneys and their inventor clients engage in the usual back-and-forth of the USPTO examination process, seeking patent protection as a way to enter or advance in the marketplace. In short, the program is a structural effort to bring independent inventors and startups the same opportunity of investment and economic competition that large and established incumbents enjoy.

In addition to providing a thorough description of the program, the authors attempt to study its impact so far based on initial data from the pilot program in Minnesota. But the analysis is complicated by the small sample size and selection effects. (This is a broader problem—the USPTO implements all its pilots in ways that are difficult to learn anything from, rather than in a controlled way.)
Lisa Ouellettehttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-12036826927489769992016-04-12T08:16:00.001-04:002016-04-12T08:16:56.955-04:00Do Non-Compete Agreements Really Impede Innovation?I spent my entire practice career in California, representing clients who were, by and large, free to move from company to company due California's ban on covenants not to compete. At the time, the question of inevitable disclosure was unsettled in California; the law allowed for injunctions to stop "threatened" misappropriation, but the question was whether merely being in the same business is a sufficient threat. Most people though no, and the courts eventually went there.

But employees were not always free to do as they wished. I represented many employees against their awful former employers who (wrongfully) claimed that the employee had exited with trade secrets. And I represented many companies against their awful former employees who (wrongfully) claimed they had exited cleanly without trade secrets. For this reason, I've always bristled at the notion that California is a place where everyone happily moves from company to company and nobody cares or legitimately worries about trade secrets because it's all good.

But through this all, I always thought employee mobility was a good thing. I still do. And so do a lot of other people. Indeed, a sort of orthodoxy has arisen where you simply can't be honest, pro-innovation, and pro-noncompete all at the same time. It's as if an entire strand of the literature on how non-competes can improve investments in human capital training got lost in the mix, replaced by theory that says the contrary. This theory is supported by evidence from empirical studies on the matter. It seems crystal clear.

Not so, according to Jonathan Barnett (USC) and Ted Sichelman (San Diego). A draft of their paper, Revisiting Labor Mobility in Innovation is now up on SSRN. In it, they take on the orthodoxy:

It is now widely asserted that legal regimes that enforce contractual and other limitations on labor mobility deter technological innovation. First, recent empirical studies purport to show relationships between bans on enforcing noncompete agreements, increased employee movement, and increased innovation. We find that these studies misconstrue legal differences across states and otherwise are flawed, incomplete, or limited in applicability. Second, scholars have largely adopted the view that California's policy against noncompetes promoted Silicon Valley as the world's leading technology center. By contrast, Massachusetts' enforcement of noncompetes purportedly stunted innovation in the Route 128 region near Boston. We show that this account is incomplete. During the rise of Silicon Valley, California noncompete law did not as vigorously preclude noncompetes as today and firms could substantially mimic noncompetes through contractual and other instruments. Rather, fundamental technological and economic factors more persuasively account for the rise of Silicon Valley and the Boston area has remained a significant innovation center. There is little compelling ground for the view that barring noncompetes and other limitations on employee mobility promotes innovation.
I believe this is an important paper, even if you are not inclined to agree with its conclusions. I'll discuss more after the jump.

The paper proceeds in three basic sections. The first is a discussion of the transition in thinking about noncompetes over time. It presents a short review of the older literature and shows how that transitioned to today's thinking, including identification of some of the key papers that started the transition.

It then launches into critique of what the paper calls the "weak thesis," that noncompetes depress labor mobility and further questions the "strong thesis," that labor mobility enhances innovation. In doing so, nothing is safe. Statements about the laws of states are examined closely. Assumptions about how those laws are/were applied are examined. The paper even goes after the bedrock of all worker mobility scholarship, Saxenian's book and Gilson's article on Route 128 and Silicon Valley. The analysis takes a critical look at the statements of those books, examining the companies, practices, norms, and legal differences that were claimed to give rise to different innovation paths. The article concludes that technological and economic factors explain any differences, and that--with apologies to Monty Python--Route 128 isn't quite dead yet, and in fact is pretty robust.

Finally, the paper takes on all of the empirical studies, questioning both data but also categorizations used for differences-in-differences analysis. These studies, they argue, don't necessarily give the wrong answer, but neither do we know if they give the right one. More and better (and different?) studies are necessary, especially to support the strong thesis.

The article is very effective in its criticism, even if I quibble with a few of the arguments. Those who favor mobility should take a hard look at the critiques and consider responses. I like this paper, but not necessarily because it questions noncompete agreements. As I said above, I like the law in California. I think it's the better law, and I think it's the law other states should adopt. And I even think it leads to better human capital and innovation outcomes. But I believe these things to be true. I don't know them. I like this paper because it takes a hard look at views we take for granted.

Further, the cranky scholar in me believes that the more time that passes where most people believe something, the harder we should look at the reasons why we have that belief. To repeat a quote often attributed Richard Feynman (though I can't confirm* that he said it): "I would rather have questions that can't be answered than answers that can't be questioned." This is why I like Beauchamp on the first patent explosion and Katznelson & Howes on the Wright Brothers. It's why I try to read source materials whenever I am doing work, rather than reading someone else's view of source materials. It's even why we should continue to aggressively peer review climate change studies, even if one believes (as I do) that it exists and is caused by humans.

*According to the discussion on Wikipedia, the quote is likely more accurately: "You see, one thing is, I can live with doubt, and uncertainty, and not knowing. I think it's much more interesting to live, not knowing, than to have answers which might be wrong." Michael Rischhttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-72251067505428472112016-04-11T09:27:00.001-04:002016-04-11T09:27:42.500-04:00Hidden in Plain SightI've posted a draft of my new trade secrets article at SSRN. Here is the abstract:

Software developers have long tried to appropriate the value of visible features and functions of their programs. Historically, they used copyright to do so, but then shifted to patenting as copyright protection for methods of operation waned. Given newfound difficulties patenting software functions, developers have one more place to turn: trade secrets.

Trade secrets have always protected the hidden aspects of programs, but can they be used to protect visible or easily discernible program features? This article suggests a new way developers might use trade secrets to protect visible program features. It examines how they might do so, relying on traditional case law and confidentiality precautions used to keep secrets. In doing so, the article considers whether and how such protection could be achieved in theory and in practice.

The article then asks how software licensing would change if trade secret protection of discernible features were achieved. It considers how software might be delivered (including software as a service), the potential for trade secret trolls, the role of open source development, and the potential effect on innovation incentives.

Finally, the article considers the alternative normative views associated with this new type of software protection.
 Comments are appreciated!Michael Rischhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-62410281546188136232016-04-08T15:42:00.002-04:002016-04-20T11:27:02.125-04:00Ben Picozzi on the Role of the Solicitor General in Patent LawThis is a Guest Post by Ben Picozzi, J.D. Candidate at Yale Law School and Student Fellow at the Information Society Project. Ben discusses a prize-winning paper he recently posted on SSRN about the litigating relationship between the PTO and the DOJ. In the paper he argued that the DOJ has used its exclusive litigating authority as an administrative control mechanism in patent law. Ben summarizes his argument in the paper, and tells readers how he would have done things differently in hindsight. Read more at the jump.

Generally, administrative law scholars, including those in patent law, emphasize "ex ante" control mechanisms through which presidential administrations can direct agency policymaking, such as policy and budgetary review. But they tend to discount "ex post" control mechanisms, such as the Department of Justice's (DOJ) litigating authority, as important sources of administrative influence.
However, in a paper I wrote several years ago and recently posted on SSRN, I argue that ex ante control mechanisms, such as budgetary and policy review, are weaker in patent law than in other areas. Because of this, DOJ—and in particular, the Office of the Solicitor General (SG)—has assumed significant influence over patent law and policy.

I argue that the relative weakness of ex ante controls in patent law stems from several factors. First, ex ante controls are only effective if administrations have strong policy preferences and know which policies will satisfy them. But neither factor has traditionally held in patent law. Throughout 1980s and 1990s, administrations tended to defer to technocrats within the Patent Office (PTO), at least on individual doctrinal issues. By the time administrations began to develop strong policy preferences, coinciding with increasing public interest in the patent system, doctrinal rules had solidified, and policy review and other ex ante controls were no longer viable.

Second, the courts are more influential in patent law than in other regulatory fields (with the possible exception of antitrust law), which weakens administrations' ability to establish policy. Under Merck & Co., Inc. v. Kessler, the Federal Circuit doesn't recognize PTO's authority to establish rules governing substantive issues in patent law. Accordingly, the Federal Circuit refuses defer to PTO's interpretations of the patent laws. (Supreme Court watchers will recognize that the Government's opposition brief in Cuozzo Speed Technologies, Inc. v. Lee challenges the Federal Circuit's interpretation of PTO's rulemaking authority.) The significance of this is debatable. John Golden, for example, has argued that PTO remains influential despite the Federal Circuit's position. But even if Golden is right, courts remain undeniably important in setting patent doctrine and policy. Consequently, administrations cannot simply reverse the direction of patent law by instructing PTO to promulgate rules.

Third, even if administrations do have strong policy preferences, ex ante controls rely on loyal agents. But loyalty trades off with competence. In areas like patent law, where legal and technical expertise are (or are at least are perceived to be) important qualifications, administrations have a smaller pool of candidates to choose from. The Patent Act, for example, imposes professional experience requirements on the PTO Director and Deputy Director, and consequently, appointees for these positions have tended to come from the relatively small number of registered patent attorneys and agents. Thus, administrations may be unable to find candidates whose preferences strongly align with their own.

As a consequence, DOJ exerts significant influence in patent law, perhaps to an extent not present elsewhere. Association for Molecular Pathology v. Myriad Genetics, Inc. is the most recent and obvious example. That case, of course, was brought by a coalition of public interest litigants who argued that Myriad's monopoly on the BRCA1 and BRCA2 genes inhibited public access to breast cancer diagnostic screening. During the litigation, DOJ reversed course and adopted a position on subject matter eligibility that contradicted PTO's longstanding policy of granting gene patents. DOJ's position attempted to strike a balance between PTO's policy and the views of other interest groups.

As a matter of theory, I argue that DOJ's litigating authority follows the pattern described by Matthew McCubbins and Thomas Schwartz's "fire-alarm" model of congressional oversight. To conserve resources, they argue, Congress chooses to oversee agency activities indirectly, by implementing procedures that allow private parties to raise the alarm when agencies diverge from their policy preferences. I identify the SG as an important figure in this process. Because the SG acts as an intermediary between the Administration, the Supreme Court, and litigants, he or she can be instrumental in developing and defending the Government's position.

Here, my arguments complement John Duffy's earlier analysis of the SG's extraordinary influence in patent law. Duffy argued that the SG has become increasingly active because of the Supreme Court's return to the field of patent law, and the special relationship that the SG enjoys with the Court. In my paper I attribute the SG's activity in patent law to DOJ's role as an "ex post policymaker" in accordance with the fire-alarm model.

Of course, as with everything, there are sections I would have rewritten in hindsight. In my view, my biggest oversight was failing to appreciate the changing administrative dynamics in patent policy. Since at least 2013, the Office of Science and Technology Policy (OSTP), a White House office, has become a significant driver in patent reform. My analysis of DOJ's litigating authority seems anachronistic in light of that move towards centralization.

Additionally, I suspect I over-relied upon DOJ and PTO's split in Myriad to illustrate my theory. Those kinds of open disagreements between the Government and PTO are few and far between.

Finally, my proposal to partially expand PTO's litigating authority seems forced to me now. I felt compelled to propose a policy change, when the paper's significance lay in demonstrating how a common theoretical model applies to patent law. Still, I hope, the paper provides an interesting* view of 1980s- and 1990s-era patent policymaking and its consequences, which echo today.

* Adrian Vermeule uses the phrase "interestingly wrong" to describe writing that "illuminates through its very errors and distortions." I hope I've achieved at least that!
Camilla Alexandra Hrdyhttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-86797349431573239922016-04-08T09:50:00.002-04:002016-04-08T09:50:51.336-04:00What If They Forgot to Record the Super Bowl?I've been slow in my blogging due to a heavy semester, though I've got some new posts coming.

In the meantime, I have a new post at the Villanova Moorad Sports Law Journal page, in which I discuss the legal ramifications of broadcast network failure to retain copies of Super Bowl I (and the lone individual who made his own recording of the broadcast).Michael Rischhttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-78852594569184289602016-04-06T22:23:00.002-04:002016-04-06T22:23:28.531-04:00Larry Helfer on Access to MedicinesReaders interested in the social justice concerns described in Monday's post may be interested in a book chapter that was recently posted by Professor Laurence Helfer: Pharmaceutical Patents and the Human Right to Health: The Contested Evolution of the Transnational Legal Order on Access to Medicines. Helfer is one of the leading scholars of international IP institutions; see, e.g., his classic work on regime shifting.

In this new chapter, he describes the collision of two "transnational legal orders" (TLOs): one focused on IP, and one on the right to health. He breaks down the history into three phases. In Phase 1 (pre-mid-1990s) the two TLOs "existed in relatively stable but distinct policy spaces." In Phase 2 (mid-1990s to 2000), the IP TLO rapidly expanded. Phase 3 (2000 to the present) has involved "a backlash against pharmaceutical patents and a campaign by developing countries and civil society groups to increase A2M [access to medicines]." In broad strokes, this account is probably familiar to many IP scholars, but for those interested in the detailed institutional dynamics behind this story, Helfer's chapter is well worth a read.

In related news, the pharmaceutical firm GlaxoSmithKline made headlines with its recent announcement that it will stop filing patents in 50 low-income countries and will grant licenses to generics manufacturers in another 35 lower-middle-income countries.Lisa Ouellettehttps://firstname.lastname@example.com:blogger.com,1999:blog-2977297931731346524.post-88008639076776927112016-04-04T12:31:00.000-04:002016-04-04T12:31:30.720-04:00Peter Menell on IP and Social JusticeProfessor Peter Menell recently posted a new essay, Property, Intellectual Property, and Social Justice: Mapping the Next Frontier, from a conference celebrating Professor Joseph Singer. As he explains, "[t]he ascendency of intangible resources profoundly affects social justice—from access to life-saving genetic information to the control of knowledge dissemination, creative freedom, group identity, and, increasingly, the distribution of wealth." His essay canvases a huge array of topics in just 52 pages, and it is a great review of the literature in this area. (The essay is worth downloading even just for the collection of key works in footnote 13, from scholars including Anupam Chander and Madhavi Sunder and Amy Kapczynski.)

For each of the four main bodies of IP law, Menell examines the law's internal legitimacy (is IP the best way of achieving the law's goals?) and external effects (how does the law affect various social justice considerations?). For example, he compares patent law with the other legal institutions that Daniel Hemel and I discuss in Beyond the Patents–Prizes Debate, and he reaches the same conclusion we do: each institution has limitations, and "the patent system works best in conjunction with other institutions." On patent law's external effects, Menell notes the troubling implications of patent law's use of price as an allocation mechanism for certain technologies such as medicines. He notes that this does not require one to reject the patent system—rather, it highlights the need in certain areas for non-patent institutions such as government health care policies. (Of course, as Ted Sichelman nicely summarizes, we think the negative distributional effect of patents will be replicated by any system that taxes users of the technology—marginal cost pricing can only be obtained by requiring consumers to broadly subsidize each other's technology use, which is the whole idea of government health care and other health insurance programs.)

Menell continues this analysis for the other main areas of IP law. For trade secrets, he argues that their internal validity "has long been widely accepted," but that "the widespread use of routine, blanket non-disclosure agreements to cover all proprietary information within an enterprise [such as illegal or unethical behavior] raises serious social justice concerns."

For copyrights, he argues that their internal validity have been "tarnished" by "a confluence of factors": the "extension of copyright duration," "the dismantling of formalities," the expansion of "subject matter to all forms of expressive works, including architecture and computer programs," and "the strengthening of infringement remedies." And he explains how "the rights and interests of authors and audiences clash in multiple non-utilitarian dimensions," including the dignitary interests of authors, the long U.S. history of promoting access to knowledge, and the value of free expression for democratic debate and human flourishing.

Finally, trademarks "safeguard the integrity of the marketplace," and Menell argues that "it is difficult to quarrel with trademark law's basic design and functioning" at the level of internal validity. He acknowledges that dilution protection "risks undue power over symbols, but these areas of law have been significantly circumscribed." (I don't think all trademark scholars have such an optimistic view.) But he notes that trademark law "can interfere with freedom of expression" and "can undermine moral, dignitary, and group interests" (as in cases involving the "Washington Redskins" and "The Slants").

Menell's essay concludes with some "macro social justice issues." He worries "that the growing importance of information resources in the economy adversely affects the distribution of income and wealth" in ways that might not best be fixed by "[p]rogressive taxation alone." And the elite group that is enriched by the information age reflects "historical gender and race biases." But at the same time, "the need for rapid innovation to stem climate change and public health threats grows ever more apparent, creating a tradeoff for compromising IP policy."Lisa Ouellettehttps://email@example.com:blogger.com,1999:blog-2977297931731346524.post-17483783758137322962016-03-28T12:09:00.000-04:002016-03-28T12:09:33.187-04:00Shyam Balganesh: Causing CopyrightMy last post on computer-generated IP noted my uncertainty about whether AI is making sufficient contributions to be viewed as a creator or inventor independent of its programmers. The problem is not just factual uncertainty about what any given AI is doing—it is also a theoretical and doctrinal uncertainty about what does or should count as authorship or invention. Shyamkrishna Balganesh addresses this broader problem in Causing Copyright (forthcoming Colum. L. Rev.), which argues that modern copyright doctrine lacks a coherent theory of causation: there is "no viable mechanism by which to examine whether someone is causally responsible for the creation and fixation of the work." This issue is important not just for creative AI, but also for issues like the monkey selfie controversy or simple accidental creation.

Balganesh explains that the requirement that the author caused the creative work is buried in a number of other doctrines. The originality requirements—that the work be independently created and minimally creative—might seem related to authorial causation, though in practice the former is basically a no-copying mandate and the latter focuses on the work itself rather than the act of creation. Joint-works doctrine tests whether each party independently qualifies as an author, which involves some inquiry into authorial causation, although it is not openly addressed as such. And work-for-hire doctrine automatically imputes authorial causation to employers based on having hired workers who executed the project (without the need for independent evidence of causation of specific works). Balganesh argues that rather than having snippets of causation buried in assorted doctrines, "modern copyright jurisprudence would be best served by confronting the question of causation directly through an independent requirement of protection."

What would this copyrightable causation doctrine look like? Balganesh suggests that copyright law should borrow from the separate "cause-in-fact" and "proximate cause" inquiries from tort law. Just as factual causation in tort law looks for human agency behind bad outcomes, the new "creation-in-fact" copyright requirement would look for human agency behind good outcomes. Animals, machines, and divine sources bear no causal responsibility in tort law; similarly, they would not be treated as causally responsible for a creative work. But causing an injury in fact is not sufficient to impose tort liability—proximate causation also demands that liability would serve tort law's goals. Similarly, Balganesh argues that the copyright causation inquiry should have a second step, "legal creation," that "asks whether the identified human agency ought to lead to an authorship claim as a matter of copyright's goals and principles." Of course, as he notes, scholars don't agree on copyright's goals, but he sets forth some midlevel principles of situations in which works that have satisfied the creation-in-fact requirement should nonetheless be denied protection. This figure illustrates the full inquiry:

Asking courts to create this new copyrightable causation doctrine might seem like a tall order. But Balganesh is a fierce proponent of common-law rulemaking; see, e.g., this 2010 article or this 2015 book. He argues that "[t]o the extent that the copyright statute—and the Constitution—confirm the centrality of 'authorship' to copyright law, but then leave it up to the courts to ultimately determine the precise contours of that idea, courts should be willing to embrace the law-making role that the system consciously delegates to them."

Lisa Ouellettehttps://email@example.com