Wednesday, April 26, 2017

Biosimilars at the Supreme Court: Argument Preview

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

The Supreme Court will hear arguments this morning in its first cases involving the Biologics Price Competition and Innovation Act (BPCIA), Amgen v. Sandoz and Sandoz v. Amgen. Passed as part of the Affordable Care Act in 2010, the BPCIA was intended to create an FDA approval pathway for generic versions of complex biologic drugs, biosimilars, much as the 1984 Hatch-Waxman Act has facilitated generic approvals for small-molecule drugs. The BPCIA was a hard-fought legislative compromise between those favoring stronger incentives for biologic pioneers and those seeking to rein in spiraling healthcare costs with more affordable generic drugs. The statute resolved a number of key issues, such as setting a twelve-year data exclusivity period before a biosimilar may be approved, but the policy battle over many smaller details has now moved to the courts. Amgen filed suit against Sandoz for seeking approval of a biosimilar of Amgen’s filgrastim drug, Neupogen, based on two sections of the BPCIA. Amgen claims (1) that Sandoz failed to provide Amgen a copy of its abbreviated Biologics License Application (aBLA) as required to begin the BPCIA “patent dance” under § 262(l)(2)(A), and (2) that Sandoz did not grant Amgen the required 180-day notice of commercial marketing by providing notice prior to FDA approval as required by § 272(l)(8)(A). The Northern District of California ruled in Sandoz’s favor on both issues, but the Federal Circuit overturned the district court on the second issue—while quoting Churchill in describing the statute as “a riddle wrapped in a mystery inside an enigma.” The Supreme Court is now faced with unraveling this riddle.

Sunday, April 2, 2017

Yelderman on Accuracy in the Patent System

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

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

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

Saturday, March 25, 2017

Dan Brean and Bryan Clark: Casting Aspersions in Patent Trials

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

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

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

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

Friday, March 24, 2017

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

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

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

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

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

Friday, March 3, 2017

Copyright Survives

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

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

Friday, February 24, 2017

Does the Supreme Court Understand Patent Law?

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

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

Wednesday, January 11, 2017

IP Fellowship Opportunities at Harvard and Yale

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

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

Tuesday, January 10, 2017

IP and Federalism: An Expanding Field

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

Monday, December 19, 2016

(Un)Reasonable Royalties

For the small subgroup of people who read this blog, but don't read Patently-O, I thought I would point to a new article that I've posted called (Un)Reasonable Royalties. I won't write much about it here. Dennis Crouch did a nice review, for which I'm thankful. Here is the abstract:
Though reasonable royalty damages are ubiquitous in patent litigation, they are only one-hundred years old. But in that time they have become deeply misunderstood. This Article returns to the development and origins of reasonable royalties, exploring both why and how courts originally assessed them.
It then turns a harsh eye toward all that we think we know about reasonable royalties. No current belief is safe from criticism, from easy targets such as the 25% “rule of thumb” to fundamental dogma such as the hypothetical negotiation. In short, the Article concludes that we are doing it wrong, and have been for some time.
This Article is agnostic as to outcome; departure from traditional methods can and has led to both over- and under-compensation. But it challenges those who support departure from historic norms—all the while citing cases from the same time period—to justify new rules, many of which fail any economic justification.

Blockbuster IP Term for 8-Member SCOTUS

After the Senate's failure to move forward with Judge Garland's nomination to the Supreme Court, the conventional wisdom was that the Justices would shy away from politically sensitive cases that could lead to 4-4 splits, focusing instead on areas such as intellectual property in which cases tend to be unanimous. So far, that's spot on. The Court added a hot patent venue case to its docket this week, its seventh IP case for the Term so far. For those who have lost count, here's a quick round-up. You can also see my list of all Supreme Court patent cases back to 1952 here.

TC Heartland v. Kraft Food (cert granted Dec. 14): Does a change to the general federal venue statute affect the venue rule in patent cases? Most observers think this is the end of E.D. Tex.'s patent dominance—and perhaps the end of the incongruous Samsung ice-skating rink outside the Marshall, TX courthouse.

Tuesday, December 6, 2016

Samsung v. Apple: Drilling Down on Profit Calculations

The Supreme Court unanimously ruled in Samsung v. Apple today. The opinion was short and straightforward: an article of manufacture under 35 USC 289 (allowing all the profits for an infringing article of manufacture as damages) need not be the entire product. If the article is less than the entire product, then all the profits of that smaller part should be awarded per the statute. The court remanded the case for determination of what the proper article of manufacture should be.

I have three brief comments on the opinion:

1. This is not a surprising result given the oral argument. The only surprise here is that the "entire product" rule had been in place so long, essentially unchallenged, such that this is a new way to look at damages.

2. One reason why the old rule was in place a long time is that it is difficult to square this opinion with the historical context of section 289 (or rather, its predecessor). The carpet in the Dobson case (which had awarded only nominal damages) had a design on the front, but also had an unpatented backing, etc. Although there were at least two components, no one at the time Congress passed the law thought for a second that the profits for each component should be considered separately. Indeed, that's what the court had done in Dobson, finding that the design added nothing to the profits -- the whole reason Congress passed a statute in the first place. This context is why (as I've written before), I've always been torn about this case. As a matter of statutory interpretation, the Court is surely right. But if that's true, then the statute has been misapplied literally since day one - and that doesn't sit well with me.

3. This is a "live by the sword, die by the sword" opinion. If patentees want to claim articles of manufacture that are less than whole products, then they have to accept that articles of manufacture for damages are less than whole products. The court cites In re Zahn (an often maligned case) approvingly. In Zahn, the patentee claimed the shank of a drill bit but not the bit itself:

drill bit
Now comes the difficult/fun (in the eye of the beholder) part: how do we calculate profits on an infringing drill bit? The patentee argues that drill bits are fungible, so that 100% of the profits must be assigned to the shank "article of manufacture." The infringer argues that people buy drill bits to drill, not to look at, so that 100% of the profits must be assigned to the bit "article of manufacture." If the infringer wins, even substantially, then we are back in the pre-289 world of Dobson. That can't be right. But if the patentee wins, it means that the Supreme Court's opinion means nothing.

I'm sure that some happy medium will be determined by experts, judges, and juries, but this is an area that is not going to be getting clarity any time soon.

Saturday, November 12, 2016

Rochelle Dreyfuss: Whither Experimental Use?

Since the Federal Circuit's formation in 1982, Rochelle Dreyfuss has witnessed patent law go through some significant changes, and the climate for university research and biotechnology innovation today is markedly different from what it was thirty years ago. However, Dreyfuss stated at the beginning of remarks she gave at Akron Law on Friday November 4, "sometimes facts change; but one's views on a subject do not." Patent law's common law "experimental use" defense–or lack thereof–is, she believes, a case in point. When she wrote on this topic over ten years ago in her paper Protecting the Public Domain of Science: Has the Time for an Experimental Use Defense Arrived?she felt largely the same as she does now: universities need the benefit of "some version of an invigorated experimental use defense."  In her new paper, "Reconsidering Experimental Use," to be published in the Akron Law Review this spring., Dreyfuss returns to the important question of whether, and to what extent, patented inventions can be used for experimental purposes during the term of a patent. Read more at the jump.

Wednesday, November 2, 2016

Guest Post by Greg Reilly: Forcing Patent Applicants to Internalize Costs from Overclaiming

Guest post by Greg Reilly (IIT Chicago-Kent College of Law), whose work on patent "forum selling" and patent discovery has previously been featured on this blog.

Conventional wisdom is that patent prosecutors should obtain the broadest possible claim scope or, more precisely, should obtain at least one claim that is as broad as the U.S. Patent and Trademark Office examiner will allow while also hedging with other, narrower claims. A new paper by Oskar Liivak (Cornell), Overclaiming Is Criminal, provocatively argues that this standard practice is not just sub-optimal or improper, but is in fact illegal under federal law – “it is a felony to willfully overclaim in a patent application.” Liivak’s paper is a crucial contribution to the debate over improving patent quality, highlighting the need to alter the patent applicant’s and patent prosecutor’s incentives, not just attempt to improve the Patent Office’s performance.

Liivak’s legal argument is virtually air-tight, and I am sympathetic to his policy concerns, though the practical impact of his proposal is less certain because of the difficulty of identifying “willful overclaiming.” In any event, criminal sanctions are not the only way to alter the incentives of applicants and prosecutors to ensure that they internalize costs from overclaiming. Another possibility is restricting claim amendments in Patent Office post-issuance proceedings, an issue currently before the en banc Federal Circuit in In re Aqua Products, Inc. (More after the jump.)

Thursday, October 20, 2016

IP and Climate Change

My colleague and friend Josh Sarnoff (DePaul) sent me a review copy of the book he edited: Intellectual Property and Climate Change, even though I told him I wouldn't have much time to look at it. Wouldn't you know, on a quick skim I found it pretty interesting, and thought I would talk about it a bit.

The book is part of the Elgar Research Handbook series. I wrote a chapter that I really like (who am I kidding, I just love that book chapter) in the Research Handbook on Trade Secret Law. But because it's in an expensive book, nobody seems to know about it (and my colleagues in trade secret law will attest that I remind them whenever I review one of their drafts that is remotely in the area of trade secrets and incentives).

So, I thought I would flag this book, so readers would know this is out there. IP will have a growing role in climate change, as this cool story from this week illustrates. The book is comprehensive - it has 26 chapters from a variety of different authors. Some of the topics:

  • International law and TRIPS
  • Enforcement
  • Technology transfer
  • Innovation funding and university research
  • Antitrust, patents, copyrights, trade secrets, trademarks
  • Rights in climate data
  • Privacy (this one surprised me)
  • Standards
  • Energy, transportation, food, natural resources
There is something for everyone in this book. Though it is focused on climate change, much of the discussion can be generalized to other emerging areas of law. In that sense, it does present a little bit like the law of the horse, but given that this is a research handbook, I'm not so sure that's a bad thing.

Tuesday, October 11, 2016

Apple v. Samsung Oral Argument Thoughts

The Supreme Court heard Apple v. Samsung (technically Samsung v. Apple) today. The transcript is here. This post is short and assumes some knowledge of the issues: the tea leaves appear to be that many justices are uncomfortable with the current rule that treats the "article of manufacture" as the entire product. Even Apple seemed to give ground (surprisingly) and admit that what the article of manufacture is a factual determination (but that Apple satisfies those facts in this case). This was an interesting concession, quite frankly, as it is not a given that the Court would accept its view that no new trial is needed. The Court did not seem to even want to hear the "don't remand" argument.

But it also seems clear that the Court has no idea how a rule would operate in practice. After all, it's been 140 years and as far as I can tell, one important case has ever denied profits to a design that was not sold separately (on a refrigerator latch). And Justice Kennedy, in particular, was worried about how one would distinguish a method of determining profits of the patented article of manufacture (OK) as compared to the apportioning profits associated with the patented design (Not OK).

I've made no secret that I favor Samsung's view here. I signed on to an amicus that said as much, and I believe that there is case law mentioned briefly by counsel for Apple (and cited in the amicus) that allows for assessing profits only associated with the infringement, not the entire product. For example, in Westinghouse, the Court held that even if all profits were to be assessed with no apportionment, the defendant could still provide evidence that separated profits unrelated to the infringement.

But that said, I think the argument highlights the central tension here. In Dobson v. Hartford Carpet (1885), the Court considered the very same arguments made today: that people buy carpet for a variety of reasons, that design might drive sales, but there are also other inventions that affect quality in the carding, spinning, dying, and weaving (not to mention the backing). Thus, the Court held, any profits must be allocated based on the patented design. It would be unfair, the Court ruled, to force defendants to pay out their entire profits twice if they infringed another patent.

It was this ruling that Congress promptly intended to reverse by making a rule that all profits on the article of manufacturer would be owed.  If the proposals discussed today were in place then, Dobson would not have received all of the defendant's profits; I cannot believe that Congress intended this outcome then, and so I wonder how one can read the statute differently now.

And that's where I'm left. The utilitarian in me says this statute is wrong in many ways (and I've looked for ways to achieve that result through statutory interpretation, like Westinghouse). But the statutory intepreter in me finds it hard to believe that we've somehow misunderstood this statute for the last 140 years, and that the solutions today would leave us with the same outcome that Congress quite clearly intended to reverse. If the Court does decide on narrowing damages, I wish it good luck in finding a happy medium.