Tuesday, January 15, 2019

The Copyright Law of Interfaces

Winter break has ended and so, too, has my brief blogging break. I've blogged before (many times) about the ongoing Oracle v. Google case. My opinion has been and continues to be that nobody is getting the law exactly right here, to the point where I may draft my own amicus brief supporting grant of certiorari. But to the extent I do agree with one of the sides, it is the side that says API (Application Programming Interfaces) developers must be allowed to reuse the command and parameter structure of the original API without infringing copyright. My disagreement is merely with the way you get there. Some believe that API's are not copyrightable at all. I've blogged before that I'm not so sure about this. Some believe that this should be fair use. I think this is probably true but the factors don't cleanly line up. My view is that this should be handled on the infringement side: that API's, even if copyrightable, are not infringing when used in a particular way (that is, they are filtered out of an infringement analysis). It's the same result, but (for me, at least) much cleaner theoretically and doctrinally.

But make no mistake, this sort of reuse is critically important, as Charles Duan (R Street Institute) points out in his latest draft: Internet of Infringing Things: The Effect of Computer Interface Copyrights on Technology Standards (forthcoming in Rutgers Computer and Technology Law Journal). The draft is on SSRN and an abstract is here:
This article aims to explain how copyright in computer interfaces implicates the operation of common technologies. An interface, as used in industry and in this article, is a means by which a computer system communicates with other entities, either human programmers or other computers, to transmit information and receive instructions. Accordingly, if it is copyright infringement to implement an interface (a technical term referring to using the interface in its expected manner), then common technologies such as Wi-Fi, web pages, email, USB, and digital TV all infringe copyright.
By reviewing the intellectual property practices of the standard-setting organizations that devise and promulgate standards for these and other communications technologies, the article demonstrates that, at least in the eyes of standard-setting organizations and by extension in the eyes of technology industry members, implementation of computer interfaces is not an infringement of copyright. It concludes that courts should act consistent with these industry expectations rather than upending those expectations and leaving the copyright infringement status of all sorts of modern technologies in limbo.
 As noted, I agree with the end result, so any critique here should be taken as one of the paper, and not of the final position. I think Duan does a very nice job of explaining what an interface is: namely, the set of commands that third-party programmers send to a server/system to make it operate. There is value in standardization of these interfaces - it allows people to write one program that will work with multiple systems. Duan uses two good examples. The first is HTML/CSS programming, which allows people to write a single web document and have it run in any browser and/or server that supports the same language. The second is SMTP, which allows email clients to communicate with any email server. The internet was built on these sorts of interfaces, called RFCs.

Duan then does a nice job of showing the creativity that goes into selecting the commands - as with Java, there were choices (though limited) to make about each command. Because the set of functions is limited, number of ways to describe the function is limited, but there are some choices to be made. The article then shows how those commands are grouped together in functional ways.

Finally, Duan nicely shows how many important standards are out there that follow this same pattern, and shows how standards organizations handle any copyright--they don't. In short, allowing contributors to claim copyright ownership would destroy systems, because there is no requirement that contributors allow others to use the interface. Duan's concern is that if individual authors owned the IP in their interface contributions to standards (a potential extension of Oracle v. Google) then holdup might occur that harms adoption. This, of course, is hotly debated, as it is in the patent area.

I think it's a really interesting and well-written paper. Before I get to a couple critiques, I should note that Duan is focused more on how the current legal8 rulings might affect standards than critiquing the rulings themselves (as I have done here). Thus, my comments here may simply not have been on his radar.

My primary thought reading this is that the paper doesn't deal with the declaring code. That is, in order to implement the Java commands, Google created short code blocks that defined the functions, the parameters, etc.  Here is an example from the original district court opinion:

package java.lang;
java.lang public
class Math {
class Math public static int max (int x, int y) {

This code is what the jury found to be copied (though presumably Google wrote it in some other language). But the standards interfaces don't provide any code, per se. They only provide explanations. Here is an example definition from the RFC for the SMTP protocol discussed in the paper:
mail = "MAIL FROM:" Reverse-path
In other words, standards will define the commands that must be sent, but there's not a language based implementation (e.g. public, static, integer, etc.). As with the sample line above. Most say: send x command to do y. And people writing software are on their own to figure out how to do that. And you can bet the implementing code looks very similar, but there's something different about how it is specified at the outset (a full header declaration v. a looser description). So, the questions this raises are a) does this make standards less likely to infringe, even under the Federal Circuit's rules (I think yes), and b) does this change how we think about declaring code? (I think no, because the code is still minimal and functional, but Oracle presumably disagrees).

Secondarily, I don't think the article considers the differences between Oracle's position (now - it changed, which is one of the problems) and that of a contribution to standards. Contribution to a standard is made so that others will adopt it, presumably because it gives you a competitive advantage of some sort. By not being part of the standard, you risk having a fragmented (smaller) set of users. But if Oracle doesn't want others adopting Java language and would rather be limited, then that makes the analogy inapt. If Google had known this was not allowed and gone another way, it may well be that Java is dead today (figure that in to damages calculations). But a fear of companies submitting to standards and then taking it back is to me different in kind from companies that never want to be part of the standard. (Of course, as noted above, there is some dispute about this, as Sun apparently did act as if they wanted this language to be an open standard).

A final point: two sentences in the article caught my eye, because they support my view of the world (confirmation bias, of course). When speaking of standard setting organization policies, Duan writes: "To the extent that a copyright license is sought from contributors to standards, the license is solely directed to distributing the text of the standard. This suggests that copyright is simply not an issue with regard to implementing interfaces." Roughly interpreted, this means that these organizations think that maybe you can copyright your API, but that copyright only applies to slavish copying of the entire textual document. But when it comes to reuse of the technical requirements of the standard, we filter out the functionality and allow the reuse. This has always been my position, but nobody has argued it in this case.

Monday, January 14, 2019

Bruno Latour, Mario Biagioli, and the Rhetoric of "Balance" in IP Law (and Climate Change)

I just read Jennifer Szalai's fascinating review in the New York Times of the French anthropologist and philosopher Bruno Latour's new book on politics and the debate over climate change.  As I recall from my history of science days, the whole point of Latour's body of work was that "facts," in science, are not really facts. They are the social constructions of scientists who are real people with childhoods, values, and careers, whose conclusions cannot be divorced from the environment in which they were produced. "[T]he essential point," Latour wrote,
is that the facts, contrary to the old adage, obviously do not 'speak for themselves’: to claim that they do would be to overlook scientists, their controversies, their laboratories, their instruments, their articles, and their hesitant, interrupted, and occasionally deictic speech...
Thus, we might think Latour would be sympathetic to so-called climate change deniers, who greet with skepticism the science community's conclusions about humans' impact on global warming. As Szalai puts it in her review, Latour "has spent a career studying how knowledge is socially constructed." So, surely, "[the] kind of postmodernism" that lies behind the "conservative tradition" of "performing a skepticism so extreme that it makes the ancient Greek skeptics look like babes in the woods[]" would appeal to him.

But it's not so, Szalai writes. To the contrary, Latour sees "[s]uch pretensions to reality-creating grandeur" as "amount[ing] to little more than a vulgar, self-defeating cynicism." Perhaps even Bruno Latour, in the end, was a "realist"  at least when it comes to some things.

Revisiting Latour's skepticism of facts, I can't help but wonder (although I think I know) what Latour would say about patents. This brings me to a gem that I was lucky to get ahold of over break: an article by esteemed historian of science and expert on the Scientific Revolution, and now a law professor at the University of California Davis School of Law, Mario Biagioli. Adding another layer of irony, everything in this post will be colored by fact that Mairo is a long-time mentor and supervised my undergraduate thesis in the Department of History of Science at Harvard. His paper, Patent Republic, tracing the development of the patent system from the Venetian Republic to early America, inspired me to study IP.

Wednesday, January 2, 2019

Erin McGuire: Can Equity Crowdfunding Close the Gender Gap in Startup Finance?

As I have previously explained, there is growing interest in gender and racial gaps in patenting from both scholars and Congress—which charged the USPTO with studying these gaps. But I don't think it makes sense to study these inequalities in isolation: patent law is embedded in a larger innovation ecosystem, and patents' benefit at providing a strong ex post reward for success comes at the cost of needing to attract funding to cover R&D expenses until patent profits become available. It may be difficult to address the patenting gap without also addressing inequalities in capital markets.

In particular, there is a large and well-documented gender gap in the market for early-stage capital. For example, this Harvard Business Review article notes that women receive 2% of venture funding despite owning 38% of U.S. businesses, and that even as the percentage of female venture capitalists has crept up from 3% in 2014 to 7% in 2017, the funding gap only widened. Part of the explanation—explored in the fascinating study summarized in the HRB piece—may be that both male and female VCs ask different kinds of questions to male and female entrepreneurs: in actual Q&A sessions, VCs tended to ask men questions about the potential for gains and women about the potential for loses, with significant impacts on funding decisions.

Economist Erin McGuire, currently an NBER postdoc, has an interesting working paper on one partial solution to this problem: Can Equity Crowdfunding Close the Gender Gap in Startup Finance? Non-equity crowdfunding through sites like KickStarter and Indiegogo have grown in popularity in the past two decades; equity crowdfunding differs in that funders receive shares in the company in exchange for their investments. The average equity crowdfunding investment is $810—over ten times the average investment on Kickstarter. Equity crowdfunding was illegal in the United States before the JOBS Act of 2012, which allowed equity crowdfunding by accredited investors in September 2013. McGuire hypothesized that the introduction of this financing channel—with a more gender-diverse pool of potential investors—as an alternative to professional network connections would have a greater benefit for female entrepreneurs.

Wednesday, December 19, 2018

All about IP & Price Discrimination

It's a grading/break week, so just a short post. A recent article that I enjoyed a lot, but that hasn't found much love on SSRN is Price Discrimination & Intellectual Property, by Ben Depoorter (Hastings) and Mike Meurer (Boston University). The paper has the following abstract:
This chapter reviews the law and economics literature on intellectual property law and price discrimination. We introduce legal scholars to the wide range of techniques used by intellectual property owners to practice price discrimination; in many cases the link between commercial practice and price discrimination may not be apparent to non-economists. We introduce economists to the many facets of intellectual property law that influence the profitability and practice of price discrimination. The law in this area has complex effects on customer sorting and arbitrage. Intellectual property law offers fertile ground for analysis of policies that facilitate or discourage price discrimination. We conjecture that new technologies are expanding the range of techniques used for price discrimination while inducing new wrinkles in intellectual property law regimes. We anticipate growing commentary on copyright and trademark liability of e-commerce platforms and how that connects to arbitrage and price discrimination. Further, we expect to see increasing discussion of the connection between intellectual property, privacy, and antitrust laws and the incentives to build and use databases and algorithms in support of price discrimination.
They call it a chapter, but they don't identify the book that the chapter will appear in. It's probably an interesting book.

In any event, the chapter is a really interesting, thorough look at price discrimination generally, in addition to price discrimination as it relates to IP. It discusses the pros and cons as well as the assumptions that underlie each. If you are interested in a better understanding of the economics of IP (and secondarily, the internet), this is a good read.

Tuesday, December 11, 2018

The Value of Patent Applications in Valuing Firms

It's an age-old question that we've blogged about here before - what role do patents have on firm value? And is any effect due to signaling or exclusivity? Does the disclosure in the patent have any value? Does anybody read patents?

These are all good questions that are difficult to measure, and so scholars try to use natural experiments or other empirical methods to divine the answer. In a recent draft, Deepak Hegde, Baruch Lev, and Chenqi Zhu (all NYU Stern Business) use the AIPA to provide some useful answers. For those unaware, the AIPA mandated that patent applications be published after 18 months by default, rather than held secretly until patent grant. The AIPA is the law that keeps on giving; there have been several studies that use the "shock" of the AIPA to measure what effect patent publications had on a variety of dependent variables.

So, too, in Patent Disclosure and Price Discovery. A draft is available on SSRN, and the abstract is here:
We focus in this study on the exogenous event of the enactment of American Inventor’s Protection Act of 1999 (AIPA), which disseminates timely, detailed, and credible public information on R&D activities through pre-grant patent disclosures. Exploiting the staggered timing of patent disclosures, we identify a significant improvement in the efficiency of stock price discovery. This improvement is stronger when patent disclosures reveal firms’ successful, new, or technologically valuable inventions. This improvement is more pronounced for firms in high-tech or fast-moving industries, or with a large institutional ownership or analyst coverage. We also find stock liquidity rises and investors’ risk perception of R&D drops after the enactment of AIPA. Our results highlight the importance of timely, detailed, and credible disclosures of R&D activities in alleviating the information problems faced by R&D-intensive firms.
This is a short abstract, so I'll fill in a few details. The authors measure the effect on  intra-period timeliness, a standard measure used to proxy for "price discovery," or how quickly information enters the market and settle the price of a stock. There are a lot of articles on this, but here's one for those interested (paywall, sorry).

In short, the authors look at how quickly price discovery occurred before and after the AIPA, correcting for firm fixed effects and other variables. One of the nice features of their model is that patent applications occurred over a period of years, and so the "shock" of patent publication was not distributed only in one year (which could have been affected by something other than the AIPA that happened in that same year).

They find that price discovery is faster after the AIPA. Interestingly, they also find that the effect is more pronounced in high-tech and fast moving fields -- that is, industries where new R&D information is critically important.

Finally, their results say something about the nature of the patent disclosure itself - the effects come from disclosure of the information, and not necessarily the patent grant. Thus, the signaling effect may really relate to information, and (some) people may well read patents after all.

Monday, December 10, 2018

Adam Mossoff: Are Property Rights Created By Statute "Public Rights"?

I greatly enjoyed Professor Adam Mossoff's new article, Statutes, Common-Law Rights, and the Mistaken Classification of Patents as Public Rights, forthcoming in the Iowa Law Review.  Mossoff's article is written in the wake of Oil States Energy Services v. Green's Energy Group, where the Supreme Court held it is not unconstitutional for the Patent Trial & Appeals Board (PTAB), an agency in the Department of Commerce, to hear post-issuance challenges to patents, without the process and protections of an Article III court. Justice Thomas' opinion concluded that patents are "public rights" for purposes of Article III; therefore, unlike, say, property rights in land, patents can be retracted without going through an Article III court.

Mossoff's article objecting to this conclusion is a logical follow on to his prior work, while also providing new insights about the nature of patents, property, and the public rights doctrine. He does so quite concisely too, with the article coming in at only 21 pages.

Wednesday, December 5, 2018

Helsinn Argument Recap: Did the AIA Change the Meaning of Patent Law's "On Sale" Bar?

As Michael previewed this morning, the Supreme Court heard argument today in Helsinn v. Teva, which is focused on the post-America Invents Act § 102(a)(1) bar on patents if "the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public" before the relevant critical date. The Federal Circuit held that Helsinn's patents were invalid because Helsinn had sold the claimed invention to a distributor more than one year before filing for a patent, but Helsinn (supported by the United States as amicus) argues that the "on sale" bar is triggered only by sales that make the invention "available to the public" under a broad reading of "public."

During argument, none of the Justices seemed inclined to favor Helsinn's attempt to argue that "on sale" clearly means on sale to everybody—Justice Kavanaugh said "it's pretty hard to say something that has been sold was not on sale," and Chief Justice Robert's noted that Helsinn's interpretation "might not be consistent with the actual meaning of the world 'sale'" because "if something's on sale, it doesn't have to be on sale to everybody." Nor did they jump at the government's argument that "on sale" means a product can be purchased by its ultimate consumers—Justice Sotomayor said: "This definition of 'on sale,' to be frank with you, I've looked at the history cited in the briefs, I looked at the cases, I don't find it anywhere."

Helsinn's better statutory argument is that the meaning of "on sale" is modified by "or otherwise available to the public" to require that the sale be publicly available. Indeed, for a reader with no background in patent law, this might seem like the most natural reading of the statute. Justice Alito said that "the most serious argument" against the Federal Circuit's position is "the fairly plain meaning of the new statutory language," and that he "find[s] it very difficult to get over the idea that this means that all of the things that went before are public." And Justice Gorsuch suggested, at least for hypothetical purposes, that "the introduction of the 'otherwise' clause introduced some ambiguity about what 'on sale' means now." But if there was more support to reverse the Federal Circuit, it was not apparent from the argument.

Much of the statutory language used in the Patent Act—including "on sale"—has developed a technical legal meaning over time, generally due to courts' attention to the law's utilitarian focus. For example, patentable subject matter caselaw is "implicit" in § 101, courts have put a highly specialized gloss on the word "obvious" in § 103, and—relevant here—the § 102 categories of prior art have long been interpreted to include relatively obscure and private uses. Although this expansive definition of prior art might seem unfair to patentees, there are also strong policy arguments in its favor, including (1) encouraging patentees to get to the patent office early (leading to earlier disclosure and patent expiration) and (2) avoiding patents when their costs (including higher prices for consumers and subsequent innovators) aren't likely to be outweighed by their innovation-incentivizing benefits, such as when there is independent invention—even when evidence of that invention is relatively obscure.

As Justice Kavanaugh noted at argument today, Mark Lemley's amicus brief on behalf of forty-five IP professors describes the long history of treating relatively non-public disclosures as prior art, including (1) "noninforming public use" cases, (2) "output of a patented machine or process" cases, and (3) cases involving secret, confidential, and nonpublic sales transactions. Justice Breyer also mentioned the Lemley brief, and he said it "seems right" to have the on-sale bar include private sales "to prevent people from benefitting from their invention prior to and beyond the 20 years that they're allowed." The legislative history of the AIA does not suggest that Congress intended to do sweep away all of these cases—Justice Kavanaugh said that he thinks "the legislative history, read as a whole, goes exactly contrary" to Helsinn's contention because "there were a lot of efforts … to actually change the 'on sale' language, and those all failed," leaving the losers "trying to snatch victory from defeat" with "a couple statements said on the floor."

It is perhaps because of this history that Helsinn and the government seemed more focused on the argument that "on sale" has always excluded nonpublic sales than on the argument that the AIA changed the law. Justice Ginsburg's only comment during argument was to ask Helsinn to clarify this: "I thought that one argument was that the AIA changed the way it was. But … you seem to say there was no change; 'on sale' never included the secret sale." Arguing for the government, Malcolm Stewart even conceded—in response to questioning from Justice Kagan—that if the law was settled pre-AIA such that "on sale" included nonpublic sales, then the new AIA language ("or otherwise available to the public") "would be a fairly oblique way of attempting to overturn" the law. But based on my reading of the transcript, it doesn't seem likely that the argument that "on sale" has always meant "on sale publicly" will get five votes.

I waited until after writing the above to get Ronald Mann's take at SCOTUSblog, but I think I very much agree on his bottom line conclusion: while this isn't "a case in which the argument clearly presages the result," the overall transcript "suggests that the most likely outcome will be an affirmance."

Tuesday, December 4, 2018

How Important is Helsinn?

In honor of the oral argument in Helsinn today, I thought I would blog about a study that questions its importance. For those unaware, the question the Supreme Court is considering is whether the AIA's new listing of prior art in 35 U.S.C. §102(a)(1): "the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public..." changed the law.

Since forever, on sale meant any offer or actual sale, regardless of who knew about it. Some have argued that the addition of "or otherwise available to the public" means that only offers that are publicly accessible count as prior art. I think this is wrong, and signed on to an amicus brief saying so. We'll see what the Court says. Note that non-public does not mean "secret." True secret activity is often considered non-prior art, but the courts have defined "public" to mean "not-secret." The question is whether that should change to be "publicly accessible."

But how big a deal is this case? How many offers for sale would be affected? Steve Yelderman (Notre Dame, and soon to be Gorsuch clerk) wanted to know as well, so he did the hard work of finding out. In a draft paper on SSRN that he blogged about at Patently-O, he looked at all invalidity decisions to see exactly where the prior art was coming from. Here is the abstract for Prior Art in the District Court:
This article is an empirical study of the evidence district courts rely upon when invalidating patents. To construct our dataset, we collected every district court ruling, verdict form, and opinion (whether reported or unreported) invalidating a patent claim over a six-and-a-half-year period. We then coded individual invalidation events based on the prior art supporting the court’s analysis. In the end, we observed 3,320 invalidation events based on 817 distinct prior art references.
The nature of the prior art relied upon to invalidate patents informs the value of district court litigation as an error correction tool. The public interest in revoking erroneous patent grants depends significantly on the reason those grants were undeserved. Distinguishing between revocations that incentivize future inventors and those that do not requires understanding the reason individual patents are invalidated. While prior studies have explored patent invalidity in general, no study has reported data at the level of detail necessary to address these questions.
The conclusions here are mixed. On one hand, invalidations for lack of novelty bear many indicia of publicly beneficial error correction. Anticipation based on obscure prior art appears to be quite rare. When it comes to obviousness, however, a significant number of invalidations rely on prior art that would have been difficult or impossible to find at the time of invention. This complicates — though does not necessarily refute — the traditional view that obviousness challenges ought to be proactively encouraged.
So, let's get right to the point. The data seem to show that "activity" type prior art (that is sale or use) is much more prevalent in anticipation than in obviousness. This is not surprising, given that this category is often the patentee's own activities.

With respect to non-public sales, they estimate that a maximum of 14% of anticipation and 2% of obviousness invalidations based on activity were based on plausibly non-public sales. This translates to about 8% of all anticipation invalidations and 1% of all obviousness invalidations. Because there are about as many obviousness cases as anticipation cases, this averages to 4.25% of all invalidations. They note that with a different rule, some of these might have been converted to "public" sales upon more attention paid to providing such evidence.

A related question is whether the inventor's actions can invalidate, or whether the AIA overruled Metallizing Engineering, which held that an inventor's secret use can invalidate, even if a third-party's secret use does not. The study found that the plaintiff's actions were relevant in 27% of anticipation invalidations and 13% of obviousness invalidations.  Furthermore, they found that most of the secret activity was associated with either the plaintiff or defendant--this makes sense, as they have access to such secret information.

So, what's the takeaway from this? I suppose where you stand depends on where you sit. I think that wiping out 4% of the invalidations, especially when they are based on the actions of one of the two parties, is not a good thing. It's bad to allow the patentee to non-publicly sell and have the patent, and it's bad to hold the defendant liable even if it has been selling the patent in a non-public (though non-secret) way. We're talking about 20 claims per year that go the other way - too high for my taste, especially when it means we have to start defining new ways to determine whether something is truly public.

Furthermore, the stakes of reversing Metallizing are much higher. I freely admit that the "plaintiff's secret actions only" rule has a tenuous basis in the text of the statute, but it has been the law for a long time without being expressly overruled by two subsequent revisions. Given that more than 25% of the invalidations were based on the plaintiffs actions, I think it would be difficult to reverse course.

Tuesday, November 27, 2018

Judging Patents by their Rejection Use

The quest for an objective measure of patent quality continues. Scholars have attempted many, many ways to calculate such value, including citations, maintenance fee payments, number of claims, length of claims, and so forth. As each new data source has become available, more creative ways of measuring value have been developed (and old ways of measuring value have been validated/questioned).

Today, I'd like to briefly introduce a new one: the use of patents rejecting other patents. Chris Cotropia (Richmond) and David Schwartz (Northwestern) have posted a short essay on SSRN introducing their methodology.* The abstract for the cleverly named Patents Used in Patent Office Rejections as Indicators of Value is here:
The economic literature emphasizes the importance of patent citations, particularly forward citations, as an indicator of a cited patent’s value. Studies have refined which forward citations are better indicators of value, focusing on examiner citations for example. We test a metric that arguably is closer tied to private value—the substantive use of a patent by an examiner in a patent office rejection of another pending patent application. This paper assesses how patents used in 102 and 103 rejections relate to common measures of private value—specifically patent renewal, the assertion of a patent in litigation, and the number of patent claims. We examine rejection data from U.S. patent applications pending from 2008 to 2017 and then link value data to rejection citations to patents issued from 1999 to 2007. Our findings show that rejection patents are independently, positively correlated with many of the value measurements above and beyond forward citations and examiner citations.

The essay is a short, easy read, and I recommend it. They examine nearly 700,000 patents used in anticipation and obviousness rejections and find that not all patent citations are equal, and that those citations that were used in a rejection have additional ability to explain value, even when other predictors, such as forward citations and examiner citations are included in the model. The only value measure that had no statistically significant relationship to rejection patents was use in litigation (even though forward citations did). This may say something about the types of patents that are litigated or about the role of rejection patents in litigation.

That's about all I'll say about this essay. The paper is a brief introduction to the way this new data set might be used, and this blog post is a brief introduction to the paper.

*At least, I think it's theirs. If you know of an earlier article that measures this on any kind of scale, please let me know!

Tuesday, November 20, 2018

The Role of IP in Industry Structure

I've long been a fan of Peter Lee's (UC Davis) work at the intersection of IP and organizational theory. His latest article is another in a long line of interesting takes on how IP affects and is affected by the structure and culture of its creators. The latest draft, forthcoming in Vanderbilt Law Review, is titled Retheorizing the Impact of Intellectual Property Rights on Industry Structure. The draft is on SSRN, and the abstract is here:
Technological and creative industries are critical to economic and social welfare, and the forces that shape such industries are important subjects of legal and policy examination. These industries depend on patents and copyrights, and scholars have long debated whether exclusive rights promote industry consolidation (through shoring up barriers to entry) or fragmentation (by promoting entry of new firms). Much hangs in the balance, for the structure of these IP-intensive industries can determine the amount, variety, and quality of drugs, food, software, movies, music, and books available to society. This Article retheorizes the role of patents and copyrights in shaping industry structure by examining empirical profiles of six IP-intensive industries: biopharmaceuticals; agricultural biotechnology, seeds, and agrochemicals; software; film production and distribution; music recording; and book publishing. It makes two novel arguments that illuminate the impacts of patents and copyrights on industry structure. First, it distinguishes along time, arguing that patents and copyrights promote the initial entry of new firms and early-stage viability, but that over time industry incumbents wielding substantial IP portfolios often absorb such entrants, thus reconsolidating those industries. It also distinguishes along the value chain, arguing that exclusive rights most prominently promote entry in “upstream” creative functions—from creating biologic compounds to coordinating movie production—while tending to promote concentration in downstream functions related to commercialization, such as marketing and distribution of drugs and movies. This Article provides legal and policy decision makers with a more robust understanding of how patents and copyrights promote both fragmentation and concentration, depending on context. Drawing on these insights, it proposes calibrating the acquisition of exclusive rights based on the size and market position of a rights holder.
Professor Lee surveys six industries, looking for commonalities in how they are structured, and how IP fits in with entry and consolidation. This is not an empirical paper in the sense of, say Cockburn & MacGarvie, who found that patents reduced entry into the software industry unless the entrant had patent applications. Instead, it looks at the history of entry and consolidation in the different industries as a whole, using studies like Cockburn & MacGarvie (which is discussed in some detail) as the foundational base for the theoretical view that puts all the empirical findings together.

The result is a sort of two dimensional axis (though Prof. Lee provides no chart, which wouldn't have added much). He finds that, in general, IP leads to entry early in time, but as the industry (or product area) matures, then IP leads instead to consolidation, as companies find it easier to acquire IP than create it on its own in crowded areas. He also finds, however (and I think this is a key insight in the paper), that IP leads to more entry upstream (early creation stage) and more consolidation downstream (commercialization and marketing).

This second axis is the more interesting one (there are lots of articles about development of thickets over time), but it is also the harder one to prove, and it depends a lot on your definition. For example, Professor Lee discusses video streaming services such as Netflix and Hulu but doesn't discuss whether he views them as horizontally consolidated because there are so few of them. I've always thought of IP as fragmenting video streaming, because rights holders want to monetize their IP by holding on to it. Hence, we have to pay separately to get Star Trek: Discovery on CBS streaming, Hulu has many TV shows that Netflix doesn't, and soon Disney will pull out of its exclusive deal with Netflix to create its own service. That's 5 or more services I have to sign up with if I want to get all the shows (contrast this with the story he tells about music streaming, in which the music distributors all distribute all the music, and the distributor record labels consolidate to enhance market power against the distributor streamers). Indeed, this issue is so important that the services have (as Prof. Lee points out) vertically integrated by consolidating production with distribution (Netflix and Amazon making its own shows, Comcast and NBC/Universal, and AT&T buying Warner). Professor Lee discusses this as a penchant for consolidation, but it is not clear why IP drives it. I think it is consolidation caused by upstream entry (as he would predict) by the likes of Netflix and Amazon in the creation space, because they also happen to be distributors. But then why don't the record labels become streamers? Why does this fragmentation work for video and not music? I'd be interested in hearing how Professor Lee breaks this down.

As you can probably tell, this is a thoughtful and thought-provoking paper, and I recommend it, especially to those unfamiliar with the literature on the role of IP in industry organization and entry.

Tuesday, November 13, 2018

Measuring Alice's Effect on Patent Prosecution

It's a bit weird to write a blog post about something posted at another blog in order to bring attention to it, when that blog has many more readers than this blog. Nonetheless, I thought that the short essay Decoding Patentable Subject Matter by Colleen Chien (Santa Clara) and her student Jiun Ying Wu, in the Patently-O Law Journal was worth a mention. The article is also on SSRN, and the abstract is here:
The Supreme Court’s patentable subject matter jurisprudence from 2011 to 2014 has raised significant policy concerns within the patent community. Prominent groups within the IP community and academia, and commentators to the 2017 USPTO Patentable Subject Matter report have called for an overhaul of the Supreme Court’s “two-step test.” Based on an analysis of 4.4 million office actions mailed from 2008 through mid-July 2017 covering 2.2 million unique patent applications, this article uses a novel technology identification strategy and a differences-in-differences approach to document a spike in 101 rejections among select medical diagnostics and software/business method applications following the Alice and Mayo decisions. Within impacted classes of TC3600 (“36BM”), the 101 rejection rate grew from 25% to 81% in the month after the Alice decision, and has remained above 75% almost every month through the last month of available data (2/2017); among abandoned applications, the prevalence of 101 rejection subject matter rejections in the last office action was around 85%. Among medical diagnostic (“MedDx”) applications, the 101 rejection rate grew from 7% to 32% in the month after the Mayo decision and continued to climb to a high of 64% and to 78% among final office actions just prior to abandonment. In the month of the last available data (from early 2017), the prevalence of subject matter 101 rejections among all office actions in applications in this field was 52% and among office actions before abandonment, was 62%. However outside of impacted areas, the footprint of 101 remained small, appearing in under 15% of all office actions. A subsequent piece will consider additional data and implications for policy.
This article is the first in a series of pieces appearing in Patently-O based on insights gleaned from the release of the treasure trove of open patent data starting the USPTO from 2012.
The essay is a short, easy read, and the graphs really tell you all you need to know from a differences-in-differences point of view - there was a huge spike in medical diagnostics rejections following Mayo and software & business patent rejections following Alice. We already knew this from the Bilski Blog, but this is comprehensive. Interesting to me from a legal history/political economy standpoint is the fact that software rejections were actually trending downward after Mayo but before Alice. I've always thought that was odd. The Mayo test, much as I dislike it, easily fits with abstract ideas in the same way it fits with natural phenomena. Why courts and the PTO simply did not make that leap until Alice has always been a great mystery to me.

Another important finding is that 101 apparently hasn't destroyed any other tech areas the way it has software and diagnostics. Even so, 10% to 15% rejections in other areas is a whole lot more than there used to be. Using WIPO technical classifications shows that most areas have been touched somehow.

Another takeaway is that the data used came from Google BigQuery, which is really great to see. I blogged about this some time ago and I'm glad to see it in use.

So, this was a good essay, and the authors note it is the first in a series. In that spirit, I have some comments for future expansion:

1. The authors mention the "two-step" test many times, but provide no data about the two steps. If the data is in the office action database, I'd love to see which step is the important one. My gut says we don't see a lot of step two determinations.

2. The authors address gaming the claims to avoid certain tech classes, but discount this by showing growth in the business methods class. However, the data they use is office action rejections, which is lagged--sometimes by years. I think an interesting analysis would be office action rejections by date of patent filing, both earliest priority and by the date the particular claim was added. This would show growth or decline in those classes, as well as whether the "101 problem" is limited to older patents.

3. All of the graphs start in the post-Bilski (Fed. Cir.) world. The office actions date back to 2008. I'd like to see what happened between 2008 and 2010.

4. I have no sense of scale. The essay discusses 2000 rejections per month, and it discusses in terms of rates, but I'd like to know, for example, a) what percentage of applications are in the troubled classes? b) how many applications are in the troubled classes (and others)? c) etc.? In other words, is this devastation of a few or of many?

5. Are there any subclasses in the troubled centers that have a better survival rate? The appendix shows the high rejection classes, what about the low rejection classes (if any)?

I look forward to future work on this!


Sunday, November 11, 2018

Recent Critiques of Post-Sale Confusion: Is Materiality the Answer?

Kal Raustiala and Christopher Sprigman are well known as the authors of the book, The Knock-Off Economy: How Imitation Sparks Innovation (2012). In their new article, Rethinking Post-Sale Confusion, Raustiala and Sprigman level a critique at "post-sale confusion" theory that supports many of their book's conclusions about the virtues of so-called knock-offs. In post-sale confusion cases, courts find infringement even when it is abundantly clear that consumers of obvious knock-offs are not confused at the time of purchase.

Raustiala and Sprigman's critique of post-sale confusion theory adds to similarly critical scholarship by others such as Jeremy Sheff and Mark McKenna, whose articles Veblen Brands and A Consumer Decision-Making Theory of Trademark Law, respectively, provide the backbone for much of the discussion in this post. Professor Sheff also has a forthcoming book chapter in the Cambridge Handbook on Comparative and International Trademark Law, where he places American post-sale confusion doctrine in perspective by comparing it to the European approach.

This post attempts to synthesize this scholarship, though cannot hope to serve as a replacement for the much more comprehensive and eloquent original work by these experts. The post also draws attention to a growing refrain by trademark scholars such as Rebecca Tushnet, Mark McKenna, and Mark Lemley: that a possible response to trademark courts' embrace of alternative theories of confusion is to institute a materiality requirement, like courts use for false advertising claims.

Saturday, November 10, 2018

Samantha Zyontz on CRISPR Adoption

Pierre Azoulay's recent Twitter thread on students from the MIT Sloan TIES PhD program who are currently on the market alerted me to Sam Zyontz's interesting work on the CRISPR genome editing tool. CRISPR has captivated the patent world due to the fight between the University of California and MIT's Broad Institute over key patent rights—Jake Sherkow summarized the dispute in May and reflected on the Federal Circuit's decision in September. But CRISPR is of course also interesting to innovation scholars due to the revolutionary nature of the technology itself (this is why the patent rights were worth fighting for), which has the potential to applied to a tremendous variety of applications. Using data on researchers who attempt to experiment with CRISPR and the smaller number who succeed in publishing new findings using the technology, Zyontz has produced some fascinating findings on hurdles to technological diffusion.

Zyontz's work was made possible because of the nonprofit global plasmid repository Addgene, which received the basic biological tools for CRISPR from researchers at the University of California and the Broad Institute in 2012 and 2013. Since then, researchers have had easy access to CRISPR tools for the low cost of $65 per plasmid.

Tuesday, November 6, 2018

The Uneasy Case for Ariosa Diagnostics v. Illumina

The Supreme Court's request for views from the Solicitor General in Ariosa Diagnostics v. Illumina has renewed interest in this nerdy issue of patent prior art. I appear to be in a very small minority that believes that Federal Circuit's rule on this may be right (or at least is not obviously wrong), so I thought I would discuss the issue.

Let's start with the (pre-AIA) statute. 35 U.S.C. 102(e) says that one type of prior art may be where:
the invention was described in ... a patent granted on an application for patent by another filed in the United States before the invention by the applicant for patent...
This is a pretty old rule, dating back to the Alexander Milburn case. The gist of the rule is that delays in the patent office should not deprive references of being prior art. Thus, even though the patent application is "secret" until published, we backdate the reference to the date of filing once the patent is granted (or the application published, which is covered in a subsection I do not reproduce above).

The issue in Ariosa v. Illumina is what to do with provisional patent applications. For the reference at issue, the prior art patent first relied on a provisional patent application, which is never published but becomes publicly available if a patent that relies on it is granted. Later, a regular patent application was filed and eventually issued. There is a dispute about whether the invention was even described in the provisional, but we'll assume that it was. However, the PTAB ruled (and the Fed. Cir. affirmed) that because the issued patent claims were not supported by the provisional patent disclosure, then the reference could not be backdated to the filing of the provisional patent, even if the invention was described in the final patent.

This is where the objections come in. If the patent relies on the filing date of the provisional patent (and incorporates it by reference), then surely it is described as of the provisional patent date and should be prior art. We are, after all, living in a first to invent world and it is unfair that the first inventor (in the provisional patent) should not count as prior art.

Let's start with Alexander Milburn. I love that case. I have assigned it to my students. I think it explains this statute well. But it is not controlling. It was an interpretation of the statute at that time. We have a later adopted statute that defines what is and is not prior art, and Alexander Milburn does not speak to the facts of the Ariosa dispute because there were no provisional patents at that time. This is not like, say, on sale (Section 102(b)) in Helsinn in which that statute remained unchanged and the meaning of the words remained unchanged. There were no provisional patents when Alexander Milburn was granted, and thus it has little to say; the statute was intended to deal with that (and even that has a difficult time).

As a corollary to this analysis, I want to put the rest that there is a problem with the Federal Circuit's rule because it rewards the second inventor. I would bet dollars to donuts that many people arguing this scoffed at complaints that the AIA's first to file rule was unconstitutional because it rewarded second inventors. Both arguments fail for the same reason - the patent system has a long history of allowing the second invention to issue as a patent under certain circumstances. Indeed, even the current version of 102(e) disallows many early foreign patent filings, even though such filings are clearly the first invention. Once again, we have to look at the statute.

So, let's look at the statute: "The invention is described in" - critics focus on this, saying it makes no sense to look at a patent's claims. We only care about whether the invention was described. Fair enough - I agree.

But what about the next part: "a patent granted on an application for patent by another filed in the United States before the invention." Looking at this in pieces, we see a few requirements. First, the description must be in the patent, not the provisional application. Thus, looking at what the provisional patent says should be irrelevant...for this piece.

Second, that description must be in a patent "granted on an application for patent...filed...before." This is where the action is. What does it mean for a patent to be granted on an application for patent filed? For a provisional application, means that the patent must satisfy Section 119(e). It must be filed within one year, and the final patent claim must be supported by the written description of the provisional patent. It is as simple as that - the plain words of the statute dictate the Federal Circuit's rule.

There is a policy benefit to this reading. I think that patentee's can take advantage of the jump from provisional to final patent disclosures, adding new matter while always claiming priority back to the provisional. The provisional patent is not easily obtained, and it takes work to parse out which claims are actually entitled to the earlier filing date. Enforcing the rules on prior art better incentivizes complete provisional patent disclosures.

Then why do I say this is an uneasy case? Well, did I mention that I like Alexander Milburn? The policy it states, that delay in the patent office shouldn't affect prior art can easily be applied here. So long as the description is in the provisional patent, and so long as that provisional patent is eventually publicly accessible, then the goal, even if not the strict language, of the statute is met.

Also, my reading leads to a potentially unhappy result. A party could file a provisional that supports invention A, and then a year later file a patent that claims invention A but describes invention B. The patent could then be asserted against B while relying on the earlier filing date of A, even though B was never described in the provisional as of the earlier date. Similarly, a provisional patent could describe B, and B could then be removed from the final patent application, and the patent would not be prior art because B was not described in the patent, even though B had been described in the earlier, now publicly accessible provisional application.

I don't know where I land on this - as readers of this blog know, I tend to be a textualist. Sometimes the Court has agreed with that, but sometimes (see patentable subject matter and patent venue) it does not.

Friday, November 2, 2018

How will the USPTO study gaps in patenting by women, minorities, and veterans under the new SUCCESS Act?

On Wednesday, President Trump signed H.R. 6758, the Study of Underrepresented Classes Chasing Engineering and Science Success Act of 2018 (SUCCESS Act). It states that the "sense of Congress" is that the United States should "close the gap in the number of patents applied for and obtained by women and minorities to harness the maximum innovative potential and continue to promote United States leadership in the global economy."

The USPTO has been charged with conducting a study that "(1) identifies publicly available data on the number of patents annually applied for and obtained by, and the benefits of increasing the number of patents applied for and obtained by women, minorities, and veterans and small businesses owned by women, minorities, and veterans; and (2) provides legislative recommendations for how to— (A) promote the participation of women, minorities, and veterans in entrepreneurship activities; and (B) increase the number of women, minorities, and veterans who apply for and obtain patents." Congress wants to receive a report on the study results within a year.

There is already great empirical work on gender and racial gaps in patenting, including the "lost Einsteins" work by Alex Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova, and John Van Reenen and Colleen Chien's Inequality, Innovation, and Patents. The USPTO could expand on this work, including by adding to its excellent collection of research datasets. Accurately quantifying the net benefits of increasing patenting by certain groups will be more difficult—especially if the agency follows Jonathan Masur's suggestions for improving its economic analysis—though the second half of the study doesn't depend on getting this number right.

The second half of the study—recommending how to promote entrepreneurship and patenting by women, minorities, and veterans—will require the USPTO to master a different strand of the empirical literature. I've spent some time digging into this work for my upcoming discussion group on Innovation and Inequality, and suffice it to say that there is robust debate about why certain groups are underrepresented in science, engineering, entrepreneurship, and patenting. (Though I haven't seen anything focused on veterans.) There's also increasing academic interest in these issues. For example, at the new Cardozo-Google Project for Patent Diversity, the goal is "to increase the number of U.S. patents issued to women and minorities," mostly by matching resource-constrained inventors with pro bono patent attorneys.

The USPTO is well positioned to bring new evidence to this debate, and I hope it will take this study as an opportunity to test some proposals in rigorous ways through actual field experiments. The agency has shown a wonderful willingness to experiment with pilot programs, but it could learn far more by, for example, randomly selecting only a subset of those opting in to the pilot and comparing their outcomes to those who opted in but weren't selected. (For a review of the literature on learning through policy randomization and some potential applications in patent law, see Part II of my Patent Experimentalism.) Such experimentation could be useful even for small questions, such as whether acceleration certificates (like those used as Patents for Humanity prizes) are useful at increasing pro bono volunteer work among the patent bar.

The SUCCESS Act seems like an exciting chance for the USPTO, and potentially for academics the agency collaborates with, so I look forward to seeing how they use this opportunity.