Last Thursday I gave a 25-min recap patent law update to judges and practitioners at the Northern District Practice Program Patent Law Symposium, and I thought blog readers might be interested in my recap of highlights from the past year:
Patent Case Filings and Procedure: Venue, PTAB, and Stays
Lex Machina reports that there were 4057 cases filed in 2017, down 10% from the 4529 in 2016. The biggest procedural change was to venue. As I have explained, in its May 2017 decision in TC Heartland, the Supreme Court held that for purposes of the patent venue statute, a corporation only "resides" in its state of incorporation. The Federal Circuit has since held that this was a change in law, so the venue defense was not "available" under FRCP 12(g)(2), allowing district courts in pending cases to consider venue arguments that were not previously raised by defendants. And the Federal Circuit has offered guidance on the other possibility for proper venue—"where the defendant has committed acts of infringement and has a regular and established place of business"—saying that this requires (1) a fixed, physical presence that (2) is regular and established (not transient) and that (3) is a place of the defendant (not merely of an employee).
TC Heartland is likely responsible for the decline in cases filed in E.D. Tex. and the uptick in districts like D. Del. and N.D. Cal., though in neither of the latter have filings reached pre-2015 levels:
Showing posts with label exhaustion. Show all posts
Showing posts with label exhaustion. Show all posts
Monday, January 22, 2018
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.
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?
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, 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.
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.
Thursday, March 24, 2016
Impression Cert Petition Misleads on International Patent Exhaustion Policy
As expected, Impression Products has petitioned for Supreme Court review of the Federal Circuit's en banc decision on post-sale restrictions and international patent exhaustion. I've followed the international exhaustion issue closely: see prior posts summarizing an essay I wrote with Daniel Hemel, the Fed. Cir. argument, and the Fed. Cir. decision. Professor Tom Cotter has said he is "reasonably certain" the Supreme Court will hear the case, and I agree that it is worthy of review.
To briefly recap, Impression wants an authorized foreign sale by a U.S. patentee to always exhaust U.S. patent rights; the Fed. Cir. majority maintained the status quo that U.S. patent rights are exhausted only if explicitly waived by the patentee; and the Fed. Cir. dissent (and the United States) prefer a middle ground in which U.S. patent rights are exhausted unless explicitly reserved by the patentee. (As before, I'm focusing only on the international issue, not post-sale restrictions.)
The cert petition sets forth three arguments for reviewing the international exhaustion holding. First, Impression argues that the Fed. Cir. holding is contrary to Kirtsaeng. This is clearly Impression's strongest argument, and I think it is an interesting and close legal question. Second, Impression argues that the Fed. Cir. majority "rejected the argument advanced by the United States" (which was adopted by Judge Dyk's dissent). Of course, as Impression acknowledges, it too rejects the U.S. position, but this still may be a decent argument for getting the Supreme Court to pay attention.
Third, Impression argues that the "question is important" because the current rule "will produce substantial practical problems." Impression cites two sources indicating that tech products involve many components from many countries (but without indicating whether patent exhaustion rules have posed a practical barrier to assembling these components or selling these products). And the only other source cited in the policy section of Impression's petition is a 2008 article by economists Gene Grossman and Edwin Lai, which is cited as showing that an international exhaustion rule "generates both an increase in consumer surplus in the innovative country and an increase in the world pace of innovation."
But Grossman and Lai's conclusion is not absolute, and it is not based on any real-world data. Rather, they construct a stylized two-country model to question the "prevailing wisdom" that international exhaustion always decreases innovation incentives and global welfare. In short, they show that if the less-innovative country in their two-country world uses strong price controls, then in theory, an international patent exhaustion rule may allow the patentee to credibly threaten to withhold its product from the price-controlled market and thus to demand higher prices. This is a clever and important result, and as Daniel and I explain in our Columbia Law Review Sidebar essay, it means that the net global welfare impact of a U.S. international exhaustion rule is theoretically ambiguous. What is not ambiguous, as we emphasize, is that a U.S. international exhaustion rule creates a net welfare loss for consumers in low-income countries. Even in Grossman and Lai's model, "the legalization of parallel imports by North [the high-income, innovative country] spells a welfare loss for South."
This isn't to say that there aren't genuinely interesting policy questions about which international patent exhaustion rule is optimal, or that the Supreme Court shouldn't hear the case—the issues are undeniably important, and there are enough confusing things about the Fed. Cir. opinion that I think the Court should grant cert. I just hope some of the other cert-stage briefing will do a better job explaining the relevant concerns.
To briefly recap, Impression wants an authorized foreign sale by a U.S. patentee to always exhaust U.S. patent rights; the Fed. Cir. majority maintained the status quo that U.S. patent rights are exhausted only if explicitly waived by the patentee; and the Fed. Cir. dissent (and the United States) prefer a middle ground in which U.S. patent rights are exhausted unless explicitly reserved by the patentee. (As before, I'm focusing only on the international issue, not post-sale restrictions.)
The cert petition sets forth three arguments for reviewing the international exhaustion holding. First, Impression argues that the Fed. Cir. holding is contrary to Kirtsaeng. This is clearly Impression's strongest argument, and I think it is an interesting and close legal question. Second, Impression argues that the Fed. Cir. majority "rejected the argument advanced by the United States" (which was adopted by Judge Dyk's dissent). Of course, as Impression acknowledges, it too rejects the U.S. position, but this still may be a decent argument for getting the Supreme Court to pay attention.
Third, Impression argues that the "question is important" because the current rule "will produce substantial practical problems." Impression cites two sources indicating that tech products involve many components from many countries (but without indicating whether patent exhaustion rules have posed a practical barrier to assembling these components or selling these products). And the only other source cited in the policy section of Impression's petition is a 2008 article by economists Gene Grossman and Edwin Lai, which is cited as showing that an international exhaustion rule "generates both an increase in consumer surplus in the innovative country and an increase in the world pace of innovation."
But Grossman and Lai's conclusion is not absolute, and it is not based on any real-world data. Rather, they construct a stylized two-country model to question the "prevailing wisdom" that international exhaustion always decreases innovation incentives and global welfare. In short, they show that if the less-innovative country in their two-country world uses strong price controls, then in theory, an international patent exhaustion rule may allow the patentee to credibly threaten to withhold its product from the price-controlled market and thus to demand higher prices. This is a clever and important result, and as Daniel and I explain in our Columbia Law Review Sidebar essay, it means that the net global welfare impact of a U.S. international exhaustion rule is theoretically ambiguous. What is not ambiguous, as we emphasize, is that a U.S. international exhaustion rule creates a net welfare loss for consumers in low-income countries. Even in Grossman and Lai's model, "the legalization of parallel imports by North [the high-income, innovative country] spells a welfare loss for South."
This isn't to say that there aren't genuinely interesting policy questions about which international patent exhaustion rule is optimal, or that the Supreme Court shouldn't hear the case—the issues are undeniably important, and there are enough confusing things about the Fed. Cir. opinion that I think the Court should grant cert. I just hope some of the other cert-stage briefing will do a better job explaining the relevant concerns.
Saturday, February 13, 2016
Fed. Cir. Upholds Default of No International Patent Exhaustion in Lexmark
The Federal Circuit released its en banc decision in Lexmark v. Impression Products this morning, upholding the Mallinckrodt rule that patentees may place resale restrictions on their products and upholding the Jazz Photo rule that authorized foreign sales of U.S.-patented products do not exhaust the U.S. patent rights on those products. As regular Written Description readers know, I wrote an essay with Daniel Hemel before the Lexmark argument arguing that the briefing was ignoring the ways in which overturning Jazz Photo would harm foreign interests, and we thought these distributive tradeoffs were reflected in the Federal Circuit argument.
The Lexmark result is 10–2 and spans 129 pages, with Judge Taranto writing for the majority and Judge Dyk writing for himself and Judge Hughes in dissent (arguing for the government's presumptive exhaustion rule). None of the judges supported the argument of Impression and its amici that an authorized foreign sale should always exhaust U.S. patent rights.
Both opinions do discuss economic policy issues, and the majority cites Daniel's and my essay at p. 95 of the slip opinion as support for the statement that there is "no dispute that U.S.-patented medicines are often sold outside the United States at substantially lower prices than those charged here and, also, that the practice could be disrupted by the increased arbitrage opportunities that would come from deeming U.S. rights eliminated by a foreign sale made or authorized by the U.S. patentee." In addition to describing these problems with changing the rule, the opinion also notes that no one has presented evidence "that substantial problems have arisen with the clear rule of Jazz Photo."
The Lexmark result is 10–2 and spans 129 pages, with Judge Taranto writing for the majority and Judge Dyk writing for himself and Judge Hughes in dissent (arguing for the government's presumptive exhaustion rule). None of the judges supported the argument of Impression and its amici that an authorized foreign sale should always exhaust U.S. patent rights.
Both opinions do discuss economic policy issues, and the majority cites Daniel's and my essay at p. 95 of the slip opinion as support for the statement that there is "no dispute that U.S.-patented medicines are often sold outside the United States at substantially lower prices than those charged here and, also, that the practice could be disrupted by the increased arbitrage opportunities that would come from deeming U.S. rights eliminated by a foreign sale made or authorized by the U.S. patentee." In addition to describing these problems with changing the rule, the opinion also notes that no one has presented evidence "that substantial problems have arisen with the clear rule of Jazz Photo."
Thursday, October 8, 2015
Policy Issues in Lexmark Argument on International Patent Exhaustion
Last Friday, the Federal Circuit heard en banc argument on whether it should adopt a U.S. rule of international patent exhaustion in Lexmark v. Impression Products. This case has important distributive implications for foreign consumers, as Daniel Hemel and I describe in our new essay, Trade and Tradeoffs: The Case of International Patent Exhaustion (forthcoming in the Columbia Law Review Sidebar).
In a Patently-O post last week, we asked whether the Federal Circuit would recognize the U.S.–foreign tradeoff at stake. And the answer appears to be yes. Tony Dutra summed up the argument for Bloomberg (subscription required): Policy Focus in Fed. Cir. Patent Exhaustion Review. Here's an excerpt of his analysis:
In a Patently-O post last week, we asked whether the Federal Circuit would recognize the U.S.–foreign tradeoff at stake. And the answer appears to be yes. Tony Dutra summed up the argument for Bloomberg (subscription required): Policy Focus in Fed. Cir. Patent Exhaustion Review. Here's an excerpt of his analysis:
Most members of the court appeared prepared to distinguish patent law because there is no Patent Act statutory equivalent to the Copyright Act's provision. However, the discussion turned more to policy questions as the 90-minute argument proceeded. Some judges essentially said that the harm to the copyright holder in Kirtsaeng—books priced more cheaply overseas and imported for less than the U.S. price—was minimal compared to the harm to, for example, AIDS patients in Africa, unless patentees can engage in drug price discrimination.You can listen to the oral argument yourself here. (Bill Vobach also maintains a helpful key to judge voices.) The most extensive discussion of the issue of AIDS drugs starts at 1:16:02. Barbara Fiacco, arguing for BIO as amicus, discusses the importance of a no-exhaustion rule for allowing regional pricing and preventing arbitrage at 1:05:21.
Wednesday, September 30, 2015
Trade and Tradeoffs: The Case of International Patent Exhaustion
When I read all the briefs for Lexmark v. Impression Products—the en banc Federal Circuit case on patent exhaustion that will be argued Friday—it seemed like there were pieces missing, including related to an article Daniel Hemel and I are working on. So we've written and posted a short Essay about the case, Trade and Tradeoffs: The Case of International Patent Exhaustion. If ten pages is too long, we also have an even shorter guest post up at Patently-O today, Will the Federal Circuit Recognize the U.S.–Foreign Tradeoff in Friday’s Lexmark Argument? Comments welcome!
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