Tuesday, August 14, 2018

Use Based Copyright Terms

I didn't blog last week because, well, I was at Disneyland. But I love IP, and when you're a hammer, everything is a nail. So, I couldn't help but think as I looked at the gigantic Mickey Mouse on the Ferris wheel that things are going to start getting messy when the copyright in Mickey runs out.

It occurs to me that serial, long term uses of copyrighted works are different than one time publications. To the extent that copyright is intended to incentivize investment in creative works, then losing protection over time can limit the incentive to develop quality long term work.  I'm not just talking about Mickey - Superman (and the additional complication of rights clawback) and other serial comics create issues. Star Trek is 50, Rocky and Star Wars are 40, and even Jurassic Park is 25 years old. The solution we got to this problem, a longer term for everything, was not the right one. A better solution is that terms should last as long as copyrights are in use, plus a few years. Works that are simply "sold" without any new derivative work would be capped, so works without improvement could not last forever.

Now, this is not to say there aren't costs to protecting copyrights while they are still in use. There is a path dependency that can reduce incentives to come up with new works (in other words, bad sequels instead of new creativity). There is also value associated with the public being able to use works in their own ways.

I'm personally not worried about either of these. On the first, there are plenty of incentives for new entrants to create new works (we got Star Trek, then Star Wars, then Battlestar Galactica (I and II), and now the Expanse), and even serial works become stale after a while (there was no Rocky 50, as some parodies predicted). On the second, I think it is inconsistent with the first concern to worry about path dependence while also worrying that others should be able to use the works. Of course, fresh eyes can bring new ideas to the expression, but hopefully the original owners do that. At this point, non-utilitarian concerns come into play. As between a party who has invested in making a work valuable over a long period of time and a party who would like to use that value, I side with the investor and say newcomers can create their own new value. I realize that many disagree with me on this point. That said, I think there are some noncompetitive uses - fan fiction, say - that can bring new ideas and allow some new works.

Note that a use-based term cuts both ways. As Paul Heald has demonstrated, there is a significant drop in availability for older books that are still within the copyright term. A use-based rule would either end the term, or perhaps create a commercialization bounty similar to that proposed by Ted Sichelman for patents.

A great idea, right? Except, I thought no way that nobody else looked at Mickey and thought the same thing. So, at the IP Scholars Conference last week (which was great, by the way), I asked my colleague Shyam Balganesh from Penn about it, and he didn't even blink before saying that Landes and Posner wrote an article 15 years ago called Indefinitely Renewable Copyright, located here.

As you would expect from these two authors, they detail the costs and benefits of copyright terms, and they provide empirical evidence that showed how shorter copyright terms led to very few renewals. The primary divergence from my idea is that I would allow a challenge based on lack of use, whereas Landes and Posner seem to assume that use is synonymous with registration (as their data shows). But I can imagine times when parties renew but then do not use their works. Thus, the system should look a bit more like trademarks.

I've done no literature review, so it's entirely possible that others have written about this. If you wrote or know of such an article, feel free to pass it along, and I'll add it here for posterity.

Friday, August 3, 2018

#IPSC18 Preview: General IP

This week I've been previewing all 140+ abstracts for the 18th Annual IP Scholars Conference next week at Berkeley, with patents & innovation on Monday, copyright on Tuesday, trademarks on Wednesday, and design/trade secrets/publicity yesterday. Here are all the remaining panels, in which multiple areas of IP are combined (either in individual papers or across the panel). Looking forward to seeing everyone next week!

Thursday, August 2, 2018

#IPSC18 Preview: Design, Trade Secrets, and Right of Publicity

To get ready for IP scholar speed dating at Berkeley next week, I've previewed the panels focused on patents and innovation, copyright, and trademarks. Today: design, right of publicity, and trade secrets (including some notes on other panels where you can also find papers on these topics).

Wednesday, August 1, 2018

#IPSC18 Preview: Trademarks

The 18th Annual IP Scholars Conference is Aug. 9-10 at Berkeley Law. Monday I previewed the eighteen panels primarily related to patents and innovation, and yesterday I previewed the six panels related to copyright. There are only two trademark-focused panels, and I didn't see any trademark-focused papers on general IP panels.

Tuesday, July 31, 2018

#IPSC18 Preview: Copyright

Yesterday I previewed the panels on patents and innovation at next week's IP Scholars Conference at Berkeley Law. Here are the copyright-focused panels:

Monday, July 30, 2018

#IPSC18 Preview: Patents & Innovation

The 18th Annual IP Scholars Conference is next week (Aug. 9-10) at Berkeley Law, and it includes over 140 academic talks given in six parallel tracks. It's not a great format for deep substantive engagement, but it's my favorite conference for getting an overview of what the IP academic community is working on. Of course, you can only see one-sixth of the projects, so if you want a taste of everything: I just read all the abstracts for this year's conference and wrote one sentence on each of them.

Here are all the panels that seem primarily focused on patents and innovation; I'll post about other IP areas (including panels combining patents with other areas of IP) in the coming days. For coauthored papers, the presenting author is listed first.

The Real World Impact of the Copyright Registration Prerequisite

Just before the summer recess, the Supreme Court snuck in a certiorari grant that I don't think has received much attention in proportion to its importance--Fourth Estate Public Benefit Corp. v. Wall-Street.com LLC. The issue is seemingly simple: before filing a lawsuit, a copyright owner must register the copyright. But what does it mean to register the copyright? Simply file the application, or actually receive the registration certificate.

I'd say this question is one of the most practically important IP questions the Court has faced in the last decade. When I was in active practice, I would estimate that a quarter to a third of our clients did not have a registration at the time they wanted to sue, and we relied on the Ninth Circuit's permissive "application is enough" rule to get a case filed (and sometimes seek injunctive relief). The alternative was to file and wait, sometimes months or even more than a year, to get a registration. (I've read that pendency is now about six to eight months). Alternatively, one can pay $800 for an expedited registration within 10 days.

Why might someone not file a registration well in advance of suing? First, because they don't have to. The post-Berne Convention adoption amendments from 1989 allow copyright to vest from the time of fixation. Indeed, in order to maintain compliance with Berne, the pre-filing registration requirement only applies to U.S. Works. Foreign works may sue at will--more on this later.

More practically, there are plenty of reasons why one might not file. In an era of mass digital photography, it would be ridiculously expensive to register every work in case one was infringed; it is far more efficient to see if anyone infringes, and then register that work. In software, new versions are created all the time--almost literally so in software as a service platforms. It would be impossible to file a new derivative work registration for every single released version, especially for open source (though I bet Microsoft does it).

As a result, the registration requirement would become a hammer that would keep rightful owners from bringing suit. The Supreme Court even recognized this several years ago in Reed Elsevier, Inc. v. Muchnick. In that case, a class of journalists filed suit for transfer of their print works into electronic databases. Some putative class members objected to a settlement, but they had not registered. The Court ruled that registration was not jurisdictional. Does this mean that one can apply and sue, so long as registration occurs before any final determination?

I won't run through the pro and con arguments in detail, as arguments can be made on each side from different interpretive points of view. The statute clearly states that registration is required. But another section states that registration is effective from the date of application. But another part states that one may sue if the registration has been denied, which implies that registration is not complete until accepted. But then one wonders how long an applicant must wait until there is an assumption that the work has been "pocket denied," especially when registration is a ministerial act. But then the copyright office might argue that registration is not a ministerial act. And so forth. But the outcome of the arguments will have a real effect on real people and businesses.

I'd like to end with the challenge not made in the case: equal protection. While a couple commentators here and there have mentioned this problem with the dual registration rules, I can find no case with "411(a) & 'equal protection'" as search terms. Requiring a separate hurdle for some works and not others is about as unequal as I can think of. It is unclear why SAP can file suit immediately, but Oracle may not. I don't know if the Supreme Court can reach this issue as part of its interpretive determination (it's not an issue and it wasn't briefed), but I hope it does.

Wednesday, July 25, 2018

NBER Summer Institute 2018: Innovation

Last week I was a discussant at the Innovation section of the 2018 NBER Summer Institute (full schedule here), which I highly recommend to scholars interested in the economics of innovation. The quality of the papers and the discussion was pretty uniformly high. There were a few examples of the insularity of economics, such as remarks about topics that "no one has studied" that have been studied by legal scholars, but I think this just illustrates the benefits of having scholars familiar with different literatures at disciplinary conferences.

Here are links and brief summaries of the innovation-related papers. (There was also a great panel discussion on gender and academic credit, which I might post about separately at some point.)

Monday, July 23, 2018

What Drives Product Companies to Sue?

There are many studies of patent litigation, including the reasons that firms litigate - I have worked on some myself. Much of it is really helpful information, but all of the studies lack one key component: the patents that get litigated are highly selected. They are selected for a) the firms that litigate (practicing v. non-practicing), b) the patents that are litigated (individual, portfolio, lead), and c) the cases that are litigated to judgment (default, settlement, summary judgment, trial).

In the realm of which firms and patents litigate, most of the studies have looked at the litigation level, comparing characteristics of patents and technology with samples of those patents and technologies that were not litigated. This is helpful information, but it certainly doesn't tell the whole story. So, Dirk Czarnitzki and Kristof Van Criekingen (KU Leuven Managerial Economics) have used suvey data of Belgian firms to be better understand which firms litigate. A draft of their paper New Evidence on Determinants of IP Litigation: A Market-Based Approach is posted on SSRN.  Here is the abstract:
We contribute to the economic literature on patent litigation by taking a new perspective. In the past, scholars mostly focused on specific litigation cases at the patent level and related technological characteristics to the event of litigation. However, observing IP disputes suggests that not only technological characteristics may trigger litigation suits, but also the market positions of firms, and that firms dispute not only about single patents but often about portfolios. Consequently, this paper examines the occurrence of IP litigation cases in Belgian firms using the 2013 Community Innovation Survey with supplemental information on IP litigation and patent portfolios. The rich survey information regarding firms’ general innovation strategies enables us to introduce market-related variables such as sales with new products as well as sales based mainly on imitation and incremental innovation. Our results indicate that when controlling for firms’ IP portfolio, the composition of turnover in terms of innovations and imitations has additional explanatory power regarding litigation propensities. Firms with a high turnover from innovations are more likely to become plaintiffs in court. Contrastingly, firms with a high turnover from incremental innovation and imitation are more likely to become defendants in court, and, moreover, are more likely to negotiate settlements outside of court.
The paper itself is relatively straightforward and the results are unsurprising: firms that seem to rely heavily on big innovation sue more, and firms that "imitate" or make incremental innovations tend to get sued more.

I'm not sure what to make of the finding that defendants who imitate are more likely to settle pre-suit (patent portfolio quality being held equal). I suppose that defendants who are making their own big innovations are more likely to challenge validity or argue noninfringement. Then again, the study finds that imitator defendants are more likely to seek patent invalidity, so it may be that either a) they settle when they cannot do win the challenge, or b) innovator defendants rely more on noninfringement.

I suppose that my primary critique is not so much with the empirical method but with the literature review. I think the discussion could have been informed a bit by reference to some of the legal literature in this area. I realize that most economists see law reviews as articles non grata due to lack of peer review, but there's been plenty of decent enough work in this area to merit comment. For example, this draft argues that it is the first to consider out of court settlements, but Lemley, Richardson and Oliver circulated a draft of comprehensive survey results in 2017. Similarly, the article discusses patent portfolios in enforcement, but doesn't mention any of the several legal articles focusing on these dynamics. This is a small point, but an important one. I think legal scholars should look to the economics literature much more often than they do, and I think economic research wouldn't hurt by doing the opposite every once in a while.

In any event, this is an interesting paper that adds new information about how we should think about what drives competitive company litigation.

Friday, July 20, 2018

The Trade Secret-Contract Interface

Deepa Varadarajan's new article, The Trade Secret-Contract Interface, published in the Iowa Law Review, explores the role of contracts in trade secret law. This article returns to an issue that remained unresolved following rich exchanges between Robert Bone and other scholars such as Michael Risch and Mark Lemley. Varadarajan's article is a welcome follow up.

Monday, July 16, 2018

What do Generic Drug Patent Settlements Say about Patent Quality?

An interesting study about Orange Book patents challenged both under Hatch-Waxman and Inter Partes Review caught my eye this week, but perhaps not for the ordinary reasons. One of the hot topics in drug patent challenges today is reverse payments: when the patentee pays the generic to stop a challenge. The Supreme Court has ruled that these payments can constitute antitrust violations. Though the drug companies give reasons, I'll admit that I've always been skeptical of these types of payments.

One of the key questions is whether the patent was going to survive. Most seem to assume that if a company pays to settle, then the patent was likely going to be invalidated. That's where the draft, Maintaining the Balance: An Empirical Study on Inter Partes Review Outcomes of Orange Book-Listed Drug Patents and its Effect on Hatch-Waxman Litigation, by Tulip Mahaseth (a recent Northwestern Law grad) comes in. Here is the abstract from SSRN:
The Hatch-Waxman Act intended to strike a delicate balance between encouraging pioneer drug innovation and promoting market entry of affordable generic versions of pioneer drugs by providing a streamlined pathway to challenge validity of Orange Book patents in federal district courts. In 2012, the America Invents Act introduced Inter Partes Review (IPR) proceedings which provide a faster, cheaper pathway to challenge Orange Book patents than Hatch-Waxman district court litigation. IPRs also have a lower evidentiary burden of proof and broader claim construction standard, which should make it easier, in theory, to obtain patent invalidation in IPRs as compared to Hatch-Waxman litigation. This empirical study on IPR outcomes of Orange Book patents in the past six years shows that both generic manufacturers and patent owners obtain more favorable final decisions in IPRs as compared to their Hatch-Waxman litigation outcomes because the rate of settlement in IPRs is much lower than in Hatch-Waxman litigation. Moreover, generic manufacturers do not appear to be targeting Orange Book patents in IPRs during their drug exclusivity period. Only 2 out of more than 400 IPRs against Orange Book patents were filed by generic petitioners during the patents’ New Chemical Entity exclusivity period. About 90% of the 230 Orange Book patents challenged in IPR proceedings were also challenged in Hatch-Waxman litigation. It is likely that generic manufacturers are not deterred from Hatch-Waxman litigation because of the lucrative 180-day exclusivity period, which gives the first generic filer 180 days to exclusively market their generic version without competition from other generics when the Orange Book drug patent is successfully invalidated in a subsequent district court proceeding. Therefore, IPR proceedings do not appear to be disrupting the delicate balance sought by the Hatch-Waxman Act. Instead, the IPR process has provided generic manufacturers a dual track option for challenging Orange Book patents by initiating Hatch-Waxman litigation in district courts and also pursuing patent invalidity in IPRs before the Patent Trial and Appeal Board, which has reduced rate of settlements resulting in more patents being upheld and invalidated.
There's a lot of great data in this paper, comparing Orange Book IPRs with non-Orange Book IPRs, including comparison of win rates and settlement rates.

But I want to focus on one seemingly minor point: as the number of IPRs has increased, the rate of settlement has decreased. And, more important, the decreasing rate of settlement has led to more invalidation and more affirmance of patents.

This result gives a nice window into how we might view settlements. Traditional Priest-Klein analysis says that this is exactly what we should see - that the previously settled cases were 50/50. But proving this is harder, and this data set would allow for a nice differences-in-differences analysis in future work.

Additionally, a split among outcomes implies that the settlements were not necessarily because the patentee believed the patent was at risk.  If anti-competitive settlements were ruling the day, I would have predicted that most of the (recent) non-settlements would have resulted in patent invalidation. Then again, it is possible that a 50% chance was risky enough to merit a reverse payment settlement in the past. Regardless of how one comes out on this issue, this study provides some helpful details for the argument.

Tuesday, July 10, 2018

How did TC Heartland Affect Firm Value?

In Recalibrating Patent Venue, Colleen Chien and I did a nationwide study of forum shopping in patent cases (shocker - everybody did it, and not just in Texas), and predicted that many patent cases would shift from the Eastern District to the District of Delaware. And, lo, it has come to pass. Delaware is super busy. This has been good for us at Villanova (only 30 miles away from the court), as our students are getting some great patent experience in externships and internships.

But how much did firms value not being sued in Texas? The TC Heartland case is a clear shock event, so an event study can measure this. In Will Delaware Be Different? An Empirical Study of TC Heartland and the Shift to Defendant Choice of Venue, Ofer Eldar (Duke Law) and Neel Sukhatme (Georgetown Law) examine this question. The article is forthcoming in Cornell Law Review and a draft is on SSRN. Here is the abstract:
Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, such as enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical.
The Supreme Court’s recent decision in TC Heartland v. Kraft Foods illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically measure the impact of this shift using an event study, which measures how the stock market reacted to the decision. We find that likely targets of “patent trolls”— entities that own and assert patented inventions but do not otherwise use them—saw their company valuations increase the most due to TC Heartland. This effect is particularly pronounced for Delaware-incorporated firms. Our results match litigation trends since TC Heartland, as new cases have dramatically shifted to the District of Delaware from the Eastern District of Texas, previously the most popular venue for infringement actions.
Why do investors believe Delaware will do better than Texas in curbing patent troll litigation? Unlike Texas, Delaware’s economy depends on attracting large businesses that pay high incorporation fees; it is thus less likely to encourage disruptive litigation and jeopardize its privileged position in corporate law. More broadly, we explain why giving defendants more control over venue can counterbalance judges’ incentives to increase their influence by encouraging excessive litigation. Drawing on Delaware’s approach to corporate litigation and bankruptcy proceedings, we argue that Delaware will compete for patent litigation through an expert judiciary and well- developed case law that balances both patentee and defendant interests.
As I discuss below, I have a like/dislike reaction to this paper.

Monday, June 25, 2018

The False Hope of WesternGeco

The Supreme Court issued its opinion in WesternGeco last week. The holding (7-2) was relatively straightforward: if an infringer exports a component in violation of 35 USC 271(f)(2) (that is, the component has no substantial noninfringing use), then the presumption of extraterritoriality will not bar damages that occur overseas. And that's about all it ruled. It left harder questions, like proximate cause, for another day.

I spent the end of the week and weekend reading commentary on the case (and tussling a bit on Facebook and Twitter). A couple blog posts worth checking out are Tim Holbrook's and Tom Cotter's. I had just a few thoughts to add.

Monday, June 18, 2018

Evidence on Patent Disclosure via Depository Libraries

When I first started practice, the place to go for patents was the Patent Depository Library at the Sunnyvale Public Library. Not only did they have copies of all the patents, they had other disclosures, like the IBM Technical Disclosure series. For those who wonder whether people actually read patents, I can attest that I never went to that library and found it empty. Many people, mostly individual inventors who did not want to pay for Delphion or some other electronic service, went there to look at the prior art. Sadly, the library ceased to be at the end of 2017. Widespread free availability on the Internet, plus a new USPTO center in San Jose siphoned off all the traffic.

Rather than rely on my anecdotal evidence, a new NBER paper examines the role of Patent Depository Libraries as evidence of patent disclosure. Jeffrey Furman (Boston U. Strategy & Policy Dept), Markus Nagler, and Martin Watzinger (both of Ludwig Maximillian U. in Munich) have posted Disclosure and Subsequent Innovation: Evidence from the Patent Depository Library Program to NBER's website (sorry, it's a paywall unless you've got .gov or .edu rights). The abstract is here:
How important is information disclosure through patents for subsequent innovation? Although disclosure is regarded as essential to the functioning of the patent system, legal scholars have expressed considerable skepticism about its value in practice. To adjudicate this issue, we examine the expansion of the USPTO Patent and Trademark Depository Library system between 1975 to 1997. Whereas the exclusion rights associated with patents are national in scope, the opening of these patent libraries during the pre-Internet era yielded regional variation in the costs to access the technical information (prior art) disclosed in patent documents. We find that after a patent library opens, local patenting increases by 17% relative to control regions that have Federal Depository Libraries. A number of additional analyses suggest that the disclosure of technical information in the patent documents is the mechanism underlying this boost in patenting: the response to patent libraries is significant and of important magnitude among young companies, library opening induces local inventors to cite more geographically distant and more technologically diverse prior art, and the library boost ceases to be present after the introduction of the Internet. We find that library opening is also associated with an increase in local business formation and job creation, which suggests that the impact of libraries is not limited to patenting outcomes. Taken together, our analyses provide evidence that the information disclosed in patent prior art plays an important role in supporting cumulative innovation.
 The crux of the study is the match to other, similar areas with Federal Depository (but not patent) Libraries. The authors acknowledge that the opening of a patent library might well be a leading indicator of expected future patenting, but the authors discount this by arguing that the Patent Libraries would have had to somehow predict the exact year of increased patenting, and then apply in advance of that date and get approved just in time. The odds of this seem low, especially when the results are localized to within 15 miles of the library (and no further).

The first core finding, that patenting increased, is ambiguous normatively. The authors discuss enhanced innovation, but equally likely alternatives are that people just got excited about patenting or that innovation already occurring was more easily patented. That said, they find the same quality, which implies that the patenting wasn't simply frivolous.

The second finding is more important: that the types of citations and disclosures changed (and that those changes disappeared when patents were more readily available on the Internet). This finding implies that somebody was reading these patents. The question is who. A followup study looking at how the makeup of inventorship changed would be interesting. Were the additional grants solo inventors or large companies? Who used these libraries?

Even without answering this question, this study was both useful and interesting, as well as a bit nostalgic.

Monday, June 11, 2018

Measuring Patent Thickets

Those interested in the patent system have long complained of patent thickets as a barrier to efficient production of new products and services. The more patents in an area, the argument goes, the harder it is to enter. There are several studies that attempt to measure the effect of patent thickets, with some studies arguing that thickets can ease private ordering. I'd like to briefly point out another (new) one. Charles deGrazia (U. London, Royal Holloway College), Jesse Frumkin, Nicholas Pairolero (both of USPTO) have posted a new draft on SSRN, called Embracing Technological Similarity for the Measurement of Complexity and Patent Thickets. Here is the abstract:
Clear and well-defi ned patent rights can incentivize innovation by granting monopoly rights to the inventor for a limited period of time in exchange for public disclosure of the invention. However, when a product draws from intellectual property held across multiple firms (including fragmented intellectual property or patent thickets), contracting failures may lead to suboptimal economic outcomes (Shapiro 2000). Researchers have developed several measures to gauge the extent and impact of patent thickets. This paper contributes to that literature by proposing a new measure of patent thickets that incorporates patent claim similarity to more precisely identify technological similarity, which is shown to increase the information contained in the measurement of patent thickets. Further, the measure is universally computable for all patent systems. These advantages will enable more accurate measurement and allow for novel economic research on technological complexity, fragmentation in intellectual property, and patent thickets within and across all patent jurisdictions.
 The authors use natural language processing to determine overlap in patent claims (and just the claims, arguing that's where the thicket lies) for both backward and forward citations in "triads" - patents that all cite each other. Using this methodology, they compare their results to other attempts to quantify complexity and find greater overlap in more complex technologies - a sign that their method is more accurate. Finally, they validate their results by regressing thickets against examination characteristics, showing that the examination factors more likely to come from thickets (e.g. pendency) are correlated with greater thickets.

This is an interesting study. The use of citations (versus technological class) will always be a limitation because not every patent in a thicket winds up being cited by others. However, the method used here (using forward and backward citations) is better than the alternative, which is using only blocking prior art.

The real question is what to do with all this information. Can it be applied beyond mere study of which areas have thickets? I suppose it could be helpful for portfolio purchases, and maybe to help decisions about whether to enter into a new technology.