Monday, May 11, 2015

Fee Shifting and Veil Piercing

One of the discussion points about the new PATENT Act reform proposal making the rounds is the "reach through" that pierces the corporate veil for those entities that must pay attorneys' fees. Like so many of these fee shifting proposals, I'm left scratching my head and wondering whether this is where we want to make our stand, heading down the slippery slope of corporate veil piercing. I can think of so many other worthy plaintiffs and defendants where I would rather pierce the veil, and yet we don't.

I don't want to minimize the concern. The protection offered limited liability companies is a real problem for those who want to collect against them. I've known this since I was shocked to read Walkovszky v. Carlton in corporations law. The defendant owned 20 taxicabs in 10 corporations, but the court allowed liability only against the one corporation that owned the cab that ran over the plaintiff. While it seems ridiculous to allow corporations to avoid liability this way, this is a deeply engrained rule of law in this country. In any event, I haven't seen any real data about how often fee awards go unpaid, so I don't know just how much of a problem this really is. I suppose it will become a more common problem if there is more fee shifting.

Make no mistake, though, the PATENT Act and all other veil-piercing fee proposals are not about under-capitalized shell companies - not at a deeper level. These proposals stand for the proposition that we hate patent enforcement by non-practicing entities so much that we're just going to throw out all the rules that apply to everyone else, no matter how bad an actor all those other people are. Only patent plaintiffs are so despicable that they are no longer entitled to corporate status.  And this is not just about patent acquisition companies - this covers inventor operated companies, research companies and think tanks, failed startups, and anyone else who doesn't make a product.

I should note here that I'm not wholly opposed to fee shifting. I think there can be some benefit to reciprocal fee shifting, and I also think that the "objectively unreasonable" standard is better than a presumption. I should also note that this is not a plaintiff only issue. Only a few short years ago, record companies sued a venture capital firm for investing in copyright defendant Napster, a company that had, at best, a crapshoot of winning its case. That investor suit was also unwarranted for the same reasons that this proposal is: targeted veil piercing to support substantive policy goals is not a great idea -- the bell tolls for thee.

After the jump is my nitty-gritty analysis of the fee-shifting and veil-piercing proposal, and discussion about why I think it's a problem.

Thursday, April 23, 2015

Desperately Seeking Stacking: Guest Post by Jorge Contreras

In this Guest Post, Jorge Contreras, Associate Professor of Law at the University of Utah College of Law, discusses the lack of reliable sources of data regarding the existence of patent royalty stacking, and makes a public plea for firms to disclose more of their patent royalty data in order to permit the academic community to assess it.

Saturday, April 18, 2015

Price and Rai on Biologic Secrecy

Nicholson Price and Arti Rai just posted Manufacturing Barriers to Biologics Competition and Innovation, which is forthcoming in the Iowa Law Review. Here is the abstract:
As finding breakthrough small-molecule drugs gets harder, drug companies are increasingly turning to “large molecule” biologics. Although biologics represent many of the most promising new therapies for previously intractable diseases, they are extremely expensive. Moreover, the pathway for generic-type competition set up by Congress in 2010 is unlikely to yield significant cost savings. 
In this Article, we provide a fresh diagnosis of, and prescription for, this major public policy problem. We argue that the key cause is pervasive trade secrecy in the complex area of biologics manufacturing. Under the current regime, this trade secrecy, combined with certain features of FDA regulation, not only creates high barriers to entry of indefinite duration but also undermines efforts to advance fundamental knowledge. 
In sharp contrast, offering incentives for information disclosure to originator manufacturers would leverage the existing interaction of trade secrecy and the regulatory state in a positive direction. Although trade secrecy, particularly in complex areas like biologics manufacturing, often involves tacit knowledge that is difficult to codify and thus transfer, in this case regulatory requirements that originator manufacturers submit manufacturing details have already codified the relevant tacit knowledge. Incentivizing disclosure of these regulatory submissions would not only spur competition but it would provide a rich source of information upon which additional research, including fundamental research into the science of manufacturing, could build. 
In addition to provide fresh diagnosis and prescription in the specific area of biologics, the Article contributes to more general scholarship on trade secrecy and tacit knowledge. Prior scholarship has neglected the extent to which regulation can turn tacit knowledge not only into codified knowledge but into precisely the type of codified knowledge that is most likely to be useful and accurate. The Article also draws a link to the literature on adaptive regulation, arguing that greater regulatory flexibility is necessary and that more fundamental knowledge should spur flexibility.
Small-molecule pharmaceutical drugs have long been the poster child for the patent system, but as Allison, Lemley & Schwartz have recently reminded us, pharma and biotech are not the same and may have very different patent ecosystems. For anyone interested in IP policy in the biologics space, this new piece by Price and Rai is highly recommended.

Monday, April 13, 2015

Do Biosimilar Manufacturers Have To Dance? A District Court Answers “No”

In 2010, Congress enacted the Biologics Price Competition and Innovation Act (BPCIA) as part of the Affordable Care Act. BPCIA is, in a broad sense, intended to be the analog of the Hatch-Waxman Act for biologic drugs. Hatch-Waxman provides a pathway for Food and Drug Administration (FDA) approval for small-molecule generic drugs. Vastly simplified, the Hatch-Waxman process comes down to this: if a follow-on (i.e., generic) manufacturer can make an identical copy of the branded drug molecule, it can obtain FDA approval to market the drug without the clinical trials that the drug’s originator had to go through to prove that the drug is safe and effective. This saves costs for the generic manufacturer and, once the generic goes on the market, lowers prices for consumers. Under Hatch-Waxman, a follow-on manufacturer’s act of filing a so-called Abbreviated New Drug Application is an act of patent infringement, and so the originator can try to keep generic drugs off the market using patent law. The Food, Drug, and Cosmetics Act also provides periods of market and data exclusivities even for originator drugs that are not covered by patents. But once those periods end and the generic manufacturer can prove chemical identity to the brand, the generic drug is good to go on the market as far as the FDA is concerned—and the only barrier left is the brand’s potential patent infringement claims.

Saturday, April 11, 2015

Ryan Holte on the Impact of eBay v. MercExchange

For anyone looking for recent evidence and analysis of courts' application of ebay v. MercExchange (2006) in the last few years, Ryan Holte has a new article in the Chapman Law Review, which he discussed yesterday at PatCon 2015. In the article Holte addresses eBay's impact on patent remedies on the ground and data on district courts' injunction grant rates. Much of this data is being collected by Chris Seaman, who also presented on post-eBay injunction rates at PatCon. Holte and Seaman are currently working on a joint empirical study regarding all Federal Circuit permanent injunction decisions post-eBay – this will certainly be worth a look.

Tuesday, April 7, 2015

Patent Examiners with Three Arms Tied Behind Their Backs

In Patent Asymmetries (forthcoming UC Davis L. Rev.), Sean Seymore (Vanderbilt) explores some of the hurdles patent examiners face when considering patent applications:

Everyone knows that it is far too easy to get a (bad) patent. Fingers often point to the U.S. Patent and Trademark Office (PTO), which is often criticized for making awful patenting decisions. Legal scholars have offered several reasons for the quality problem, including low substantive standards for patentability and problems with the PTO’s inner workings, decision-making, and policy choices.

This Article offers a very different explanation for the patent quality problem. Drawing attention to what happens inside the PTO is clearly the correct locus; however, any serious headway toward improving patent quality must focus more directly on patent examination. My basic claim is that low-quality patents issue primarily because of a confluence of three asymmetries — proof, information, and legal — that exist in the current patent examination paradigm. I explain how these asymmetries tip the scales of patentability so far in the applicant’s favor that anyone who seeks a patent on anything usually gets one. I propose a new patent examination regime which would eliminate the three asymmetries, derail frivolous filings, and make a patent grant far from guaranteed. Rebalancing the scales of patentability would improve patent quality and promote broader goals of patent policy.
The three asymmetries are not so clear from the abstract. In short: 1) the default is that applicants get the patent, and the examiner must prove otherwise, 2) applicants surely know more about their inventions and the state of the art than the examiners, and not all of this knowledge makes it into the specification, and 3) while examiners may be technically competent, they are often outmatched by legal experts.

Sunday, April 5, 2015

Lauren Henry: Privacy as "Quasi Property"

For those interested in the intersection of privacy, property theory, and intellectual property rights, Yale ISP Fellow Lauren Henry has a new article forthcoming in the Iowa Law Review in which she argues that privacy can and should be conceptualized as "quasi-property": a relational entitlement to exclude specific actors, a given type of behavior, and/or a given relationship between the actors. The quasi-property model is in contrast to the more complete exclusionary "rights against the world" afforded by, for instance, patents. Here is a quote from the abstract:
[Q]uasi-property provides the essential model for assessing the interest held by a privacy claimant against a defendant, and whether it has been infringed. The quasi-property model can account for the four privacy torts first advanced by William Prosser and adopted as law in the vast majority of states, and liberate them from the ossification that have stunted their development and ability to adapt to modern conditions. What’s more, the approach has implications for developing privacy rules for enforcement by other actors, such as administrative agencies, and even in conceptualizing other areas of privacy law outside of tort law, such as Fourth Amendment jurisprudence.
Henry's project is an explicit response to Pamela Samuelson's rejection of privacy as intellectual property. It reminds me of Mark Lemley's move in arguing that trade secrets should be treated as a form of intellectual property right rather than as subjects of contract and tort claims. But Henry's reliance on the quasi-property model, and her careful application of Shyam Balganesh's recent work revitalizing this paradigm, is more refined in its treatment of property theory. Recommend.

Thursday, April 2, 2015

Lemley on Faith-Based IP

Yesterday Mark Lemley posted Faith-Based Intellectual Property (which was not an April Fool's joke). Here is the abstract:
The traditional justification for intellectual property (IP) rights has been utilitarian. We grant exclusive rights because we think the world will be a better place as a result. But what evidence we have doesn’t justify IP rights. Rather than following the evidence and questioning strong IP rights, more and more scholars have begun to retreat from evidence toward what I call faith-based IP, justifying IP as a moral end in itself rather than on the basis of how it affects the world. I argue that these moral claims are ultimately unpersuasive and a step backward in a rational society.
This short essay has already ignited quite a discussion in the blogosphere. Larry Solum argues that "[i]f consequentialism does not provide a true or correct moral theory, then it simply cannot be the case that the justification for intellectual property stands or falls solely on consequentialist grounds." In the comments on Amy Landers's post at PrawfsBlawg, James Grimmelmann writes that "there's something paradoxical about the argument that non-utilitarian theories are suspect because they don't depend on the kind of evidence that would satisfy a utilitarian," and he notes that "the legal system and legal theory trade off among morally incomparable claims all the time." In the same thread, Patrick Goold thinks we should distinguish between the IP "faithful" who "starts from the conclusion that IP rights are right or good and looks for reasons to support that" and the IP "philosopher" who "asks whether any norm justifies the conclusion that we ought to have IP rights." Jeremy Sheff argues that "we are dealing with two academic camps that simply value different things in different measure" but that the "apparent absence of a shared language between moral theorists and consequentialists" is the kind of problem we can solve.

Amy Landers on Patent Market Bubbles


Amy Landers has an original and provocative new piece in the Chapman Law Review in which she argues that patent markets may be vulnerable to "bubbles," as in other markets with uncertain asset valuations such as the housing market. Whether patents are subject to bubble behavior in fact remains to be seen, but if Landers is correct this challenges the view that patent monetization entities and other intermediaries that assist in creating a liquid market for patents perform a beneficial function by improving patent valuations and efficiently transferring patent rights among actors in the innovation ecosystem.

Tuesday, March 31, 2015

Estimating Individual Inventor Returns to Patenting

How much individual inventors earn from patenting is hotly debated today, in an age where enforcement is often outsourced to third-party enforcers. But what about returns to inventors who work for companies? They usually assign their inventions to their employers.  Further, they are often largely driven by factors other than money.  But can all wage incentives be discounted?

That's the question tackled by Domenico Depalo and Sabrina Lucia Di Addario (both of Bank of Italy), who have tied twenty years of individual wage earnings to EPO patent data. The abstract for their paper, Shedding Light on Inventors' Returns to Patents, is:

We estimate individual returns to patents using a unique longitudinal administrative dataset on patents and earnings, following individuals and firms for 20 years (1987-2006). We find that inventors' wages steadily increase before patent applications are submitted to the European Patent Office, reach a peak around the time of submission and then decrease again. We also find that the applications that will eventually lead to a granted patent receive a greater wage increase than those that will not. Finally, we use an event study framework to distinguish among inventor-types and we find that the "star-inventors" (the employees submitting at least three times in their life) receive a lasting wage premium, while the employees with one or two submissions stop receiving the premium after the application date, in line with the "unobserved ability" literature. 
The paper is well worth a read, even beyond the core study. The literature review discusses many studies on incentives to invent, including both monetary and non-monetary. The descriptive statistics shed a lot of light on how many employees contributed to patents and how often. And their model, of course, provides interesting information about how companies might value workers that contribute patentable inventions versus those that do not.

Saturday, March 28, 2015

Innovation Law Beyond IP 2

The second "Innovation Law Beyond IP" conference at Yale Law School is this weekend. I helped organize the first conference last year to provide a space for the growing number of scholars who are thinking about the many legal institutions beyond IP laws that govern knowledge production. I posted a round-up of last year's accompanying blog symposium here.

This year we have another great crop of participants and discussants. I have already cross-posted my contribution to this year's blog symposium, on Intellectual Property as Global Public Finance (coauthored with Daniel Hemel). Here are the other posts written in preparation for the conference, along with a sentence pulled from each, ordered based on the conference agenda:

Tuesday, March 24, 2015

Long Term Trends in IP Litigation

Matthew Sag has posted IP Litigation in United States District Courts: 1994 to 2014 (forthcoming Iowa L. Rev.) on SSRN. The article takes a thirty year look at IP litigation in the district courts:
This article undertakes a broad-based empirical review of Intellectual Property (IP) litigation in United States federal district courts from 1994 to 2014. Unlike the prior literature, this study analyzes federal copyright, patent and trademark litigation trends as a unified whole. It undertakes a systematic analysis of more than 190,000 individual case filings and examines the subject matter, geographical and temporal variation within federal IP litigation over the last two decades.

This article makes a number of significant contributions to our understanding of IP litigation. It analyzes time trends in copyright, patent and trademark litigation filings at the national level, but it does much more than simply count the number of cases; it explores the meaning behind those numbers and shows how in some cases the observable headline data can be positively misleading. Exploring the changes in the distribution of IP litigation over time and their regional distribution leads to a number of significant insights, these are summarized below. Just as importantly, one of the key contributions of this article is that it frames the context for more fine-grained empirical studies in the future. Many of the results and conclusions herein demonstrate the dangers of basing empirical conclusions on narrow slices of data from selected regions or selected time periods.

Some of the key findings of this study are as follows:
First, the rise of Internet file-sharing has transformed copyright litigation in the United States. More specifically, to the extent that the rate of copyright litigation has increased over the last two decades, that increase appears to be entirely attributable to lawsuits against anonymous Internet file sharers. These lawsuits largely took place in two distinct phases: the first phase largely consisted of lawsuits seeking to discourage illegal downloading; the second phase largely consists lawsuits seeking to monetize online infringement.

Second, in relation to patent litigation, the apparent patent litigation explosion between 2010 and 2012 is something of a mirage; however there has been a sustained patent litigation inflation over the last two decades the extent of which has not been fully recognized until now. The reason why this steady inflation was mistaken for a sudden explosion was that the true extent of patent litigation was disguised by permissive joinder.

Third, in relation to the geography of IP litigation, it appears that filings in copyright, patent and trademark litigation are generally highly correlated. The major exceptions to that correlation are driven by short term idiosyncratic events in copyright and trademark litigation — these are discussed in detail — and by the dumbfounding willingness of the Eastern district Texas to engage in forum selling to attract patent litigation. The popularity of the Eastern District of Texas as a forum for patent litigation is a well-known phenomenon. However, the data and analysis presented in this study provides a new way of looking at the astonishing ascendancy of this district and the problem of form shopping in patent law more generally.
It's a well-developed abstract, so I don't have a lot to add on the coverage. I do have a few thoughts after the jump.

Monday, March 23, 2015

Patents and Antitrust: Hovenkamp on the Rule of Reason and the Scope of the Patent

For anyone teaching or writing on patents and antitrust, I highly recommend Herbert Hovenkamp's new article forthcoming in the San Diego Law Review, The Rule of Reason and the Scope of the Patent. In recent years, patent law scholars such as Robin Feldman and Paul Gugliuzza in a forthcoming article, have argued that antitrust law's defensive doctrines – including a preference for "rule of reason" versus "per se" analysis, and immunities from antitrust enforcement such as the Noerr-Pennington doctrine and its infamously-hard-to-meet "sham" petition exception – are inappropriate for assessing misconduct involving patents. Hovenkamp emphasizes the opposite problem: the limitations of patent-based immunity for determining liability under antitrust law. In his view, the Supreme Court has now recognized this limitation with its decision in FTC v. Actavis (2013), at least with respect to reverse payment settlements given by drug patent holders to generics seeking to enter the market under the FDA's fast-track approval process.

Saturday, March 21, 2015

How Courts Adjudicate Patent Definiteness and Disclosure

John Allison has done some great empirical work on patent litigation, including a recent project with Mark Lemley and David Schwartz on all substantive decisions rendered by any court in every patent case filed in 2008 and 2009 (with articles in Texas and Chicago), and a project on repeat patent litigants with Mark Lemley and Joshua Walker that I blogged about back in 2011. This fall he invited me to join his latest project, looking at all decisions on Westlaw (including denials of summary judgment and many unpublished opinions) from 1982-2012 involving any of three § 112 issues: enablement, written description, or indefiniteness. We have now posted a draft of our paper, How Courts Adjudicate Patent Definiteness and Disclosure, which is forthcoming in the Duke Law Journal. Here is the abstract:

Friday, March 20, 2015

Intellectual Property as Global Public Finance

I wrote the following post for the Balkinization blog symposium for the upcoming Innovation Law Beyond IP 2 conference at Yale Law School, where I will be presenting an early work-in-progress with Daniel Hemel. You can read my post on Balkinization here, and you can see all posts in the symposium here.

The conventional justification for IP is that information is a public good (i.e., it is nonrival and nonexcludable), and making information excludable through IP allows it to be efficiently supplied by private markets. Both sides of this account have been questioned: not all information has the characteristics of a public good or can be made excludable through IP, and propertization is not the only way the state compensates public-goods providers. As Daniel Hemel and I analyzed in Beyond the Patents–Prizes Debate, the state also encourages information production through mechanisms such as tax incentives and direct spending. And one challenge for domestic innovation policy is recognizing that like conventional public finance mechanisms, IP facilitates a transfer from consumers to innovators, and that the off-budget nature of this IP “shadow” tax should not affect the innovation policy choice.

In Intellectual Property as Global Public Finance, Daniel and I examine information production at the global level, where conventional public finance mechanisms are lacking. Many information goods are global public goods (or quasi-public goods), so under the conventional account, global coordination is needed to prevent countries from free-riding on each other’s information production. Global IP treaties such as the TRIPS Agreement help solve this global coordination problem by requiring countries to contribute to the extent that they use the information produced under IP laws (with defection punished by trade sanctions). And in the global context, the off-budget nature of IP laws may be an asset, as it facilitates creation of this stable Nash equilibrium in a way that maps onto very different national public finance regimes.

If this were the full story, one would expect to find little state investment in non-IP innovation mechanisms for which free-riding cannot be prevented. And yet governments at all levels do invest significant resources beyond IP in producing information goods.