Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

A World Without Patents?

Patents are only for the old machine

(Photo credit: Alexandre Dulaunoy)

Planet Money’s recent podcast interviews two economists who advocate for the ultimate patent law reform: the abolition of patents.

They argue that patents inhibit innovation.  For example, the Wright Brothers supposedly secured a number of patents on their early airplane design — which didn’t work very well and which stalled (pun intended) airframe development in the U.S. for a number of years.  The industry migrated to France to avoid the U.S. patents.

What about pharma, you might ask (as did I?)  Are pharma companies really going to invest hundreds of millions of dollars into new drugs if there is no patent protection?

Even these economists seem to concede the answer is “no,” so they propose an alternative — the government would pay for initial R&D.  When the government finds a promising new molecule, it would put it out to bid to pharma companies.  The lowest bidder would pay for the expensive clinical trials but would then receive a royalty on all drug sales for some number of years.

It’s an interesting idea — although frankly it doesn’t sound that different from a patent.  Or at least it’s not much different from a patent associated with a duty to license at some fair and reasonable rate.

There’s another issue — not mentioned in the podcast: if the U.S. gets rid of patents, but other countries don’t, won’t that distort all the economics?  R&D may migrate elsewhere, and the supply and price of goods (those subject to foreign patents) in the U.S. may be adversely affected.

It’s an interesting idea to think about — but one that as a practical matter isn’t going to go anywhere.  At least not for many years.

UC Hastings — Antitrust and IP

I’m pleased to have spoken today to a group of law students at the University of California, Hastings College of the Law on the intersection of antitrust and IP law.  It was nice to see an almost-full lecture hall — lots of interest in the topic.

Hot Topics in Intellectual Property and Antitrust Law

I’ve posted my slides from my webinar presentation on hot topics in IP and antitrust law.  You can find them here.

Speaking on Hot Topics in Antitrust/IP Law

On February 19, 2014, I’ll be speaking on hot topics at the intersection of antitrust and IP law.  See this link for more information about the webinar.

Strategic Refusals to License IP — Slide Deck

I’ve uploaded my slide deck from the Advanced Antitrust U.S. conference (Feb. 6, 2014) on strategic refusals to license IP.  You can find a copy here.

“Anti-Patent Troll” Fails to Secure Dismissal of Amended Antitrust Complaint

 

No-Troll

No-Troll (Photo credit: Wikipedia)

Back in January, I covered the case of Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013), where Judge Yvonne Gonzalez Rogers dismissed – with leave to amend – Cascades’ antitrust complaint against RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung. On December 3, 2013, Judge Rogers refused to dismiss Cascades’ amended complaint. See 2013 U.S. Dist. LEXIS 170517.

Cascades is a non-practicing entity (“NPE”), accused by the defendants of being a “patent troll.” It holds the rights to a portfolio of patents relating to technology that optimizes the use of the Android mobile phone/tablet operating system. Dell, HTC, LG, Motorola Mobility, and Samsung (the manufacturing defendants) sell mobile devices, including those employing the Android operating system. Together, they allegedly sell more than 95% of all Android devices in the United States.

Cascades alleged that the manufacturing defendants, along with RPX, engaged in a group boycott to not license Cascades’ patents. RPX is a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs. It frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses on behalf of its members.

In a nutshell, Cascades alleged that the manufacturing defendants, through or with RPX, refused to negotiate separately with Cascades for patent licenses, or at least refused to negotiate independently in a “serious” manner with Cascades, and that the defendants agreed not to license Cascades’ patents. Allegedly, the object of the conspiracy was to force Cascades to abandon its efforts to license and enforce its patents, accept a below market-value offer from RPX, or go out of business by virtue of expensive litigation. In this manner, defendants would allegedly obtain a monopsony position.

In granting defendants’ motions to dismiss the original complaint, the Northern District of California agreed that Cascades had not adequately alleged a conspiracy, had not properly defined a relevant market, and had not adequately alleged harm to competition. In its amended complaint,(*) Cascades provided much greater detail about the negotiation history with RPX. Those alleged facts were sufficient for the Court to conclude that Cascades had adequately alleged both a horizontal conspiracy – an agreement among manufacturers not to deal with Cascades except through RPX – and a vertical conspiracy, i.e., an agreement between each manufacturing defendant and RPX. “[W]hile the [amended complaint] alleges a written agreement between RPX and each Manufacturing Defendant which permits individual negotiation, it also suggests that in this instance each Manufacturing Defendant understood that it should refrain from exercising its right to negotiate individually with Cascades and instead deal with Cascades either through RPX or not at all.”

The Court also rejected various other arguments advanced by the defendants, including the argument that defendants did not want to deal with Cascades individually because Cascades had overpriced its patents. While that theory was “plausib[le],” the Court did “not find it so fully and convincingly explanatory as to render Cascades’ revised allegations implausible by comparison.” The Court also determined that the conspiracy alleged by Cascades “makes economic sense because it would permit potential licensees . . . to realize RPX’s publically stated promise of ‘wholesale’ pricing, provided they refrained from competitively bidding against each other and sent RPX to the market in their stead, where it would be the sole viable purchaser.”

Cascades raises novel issues involving the application of antitrust law to the activities of defensive patent aggregators. It will be interesting to see how the case develops after discovery is completed.

(*) Cascades voluntarily dismissed its claims against LG and did not name Dell as a defendant in its amended complaint.

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Speaking on Antitrust Issues in Intellectual Property Licensing Transactions

FYI, I will be speaking on “Antitrust Issues in Intellectual Property Licensing Transactions” on November 6, 2013 at 1:00 P.M. Eastern Time.  Here is a link to the webinar program.  I will be covering the Nine “No-Nos” of antitrust/intellectual property licensing, which I’ve written about previously in this blog.

Reverse-Payment Patent Settlements Subject to Antitrust Analysis

The Supreme Court today decided FTC v. Actavis, Inc. and held, in a 5-3 decision authored by Justice Breyer, that so-called reverse-payment patent settlements are subject to full antitrust Rule of Reason analysis.

In a reverse-payment settlement, which often occurs in the context of pharmaceuticals and the Hatch-Waxman Act, the patentee sues an alleged infringer, and the parties settle the litigation with the patentee agreeing to pay the alleged infringer monetary consideration in return for an agreement that the alleged infringer will stay out of the market during some period of time up to the full remaining duration of the patent.  Some circuit courts and many commentators had agreed that such settlements — as long as they do not extend the patent monopoly or involve sham patents or sham patent litigation — are lawful under the antitrust laws.

The Supreme Court disagreed and largely sided with the FTC on this issue (although it declined to apply the truncated “Quick Look” Rule of Reason to such settlements, instead preferring the full Rule of Reason inquiry into pro-competitive and anticompetitive effects).  Instead, the Court discussed a handful of factors that led it to believe reverse-payment settlements, even if their anticompetitive effects fall within the zone of exclusion of the patent, can be unlawful under the Rule of Reason.

I covered reverse-payment settlements previously (check out the settlement tags/categories).  As the Patently-O blog correctly notes, as a result of Actavis, “antitrust implications should be considered for any major patent settlement. In addition, the decision opens the door further for antitrust action against patent enforcement entities willing to settle cases at rates below the likely litigation costs of the accused infringers.”

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White House Targets Patent “Trolls”

The White House today issued a fact sheet on high-tech patent issues, recommending seven legislative actions and taking five executive actions. According to the White House’s statement, innovators continue to face challenges from Patent Assertion Entities (PAEs), companies that, in the President’s words “don’t actually produce anything themselves,” and instead develop a business model “to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.” These entities are commonly known as patent “trolls.”

Of the seven legislative recommendations, I think the following four are the most interesting and potentially most significant:

Require patentees and applicants to disclose the “Real Party-in-Interest,” by requiring that any party sending demand letters, filing an infringement suit or seeking Patent and Trademark Office (PTO) review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance.

Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees under 35 USC Sec. 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases).

Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer.

Change the International Trade Commission (ITC) standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.

The executive actions are more limited, including new and expanded PTO education and outreach materials. But of some note is a new PTO rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the “ultimate parent entity” in control of the patent or application. And the PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months, develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field. Also of note is an interagency review of existing Customs and Border Protection (CBP) and ITC procedures used to evaluate the scope of exclusion orders.

The following White House chart shows the remarkable recent growth of PAE litigation:

patent_troll_chart

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Patent Exhaustion Doctrine Does Not Protect Farmers Who Replant Patented Seeds

In a brief, unanimous opinion written by Justice Kagan, the Supreme Court yesterday agreed with Monsanto that the patent exhaustion doctrine does not enable farmers to replant and reproduce patented seeds without the patentee’s permission. The Court emphasized the well-established rule that the doctrine restricts a patentee’s rights only as to the particular articles sold, and leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item.

The Court did expressly note that its holding was limited – addressing the situation before it, rather than every one involving a self-replicating product. “In another case, the article’s self-replication might occur outside the purchaser’s control. Or it might be an incidental step in using the item for another purpose . . . . We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”

I covered the patent exhaustion doctrine previously – see, for example, here, here, and here.

The decision likely has implications in other industries. For example, BSA/The Software Alliance filed a brief arguing that a contrary decision might “facilitate software piracy on a broad scale” because software can be easily duplicated. However, it also noted that a decision that went too in favor of protecting patent rights might unduly encourage nuisance software patent infringement suits.

The opinion, styled Bowman v. Monsanto Co., No. 11-796 (May 13, 2013), is available here.

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