How Difficult is it to Judge Patentable Subject Matter?

I've long argued that the Supreme Court's patentable subject matter jurisprudence is inherently uncertain, and that it is therefore nearly impossible to determine what is patentable. But this is only theory (a well grounded one, I think, but still). A clever law student has now put the question to the test. Jason Reinecke (Stanford 3L) got IRB approval and conducted a survey in which he asked patent practitioners about whether patents would withstand a subject matter challenge. A draft is on SSRN, and the abstract is here:

In four cases handed down between 2010 and 2014, the Supreme Court articulated a new two-step patent eligibility test that drastically reduced the scope of patent protection for software inventions. Scholars have described the test as “impossible to administer in a coherent, consistent way,” “a foggy standard,” “too philosophical and policy based to be administrable,” a “crisis of confusion,” “rife with indeterminacy,” and one that “forces lower courts to engage in mental gymnastics.”

This Article provides the first empirical test of these assertions. In particular, 231 patent attorneys predicted how courts would rule on the subject matter eligibility of litigated software patent claims, and the results were compared with the actual district court rulings. Among other findings, the results suggest that while the test is certainly not a beacon of absolute clarity, it is also not as amorphous as many commentators have suggested.

This was an ambitious study, and getting 231 participants is commendable. As discussed below, the results are interesting, and there's a lot of great results to takeaway from it. Though I think the takeaways depend on your goals for the system, no matter what your priors, this is a useful survey.

Tribal Sovereign Immunity and Patent Law, Part II: Lessons in Shoddy Reasoning from the PTAB

Guest post by Professor Greg Ablavsky, Stanford Law School

Per Lisa's request, I have returned to offer some thoughts on the PTAB's tribal sovereign immunity decision (you can find my earlier post here and some additional musings coauthored with Lisa here). I had thought I had retired my role of masquerading as an (entirely unqualified) intellectual property lawyer, but, as the PTAB judges clearly haven't relinquished their pretensions to be experts in federal Indian law, here we are.

The upshot is that I find the PTAB's decision highly unpersuasive, for the reasons that follow, and I hope to convince you that, however you feel about the result, the PTAB's purported rationales should give pause. I should stress at the outset that I have no expertise to assess the PTAB's conclusion that Allergan is the "true owner" of the patent, which may well be correct. But the fact that this conclusion could have served as entirely independent basis for the judgment makes the slipshod reasoning in the first part of the decision on tribal immunity all the more egregious. Here are some examples—I hope you'll forgive the dive into Indian law and immunity doctrine:

1. Supreme Court Precedent: The tenor of the PTAB's decision is clear from its quotation of isolated dicta from Kiowa, where, in the process of considering off-reservation tribal sovereign immunity, the Supreme Court expressed some sympathy for the viewpoint of the dissenting Justices: "There are reasons to doubt the wisdom of perpetuating the [tribal immunity] doctrine." But the PTAB omits the key language that came at the end of the Court's discussion of this issue: "[W]e defer to the role Congress may wish to exercise in this important judgment," leaving the decision as to whether to abrogate tribal sovereign immunity—which Congress may do under its "plenary power"—to the legislature. In short, although you wouldn't know it from the PTAB's cherry-picked quotations, Kiowa actually determined that the right approach in the face of uncertainty was to uphold the doctrine of tribal sovereign immunity.

Nor was the 20-year-old Kiowa case the last word on this question. Astonishingly, the PTAB's decision never discusses the facts, holding, or reasoning of Bay Mills, even though the Court decided the case, unquestionably its most important recent statement on tribal sovereign immunity, in 2014. There, the Court rejected another effort to invalidate tribal sovereign immunity, stating that "it is fundamentally Congress's job, not ours, to determine whether or how to limit tribal immunity." This rule, the Court held, applied even more forcefully after Congress had had twenty years to revisit the holding in Kiowa and declined to eliminate tribal sovereign immunity. Id.

Arguably, the PTAB should give at least equal deference to congressional determinations as the Supreme Court, especially given the existence of pending legislation abrogating tribal immunity in this context. Or, setting the bar even lower, one would hope that the PTAB would at some point grapple with recent Supreme Court decisions directly on point. But they don't—in part because, as I'll discuss now, they mischaracterize the question as one of first impression.

Contigiani, Barankay & Hsu on the Innovation Costs of Inevitable Disclosure Doctrine

For those looking on more trade secret empirics after Michael's post on Tuesday: Researchers at the Wharton School—Andrea Contigiani, Iwan Barankay, and David Hsu—have an interesting empirical study of the inevitable disclosure doctrine in trade secret law: Trade Secrets and Innovation: Evidence from the 'Inevitable Disclosure' Doctrine. This controversial doctrine allows employers to prevent former employees from taking a new job that will "inevitably" require them to use trade secrets. The doctrine has been rejected in California and many other states, and the federal Defend Trade Secrets Act of 2016 allows states to make this public policy choice. This new paper from Contigiani et al. provides some support for the California approach. Here is the abstract:

Does heightened employer-friendly trade secrecy protection help or hinder innovation? By examining U.S. state-level legal adoption of a doctrine allowing employers to curtail inventor mobility if the employee would "inevitably disclose" trade secrets, we investigate the impact of a shifting trade secrecy regime on individual-level patenting outcomes. Using a difference-in-differences design taking unaffected U.S. inventors as the comparison group, we find strengthening employer-friendly trade secrecy adversely affects innovation. We then investigate why. We do not find empirical support for diminished idea recombination from suppressed inventor mobility as the operative mechanism. While shifting intellectual property protection away from patenting into trade secrecy appears to be at work, our results are consistent with reduced individual-level incentives to signaling quality to the external labor market.

By "innovation" they mean citation-weighted patent counts, and this paper should be read with all of the usual caution and caveats for causal empirical studies. But I haven't seen a paper that has attempted this particular empirical approach before, so I thought it was interesting and worth a read by trade secrets scholars.

Data on the first year of the Defend Trade Secrets Act

In preparing for the Evil Twin Debate on the DTSA, David Levine (Elon) and Chris Seaman (Washington & Lee) were kind enough to share a draft of their empirical study of cases arising under the first year of the Defend Trade Secrets Act. Now that the article is forthcoming in Wake Forest Law Review and on SSRN, it only makes sense to share their latest draft. Here is the abstract:

This article represents the first comprehensive empirical study of the Defend Trade Secrets Act (“DTSA”), the law enacted by Congress in 2016 that created a federal civil cause of action for trade secret misappropriation. The DTSA represents the most significant expansion of federal involvement in intellectual property law in at least 30 years. In this study, we examine publicly-available docket information and pleadings to assess how private litigants have been utilizing the DTSA. Based upon an original dataset of nearly 500 newly-filed DTSA cases in federal court, we analyze whether the law is beginning to meet its sponsors’ stated goals of creating more robust and efficient litigation vehicles for trade secret misappropriation victims, thereby helping protect valuable American intellectual property assets.

We find that, similar to state trade secrets law, the paradigm misappropriation scenario under the DTSA involves a former employee who absconds with alleged trade secrets to a competitor. Other results, however, raise questions about the new law’s ability to effectively address modern cyberespionage threats, particularly from foreign actors, as well as the purpose (or lack thereof) of trade secret law more broadly. We conclude by discussing our data’s implications for trade secret law and litigation, as well as commenting on the DTSA’s potential impact on the broader issues of cybersecurity and information flow within our innovation ecosystem.

I found this to be an interesting, thorough, and insightful article. I think that the takeaways from the data will differ based on one's views of the DTSA. I suspect my view of the data is different from the view that Levine & Seaman have. Regardless, having the data to work with is immensely useful.

That said, there's still work to be done. The next step for anyone studying this area will be the next layer - looking at the most difficult concerns. For example, one of the most concerning aspect were  seizures; it would be helpful to know a) how often they are sought, b) how often they are granted, and c) what the circumstances were that led to granting. This article gives a good template for how to proceed with followup projects, and I am hopeful that Levine & Seaman keep it going!

Hall & Helmers on the European Patent Convention's Impact on Patent Filings and Foreign Direct Investment

The Impact of International Patent Systems: Evidence from Accession to the European Patent Convention, which Michael Risch posted about yesterday, caught my eye as well. As Michael explained, economists Bronwyn Hall and Christian Helmers examined the impact on patent filings and foreign direct investment (FDI) for fourteen countries that joined the European Patent Convention (EPC) between 2000 and 2008. (The countries are Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Iceland, Lithuania, Latvia, Norway, Poland, Romania, Slovenia, Slovakia, and Turkey.)

They find only a small change in patenting by a country's domestic entities. Foreign entities, however, rapidly switched to filing at the EPO, causing their filings in national offices to drop by over 90%. This figure nicely illustrates the effect:

There was not a similar change to FDI: "Despite the clear impact on patent filings, using firm-level data on FDI, we find only very weak evidence that non-residents changed their investment in accession countries following accession to the EPC."

Hall and Helmers argue that these results show "the differential effect of accession to a regional patent system on residents and non-residents of the mostly smaller, less developed accession countries in our sample. Non-residents certainly benefit from the expansion of the regional patent system given their strong reaction, but the net effect on residents is a lot less clear." In other words, joining the EPO creates costs for these countries (because there are more foreign patents, with the resulting deadweight loss) without a strong corresponding gain in domestic innovation or FDI.

In his post yesterday, Michael said it wasn't clear to him why we would have expected stronger IP rights to increase FDI, but this has been one of the main arguments for why developing countries might benefit from joining patent treaties such as TRIPS. For just a few of many articles laying out these arguments—and noting the weak evidence base behind them—see the seminal works by Edith Penrose in 1951 and 1973 or the 1998 Duke symposium articles by Carlos Braga & Carsten Fink and by Keith Maskus.

Studying the impact of changes in patent law through cross-country studies is incredibly difficult (as I have previously explained), but I thought this was a nice empirical design with appropriately nuanced conclusions, and it is certainly worth a download for anyone interested in the impact of the internationalization of the patent system.

How Does Country Consolidation Affect Patenting?

Just a short entry today about an interesting new NBER paper by Bronwyn Hall (Berkeley Economics) and Christian Helmers (Santa Clara Business) (behind a paywall, sorry, though most academics can download for free). The question is what happened to patenting activity when the ability to consolidate patenting in a single super-entity comes into play. Hall and Helmers consider this question in the context of the European Patent Convention, which allowed inventors to file with a single entity (the EPO) that granted patents good in any one of several member countries.

Here's the abstract of what they found:

We analyze the impact of accession to the regional patent system established by the European Patent Convention (EPC) on 14 countries that acceded between 2000 and 2008. We look at changes in patenting behavior by domestic and foreign applicants at the national patent offices and the European Patent Office (EPO). Our findings suggest a strong change in patent filing behavior among foreigners seeking patent protection in the accession states, substituting EPO patents for domestic patents immediately. However, there is little evidence that accession increased FDI by patenting foreign companies in accession countries. Moreover, there is no discernible reaction among domestic entities in terms of domestic filings, although we do find some evidence that applicants in accession states increased their propensity to file patents with the EPO post-accession. Inventor-level information suggests that the underlying inventions originate in the accession states.

Let's unpack this a little bit. First, for those who were in EPC countries, they continued to file in their home countries and the EPO at the same rate. It's unclear why - perhaps they wanted the extra chance at protection, or perhaps it was for vanity.

Second, in EPC countries, the rate of invention (measured by patent filings) went up, but only a small amount. But because the rates were pretty low, even a small change was a real change.

Third, foreign patent filing shifted to the EPO almost wholesale. Whereas EPC filers chose both, foreign filers seemed to appreciate the ability to get one patent to cover all countries. The implication I take from this is that EPC filers had some strong reason for that national coverage rather than some worry about overlapping protection if one patent were invalidated.

Finally, the foreign filings did not lead to much increased foreign direct investment. In other words, the EPC appears to have allowed for cost savings for foreigners, cost increases for locals (by their choice, mind you), and not much else. From the discussion in the article, one takeaway from this is that strengthening of IP rights did not necessarily increase foreign investment. It's not clear to me why we would have expected this. While strengthening IP in the way that the EPC did should make it cheaper to obtain protection, it is unclear why companies would move R&D that they already have underway to take advantage of it. After all, they are already happy with the R&D they have; the continued national filings of EPC firms imply this. The cost efficiencies alone should be enough (note also that a single source may be cheaper IP, but it may not be stronger - it may be easier to invalidate a single patent in multiple countries than multiple patents in multiple countries).

That said, if formation of the EPC were grounded on claims that, if only it were easier to get broad protection, everyone would start doing more R&D in, say, Portugal, then those claims were misguided.

Kevin Soter on Causation in Reverse Payment Antitrust Claims

Readers of this blog are likely familiar with the Supreme Court's 2013 FTC v. Actavis decision, which concluded that certain "reverse payment" pharmaceutical patent litigation settlements could violate the antitrust laws and that "it is normally not necessary to litigate patent validity to answer the antitrust question." Actavis had plenty of academic input before it was decided and has continued to spark vigorous scholarly debates, such as an article by Edlin, Hemphill, Hovenkamp & Shapiro, a response by Harris, Murphy, Willig & Wright, and a reply from the original group.

But until I read Kevin Soter's forthcoming Stanford Law Review Note, Causation in Reverse Payment Antitrust Claims, I wasn't aware of the developing circuit split over reverse-payment antitrust suits brought by private individuals rather than the government.

Unlike the government, private individuals must establish "antitrust standing," including the need to show causation of injury-in-fact, which limits enforcement to groups like drug purchasers, consumer groups, or insurers that might actually be harmed by the settlement. Under the approach to causation adopted by the Fifth and Third Circuits, "plaintiffs must prove precisely how, absent the illegal settlement agreement, generic entry would have happened earlier," which can require litigation of patent invalidity or noninfringement. Other courts—including the California Supreme Court, three district courts, and perhaps the Second Circuit—use the same inference as in Actavis, "reasoning that a plaintiff who has shown an antitrust violation based on a reverse payment settlement agreement has necessarily shown an agreement to delay generic entry beyond the otherwise expected date of generic entry."

Soter sides with the latter approach, arguing that the causation inquiry for private plaintiffs is no different from the inquiry over anticompetitive effects at issue in Actavis, for which litigation of patent validity is unnecessary. And he notes that a burden-shifting approach could address lingering concerns by allowing defendants to rebut the inference of causation.

The best part of teaching at Stanford is having extraordinarily talented students who can produce works like this, and I thought it was worth highlighting for anyone who has been following the pharmaceutical patent litigation antitrust debates.

Can You Copyright a Pose?

An interesting case caught my eye this week, and piqued my interest enough to explore further. In Folkens v. Wyland Worldwide the Ninth Circuit considered whether Wyland's depiction of crossing dolphins copied from Folkens's original. Below is a reproduction from the complaint, but it doesn't really do them justice. Better versions of Folkens (pen and ink) and Wyland (color) highlight the similarities and differences. [UPDATED to include the closely related Rentmeester v. Nike]

Folkens (left) v. Wyland (right)

The differences between these two are relatively clear: coloring, "lighting," background, and so forth. But there are undeniable similarities, and the primary similarity is the dolphin "pose," which is strikingly similar. It is this similarity (and the Ninth Circuit's treatment of it) that I'd like to explore. Nothing in this analysis, however, should be taken to mean that I think Folkens should necessarily win here. My concern is only with how the court got there, as I discuss below.

Beebe & Hemphill: Superstrong Trademarks Should Receive Less Protection

I have taught the multifactor test for trademark infringement four times now (using the 9th Cir. Sleekcraft test), and each time, some student has questioned which way the "strength of the mark" factor should cut. As a matter of current doctrine, stronger marks receive a broader scope of protection. But smart Stanford Law students who are not yet indoctrinated with longstanding trademark practices ask: in practice, isn't there less likely to be confusion with a strong mark?

In their new article, The Scope of Strong Marks: Should Trademark Law Protect the Strong More than the Weak?, Barton Beebe and Scott Hemphill expand on this intuition: "We argue that as a mark achieves very high levels of strength, the relation between strength and confusion turns negative. The very strength of such a superstrong mark operates to ensure that consumers will not mistake other marks for it. Thus, the scope of protection for such marks ought to be narrower compared to merely strong marks."

The doctrinal relationship between trademark strength and protection was not always as clear as it is today. For example, Beebe and Hemphill point to a 1988 decision by Judge Rich of the Federal Circuit: "The fame of a mark cuts both ways with respect to likelihood of confusion. The better known it is, the more readily the public becomes aware of even a small difference." This more nuanced approach to consumer confusion also finds support in many foreign trademark cases.

To be sure, Beebe and Hemphill are really making an empirical claim about consumer perceptions, and the evidence base is quite limited (though they cite some related studies at notes 102-03). But as they note, the current doctrine relies "on a jumble of untested empirical assertions," and their argument makes a good deal of intuitive sense. At the very least, this article should spur trademark scholars, practitioners, and judges to reexamine their understanding of the relationship between strength and protection. And the next time one of my students asks about this, I'm glad I'll be able to send Beebe and Hemphill's work their way.