Rachel Sachs: Prizing Insurance

If 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.

Thoughts on Google's Fair Use Win in Oracle v. Google

It 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.

Galasso & Schankerman on the Effect of Patent Invalidation on Subsequent Innovation by the Patentee

In 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.

Rules, 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.

Buccafusco, 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.

Jotwell 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.

[with Colleen Chien] Recap of the Berkley Software IP Symposium

Slides 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.