Tuesday, October 17, 2017

A Deep Dive on NPE Outcomes

I glibly commented on a friend's Facebook post last week that "patent troll" academic articles are so passe, despite the growing number of articles that use that term as compared to, say, 2012. Now, I shouldn't complain; given that my most cited article is called Patent Troll Myths (2012, naturally), I'd like to think that I'm driving that trend (of course, that's what the folks who wrote in 2007 would say).

But one of the reasons I joked about trolls being so 2012 is that this is where much of the detailed data comes from, and this is when the key articles that are cited by many were published. Indeed, I've published two follow-on articles to Patent Troll Myths, each of which contains more and better data (and thus took longer complete and published later), but which gets only a tiny fraction of the citation love of the original article.

And so it is no surprise that the latest in a series of articles by Chris Cotropia (Richmond), Jay Kesan (Illinois), and David Schwartz (Northwestern) was released with little fanfare. The article, called Heterogeneity among Patent Plaintiffs: An Empirical Analysis of Patent Case Progression, Settlement, and Adjudication is forthcoming in Journal of Empirical Legal Studies, but a draft is on SSRN. Here is the abstract:
This article empirically studies current claims that patent assertion entities (PAEs), sometimes referred to as ‘patent trolls’ or non-practicing entities (NPEs), behave badly in litigation by bringing frivolous patent infringement suits and seeking nuisance fee settlements. The study explores these claims by examining the relationship between the type of patentee-plaintiffs and litigation outcomes (e.g., settlement, grant of summary judgment, trial, and procedural dispositions), while taking into account, among other factors, the technology of the patents being asserted and the identity of the lawyers and judges. The study finds significant heterogeneity among different patent holder entity types. Individual inventors, failed operating companies, patent holding companies, and large patent aggregators each have distinct litigation strategies largely consistent with their economic posture and incentives. These PAEs appear to litigate differently from each other and from operating companies. Accordingly, to the extent any patent policy reform targets specific patent plaintiff types, such reforms should go beyond the practicing entity versus non-practicing entity distinction and understand how the proposed legislation would impact more granular and meaningful categories of patent owners.
In my article A Generation of Patent Litigation, I presented data about how often cases settle, and how that skews our view of how long they last, and who wins. This article extends the authors' earlier work on categorizing just who is filing NPE suits (in 2010 in this article), and asks when they settle for each and every defendant. This is hard work. In most of today's cases, each defendant is sued separately, so when the defendant settles, the case is over. Analytics companies track this all the time...now.

But in 2010, a patentee could sue 100 defendants at once, and you could not tell how long each remained in the case without tracking each defendant. If you only track the end of the case, you capture the one defendant who fought it out, but you miss all the defendants who exited early. The other added value of this series of papers is tracking all plaintiffs by type, rather than one big "NPE" status. I do this in The Layered Patent System, but I only had a subset of cases over a longer period of time, They have captured all of the cases in a single year.  I'll discuss what this all means after the jump.

Wednesday, October 11, 2017

The Case for a Patent Box with Strings Attached

[This post is co-authored with Daniel Hemel, an assistant professor of law at the University of Chicago Law School, and cross-posted at Whatever Source Derived.] 

Trump administration officials are hoping that their plan for steep business tax cuts will spur economic growth. Economists are skeptical of the administration’s rosy growth projections. But there may yet be a way to reduce business taxes that accelerates growth, encourages innovation, and delivers tangible benefits to American consumers.

To achieve these objectives, administration officials and lawmakers should consider implementing a “patent box” — a reduced tax rate for revenues derived from the licensing and sale of patents. But unlike the patent box regimes that the United Kingdom and several other advanced economies have implemented, a U.S. patent box should come with strings attached. Specifically, the reduced rate on patent-related revenues should be conditional upon the patent holder agreeing to a shorter patent term.

Here’s how it could work: Right now, a patent confers exclusivity for 20 years from the date of application. If the patent is held by a U.S. corporation, the corporation pays a top tax rate of 35% on patent-related income. Under a “patent box with strings attached,” the corporation would have the option to pay no tax on patent-related income in exchange for a shorter patent life.

The system would be structured such that the net present value of the patent holder’s expected income stream — in after-tax terms — would be slightly more attractive under a patent box and a shorter patent life than under the status quo. For example, assuming a 5% interest rate and a 35% corporate tax rate, the net present value of a constant stream of tax-free payments over 11 years is slightly more than the net present value of a constant stream of taxable payments over a 20-year term. Thus, if utilizing the patent box meant accepting an 11-year term, patent holders would have an incentive to choose the patent box and relinquish the last 9 years of exclusivity. (If we assume instead that the prevailing tax rate is 20%, as the Trump administration and congressional Republican leaders have proposed, then the patent box with strings attached becomes preferable to a 20-year term plus full taxability if the patent box allows 15 years of exclusive rights.)

Tuesday, October 10, 2017

Patents and Vertical Integration: A Revised Theory of the Firm

I'm a big fan of Peter Lee's work, and I'm a big fan of theory of the firm work. Imagine my joy upon seeing Prof. Lee's new article, forthcoming in Stanford Law Review, called: Innovation and the Firm: A New Synthesis. This article is a really thoughtful, really thorough re-examination of patents and the firm. The abstract is here:
Recent scholarship highlights the prevalence of vertical disintegration in high-technology industries, wherein specialized entities along a value chain transfer knowledge-intensive assets between them. Patents play a critical role in this process by lowering the cost of technology transactions between upstream and downstream parties, thus promoting vertical disintegration. This Article, however, challenges this prevailing narrative by arguing that vertical integration pervades patent-intensive fields. In biopharmaceuticals, agricultural biotechnology, information technology, and even university-industry technology transfer, firms are increasingly absorbing upstream and downstream technology providers rather than simply licensing their patents.
 This Article explains this counterintuitive development by retheorizing the relationship between innovation and the firm. Synthesizing previously disconnected lines of theory, it first argues that the challenge of aggregating tacit technical knowledge — which patents do not disclose — leads high-tech companies to vertically integrate rather than simply rely on licenses to transfer technology. Relatedly, the desire to obtain not just discrete technological assets but also innovative capacity, in the form of talented engineers and scientists, also motivates vertical integration. Due to the socially embedded nature of tacit knowledge and innovative capacity, firms frequently absorb entire pre-existing organizations and grant them significant autonomy, an underappreciated phenomenon this Article describes as “semi-integration.” Finally, strategic imperatives to achieve rapid scale and scope also lead firms to integrate with other entities rather than simply license their patents. The result, contrary to theory, is a resurgence of vertical integration in patent-intensive fields. The Article concludes by evaluating the costs and benefits of vertically integrated innovative industries, suggesting private and public mechanisms for improving integration and tempering its excesses.
The abstract does a pretty complete job of explaining the thesis and arguments here, so I'll make a few comments after the jump.

Sunday, October 8, 2017

Tejas Narechania: Is The Supreme Court Against "Patent Exceptionalism" Or In Favor of "Universality"?

Tejas Narechania's new paper, Certiorari, Universality, and a Patent Puzzle, forthcoming in Michigan Law Review argues that a major identifying factor for the Supreme Court's interest in patent cases is a field split: an area where a particular patent law doctrine plays out differently in patent law than in other fields of law where it is used. Narechania argues that the Court's apparent need to resolve, or at least address, these differences by taking review, has to do with the Court's overarching interest in preserving "universality." "[T]he Court," he writes, "is not interested in merely eliminating exceptionalism altogether. Rather, it appears concerned for calibrating a degree of consistency across doctrinal areas in light of its underlying interests in judicial efficiency, neutrality, and legitimacy." (47).

Narechania's article, especially when read alongside recent work by Peter Lee, teaches that there are two ways to explain the Supreme Court's increased interest in patent law. One is that the Court is against what is often called "patent exceptionalism" - i.e., against the Federal Circuit's use of patent-specific rules that differ from similar doctrines used other fields.  The other, which may or may not be the same thing, is that the Court is intent on preserving universal rules across all areas of law. Narechania has insightfully reoriented the "patent exceptionalism" discussion towards the latter.

Read more at the jump.

Tuesday, October 3, 2017

Repealing Patents, Oil States, and IPRs

If you haven't read any of Chris Beauchamp's (Brooklyn Law) work on patent law and litigation history, you really should. His book, Invented by Law, on the history of Bell telephone litigation, and his Yale L.J. article on the First Patent Litigation Explosion (in the 1800's) are both engaging, thorough, and thoughtful looks at history. Furthermore, he writes as a true historian, placing his work in context even if there is no clear answer for today's disputes. He points to where we can draw lessons and where we might be too quick to draw lessons. Chris doesn't publish that often because he does so much work toiling over source materials in the national archives and elsewhere.

Prof. Beauchamp posted a new essay to SSRN last week that caught my eye, and I thought I would share it here. Repealing Patents could not be more timely given the pending Oil States case - it discusses how patent revocation worked at our nation's founding, both in England and the U.S.  Here is the abstract:
The first known patent case in the United States courts did not enforce a patent. Instead, it sought to repeal one. The practice of cancelling granted patent rights has appeared in various forms over the past two and a quarter centuries, from the earliest U.S. patent law in 1790 to the new regime of inter partes review (“IPR”) and post grant review. With the Supreme Court’s grant of cert in Oil States Energy Services v. Greene’s Energy Group and its pending review of the constitutionality of IPR, this history has taken on a new significance.
This essay uses new archival sources to uncover the history of patent cancellation during the first half-century of American patent law. These sources suggest that the early statutory provisions for repealing patents were more widely used and more broadly construed than has hitherto been realized. They also show that some U.S. courts in the early Republic repealed patents in a summary process without a jury, until the Supreme Court halted the practice. Each of these findings has implications—though not straightforward answers—for the questions currently before the Supreme Court.
As with his other work, this essay is careful not to draw too many conclusions. It cannot answer all of our questions, and he explains why.

There were a few key points that really stood out for me; things we should be thinking about when we think about the "common law" right to a jury with respect to the Seventh Amendment, and more broadly how we think of revocation of patents as public.

First, the essay points out that the first Patent Act (with repeal included) predated the bill of rights. So when we think of common law, we usually look to England because the U.S. adopted English law at the time of the Seventh Amendment. But, here, the U.S. broke with England and installed its own procedure. It is quite possible that English practice at the time is simply irrelevant. I don't know how this cuts for the case, frankly.

Second, the revocation action came at a time when patents were essentially registered rather than examined. Beauchamp points out that the first three years had three cabinet members using discretion to grant patents, but they were not conducting prior art searches and the like. In other words, revocation, which was abolished when the patent examination system was installed in 1836, was a creature of non-examination, not a way to do re-examination.

Third, there were some summary revocations, but there was a dispute about whether a jury should decide factual issues on revocation. That debate lasted until 1924, when Justice Story (for the Supreme Court) ruled that the English procedure of a jury trial should apply. This, too, is ambiguous, because the right to a jury trial was really up in the air for a while. But what struck me most about this history is something different. As I wrote in my own article America's First Patents, Justice Story had an affinity for English patent law, and apparently liked to discard American breaks from the law in favor of English rule. In my article, it was his importation of a distrust of process patents (which gave rise to much of our patentable subject matter jurisprudence today). In this essay, it is his importation of the English revocation process, which required a jury. If it turns out that jury rule in early American repeal proceedings is important in this case, you'll know who to thank.

Tuesday, September 26, 2017

How does trade secrecy affect patenting?

As I mention in my forthcoming book chapter on empirical methods in trade secret research, there's really a dearth of good empirical scholarship about the role of trade secrets in the economy. One scholar who has written several articles in this area is my Ivan Png from the National University of Singapore. Professor Png exploits the variation in strength of trade secret protection to find causal effects on, say, innovation or worker mobility.

His latest article, called Secrecy and Patents: Theory and Evidence from the Uniform Trade Secrets Act (SSRN draft here, Final paywall version here), examines how rates of patenting change when levels of protection for trade secrets change. Here is the abstract, which shares some of findings:

How should firms use patents and secrecy as appropriability mechanisms? Consider technologies that differ in the likelihood of being invented around or reverse engineered. Here, I develop the profit-maximizing strategy: (i) on the internal margin, the marginal patent balances appropriability relative to cost of patents vis-a-vis secrecy, and (ii) on the external margin, commercialize products that yield non-negative profit. To test the theory, I exploit staggered enactment of the Uniform Trade Secrets Act (UTSA), using other uniform laws as instruments. The Act was associated with 38.6% fewer patents after one year, and smaller effects in later years. The Act was associated with larger effect on companies that earned higher margins, spent more on R&D, and faced weaker enforcement of covenants not to compete. The empirical findings are consistent with businesses actively choosing between patent and secrecy as appropriability mechanisms, and appropriability affecting the number of products commercialized.
Frankly, I think that the abstract undersells the findings a bit, as it seems targeted to the journal, "Strategy Science." The paper takes a much broader view of his model: "If trade secrets law is stronger in the sense of reducing the likelihood of reverse engineering, then businesses should adjust by (i) patenting fewer technologies and keeping more of them secret, and (ii) commercializing more products."

Like Png's other work in this area, the core of the analysis begins with an index of trade secret strength in each state, based on passage of the UTSA and variations of each state's implementation of UTSA (e.g. with respect to inevitable disclosure). In this paper, Png then obtained data about the location of company R&D facilities and patents coming out of those facilities. He also used other uniform laws passed at around the same time as an instrument, to make sure that the UTSA is not endogenous with patenting.

This is a really interesting and important paper, even if it validates what most folks probably assumed (dating back to the days of Kewanee v. Bicron): if you strengthen secrecy, there will be fewer patents. That said, there is a lot going on in this paper, and a lot of assumptions in the modeling. First and foremost, the levels of protection of trade secrets don't have many degrees of freedom. I much prefer the categories created by Lippoldt and Schultz. That said, even a binary variable might be sufficient. Second, the model and estimation are based on the assumption that the marginal patent is the one most likely to be designed around, and uses the number of technology classes to estimate patent scope (and validate the assumption). I know many folks who would disagree with using patent classes as a measure of scope.

Even with these critiques, this paper is worth a read and some attention. I'd love to see more like it.

Monday, September 25, 2017

What can we learn from variation in patent examiner leniency?

Studying the effect of granting vs. rejecting a given patent application can reveal little about the ex ante patent incentive (since ex ante decisions were already made), but it can say a lot about the ex post effect of patents on things like follow-on innovation. But directly comparing granted vs. rejected applications is problematic because one might expect there to be important differences between the underlying inventions and their applicants. In an ideal (for a social scientist) world, some patent applications would be randomly granted or denied in a randomized controlled trial, allowing for a rigorous comparison. There are obviously problems with doing this in the real world—but it turns out that the real world comes close enough.

The USPTO does not randomly grant application A and reject application B, but it does often assign (as good as randomly) application A to a lenient examiner who is very likely to grant, while assigning B to a strict examiner who is very likely to reject. Thus, patent examiner leniency can be used as an instrumental variable for which patent applications are granted. This approach was pioneered by Bhaven Sampat and Heidi Williams in How Do Patents Affect Follow-on Innovation? Evidence from the Human Genome, in which they used this approach to concluded that on average, gene patents appear to have had no effect on follow-on innovation.

Since their seminal work, I have seen a growing number of other scholars adopt this approach, including these recent papers:

Monday, September 18, 2017

Tattoos, Architecture, and Copyright

In my IP seminar, I ask students to pick an article to present in class for a critical style and substance review. This year, one of my students picked an article about copyright and tattoos, a very live issue. The article was decent enough, raising many concerns about tattoos: Is human skin fixed? Is it a copy? How do you deposit it at the Library of Congress? (answer: photographs) What rights are there to modify it? To photograph it? Why is it ok for photographers to take pictures, but not ok for video game companies to emulate them? Can they be removed or modified under VARA (which protects against such things for visual art)?

It occurred to me that we ask many of these same questions with architecture, and that the architectural rules have solved the problem. You can take pictures of buildings. You can modify and destroy buildings. You register buildings by depositing plans and photographs. Standard features are not protectible (sorry, no teardrop, RIP, and Mom tattoo protection). But you can't copy building designs. If we view tattoos on the body as a design incorporated into a physical structure (the human body), it all makes sense, and solves many of our definitional and protection problems.

Clever, right? I was going to write and article about it, maybe. Except then I discovered that somebody else had. In That Old Familiar Sting: Tattoos, Publicity and Copyright, Matthew Parker writes:

Tattoos have experienced a significant rise in popularity over the last several decades, and in particular an explosion in popularity in the 2000s and 2010s. Despite this rising popularity and acceptance, the actual mechanics of tattoo ownership and copyright remain very much an issue of first impression before the courts. A series of high-priced lawsuits involving famous athletes and celebrities have come close to the Supreme Court at times, but were ultimately settled before any precedent could be set. This article describes a history of tattoos and how they might be seen to fit in to existing copyright law, and then proposes a scheme by which tattoo copyrights would be bifurcated similar to architecture under the Architectural Works Copyright Protection Act.
It's a whole article, so Parker spends more time developing the theory and dealing with topics such as joint ownership than I do in my glib  recap. For those interested in this topic, it's certainly a thought-provoking analogy worth considering.

Barton Beebe: Bleistein and the Problem of Aesthetic Progress in American Copyright Law

Bleistein v. Donaldson Lithographing Co., is a well-known early twentieth century copyright decision of the U.S. Supreme Court. In his opinion for the majority, Justice Holmes is taken to have articulated two central propositions about the working of copyright law. The first is the idea that copyright's originality requirement may be satisfied by the notion of "personality," or the "personal reaction of an individual upon nature," which was satisfied in just about every work of authorship. The second is the principle of aesthetic neutrality, according to which "[it] would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of pictorial illustrations, outside of the narrowest and most obvious limits." Both of these propositions are today understood as relating to copyright's relatively toothless originality requirement, which few works ever fail to satisfy.

In a paper recently published in the Columbia Law Review, Barton Beebe (NYU) unravels the intellectual history of Bleistein and concluded that for over a century, American copyright jurisprudence has relied on a misreading (and misunderstanding) of what Holmes was trying to do in his opinion. On the first proposition, he shows that Holmes was deeply influenced by American (rather than British or European) literary romanticism, which constructed the author in a "distinctively democratic—and more particularly, Emersonian—image of everyday, common genius." (p. 370). On the second, Beebe argues that Holmes' comments on neutrality had little to do with the originality requirement, but were instead a response to the dissenting opinion that had sought to deny protection to the work at issue (an advertisement for a circus) because it did not "promote the progress," as mandated by the Constitution. The paper then examines how this misunderstanding (about both propositions) came to influence copyright jurisprudence, and Beebe then proceeds to suggest ways in which an accurate understanding of Bleistein may be used to reform crucial aspects of modern copyright law. The paper is well worth a read for anyone interested in copyright.

Beebe's examination of Holmes' views on progress, personality and literary romanticism did however raise a question for me about the unity (or coherence) of Holmes' views, especially given that he was a polymath. Long-regarded as a Legal Realist who thought about legal doctrine in largely functional and instrumental terms, Bleistein's commonly (mis)understood insights about originality comport well with Holmes' pragmatic worldview. His treatment of originality as a narrow (and normatively empty) concept, for instance, sits well with his anti-conceptualism and critique of formalist thinking. But if Holmes really did not intend for originality to be a banal and content-less standard (as Beebe suggests), how might he have squared its innate indeterminacy with his Realist thinking? Does Beebe's reading of Bleistein suggest that Holmes was not a Legal Realist after all when it came to questions of copyright law and its relationship to aesthetic progress? This of course isn't Beebe's inquiry in the paper (nor should it be, given the other important questions that it addresses), but the possibility of revising our view of Holmes intrigued me.

Wednesday, September 13, 2017

Tribal Sovereign Immunity and Patent Law

Guest post by Professor Greg Ablavsky, Stanford Law School

In Property, I frequently hedge my answers to student questions by cautioning that I am not an expert in intellectual property. I’m writing on an IP blog today because, with Allergan’s deal with the Saint Regis Mohawk Tribe, IP scholars have suddenly become interested in an area of law I do know something about: federal Indian law.

Two principles lie at the core of federal Indian law. First, tribes possess inherent sovereignty, although their authority can be restricted through treaty, federal statute, or when inconsistent with their dependent status. Second, Congress possesses plenary power over tribes, which means it can alter or even abolish tribal sovereignty at will.

Tribal sovereign immunity flows from tribes’ sovereign status. Although the Supreme Court at one point described tribal sovereign immunity as an “accident,” the doctrine’s creation in the late nineteenth century in fact closely paralleled contemporaneous rationales for the development of state, federal, and foreign sovereign immunity. But the Court’s tone is characteristic of its treatment of tribal sovereign immunity: even as the Court has upheld the principle, it has done so reluctantly, even hinting to Congress that it should cabin its scope. This language isn’t surprising. The Court hasn’t been a friendly place for tribes for nearly forty years, with repeated decisions imposing ever-increasing restrictions on tribes’ jurisdiction and authority. What is surprising is that tribal sovereign immunity has avoided this fate. The black-letter law has remained largely unchanged, narrowly surviving a 2014 Court decision that saw four Justices suggest that the doctrine should be curtailed or even abolished.

Monday, September 11, 2017

Reexamining the Private and Social Costs of NPEs

It's good to be returning from a longish hiatus. I've just taken over as the Associate Dean for Faculty Research; needless to say, it's kept me busier that I would like. But I'm back, and hope to resume regular blogging.

My first entry has been sitting on my desk (errrr, my email) for about six months. In 2011 Bessen, Meurer, and Ford published The Private and Social Costs of Patent Trolls, which was received with much fanfare. Its findings of nearly $500 billion in market value decrease over a 20 year period, and $80 billion losses a year for four years in the late 2000's garnered significant attention; the paper has been downloaded more than 5000 times on SSRN.

Enter Emiliano Giudici and Justin Robert Blount, both of Stephen F. Austin Business School. They have attempted to replicate the findings of Bessen, Meurer, and Ford with newer data. The results are pretty stark: they find no significant evidence of loss at all. They also attribute the findings of the prior paper to a few outliers, among other possible explanations. These are really important findings. Their paper has fewer than 50 downloads. The abstract is here: 
An ongoing debate in patent law involves the role that “non-practicing entities,” sometimes called “patent trolls” serve in the patent system. Some argue that they serve as valuable market intermediaries and other argue that they are a drain on innovation and an impediment to a well-functioning patent system. In this article, we add to the data available in this debate by conducting an event study that analyzes the market reaction to patent litigation filed by large, “mass-aggregator” NPE entities against large publicly traded companies. This study advances the literature by attempting to reproduce the results of previous event studies done in this area on newer market data and also by subjecting the event study results to more rigorous statistical analysis. In contrast to a previous event study, in our study we found that the market reacted little, if at all, to the patent litigation filed by large NPEs.
This paper is a useful read beyond the empirics. It does a good job explaining the background, the prior study, and critiques of the prior study. It is also circumspect in its critique - focusing more on the inferences to be drawn from the study than the methods. This is a key point: I'm not a fan of event studies for a variety of reasons. But that doesn't mean that I think event studies are somehow unsound methodologically. It just means that our takeaways from them have to be tempered by the limitations. And I've always been troubled that the key takeaways from Bessen, Meurer & Ford were outsized (especially in the media) compared to the method.

But Giudici and Blount embrace the event study, weaknesses and all, and do not find the same results. This, I think, is an important finding and worthy of publicity. That said, there are some critiques, which I'll note after the break.

Natalie Ram: Innovating Criminal Justice

Natalie Ram (Baltimore Law) applies the tools of innovation policy to the problem of criminal justice technology in her latest article, Innovating Criminal Justice (forthcoming in the Northwestern University Law Review), which is worth a read by innovation and criminal law scholars alike. Her dive into privately developed criminal justice technologies—"[f]rom secret stingray devices that can pinpoint a suspect’s location to source code secrecy surrounding alcohol breath test machines, advanced forensic DNA analysis tools, and recidivism risk statistic software"—provides both a useful reminder that optimal innovation policy is context specific and a worrying depiction of the problems that over-reliance on trade secrecy has wrought in this field.

She recounts how trade secrecy law has often been used to shield criminal justice technologies from outside scrutiny. For example, criminal defense lawyers have been unable to examine the source code for TrueAllele, a private software program for analyzing difficult DNA mixtures. Similarly, the manufacturer of Intoxilyzer, a breath test, has fought efforts for disclosure of its source code. But access to the algorithms and other technical details used for generating incriminating evidence is important for identifying errors and weaknesses, increasing confidence in their reliability (and in the criminal justice system more broadly), and promoting follow-on innovations. Ram also argues that in some cases, secrecy may raise constitutional concerns under the Fourth Amendment, the Due Process Clause, or the Confrontation Clause.

Drawing on the full innovation policy toolbox, Ram argues that contrary to the claims of developers of these technologies, trade secret protection is not essential for the production of useful innovation in this field: "The government has at its disposal a multitude of alternative policy mechanisms to spur innovation, none of which mandate secrecy and most of which will easily accommodate a robust disclosure requirement." Patent law, for example, has the advantage of increased disclosure compared with trade secrecy. Although some of the key technologies Ram discusses are algorithms that may not be patentable subject matter post-Alice, to the extent patent-like protection is desirable, regulatory exclusivities could be created for approved (and disclosed) technologies. R&D tax incentives for such technologies also could be conditioned on public disclosure.

But one of Ram's most interesting points is that the main advantage of patents and taxes over other innovation policy tools—eliciting information about the value of technologies based their market demand—is significantly weakened for most criminal justice technologies for which the government is the only significant purchaser. For example, there is little private demand for recidivism risk statistical packages. Thus, to the extent added incentives are needed, this may be a field in which the most effective tools are government-set innovation rewards—grants, other direct spending, and innovation inducement prizes—that are conditioned on public accessibility of the resulting algorithms and other technologies. In some cases, agencies looking for innovations may even be able to collaborate at no financial cost with academics such as law professors or other social scientists who are looking for opportunities to conduct rigorous field tests.

Criminal justice technologies are not the only field of innovation in which trade secrecy can pose significant social costs, though most prior discussions I have seen are focused on purely medical technologies. For instance, Nicholson Price and Arti Rai have argued that secrecy in biologic manufacturing is a major public policy problem, and a number of scholars (including Bob Cook-Deegan et al., Dan Burk, and Brenda Simon & Ted Sichelman) have discussed the problems with secrecy over clinical data such as genetic testing information. It may be worth thinking more broadly about the competing costs and benefits of trade secrecy and disclosure in certain areas—while keeping in mind that the inability to keep secrets does not mean the end of innovation in a given field.

Tuesday, September 5, 2017

Adam Mossoff: Trademarks As Property

There are two dominant utilitarian frameworks for justifying trademark law. Some view trademark protection as necessary to shield consumers from confusion about the source of market offerings, and to reduce consumers' "search costs" in finding things they want. Others view trademark protection as necessary to secure producers' incentives to invest in "quality". I personally am comfortable with both justifications for this field of law. But I have always been unclear as to how trademarks work as propertyWith certain caveats, I do not find it difficult to conceive of the patented and copyrighted aspects of inventions and creative writings as "property" on the theory that we generally create property rights in subject matter that we want more of.  But surely Congress did not pass the Lanham Act in 1946 and codify common law trademark protection simply because Congress wanted companies to invest in catchy names and fancy logos?

In his new paper, Trademark As A Property Right, Adam Mossoff seeks to clarify this confusion and convince people that trademarks are property rights based on Locke's labor theory. In short, Mossoff's view is that trademarks are not a property right on their own; rather, trademarks are a property right derived from the underlying property right of goodwill. Read more at the jump.

Saturday, September 2, 2017

Petra Moser and Copyright Empirics

I thought this short Twitter thread was such a helpful, concise summary of some of NYU economist Petra Moser's excellent work—and the incentive/access tradeoff of IP laws—that it was worth memorializing in a blog post. You can read more about Moser's work on her website.

Monday, August 28, 2017

Dinwoodie & Dreyfuss on Brexit & IP

In prior work such as A Neofederalist Vision of TRIPS, Graeme Dinwoodie and Rochelle Dreyfuss have critiqued one-size-fits-all IP regimes and stressed the value of member state autonomy. In theory, the UK's exit from the EU could promote these autonomy values by allowing the UK to revise its IP laws in ways that enhance its national interests. But in Brexit and IP: The Great Unraveling?, Dinwoodie and Dreyfuss argue that these gains are mostly illusory: "the UK will, to maintain a robust creative sector, be forced to recreate much of what it previously enjoyed" through the EU, raising the question "whether the transaction costs of the bureaucratic, diplomatic, and private machinations necessary to duplicate EU membership are worth the candle."

The highlight of the piece for me is that Dinwoodie and Dreyfuss give numerous specific examples of how post-Brexit UK might depart from EU IP policy in ways that serve its perceived national policy interests, which nicely illustrate some of the ways in which the EU has harmonized IP law. For example, in the copyright context, it could resist the expansion in copyrightable subject matter suggested by EU Court of Justices cases; re-enact its narrow, compensation-free private copying exception; or reinstate section 52 of its Copyright, Designs and Patents Act, which limited the term of copyright for designs to the maximum term available under registered design law. In the trademark context, Dinwoodie and Dreyfuss describe how UK courts have grudgingly accepted more protectionist EU trademark policies that would not be required post-Brexit, such as limits on comparative advertising. Patent law is the area "where the UK will formally re-acquire the least sovereignty as a result of Brexit," given that it will continue to be part of the European Patent Convention (EPC) and that it still intends to ratify the Unified Patent Court Agreement—though the extent of UK involvement remains unclear.

Of course, whether such changes to copyright or trademark law would in fact further UK interests in an economic sense is highly debatable—but if UK policymakers think they would, why would they nonetheless recreate existing harmonization? I think Dinwoodie and Dreyfuss would respond that these these national policy interests are outweighed by the benefits of coordination on IP, which "have been substantial and well recognized for more than a century." Their argument is perhaps grounded more in political economy than economic efficiency, as their examples of the benefits of coordination are all benefits for content producers rather than overall welfare benefits. In any case, they note that coordination became even easier within the institutional structures of the EU, and that after Brexit, "the UK will have to seek the benefits of harmonization through the same international process that has been the subject of sustained resistance as well as scholarly critique, rather than under these more efficient EU mechanisms." While it is plausible that the lack of these efficiency gains will tilt the cost-benefit balance in favor of IP law tailored to national interests, Dinwoodie and Dreyfuss suggest that a desire for continuity and commercial certainty will override autonomy concerns.

With all the uncertainties regarding Brexit (as recently reviewed by John Oliver), intellectual property might seem low on the list of things to worry about. But the companies with significant financial stakes in UK-based IP are anxiously awaiting greater clarity in this area.

Sunday, August 20, 2017

Gugliuzza & Lemley on Rule 36 Patentable-Subject-Matter Decisions

Paul Gugliuzza (BU) and Mark Lemley (Stanford) have posted Can a Court Change the Law by Saying Nothing? on the Federal Circuit's many affirmances without opinion in patentable subject matter cases. They note a remarkable discrepancy: "Although the court has issued over fifty Rule 36 affirmances finding the asserted patent to be invalid, it has not issued a single Rule 36 affirmance when finding in favor of a patentee. Rather, it has written an opinion in every one of those cases. As a result, the Federal Circuit’s precedential opinions provide an inaccurate picture of how disputes over patentable subject matter are actually resolved."

Of course, this finding alone does not prove that the Federal Circuit's Rule 36 practice is changing substantive law. The real question isn't how many cases fall on each side of the line, but where that line is. As the authors note, the skewed use of opinions might simply be responding to the demand from patent applicants, litigants, judges, and patent examiners for examples of inventions that remain eligible post-Alice. And the set of cases reaching a Federal Circuit disposition tells us little about cases that settle or aren't appealed or in which subject-matter issues aren't raised. But their data certainly show that patentees have done worse at the Federal Circuit than it appears from counting opinions.

Perhaps most troublingly, Gugliuzza and Lemley find some suggestive evidence that Federal Circuit judges' substantive preferences on patent eligibility are affecting their choice of whether to use Rule 36: Judges who are more likely to find patents valid against § 101 challenges are also more likely to cast invalidity votes via Rule 36. When both active and senior judges are included, this correlation is significant at the five-percent level. The judges on either extreme are Judge Newman (most likely to favor validity, and most likely to cast invalidity votes via Rule 36) and Chief Judge Prost (among least likely to favor validity, and least likely to cast invalidity vote via Rule 36), who also happen to be the two judges who are most likely to preside on the panels they sit. Daniel Hemel and Kyle Rozema recently posted an article on the importance of the assignment power across the 13 federal circuits; this may be one concrete example of that power in practice.

Gugliuzza and Lemley do not call for precedential opinions in all cases, but they do argue for more transparency, such as using short, nonprecedential opinions to at least list the arguments raised by the appellant. For lawyers without the time and money to find the dockets and briefs of Rule 36 cases, this practice would certainly provide a richer picture of how the Federal Circuit disposes of subject-matter issues.

Monday, August 14, 2017

Research Handbook on the Economics of IP (Depoorter, Menell & Schwartz)

Many IP professors have posted chapters of the forthcoming Research Handbook on the Economics of Intellectual Property Law. As described in a 2015 conference for the project, it "draws together leading economics, legal, and empirical scholars to codify and synthesize research on the economics of intellectual property law." This should be a terrific starting point for those new to these fields. I'll link to new chapters as they become available, so if you are interested in this project, you might want to bookmark this post. (If I've missed one, let me know!)

Volume I – Theory (Ben Depoorter & Peter Menell eds.)

Volume II – Analytical Methods (Peter Menell & David Schwartz eds.)


Wednesday, August 2, 2017

Kevin Collins on Patent Law's Authorship Screen

Numerous scholars have examined the various functionality screens that are used to prevent non-utility-patent areas of IP from usurping what is properly the domain of utility patent law (see, e.g., the terrific recent articles by Chris Buccafusco and Mark Lemley and by Mark McKenna and Chris Sprigman). But hardly anyone has asked the inverse question: How should utility patent law screen out things that should be protected by non-patent IP? In Patent Law's Authorship Screen (forthcoming U. Chi. L. Rev.), Kevin Collins focuses on the patent/copyright boundary, and he coins the term "authorship screen" as the mirror image of copyright's functionality screen. As with pretty much everything Collins writes, it is thought provoking and well worth reading.

Wednesday, July 26, 2017

Kuhn & Thompson on Measuring Patent Scope by Word Count

I've seen a number of recent papers that attempt to algorithmically measure patent scope by counting the number of words in the patent's first claim and comparing to other patents in the same technological field (with longer claims → more details → narrower scope). In their new paper, The Ways We've Been Measuring Patent Scope are Wrong: How to Measure and Draw Causal Inferences with Patent Scope, Jeffrey Kuhn (UNC) and Neil Thompson (MIT Sloan) argue that this measure is superior to prior scope measures.

They validate the word-count measure by comparing with survey responses from seven patent attorneys (below). In comparison, they find that previous measures of patent scope—the number of classes, the number of citations by future patents, and the number of claims—are uncorrelated or negatively correlated with their attorneys' subjective responses.

Of course, there are lots of reasons that word count is an imperfect measure, and additional validation would be helpful. (It would also be good to confirm that the attorneys in this study were blinded to the study design.) Those planning empirical patent studies should approach this variable with caution (and with good advice from patent law experts), but it is a potential scope measure that patent empiricists should at least have on their radar screens.

Wednesday, July 19, 2017

Liscow & Karpilow on Innovation Snowballing and Climate Law

Patent scholars are often skeptical of the government "picking winners," but in Innovation Snowballing and Climate Law, Zach Liscow and Quentin Karpilow (Yale Law) argue that the government should target specific technologies to address social harms like climate change.

It is well known that green technologies present a double externality problem. Both innovation and environmentally friendly goods have significant positive spillovers (and thus will be undersupplied absent government intervention), and the problem is magnified for environmentally friendly innovations. The standard policy solution is to correct each externality, such as through carbon taxes (or cap and trade) and innovation subsidies (e.g., patents, grants, and R&D tax incentives).

Liscow and Karpilow argue that this approach misses the dynamics of cumulative innovation. We know that innovators stand on the shoulders of giants, but Innovation Snowballing describes recent research on how innovators "prefer to stand on the tallest shoulders in order to get the quickest, largest financial returns." Specific "clean" technologies (like solar) thus need a big push to snowball past "dirty" technologies (like fossil fuels):

Thursday, July 13, 2017

Judge Dyk on the Supreme Court and Patent Law, with Responses

Judge Timothy Dyk of the Federal Circuit has long welcomed the Supreme Court's involvement in patent law—see, e.g., essays in 2008 and 2014. In a new Chicago-Kent symposium essay, he states that he "continue[s] to believe that Supreme Court review of our patent cases has been critical to the development of patent law and likewise beneficial to our court," such as by "reconciling [Federal Circuit] jurisprudence with jurisprudence in other areas."

Four pieces were published in response to Judge Dyk, and while Michael previously noted Greg Reilly's argument that the Supreme Court does understand patent law, the others are also worth a quick read. Tim Holbrook (Emory) argues that some of the Court's interest reflects "suspicion about the Federal Circuit as an institution" but that the result is "a mixed bags" (with some interventions having "gone off the rails"). Don Dunner (Finnegan) is even more critical of the Supreme Court's involvement, arguing that "it has created uncertainty and a lack of predictability in corporate boardrooms, the very conditions that led to the Federal Circuit's creation." And Paul Gugliuzza (BU) argues that "the Supreme Court's effect on patent law has actually been more limited" because its decisions "have rarely involved the fundamental legal doctrines that directly ensure the inventiveness of patents and regulate their scope" and because its "minimalist approach to opinion writing in patent cases frequently enables the Federal Circuit to ignore the Court's changes to governing doctrine."

Monday, July 3, 2017

USPTO Economists on Patent Litigation Predictors

Alan Marco (USPTO Chief Economist) and Richard Miller (USPTO Senior Economist) have recently posted Patent Examination Quality and Litigation: Is There a Link?, which compares the characteristics of litigated patents with various matched controls. The litigation data was from RPX, the patent data was from various USPTO datasets, and the controls were either chosen randomly from the same art unit and grant year or were chosen with propensity score matching based on various observable characteristics. They are interested in whether examination-related variables that can be controlled by the USPTO are related to later litigation, and they conclude that "some examination characteristics predict litigation, but that the bulk of the predictive power in the model comes from filing characteristics."

Marco and Miller report that patents filed by small entities are more than twice as likely to be litigated than those filed by large entities, and patents with longer continuation histories and application pendency are also more likely to be litigated. Government-interest patents and foreign-priority patents are much less likely to be litigated than other similar patents. Other characteristics that indicate higher probability of subsequent litigation include having more independent claims and shorter independent claims (proxies for broader patents), being allowed by examiners with signatory authority, not being allowed on first action, having more IDS filings or examiner interviews.

Monday, June 26, 2017

Gugliuzza & Lichtman on the Timing of Patent Litigation

Are patent cases being litigated too quickly or too slowly? Two recently posted articles tackle this problem from different angles:

Paul Gugliuzza's Quick Decisions in Patent Cases argues that patent litigation is "notoriously expensive and time consuming," but that there is a beneficial trend toward quicker decisions through practices such as pleadings-stage dismissals on patent eligibility grounds, post-grant revocation at the PTO, and heightened pleading requirements. These changes have been controversial, and Gugliuzza discusses ways each development might be further improved in terms of the overall tradeoff between accuracy and cost. But overall, Gugliuzza argues that the benefits of faster litigation resolution probably outweigh the downsides.

On the other hand, Doug Lichtman's Patient Patents begins with the provocative claim that "a large number of patent cases are today being litigated too quickly." His basic argument is straightforward: Delay is most costly in cases that potentially involve injunctions, but post-eBay, many patent plaintiffs are denied injunctive relief. In these cases, "delay takes a day for which the accused infringer would have been paying a court-ordered ongoing royalty and transforms it into a day for which the accused infringer will instead pay court-ordered backward-looking damages." Thus, these cases "are the ideal candidates for which to consider tailored, accuracy-enhancing litigation delay." This is not to say that delay is costless; perhaps most importantly, as Lichtman acknowledges, it "increases the duration of patent uncertainty." His point is simply that the optimal balance has been shifted by the increased prevalence of damages over injunctions.

Although these two articles might initially seem contradictory, they are really focused on different aspects of the cost-benefit analysis of litigation timing. Indeed, Gugliuzza notes and does not dispute Licthman's argument, but contends that it does not affect the majority of cases because "nearly seventy-five percent of successful patentees still obtain permanent injunctions, and that figure increases to eighty percent when PAEs are excluded." I think both are worth a read.

Tuesday, June 20, 2017

More Classic Patent Scholarship

It has been a while since the last update to my Classic Patent Scholarship, so I thought I would add some works that I view as "classics" but that haven't made it onto the list yet.

First, while the body of "Beyond IP" scholarship is blossoming (see, e.g., the two Yale ISP conferences, where I got to present work with Daniel Hemel), there is a long history of work on innovation incentives beyond patents. For example, Machlup and Penrose (already on the list of classics) describe how the patents-vs-prizes debate dates back to at least the 19th century. Here are two works I would add to the classics list:
Other important works in this genre, which don't quite fit under my pre-2000 "classic" bar, include Frischmann 2000, Shavell & van Ypersele 2001, Gallini & Scotchmer 2002, and Abramowicz 2003.

As a former grant-funded university researcher (during my physics grad school days), I'm particularly interested in the role of grants and other direct funding as a non-patent incentive, and their overlap with patents through the Bayh–Dole Act. Here are some additional classics in this area:

Finally, there is now a long strand of literature on the Federal Circuit as an institution and the value of specialized patent adjudication; anyone interested in this area should start with the work of Rochelle Dreyfuss:

For other classics—including more extended commentary on them by prominent patent law professors—see the Classic Patent Scholarship page. And if you have suggestions of other pre-2000 works that should be on the list, please add them to the comments on send me an email!

Monday, June 12, 2017

Jeanne Fromer: Should We Regulate Certification Marks?

Teaching trademark law for the first time this spring, I fielded several questions from students on a lesser known corner of trademark law: certification marks. For those who have not encountered certifications marks, they are a special type of trademark, whose role is to certify that goods or services comply with a particular standard. Precisely how are certification marks obtained, students asked, and how closely does the PTO scrutinize the chosen standard? What if a company wants to certify its goods, and the mark owner refuses out of an arbitrary dislike for the seller rather than the contents or quality of its offerings? So it was a fortuitous event that I came across Jeanne Fromer's article The Unregulated Certification Mark(et)published in January in the Stanford Law Review.  Former's paper answers these questions and much more.

Wednesday, June 7, 2017

More Impressions About Patent Exhaustion

Daniel Hemel and Lisa Larrimore Ouellette
Cross-posted at Whatever Source Derived

As we explained last week, the full impact of the Supreme Court’s decision in Impression Products v. Lexmark will depend on whether courts are willing to view creative patent transactions as licenses (which do not exhaust the patentee’s rights) rather than sales (which, after Impression, now do). While it is too early to answer that question, we can already anticipate answers to two related questions regarding Impression’s impact: (1) What does the decision mean for pharmaceutical prices in the United States and abroad?; and (2) How will Impression affect information costs in markets for patented products? With respect to the first question, we expect that Impression will put upward pressure on pharmaceutical prices in developing countries—and downward pressure on prices in the United States—notwithstanding the fact that the importation of drugs from abroad will remain illegal under most circumstances. As for the second question, we are skeptical that Impression will have a substantial effect on information costs in markets for patented products, notwithstanding some of the enthusiastic commentary in the technology press immediately after the decision.

Below, we explain both of these conclusions in more detail.

Wednesday, May 31, 2017

Licensing in the Shadow of Impression Products

Daniel Hemel and Lisa Larrimore Ouellette
Cross-posted at Whatever Source Derived

Judging by the media coverage, the Supreme Court’s decision today in Impression Products, Inc. v. Lexmark Inc. will have dramatic implications for producers and consumers of patented products around the world. The decision places “sharp limits on how much control patent holders have over how their products are used after they are sold,” says the New York Times’s Adam Liptak. The ruling is a “sure-to-be-landmark decision,” reports Ronald Mann at SCOTUSblog. It “takes away an important tool used by companies to control the marketplace,” according to Bloomberg.

Well, maybe. But the Court’s opinion, authored by Chief Justice Roberts, also opens the door for creative contract lawyers to draft licensing agreements that severely restrict resale of patented products. The full impact of the Supreme Court’s decision won’t be known for years, but much will depend on how courts view the newfangled licensing agreements that are almost certain to follow in the wake of Impression Products.

To see why, let’s start with a hypothetical: Suppose your firm, Company A, holds a U.S. patent covering a certain widget. You manufacture one such widget and sell it to B on the condition that B not resell the widget to anyone else. In violation of that condition, B resells the widget to C, who then uses the widget. Can you sue B and/or C for patent infringement?

Prior to today, the answer under Federal Circuit precedent was yes: A could sue both B and C. Today’s decision changes that. The Court holds that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose.” This is true even if A’s sale to B occurs outside the United States. Thus, Company A now cannot sue B or C for patent infringement, though it still might be able to sue B for breach of contract.

But now reconsider the above scenario with the following modification: Company A—instead of selling the widget to B—licenses the widget to B with the proviso that B can do whatever she wants with the widget except resell it. If B violates the terms of the license and resells the widget to C, who then uses it, can Company A sue B and/or C for patent infringement?

Friday, April 28, 2017

Major Issues in Trade Secret Law: Part 1

I was thrilled to attend The New Era of Trade Secret Law: The DTSA and other Developments, hosted by the IP Institute at Mitchell/Hamline School of Law and its Director, Sharon Sandeen, Robins Kaplan Distinguished Professor of Law.  The conference featured presentations by esteemed scholars of trade secret law discussing works in progress regarding trade secret law in the wake of federalization. In this post and in a subsequent post, I will provide brief summaries of some of these fascinating and important works in progress and what they say about the new federal trade secret law.

Wednesday, April 26, 2017

Biosimilars at the Supreme Court: Argument Preview

This is a guest post by Katie Mladinich, a J.D. student at Stanford Law School. She received her Ph.D. in microbiology from the University of Wisconsin–Madison.

The Supreme Court will hear arguments this morning in its first cases involving the Biologics Price Competition and Innovation Act (BPCIA), Amgen v. Sandoz and Sandoz v. Amgen. Passed as part of the Affordable Care Act in 2010, the BPCIA was intended to create an FDA approval pathway for generic versions of complex biologic drugs, biosimilars, much as the 1984 Hatch-Waxman Act has facilitated generic approvals for small-molecule drugs. The BPCIA was a hard-fought legislative compromise between those favoring stronger incentives for biologic pioneers and those seeking to rein in spiraling healthcare costs with more affordable generic drugs. The statute resolved a number of key issues, such as setting a twelve-year data exclusivity period before a biosimilar may be approved, but the policy battle over many smaller details has now moved to the courts. Amgen filed suit against Sandoz for seeking approval of a biosimilar of Amgen’s filgrastim drug, Neupogen, based on two sections of the BPCIA. Amgen claims (1) that Sandoz failed to provide Amgen a copy of its abbreviated Biologics License Application (aBLA) as required to begin the BPCIA “patent dance” under § 262(l)(2)(A), and (2) that Sandoz did not grant Amgen the required 180-day notice of commercial marketing by providing notice prior to FDA approval as required by § 262(l)(8)(A). The Northern District of California ruled in Sandoz’s favor on both issues, but the Federal Circuit overturned the district court on the second issue—while quoting Churchill in describing the statute as “a riddle wrapped in a mystery inside an enigma.” The Supreme Court is now faced with unraveling this riddle.

Sunday, April 2, 2017

Yelderman on Accuracy in the Patent System

When the USPTO is faced with a patent application of uncertain validity, which way should it err? How do the costs of erroneous patent grants compare with the costs of erroneous patent denials? Steve Yelderman provides an insightful new take on these questions in The Value of Accuracy in the Patent System (forthcoming in the University of Chicago Law Review). In short, he concludes that erroneous patent grants are more harmful than previously assumed, but only when "the unsatisfied patentability requirement is one that seeks to influence a mutually exclusive choice"—i.e., whether it incentivizes invention over non-invention, disclosure over non-disclosure, licensing over reinvention, etc.

Under the conventional account, if one assumes that the legal criteria of patentability are set correctly (an important caveat!), then social welfare is maximized by awarding patents to patentable inventions (true positives) and denying patents to unpatentable inventions (true negatives). Erroneous denials (false negatives) create a cost of decreased ex ante incentives for other inventors (IFN), while erroneous grants (false positives) and correct grants create ex post costs like deadweight loss (C). If the probability that a given application is patentable is q, then it should only be granted at the threshold q > C/IFN. (Note that it doesn't matter whether IFN is included as a cost for false negatives or a benefit for true positives; you get to the same result.) If the ex post costs of patents are low relative to their incentive benefits, they should be granted even for inventions that are unlikely to meet patentability standards, and as the relative weight of these factors reverses, patents should only be awarded when it seems quite likely that they are deserved.

Yelderman's key insight is that this analysis ignores another important cost of erroneous grants: false positives also reduce ex ante incentives because they often narrow the expected difference between inventing and not inventing. This framework can be illustrated as follows, with IFP shown in blue:

Saturday, March 25, 2017

Dan Brean and Bryan Clark: Casting Aspersions in Patent Trials

There are two main bases for rectifying misconduct in a patent case. First, a prevailing patentee can collect treble damages from a willful infringer. Second, on the flip side, a prevailing patent infringement defendant can force the patentee to pay attorneys'  fees for bringing a claim in bad faith.  Currently, the question of whether the infringer's actions were "willful" is decided by a jury, but the question of whether the patentee brought the case in "bad faith", such as to harass or eek out a settlement, is decided by a judge without jury input. In their new article, Casting Aspersions in Patent Trials, forthcoming in the University of Pittsburgh Law Review, my Akron Law colleague Professor Dan Brean, along with Bryan Clark, argue that, to the extent the parties get the opportunity to "cast aspersions" on the other side in front of the jury, the parties should be on equal footing in doing so. Better yet, they argue, both issues should be decided by a judge. The jury should not be involved in deciding either willfulness by infringers or bad faith by patentees.

The majority of the paper is devoted to convincing the reader that this is the right result, and to demonstrating that, contrary to common perception, the Seventh Amendment requires neither issue to go to a jury.  They also do a deep dive into similar scenarios in other areas of law, where the character of both parties becomes an issue–such as parallel considerations of the defendant's and the victim's character in the criminal context. They point out that, when character evidence is introduced, "the Federal Rules of Evidence contemplate that juries should be able to consider the 'character' of the defendant if the victim’s character is put in issue. ... this important exception ensures a fair trial: if the criminal defendant casts aspersions at the victim, the victim may do the same so that the jury can determine if the defendant was truly the culpable one." The authors also discuss similar fairness policies surrounding comparative negligence in tort law.

The authors conclude that, in the best case scenario, "both willfulness and bad-faith enforcement should be resolved by judges after trial when matters of liability and damages have already been established, and when the risk of 'bad actor' arguments tainting the liability and damages verdicts is gone."  In the second best scenario, they argue that so long as the status quo of trying defendant's willfulness before juries persists, "the more immediate question" is what to do about defendants who allege the patentee is asserting its patent in bad faith, which, as said, is currently tried before the judge. It is "fundamentally unfair," they contend, to "require defendants to endure aspersions cast by a patentee at trial but be unable to demonstrate how the patentee is itself engaged in culpable misconduct when proving bad faith." Thus, to the extent willfulness is tried to a jury, bad-faith enforcement by patentees should also be considered and decided by the same jury in order to even up the score.

The paper is clearly written and quite timely, given the Supreme Court's parallel holdings in Octane Fitness, recalibrating the standard for bad faith determinations under Section 285, and in Halo, doing the same for willfulness determinations under Section 284. If there is a chance to change current practice, and to better align the two remedial rules, this could be it.

Friday, March 24, 2017

Patent Exhaustion Policy Tradeoffs in the Impression v. Lexmark Oral Argument

Rather than grappling with the hard economic policy issues that patent exhaustion presents, the Justices were surprisingly quiet during Tuesday's oral argument in Impression v. Lexmark. I've previously discussed the Federal Circuit decision in this case, and Ronald Mann has a preview and recap of the argument, so I'll just add a couple of additional thoughts on the policy tradeoffs:

Daniel Hemel and I have explained how a ruling for Impression would likely hurt consumers in poor countries in a Columbia Law Review Sidebar piece last year and in a Wall Street Journal op-ed on Monday, and our longer Minnesota Law Review article explains why a U.S. rule of international patent exhaustion would undermine the ability of other countries to experiment with alternatives to the patent system for allocating access to knowledge goods. The only acknowledgement of this concern during argument seemed to be when the advocate for Impression, Andrew Pincus, implied that pharmaceutical parallel imports would not be a problem because "the FDA has full authority to prevent imports under 21 U.S.C. 381." But as Daniel and I note in our Columbia piece, this statute is far from a substitute for U.S. patent rights—it depends on discretionary government enforcement (which might not be particularly vigorous when U.S. policymakers are concerned about health care costs), it is subject to a personal use exemption, it only prohibits re-importation (not importation of drugs manufactured abroad), and it only affects prescription drugs (not trade in other patented products including medical devices or low-cost laptops).

So what were the Justices concerned about? The only policy consequence they asked about was the argument of pro-exhaustion parties that the current system generates needless complexity. Chief Justice Roberts asked about the "products with literally thousands of different patents" such that "it just gets too complicated," Justice Sotomayor questioned whether "having different rules with respect to copyright and patents … will complicate the checking," and Justice Breyer was concerned about needing "a sticker on every toy" to explain the relevant patent rights. But as Daniel and I have explained, "the cost of determining whether the patentee has reserved its U.S. patent rights does not seem particularly onerous in comparison with all the other information costs involved in verifying that a product is noninfringing." And none of the amici have been able to quantify—or even point to good examples of—severe information-cost externalities related to the current patent exhaustion laws. Justice Alito asked counsel for Impression whether the current rule has "caused a lot of problems," and he didn't get any concrete examples.

Given the relatively cold bench, it is difficult to predict where the Court will end up. Justice Breyer, Justice Sotomayor, and Chief Justice Roberts asked questions favoring Impression, but Justice Alito seemed to lean toward the status quo, and Justice Kennedy asked if the Court should be "cautious in extending" patent exhaustion because it is not codified. Justices Kagan and Thomas were silent. Ronald Mann thinks the Justices "are well aware of the major implications here and don’t see any obvious way to avoid doing something that will have real economic consequences"; I hope he's right that they have really had a chance to consider the inevitable tradeoffs at stake.

Friday, March 3, 2017

Copyright Survives

When I teach ProCD in my internet law class, I make two primary points. First, the case can't possible be right. Judge Easterbrook mangles UCC law and how the battle of the forms works. Second, the case can't possibly be wrong: companies have to be able to price discriminate by restricting usage of information that is unprotected by copyright but expensive to gather. Without this ability, either the price of such information products will be higher, or they may not be created at all.

Many people disagree with me on the second point. In their view, the goal of copyright law is to regulate not just what should be protected, but to ensure that what is not protected stays in the public domain, no matter what. It is against this backdrop that Guy Rub (Ohio State) gives us his article forthcoming in the Virginia Law Review: Copyright Survives: Rethinking the Copyright-Contracts Conflict, now available on SSRN. The abstract is here:
Twenty years ago, copyright died. More accurately, it was murdered. In 1996, in ProCD v. Zeidenberg, Judge Easterbrook, writing for the Seventh Circuit, held that a contract that restricted the use of factual information was not preempted by the Copyright Act and therefore enforceable. The reaction among copyright scholars was swift and passionate. In dozens of articles and books, spreading over two decades, scholars cautioned that if the ProCD approach is broadly adopted, the results would be dire. Through contracts, the rights of copyright owners would run amok, expand, and in doing so they would invade, shrink, and possibly destroy the public domain. Contracts, we were repeatedly warned throughout the years, would kill copyright law.
This Article challenges this scholarly consensus by studying the 288 court opinions that have dealt with the copyright-contract conflict over the past four decades. This examination reveals surprising facts: Notwithstanding the scholars’ warnings, ProCD’s approach won the day and was embraced by most federal circuit courts. However, the doomsday scenarios scholars warned against did not materialize. The overall effect of contracts on the size and scope of the public domain, or over copyright law as a whole, seems minimal. The Article explains this discrepancy and shows that contracts are an ineffective tool to control information because they are too weak of a device to threaten or replace copyright law. Indeed, to paraphrase Mark Twain, the reports of the death of copyright were greatly exaggerated.
The Article concludes by placing this analysis in context, as part of a broader ongoing discussion on the desirability and enforceability of standard-form agreements.
I really love this article. I think that resolving questions of how we should balance free ideas, access controls, and freedom of contract is incredibly difficult, and I have yet to see a good solution. I certainly don't have one myself (yet). I have an article I've been working on since I was a fellow - the empty shell has a nice title, and little text. This article may inspire me to take another look at it. That said, I do have a few comments, after the jump.

Friday, February 24, 2017

Does the Supreme Court Understand Patent Law?

It's been a busy semester, but I thought I would note briefly a provocative essay that just came across my feed by Greg Reilly (Chicago Kent): How Can the Supreme Court Not "Understand" Patent Law? The abstract is here:
The Supreme Court does understand patent law. This invited Essay responds to Federal Circuit Judge Dyk’s remarks at the Chicago-Kent Supreme Court IP Review, in particular, his observation that the patent “bar and the academy have expressed skepticism that the Supreme Court understands patent law well enough to make the governing rules” (a view Judge Dyk did not endorse). The idea that the Supreme Court does not understand the law of patents is implausible. Even more generous interpretations of this criticism – that the Supreme Court insufficiently understands innovation policy, insufficiently understands the patent system that Congress desired in creating the Federal Circuit, or insufficiently understands the technical facts to resolve patent issues – do not hold up under closer scrutiny. Rather, those leveling this charge against the Supreme Court are mistaking policy disagreement for a lack of understanding. This mistake, even if one primarily of rhetoric, has potentially negative consequences for understanding the role of patent law, promoting productive debates about patent law and policy, and preserving the Supreme Court’s legitimacy in patent law and patent law’s (perhaps limited) contribution to the constraints imposed by legal authority in our society.
Despite its relatively short length, there's much to parse here: the Supreme Court's jurisprudence from the lens of law, innovation policy, and technical understanding. While I disagree with some of the points, on the whole this essay resonates with me. There's no doubt that the Court's favoring of standards over rules is something that rubs folks the wrong way, but is consistent with the history of Supreme Court patent jurisprudence dating to the early 1800s. Further, even in those areas where I vehemently disagree with the Court's rulings (e.g. patentable subject matter), I think that disagreement is not because the Court fails to understand the issues. Instead, the Court has made policy choices that I disfavor.

In any event, this essay is worth a read regardless of your view of Court jurisprudence.

Wednesday, January 11, 2017

IP Fellowship Opportunities at Harvard and Yale

According to the 2016 self-reported entry-level hiring report, 66 out of 83 (about 80%) new tenure-track law faculty had a fellowship, and this percentage has risen over time. I think this is primarily because fellowships give you time to write, and it is increasingly difficult to obtain a tenure-track job without a substantial portfolio.

For aspiring faculty in IP and related fields, here are two fellowship opportunities that may be of interest: one at the Yale Information Society Project (where I was a fellow), with applications due January 15 (this Sunday!), and one at the Harvard Project on the Foundations of Private Law, with applications due March 1. Follow the links for more details. And if you know of other current fellowship opportunities that may be of interest to Written Description readers, feel free to add them in the comments.

Tuesday, January 10, 2017

IP and Federalism: An Expanding Field

Thanks to those of you who attended the "Intellectual Property & Federalism" panel at AALS, moderated by Jennifer Rothman and organized by Joe Miller. I truly enjoyed each of the presentations of my fellow panelists: Guy Rub, Brian Frye, Rothman, and Sharon Sandeen. If you missed it, read more at the jump.