Please Join Us For A Conference On Intellectual Property Law
INTELLECTUAL PROPERTY & GLOBAL PROSPERITY
Keynote Speaker: Dean Kamen
October 6-7, 2016
Antonin Scalia Law School
George Mason University
**9 Hours CLE**
Please Join Us For A Conference On Intellectual Property Law
INTELLECTUAL PROPERTY & GLOBAL PROSPERITY
Keynote Speaker: Dean Kamen
October 6-7, 2016
Antonin Scalia Law School
George Mason University
**9 Hours CLE**
About a month ago, I was asked by some friends about the shift from the first-to-invent patent system to a first-to-file patent system in the America Invents Act of 2011 (AIA). I was involved briefly in the policy debates in the spring of 2011 leading up to the enactment of the AIA, and so this query prompted me to share a short essay I wrote in May 2011 on this issue. In this essay, I summarized my historical scholarship I had published up to that point in law journals on the legal definition and protection of patents in the Founding Era and in the early American Republic. I concluded that a shift to a first-to-file patent system contradicted both the constitutional text and the early judicial interpretations of the patent statutes that secured patent rights to first inventors.
This legal issue will likely reach the courts one day. A constitutional challenge a couple years ago was rightly dismissed as not being justiciable, but there may yet be an appropriate case in which an inventor is denied a patent given that he or she lost the race to file first in the Patent Office. So, after sharing my essay with my friends, I thought it valuable to post it again on the Internet, because the website on which it was first published (www.noonHR1249.com) slipped into digital oblivion long ago.
I was asked to write this essay in May 2011 by the U.S. Business & Industry Council (USBIC) The USBIC requested my scholarly analysis of the first-to-file provision of the AIA, which was being debated as H.R. 1249 on Capitol Hill at the time, because I had been publishing articles in law journals on the legal definition and protection of patents as property rights in the Founding Era and in the early American Republic (see here and here for two examples). In my essay, I identified the relevant text in the Constitution, which authorizes Congress to secure an exclusive right to “Inventors” in their “Discoveries” (Article 1, Section 8, Clause 8). Based on my academic research, I summarized in my essay the historical Supreme Court and lower federal court decisions, which secured patents to inventors according to the same policy justifications used in common-law cases to justify property rights to first possessors of land. Thus, I concluded that the first-to-file provision in the American Invents Act was unconstitutional, based on well-recognized arguments concerning textual analysis of the Constitution and inferences from original public meaning as reflected in the historical judicial record.
There’s more to my essay, though, than just the substantive legal argument. It also provides an insight into the nature of the legal academic debates going back many years, because at the time Professor Mark Lemley of Stanford Law School compared me to an “Obama-birther” and he called this constitutional and legal argument “fringe science.” Given concerns expressed last year in an open letter co-authored by Professor Lemley and others about inappropriate rhetoric used by academics, among other issues (see here for a news report on this letter), it bears noting for the record that this is a concern that goes back many years.
Here’s the basic story: My essay was published by the USBIC in May 2011 and I was invited to speak in congressional staffer briefings and in other venues in Capitol Hill against the AIA on this issue. At this time, I was the only legal academic writing and speaking on Capitol Hill on this issue in the AIA. In late May, the 21st Century Coalition for Patent Reform, which supported enactment of the AIA, distributed on Capitol Hill a response that it had solicited from Professor Lemley. I no longer possess this response statement that was sent out via email by the 21st Century Coalition, but I do have the response I was asked to write on June 1, 2011 in which I explicitly refer to Professor Lemley’s argument against the first-to-invent position. In response to a law professors’ letter to Congress defending the first-to-file provision in the AIA that was circulated on an IP professors listserv (IPProfs), I sent out on IPProfs on June 11 a draft letter to Congress, calling for signatures from other law professors in support of my argument first presented in my essay (the final version is here). The next day, on June 12, Professor Lemley wrote on Facebook that my constitutional and legal argument made me the same as an “Obama-birther.” Although he didn’t refer directly to me, it was clear that it was directed at me given that this posting by Lemley followed the day after my email to all IP professors asking them to join my letter to Congress, and I also was the only law professor actively writing on this issue and speaking on it on Capitol Hill up until then.
The following year, in a New York Times article on the court challenge to the first-to-file provision, Professor Lemley further characterized this constitutional argument as “the legal equivalent of fringe science.”
Before the spring of 2011, my writings on legal doctrine and policy were published only in law journals, and I had never participated in a policy debate over patent legislation. In my academic articles before this time, I had critiqued Professor Lemley’s incorrect historical claims about whether U.S. patents were considered monopolies or property rights, and they reflected a purely academic tone that one should expect in a law journal article (see here). Before spring 2011, I had never addressed Professor Lemley, nor had he addressed me, about the AIA, other legislation or court cases.
Professor Lemley’s “Obama-birther” attack on me was surprising, and when I replied in the comments to his Facebook post solely on the substantive merits of the issue of policy versus law, Professor Lemley defended his accusation against me. (This is evidenced in the screen shot.) At the time, I was still a relatively junior academic, and this was an object lesson about what a senior academic at a top-five-ranked law school considers acceptable in addressing a much-more junior academic with whom he disagrees. This remark in 2011 was not an outlier either, as Professor Lemley has used similar rhetoric in the ensuing years in addressing academics with whom he disagrees; for instance, a couple years ago, Professor Lemley publicly referred to an academic conference that I and other patent scholars participated in as a “Tea Party convention.”
Of course, legal and constitutional disputes consist of opposing arguments. In court cases and legislative debates, there are colorable legal and policy arguments on both sides of a dispute. Few issues are so irrational that they are not even cognizable as having a supporting argument, such as astrology and conspiracy theories like the birthers or 9-11 truthers. So, I will simply let my essay speak for itself as to whether it makes me the same as an “Obama-birther” and if my argument represents “fringe science.”
More important, if or when a good case arises in which an inventor can rightly claim an identifiable and specific harm as a result of the statutory change created by the AIA, I hope my essay will be of some value.
 Full disclosure: The U.S. Business & Industry Council paid me for my time in writing the essay, which I disclosed in the essay itself. Unfortunately, as recently reported by IAM Magazine, other legal academics are not always so forthcoming about their financial and legal connections to companies when publicly commenting on court cases or advocating for enactment of legislation.
 This is a link to a screen shot I took last year only because the Facebook post by Professor Lemley recently disappeared after I only quoted the language from it about a month ago when I shared on Facebook my essay with my friends and colleagues.
UPDATE on June 7: I added some more supporting links and some additional information after this was initially published on June 6, 2016.
In a Heritage Foundation Legal Memorandum released today, I explore both the “constitutionalist” as well as utilitarian, economic-welfare-oriented justifications for robust U.S. patent and copyright systems. The Memorandum explains:
Intellectual property (IP) is increasingly important to the American private economy, and a discussion of the appropriate public policy toward IP is timely, particularly given the recent growth in public skepticism toward IP rights. Robust federal protection for IP is not just important to America’s economic future, but also consistent with constitutional originalism and the early U.S. historical understanding of the nature and role of IP.
Critical scrutiny has focused on the federal patent and copyright systems, which are authorized by the Patent and Copyright Clause (IP Clause) of the U.S. Constitution. The following discussion of IP also focuses on patents and copyrights. The other two principal forms of intellectual property, trademarks and trade secrets, are the subject of federal legislation pursuant to the Commerce Clause of the U.S. Constitution,as well as protections in state law. These forms have received less critical attention lately and are beyond the scope of this commentary.
Contrary to what some critics have argued, the robust protection of patents and copyrights as property is consistent with the original understanding of the Framers of the Constitution, who viewed IP through the lens of natural rights. During the early stages of the Republic, leading commentators and legislators, as well as President Abraham Lincoln, held IP rights in high regard. Supporters of robust IP rights can therefore claim the force of history and constitutional political philosophy, while critics fail in their claims that IP rights are special privileges that should be deemed second-class property rights (if they qualify as rights at all).
Admittedly, the fact that IP rights have solid constitutional backing does not address the question of how Congress should deal with them today. One might ask whether Congress, consistent with its authority under the IP Clause, should cut back on IP rights for pragmatic reasons, such as strengthening the American economy. Far from being inefficient, monopolistic drags on economic efficiency as some critics have suggested, however, the patent and copyright systems are vital to innovation, wealth creation, and economic growth.
Thus, calls to degrade IP rights are misplaced and, if heeded, would prove detrimental to the American economy. Congress and the executive branch should enhance rather than lessen the protection of American IP rights both in the United States and around the world.
The U.S. Supreme Court’s unanimous June 13 decision (per Chief Justice John Roberts) in Halo Electronics v. Pulse Electronics, overturning the Federal Circuit’s convoluted Seagate test for enhanced damages, is good news for patent holders. By reducing the incentives for intentional patent infringement (due to the near impossibility of obtaining punitive damages relief under Seagate), Halo Electronics helps enhance the effectiveness of patent enforcement, thereby promoting a more robust patent system.
The complexity and unwieldiness of the Seagate test is readily apparent from this description:
35 U.S.C. § 284 provides simply that “the court may increase the damages up to three times the amount found or assessed.” Nevertheless, in In re Seagate Technology, LLC, 497 F.3d 1360 (2007) (en banc) the Federal Circuit erected a two-part barrier for patentees to clear before a district court could exercise its enhancement discretion under the statute. First, a patent owner must “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted an infringement of a valid patent.” This first part of the test is not met if the infringer, during infringement proceedings, raises a substantial question as to the validity or non-infringement of the patent, regardless of whether the infringer’s prior conduct was egregious. Second, the patentee must demonstrate that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” On appeal, the Federal Circuit would review the first step of the test—objective recklessness—de novo; the second part—subjective knowledge—for substantial evidence; and the ultimate decision—whether to award enhanced damages—for abuse of discretion.
In short, under Seagate, even if (1) the patentee presented substantial evidence that the infringer intentionally infringed its patent (under the second part of the test), and (2) the infringer’s prior conduct was egregious, the infringer could avoid enhanced damages merely by raising a “substantial question” as to the validity or non-infringement of the patent. Because in most cases mere “questions” as to validity or non-infringement could readily be ginned up ex post, intentional infringers, including truly “bad actors,” could largely ignore the risk of being assessed anything more than actual damages.
Moreover, the Seagate test should be viewed in light of other major policy changes that have diminished the value of patents, such as the near impossibility of obtaining permanent injunctive relief for patent infringement following the Supreme Court’s 2006 eBay decision (see, for example, here), plus the recent downward trend in patent damage awards (see, for example, here) and increasingly common administrative patent invalidations (see, for example, here). All told, these developments have incentivized parties to “go ahead and produce,” without regard to the patents they might be infringing, in the knowledge that, at worst, they might at some future time be held liable for something akin to the reasonable royalties they should have agreed to pay in the first place.
Chief Justice Roberts’ opinion for the Court in Halo Electronics in effect reinstates the longstanding historical understandings that in patent infringement cases: (1) district court judges enjoy broad discretion to assess enhanced damages “for egregious infringement behavior”; and (2) the standard “preponderance of the evidence” standard of civil litigation (rather than the far more exacting “clear and convincing evidence” standard of proof) applies to enhanced damages determinations. In so doing, it puts potential infringers on notice that exemplary damages for egregious infringing actions cannot be avoided after the fact by manufactured theories (“questions”) of possible patent invalidity or non-applicability of a patent’s claims to the conduct in question. This in turn should raise the expected costs of intentional patent infringement, thereby increasing the incentive for technology implementers to negotiate ex ante with patent holders over license terms. To the extent this incentive change results in a higher incidence of licensing ex ante, a lower incidence of costly infringement litigation, and higher returns to patentees, economic welfare should tend to rise.
Halo Electronics’ “halo effect” should not, of course, be oversold. The meaning of “egregious infringement behavior” will have to be hashed out in federal litigation, and it is unclear to what extent federal district courts may show a greater inclination to assess enhanced damages. Furthermore, recent legislative and regulatory policy changes and uncertainties (including rising “anti-patent” sentiments in the Executive Branch, see, for example, here) continue to constrain incentives to patent, to the detriment of economic welfare. Nevertheless, while perhaps less than “heavenly” in its impact, the Halo Electronics decision should have some effect in summoning up “the better angels of technology implementers’ nature” (paraphrasing Abraham Lincoln, a firm believer in a robust patent system) and causing them to better respect the property rights imbedded in the patented innovations on which they rely.
Public policies that rely on free-market forces and avoid government interventions that distort terms of international trade benefit producers, consumers, and national economies alike. The full benefits of international trade will not be realized, however, if sales and purchase decisions are distorted by anticompetitive behavior or other illegitimate commercial conduct (such as theft, fraud, or deceit) that undermines market forces. Thus, the importation of goods produced through the theft of U.S. property, including intangible “intellectual property” (including, for example, patents, copyrights, and trademarks), distorts the market and merits being curbed.
The provision of U.S. trade law that is targeted most specifically at anticompetitive and other harmful business conduct affecting American imports is Section 337 of the Tariff Act of 1930, which is administered by the U.S. International Trade Commission (USITC). Section 337 condemns as illegal imports that violate U.S. intellectual property (IP) rights related to a U.S. industry or involve “unfair methods of competition and unfair acts” that harm a U.S. industry. The standard remedy for a Section 337 violation is the issuance of an order excluding the offending imports from the U.S. market. As I explain in a Heritage Foundation “Backgrounder” published on June 2, 2016, congressional consideration of reforms that address policy constraints on its application, potential limitations on its reach, and the breadth of the conduct it covers could help Section 337 to become an even more valuable tool with which to protect U.S. IP rights and combat truly unfair competition in a manner that is consistent with general free trade principles.
More specifically, while Section 337 should be judiciously modified to make it an even more effective weapon against foreign theft of U.S. IP rights, it should at the same time be amended so that it cannot be applied in a protectionist manner to curb vigorous and legitimate competition from abroad. The U.S. antitrust laws are well designed to deal with legitimate cases of anticompetitive foreign business activity not involving IP. Moreover, the USITC’s brief (and unsuccessful) experimentation during the 1970s with non-IP-related investigations revealed that Section 337, if not appropriately cabined, had a welfare-inimical protectionist potential. That potential will remain unless and until Section 337 is amended to make it an “IP theft only” statute.
My June 2 Backgrounder concludes as follows:
Section 337 of the Tariff Act of 1930 provides valuable relief to American IP holders whose property rights are undermined by infringing imports. In many cases, Section 337 may be the only truly effective means by which industries that depend on U.S. IP can protect their interests and compete on an undistorted playing field with imported products. Nevertheless, a few carefully tailored amendments to the statute could render it even more effective. Specifically, Congress should seriously consider language that would:
Adoption of reforms along these lines could make Section 337 an even more effective tool with which to protect U.S. IP rights in international trade and ensure that Section 337 is applied in a procompetitive, pro-consumer fashion. Such reforms would enhance the role of Section 337 as a law that supports American innovation and economic growth in a manner that is consistent with free trade principles.
[Below is an excellent essay by Devlin Hartline that was first posted at the Center for the Protection of Intellectual Property blog last week, and I’m sharing it here.]
The FTC’s long-awaited case study of patent assertion entities (PAEs) is expected to be released this spring. Using its subpoena power under Section 6(b) to gather information from a handful of firms, the study promises us a glimpse at their inner workings. But while the results may be interesting, they’ll also be too narrow to support any informed policy changes. And you don’t have to take my word for it—the FTC admits as much. In one submission to the Office of Management and Budget (OMB), which ultimately decided whether the study should move forward, the FTC acknowledges that its findings “will not be generalizable to the universe of all PAE activity.” In another submission to the OMB, the FTC recognizes that “the case study should be viewed as descriptive and probative for future studies seeking to explore the relationships between organizational form and assertion behavior.”
However, this doesn’t mean that no one will use the study to advocate for drastic changes to the patent system. Even before the study’s release, many people—including some FTC Commissioners themselves—have already jumped to conclusions when it comes to PAEs, arguing that they are a drag on innovation and competition. Yet these same people say that we need this study because there’s no good empirical data analyzing the systemic costs and benefits of PAEs. They can’t have it both ways. The uproar about PAEs is emblematic of the broader movement that advocates for the next big change to the patent system before we’ve even seen how the last one panned out. In this environment, it’s unlikely that the FTC and other critics will responsibly acknowledge that the study simply cannot give us an accurate assessment of the bigger picture.
Limitations of the FTC Study
Many scholars have written about the study’s fundamental limitations. As statistician Fritz Scheuren points out, there are two kinds of studies: exploratory and confirmatory. An exploratory study is a starting point that asks general questions in order to generate testable hypotheses, while a confirmatory study is then used to test the validity of those hypotheses. The FTC study, with its open-ended questions to a handful of firms, is a classic exploratory study. At best, the study will generate answers that could help researchers begin to form theories and design another round of questions for further research. Scheuren notes that while the “FTC study may well be useful at generating exploratory data with respect to PAE activity,” it “is not designed to confirm supportable subject matter conclusions.”
One significant constraint with the FTC study is that the sample size is small—only twenty-five PAEs—and the control group is even smaller—a mixture of fifteen manufacturers and non-practicing entities (NPEs) in the wireless chipset industry. Scheuren reasons that there “is also the risk of non-representative sampling and potential selection bias due to the fact that the universe of PAEs is largely unknown and likely quite diverse.” And the fact that the control group comes from one narrow industry further prevents any generalization of the results. Scheuren concludes that the FTC study “may result in potentially valuable information worthy of further study,” but that it is “not designed in a way as to support public policy decisions.”
Professor Michael Risch questions the FTC’s entire approach: “If the FTC is going to the trouble of doing a study, why not get it done right the first time and a) sample a larger number of manufacturers, in b) a more diverse area of manufacturing, and c) get identical information?” He points out that the FTC won’t be well-positioned to draw conclusions because the control group is not even being asked the same questions as the PAEs. Risch concludes that “any report risks looking like so many others: a static look at an industry with no benchmark to compare it to.” Professor Kristen Osenga echoes these same sentiments and notes that “the study has been shaped in a way that will simply add fuel to the anti–‘patent troll’ fire without providing any data that would explain the best way to fix the real problems in the patent field today.”
Osenga further argues that the study is flawed since the FTC’s definition of PAEs perpetuates the myth that patent licensing firms are all the same. The reality is that many different types of businesses fall under the “PAE” umbrella, and it makes no sense to impute the actions of a small subset to the entire group when making policy recommendations. Moreover, Osenga questions the FTC’s “shortsighted viewpoint” of the potential benefits of PAEs, and she doubts how the “impact on innovation and competition” will be ascertainable given the questions being asked. Anne Layne-Farrar expresses similar doubts about the conclusions that can be drawn from the FTC study since only licensors are being surveyed. She posits that it “cannot generate a full dataset for understanding the conduct of the parties in patent license negotiation or the reasons for the failure of negotiations.”
Layne-Farrar concludes that the FTC study “can point us in fruitful directions for further inquiry and may offer context for interpreting quantitative studies of PAE litigation, but should not be used to justify any policy changes.” Consistent with the FTC’s own admissions of the study’s limitations, this is the real bottom line of what we should expect. The study will have no predictive power because it only looks at how a small sample of firms affect a few other players within the patent ecosystem. It does not quantify how that activity ultimately affects innovation and competition—the very information needed to support policy recommendations. The FTC study is not intended to produce the sort of compelling statistical data that can be extrapolated to the larger universe of firms.
FTC Commissioners Put Cart Before Horse
The FTC has a history of bias against PAEs, as demonstrated in its 2011 report that skeptically questioned the “uncertain benefits” of PAEs while assuming their “detrimental effects” in undermining innovation. That report recommended special remedy rules for PAEs, even as the FTC acknowledged the lack of objective evidence of systemic failure and the difficulty of distinguishing “patent transactions that harm innovation from those that promote it.” With its new study, the FTC concedes to the OMB that much is still not known about PAEs and that the findings will be preliminary and non-generalizable. However, this hasn’t prevented some Commissioners from putting the cart before the horse with PAEs.
In fact, the very call for the FTC to institute the PAE study started with its conclusion. In her 2013 speech suggesting the study, FTC Chairwoman Edith Ramirez recognized that “we still have only snapshots of the costs and benefits of PAE activity” and that “we will need to learn a lot more” in order “to see the full competitive picture.” While acknowledging the vast potential benefits of PAEs in rewarding invention, benefiting competition and consumers, reducing enforcement hurdles, increasing liquidity, encouraging venture capital investment, and funding R&D, she nevertheless concluded that “PAEs exploit underlying problems in the patent system to the detriment of innovation and consumers.” And despite the admitted lack of data, Ramirez stressed “the critical importance of continuing the effort on patent reform to limit the costs associated with some types of PAE activity.”
This position is duplicitous: If the costs and benefits of PAEs are still unknown, what justifies Ramirez’s rushed call for immediate action? While benefits have to be weighed against costs, it’s clear that she’s already jumped to the conclusion that the costs outweigh the benefits. In another speech a few months later, Ramirez noted that the “troubling stories” about PAEs “don’t tell us much about the competitive costs and benefits of PAE activity.” Despite this admission, Ramirez called for “a much broader response to flaws in the patent system that fuel inefficient behavior by PAEs.” And while Ramirez said that understanding “the PAE business model will inform the policy dialogue,” she stated that “it will not change the pressing need for additional progress on patent reform.”
Likewise, in an early 2014 speech, Commissioner Julie Brill ignored the study’s inherent limitations and exploratory nature. She predicted that the study “will provide a fuller and more accurate picture of PAE activity” that “will be put to good use by Congress and others who examine closely the activities of PAEs.” Remarkably, Brill stated that “the FTC and other law enforcement agencies” should not “wait on the results of the 6(b) study before undertaking enforcement actions against PAE activity that crosses the line.” Even without the study’s results, she thought that “reforms to the patent system are clearly warranted.” In Brill’s view, the study would only be useful for determining whether “additional reforms are warranted” to curb the activities of PAEs.
It appears that these Commissioners have already decided—in the absence of any reliable data on the systemic effects of PAE activity—that drastic changes to the patent system are necessary. Given their clear bias in this area, there is little hope that they will acknowledge the deep limitations of the study once it is released.
Commentators Jump the Gun
Unsurprisingly, many supporters of the study have filed comments with the FTC arguing that the study is needed to fill the huge void in empirical data on the costs and benefits associated with PAEs. Some even simultaneously argue that the costs of PAEs far outweigh the benefits, suggesting that they have already jumped to their conclusion and just want the data to back it up. Despite the study’s serious limitations, these commentators appear primed to use it to justify their foregone policy recommendations.
For example, the Consumer Electronics Association applauded “the FTC’s efforts to assess the anticompetitive harms that PAEs cause on our economy as a whole,” and it argued that the study “will illuminate the many dimensions of PAEs’ conduct in a way that no other entity is capable.” At the same time, it stated that “completion of this FTC study should not stay or halt other actions by the administrative, legislative or judicial branches to address this serious issue.” The Internet Commerce Coalition stressed the importance of the study of “PAE activity in order to shed light on its effects on competition and innovation,” and it admitted that without the information, “the debate in this area cannot be empirically based.” Nonetheless, it presupposed that the study will uncover “hidden conduct of and abuses by PAEs” and that “it will still be important to reform the law in this area.”
Engine Advocacy admitted that “there is very little broad empirical data about the structure and conduct of patent assertion entities, and their effect on the economy.” It then argued that PAE activity “harms innovators, consumers, startups and the broader economy.” The Coalition for Patent Fairness called on the study “to contribute to the understanding of policymakers and the public” concerning PAEs, which it claimed “impose enormous costs on U.S. innovators, manufacturers, service providers, and, increasingly, consumers and end-users.” And to those suggesting “the potentially beneficial role of PAEs in the patent market,” it stressed that “reform be guided by the principle that the patent system is intended to incentivize and reward innovation,” not “rent-seeking” PAEs that are “exploiting problems.”
The joint comments of Public Knowledge, Electronic Frontier Foundation, & Engine Advocacyemphasized the fact that information about PAEs “currently remains limited” and that what is “publicly known largely consists of lawsuits filed in court and anecdotal information.” Despite admitting that “broad empirical data often remains lacking,” the groups also suggested that the study “does not mean that legislative efforts should be stalled” since “the harms of PAE activity are well known and already amenable to legislative reform.” In fact, they contended not only that “a problem exists,” but that there’s even “reason to believe the scope is even larger than what has already been reported.”
Given this pervasive and unfounded bias against PAEs, there’s little hope that these and other critics will acknowledge the study’s serious limitations. Instead, it’s far more likely that they will point to the study as concrete evidence that even more sweeping changes to the patent system are in order.
While the FTC study may generate interesting information about a handful of firms, it won’t tell us much about how PAEs affect competition and innovation in general. The study is simply not designed to do this. It instead is a fact-finding mission, the results of which could guide future missions. Such empirical research can be valuable, but it’s very important to recognize the limited utility of the information being collected. And it’s crucial not to draw policy conclusions from it. Unfortunately, if the comments of some of the Commissioners and supporters of the study are any indication, many critics have already made up their minds about the net effects of PAEs, and they will likely use the study to perpetuate the biased anti-patent fervor that has captured so much attention in recent years.
Last March, I published an op ed in the the Washington Times on the proposed VENUE Act, a recently introduced bill taken wholesale from a portion of HR 9 (the tendentiously titled “Innovation Act”). HR 9 has rightly stalled given its widespread and radical changes to the patent system that weaken and dilute all property rights in innovation. Although superficially more “narrow” because the VENUE Act contains only the proposed venue rule changes in HR 9, the VENUE Act is just the Son of Frankenstein for the innovation industries. This bill simply continues the anti-patent owner bias in the DC policy debates that has gone almost completely unchecked since before the start of President Obama’s first term in office.
Here’s a portion of my op ed:
The VENUE Act is the latest proposal in a multi-year campaign by certain companies and interest groups to revise the rules of the patent system. The fundamental problem is that this campaign has created an entirely one-sided narrative about patent “reform”: all the problems are caused by patent owners and thus the solutions require removing the incentives for patent owners to be bad actors in the innovation economy. This narrative is entirely biased against patented innovation, the driver of America’s innovation economy for over two hundred years that has recognized benefits. As a result, it has produced an equally biased policy debate that inexorably leads to the same conclusion in every “reform” proposal arising from this campaign: these vital property rights must be weakened, watered down, or eliminated when it comes to their licensing in the marketplace or enforcement in courts.
In this narrower bill to address litigation abuse, for instance, it is an Alice in Wonderland state of affairs to be talking only about stopping abuse of the courts by patent owners while blatantly ignoring the same abuse by challengers of patents in the administrative review programs run by the Patent Trial and Appeals Board (PTAB). It is widely recognized that the PTAB is incredibly biased against patents in both its procedural and substantive rules. The Supreme Court recently agreed to hear just one of many appeals that are currently working their way through the courts that explicitly address these concerns. There is legitimate outcry about hedge fund managers exploiting the PTAB’s bias against patents by filing petitions to invalidate patents after shorting stocks for bio-pharmaceutical companies that own these patents. The PTAB has been called a “death squad” for patents, and with a patent invalidation rate between 79% to 100%, this is not entirely unjustified rhetoric.
The absence of any acknowledgment that reform of the PTAB is just as pressingly important as venue reform by those pushing for the VENUE Act is a massive elephant in the room. Unfortunately, it is unsurprising. But this is only because it is the latest example of a strikingly one-sided, biased narrative of the past several years about patent “reform.”
As bloggers like to say: Read the whole thing here.
UPDATE: A more in-depth, legal analysis of proposed “venue reform” and the resulting collateral damage it imposes on all patent owners is provided by Devlin Hartline in his essay, “Changes to Patent Venue Rules Risk Collateral to Innovators,” which can be read here.
Over the past year, the Global Antitrust Institute (GAI) at George Mason University School of Law has released some of the most thoughtful critiques of foreign governments’ proposed new guidance documents on competition law. The GAI’s March 31 comments (see here) in response to the India Department of Industrial Policy and Promotion’s Discussion Paper on Standard Essential Patents is yet another outstanding GAI contribution to practical international antitrust scholarship. The comments were written by Koren W. Wong-Ervin, GAI Director and former Counsel for IP and International Antitrust at the U.S. FTC; Professor Joshua D. Wright, GAI Executive Director; Judge Douglas H. Ginsburg of the U.S. Court of Appeals for the District of Columbia Circuit; and Professor Bruce Kobayashi. The comments emphasize that governmental micromanagement of patent licensing related to standards, as specifically proposed in the Discussion Paper, could prove counterproductive.
Below are highlights from the GAI’s comments, summarized by GAI Director Wong-Ervin:
The Obama Administration regrettably continues its campaign to weaken intellectual property (IP) rights, moving beyond antitrust policy (see articles by me, here and here) to the realm of substantive legislation. In his fiscal year 2017 budget proposal, President Obama proposed to reduce the period of exclusivity granted producers of “biologic” drugs from twelve to seven years. If adopted, this change would disincentivize pharmaceutical innovation, with harmful consequences for future patients as well as for the economy, as explained in an article published today in the Heritage Foundation’s Daily Signal.
Zarxio is the U.S.’s first authorized “biosimilar” drug, or a copycat of an already-approved “biologic.” Biologics are widely regarded to be the future of medicine, proving effective against a number of today’s incurable diseases. Unlike traditional pharmaceuticals, biologics refer to molecular, combination treatments made within cells themselves. While typical pharmaceuticals are based on a single molecule and are therefore easily identifiable and chemically replicable, biologics are much more complex. Created by cellular processes, biologics are large, intricate, and sometimes impossible to fully characterize.
The Biologics Price Competition and Innovation Act of 2009 (enacted in 2010 as part of Obamacare) provides twelve years of exclusivity for a biologic, after which a copycat biosimilar can be produced and marketed. A reduction in the exclusivity period to seven years could destroy incentives to carry out the R&D needed to develop future biologics (and, thus, future follow-on biosimilars). Henry Grabowski, a professor at Duke University, found that 12 years of data exclusivity is required to allow a biologic developer a reasonable opportunity to recoup its costs. Another study determined that biologic firms usually do not break even for 13-to-16 years (also see here). Would you start a business if you knew ahead of time that you wouldn’t break even? Nobody would—including those who would otherwise discover and produce revolutionary cures to diseases.
In short, reduction of the exclusivity period for biologics would, by decimating the biologics industry, slow pharmacologically-driven improvements in health care, and thereby harm the economy and the health of the American public. It may be hoped that the Obama Administration will weigh the evidence and rethink its position on this topic. In any event, Congress should refuse to countenance weakening IP protection in this critical emerging sector of the pharmaceuticals market.