Patents

Inter Partes Review: A Questionable Item in the Generic’s Tool Kit

October 6, 2015
Food and Drug Law, Health Law, Patents

Will Orlady, MJLST Lead Articles Editor

In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman). Since then, pioneer pharmaceutical manufacturers and their generic counterparts have resolved patent disputes in federal district court under the Hatch-Waxman patent dispute framework. This framework is admittedly complex. But it forces interested parties to engage with Hatch-Waxman, mandating compliance with congressionally determined policy decisions regarding pharmaceutical exclusivity. Hatch-Waxman’s patent dispute framework was part of the larger bill, crafted to balance the interests of pioneer and generic drug manufacturers. Congress enacted the law to address two (apparently competing) goals: (1) to encourage innovation in pharmaceutical research and development and (2) to help generic drugs reach the market more quickly. The tension between these goals merits further discussion.

Before Hatch-Waxman, concerns grew that drug prices were too high and that access to certain treatments was too limited. Thus, there was both need and substantial demand for cheaper, generic drugs. On the other hand, pioneer drug manufacturers complained of inadequate market exclusivity following FDA’s New Drug Application (NDA) process. Put simply, pioneer companies spent (and continue to spend to this day) approximately $1 Billion brining a new drug to market. On top of the money, pioneer manufactures potentially spend several years of their drugs’ valuable patent terms going through the NDA process. Thus, pioneer companies noted that recouping R&D and regulatory expenses was not feasible given the “short” market exclusivity period.

Hatch-Waxman was a carefully wrought legislative compromise. It granted pioneers a patent term extension based on the length of FDA’s regulatory review, non-patent market exclusivity provisions, a mechanism for increasing the public notice of patents and patent challenges, and an automatic injunction forbidding FDA approval of a generic drug in certain circumstances. The generic manufacturers got, among other things, the Abbreviated New Drug Application (ANDA), making the regulatory process for generic drugs less onerous. To be sure, Hatch-Waxman is not without its critics, and its nuances are immense. But it is important to remember that the act represents a careful Congressional balancing of industry and public interests. Hatch-Waxman’s patent dispute resolution mechanism squarely fits within this compromise.

Enter the America Invents Act (AIA) of 2011. Of note, the AIA revised certain post-grant opposition procedures. Specifically, the law expanded the importance of inter partes review (IPR). IPR is a process by which a third party may have a patent reexamined by the patent office to verify that the office validly issued the patent. Since the AIA’s enactment, IPR has become immensely popular. Why is this? IPR offers a potential alternative to district court litigation. It provides advantageous invalidation standards—e.g. the “broadest reasonable interpretation” during claim construction. Further, IPR allows patent challenges with relatively limited discovery, cutting both the time and cost of district court patent litigation. Finally, IPR petitioners have been enormously successful in invalidating many of the patents challenged to date.

Needless to say, IPR frightens patentees holding rights to valuable patents. Can you see where I’m going here? Are particular Congressional mandates and policy determinations on a collision course?

The post-AIA surge of IPR proceedings has pioneer pharmaceutical manufacturers worried—rightly so. Generic manufacturers are already petitioning the U.S. Patent and Trademark Office (PTO) for IPR of patents protecting various pharmaceutical and biologic products. Given the aforementioned advantages of IPR, this shouldn’t come as a surprise, but that is not to say that it is not remarkable. Generic manufacturers could be leveraging the advantages of IPR to force pioneer drug manufacturers to settle patent disputes out of district court. Or, of more consequence, they could be using IPR to skirt the patent dispute frameworks required by Hatch-Waxman and the BPCIA (for biologics).

Indeed, if pioneer pharmaceutical manufacturers hold patents allowing for market exclusivity, the patents should be validly issued. It is, however, simultaneously important to remember that Congress has treated drug and biologic patents differently since, at the very least, 1984. Pharmaceutical patents are remarkable in at least three key ways. First, patents on commercially successful drugs are extraordinarily valuable. Congress (at least ostensibly) allows this because of the enormous regulatory barriers to entry. In other words, it’s a trade. FDA imposes supra-burdensome regulatory costs to ensure new drugs are safe and effective. Consequently, Congress allows pioneer drug manufacturers to unilaterally exploit the market to recoup losses, and make money. Second, pharmaceutical patents read on particles of matter that are harnessed to treat disease and save lives. This creates a unique demand. And third, pharmaceutical patents read on products which require sensational development costs, including the time and money required for regulatory approval.

Does this mean pharmaceutical patents should be treated differently, or made exempt from IPR? The answer is not so simple. But legislators, scholars, and practitioners should consider whether IPR is having unintended consequences within the pharmaceutical industry. Just as a quick example: Did Congress truly intend for the AIA’s IPR to be a way around Hatch-Waxman or the BPCIA? And even if it did, does it make sense to put enormously valuable patents at the mercy of an overburdened administrative agency? As I said, the answers don’t come readily. It’s a policy debate that needs to happen. Until it does, I think it unwise to abandon previously established Congressional compromises—i.e. Hatch-Waxman—for a hasty change to our patent system.

The Mystery of the Preliminary Injunction’s Tiny Role in Patent Litigations in China and Some Newest Developments

September 30, 2015
Intellectual Property, Patents

Sen “Alex” Wang, MJLST Managing Editor

In an unpublished note completed early February this year, I compared the current standards of granting preliminary injunctions in patent litigations in the Chinese People’s courts and the US federal courts. The preliminary injunction, an equitable remedy that has long been available to patent litigants in the US, was not codified in the Chinese Patent Act until 2000 as part of China’s effort to fulfill its obligations after joining the WTO. Since then, China has been consciously strengthening the protection for intellectual property rights within its jurisdiction and has taken great pride in the progress it has made so far. In particular, the numbers of patent applications as well as litigations in China have skyrocketed in China, and the People’s courts have become more confident in handling high profile patent cases and issuing large damage awards. However, the preliminary injunction, even after its inception in the Chinese Patent Act, has only played a mysteriously tiny role in protecting the patentees’ rights during the years. For example, from 2003 to 2009, the People’s courts in Guangdong province, one of the biggest and most developed provinces in China, ruled respectively on 54, 19, 21, 20, 24, 5, and 11 preliminary injunction applications involving intellectual property rights (not just patents) while granting only 17, 6, 12, 8, 5, 2, and 1 of the applications in each corresponding year. By contrast, the number of intellectual property cases considered by the People’s courts in Guangdong during the same time frame was 1465, 3199, 4257, 3644, 3989, 5312, and 7152, respectively.

As a powerful and drastic remedy, the preliminary injunction exists to provide speedy relief from irreparable injury and is “generally granted under the theory that there is an urgent need for speedy action to protect the plaintiff’s rights.” Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1334 (Fed. Cir. 2012) (O’Malley, J., concurring-in-part, dissenting-in-part) (internal citation omitted). In the US, the Federal Circuit utilized, for a long time, a balancing—or so called “sliding scale”—test for issuing preliminary injunctions, where the movant must establish a right thereto in light of four factors: (1) a reasonable likelihood of success on the merits; (2) irreparable harm if an injunction is not granted; (3) the balance of hardships tipping in its favor; and (4) the impact of the injunction on the public interest. Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1350 (Fed. Cir. 2001) (citing Hybritech, Inc. v. Abbott Laboratories, 849 F.2d 1446, 1451 (Fed. Cir. 1988)). None of the factors, taken individually, is dispositive; rather, the court must “weigh and measure each factor against the other factors and against the form and magnitude of the relief requested.” Id. However, following the Supreme Court’s rulings in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) and Winter v. NRDC, Inc., 555 U.S. 7 (2008), the Federal Circuit has given up its balancing test to comply with the more rigorous requirements set forth by the Supreme Court. Compare Abbott Labs. v. Sandoz, Inc., 544 F.3d 1341, 1365 (Fed. Cir. 2008), with Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375–76 (Fed. Cir. 2009). Currently, “a showing on one preliminary injunction factor does not warrant injunctive relief in light of a weak showing on other factors.” Wind Tower Trade Coal. v. United States, 741 F.3d 89, 100 (Fed. Cir. 2014).

Across the Pacific Ocean, the Chinese People’s courts, under a civil law system, rely heavily on statutes, regulations, and other promulgated rules. To comply with the requirements of the TRIPS Agreement, both Article 66 of the Chinese Patent Act and Article 100 of the Chinese Civil Procedure Act now recognize the preliminary injunction as a provisional remedy in patent litigations. While the acts passed by the People’s Congress form the statutory bases for issuing preliminary injunctions, in practice, the more detailed procedural as well as substantive requirements for obtaining such provisional remedy are actually found in in several judicial interpretations and judicial policy documents promulgated by the Supreme People’s Court (SPC). The foundational judicial interpretation in this regard is the Several Provisions of the Supreme People’s Court Concerning the Application of Law to Pre-trial Cessation of Patent Infringement (最高人民法院关于对诉前停止侵犯专利权行为适用法律问题的若干规定) [hereinafter Provisions on Pre-trial Cessation of Patent Infringement] (2001), the Article 11 of which requires the People’s courts to consider four factors when ruling on an application for a preliminary injunction, namely (1) whether the alleged current or imminent conduct infringes the patent; (2) whether the applicant will suffer irreparable harm without an injunction; (3) the guarantee provided by the applicant; and (4) whether the public interest will be disserved. Despite the SPC’s wording of the first factor, it has been treated as inquiring into the applicant’s likelihood of success on the merits. As to the second—irreparable harm—prong of the test, there had been a great amount of confusion among the lower courts until Cao Jianming, vice president of the SPC, pointed out in February 2008 that the core of the irreparable harm analysis is whether the damage can be compensated by monetary award and whether there is a reasonable expectation of collecting such award in light of the alleged infringer’s financial condition.

With the first two factors being the most important in the determination, the standard in China looks very similar to the one currently used in the federal courts in patent cases as the Rule 65 of Federal Rules of Civil Procedure also mandates the applicants to provide security. This similarity between the standards makes one even more curious about why preliminary injunctions have only been utilized at such a low rate in patent cases in China. The answer—also the problem of the current Chinese approach—lies in the restrictions buried in two judicial policy documents from the SPC. Although the four-factor test seems to be applicable to all patent cases, the SPC has confined the issuance of preliminary injunctions to cases where the facts are clear and the infringement is easy to determine. Opinions on Issues Concerning Maximizing the Role of Intellectual Property Trials in Boosting the Great Development and Great Prosperity of Socialist Culture and Promoting the Independent and Coordinated Development of Economy (关于充分发挥知识产权审判职能作用推动社会主义文化大发展大繁荣和促进经济自主协调发展若干问题的意见) [hereinafter Opinions on Maximizing the Role of Intellectual Property Trials], art. 16 (2011). In particular, when there is no literal infringement and the court has to conduct complicated technical comparisons, a preliminary injunction is deemed inappropriate. Opinions on Several Issues Concerning Intellectual Property Trials Serving the Overall Objective Under the Current Economic Situation (关于当前经济形势下知识产权审判服务大局若干问题的意见) [hereinafter Opinions Under the Current Economic Situation], art. 14 (2009). In addition, if the alleged infringer has challenged the validity of the patent(s) in question or has initiated a separate declaratory judgment action, the courts are required to be extremely cautious in granting preliminary injunctions. Id.

This “clear” and “easy” yet rigid approach seems to be contrary to the legislative intent of introducing such a provisional remedy in the first place and only makes sense to some extent when considered in a bigger context. On several different occasions and in various promulgated documents, the SPC has expressed some serious concern that preliminary injunctions or the process by which they are granted may be abused to impede competition, while adding to the concern is the present procedural setup of obtaining a preliminary injunction. In the People’s Courts, there is no similar remedy as a TRO but only a general preliminary injunction. It is general in the sense that the application can be filed before, at the same time with, or after the commencement of an infringement action, and once granted, the injunction will usually remain in force until the final adjudication on the merits take effect. Provisions on Pre-trial Cessation of Patent Infringement art. 14. Furthermore, a preliminary injunction issued before the filing of an infringement action will, so long as the applicant initiates the formal infringement suit within 15 days of getting the injunction, enjoin the alleged infringer all the way until the end of the infringement action. Id. Also, a preliminary injunction can be issued without notice to the enjoined party, although the courts have the obligation to notify the enjoined party no later than 5 days after the issuance of the injunction. Id. art. 9. Moreover, the People’s courts only have 48 hours (96 hours at most) to make a decision in writing after receiving eligible applications. Id. Additionally, though the People’s Courts are authorized to summon one or all parties to clarify factual issues, no hearing of any form is required. Id. One final point, the enjoined party has no right to appeal but may apply, within 10 days of receiving the injunction, for review once, though the injunction will not be suspended during the review period and there will still be no guaranteed hearing opportunity. Id. art. 10. Given the powerful nature of the remedy once granted, the tight time frame for making a decision in writing, and the limited hearing requirement, it is understandable that the fear of mistakes and misuses has prompted the SPC to take a cautious position.

Although the SPC’s current approach is to some extent understandable, it has comprised the preliminary injunctions’ function as an important provisional remedy for patent holders and has likely caused many patent holders to refrain from even considering this option as evidenced by the extremely low application rate in Guangdong. Fortunately, the SPC has finally noticed this alarming trend. On February 26, 2015, the SPC published for public comment a draft SPC Judicial Interpretation on Several Issues in Application of Law in Determination of Action Preservation in Intellectual Property and Competition Controversies ((最高人民法院关于审查知识产权与竞争纠纷行为保全案件适用法律若干问题的解释) (征求意见稿)). This new judicial interpretation purports to supersede prior judicial interpretations involving preliminary injunctions in patent and trademark cases. According to the draft, the time frame for rendering a preliminary injunction decision is a non-emergency matter may be adjusted to 30 days. It also details other procedural as well as substantive aspects of preliminary injunctions such as the jurisdiction of the court, what constitutes “irreparable harm,” hearing and notice requirement, handling of appeals of cases and handling of oppositions to provisional measures, the effect of changed circumstances, civil liability arising from wrongful application, and other matters. Notably, the draft adopts the exact same four-factor test in the US federal courts. However, it only requires the People’s courts to evaluate the four factors as a whole under the circumstances without identifying any single factor as dispositive. This arguably bears a resemblance to the balancing or sliding scale analysis once used in patent cases in the US federal courts, which opens up the possibility of greater use of preliminary injunctions in the People’s courts in the near future.

It’s Apple Season: Federal Circuit Court Rules for Apple in Patent Dispute, Requiring Samsung to Change Some of Its Technology Features

September 24, 2015
Competition, Intellectual Property, Patents

Emily Harrison, MJLST Editor-in-Chief

This month, the United States Court of Appeals for the Federal Circuit gave Apple its latest victory against its biggest competitor, Samsung. In May 2014, the United States District Court for the Northern District of California denied Apple’s motion for a permanent injunction to bar Samsung from using software or code tending to infringe patented features in Apple’s products. However, on September 17, 2015, the court in Apple Inc. v. Samsung Electronics Co. Ltd., No. 2014-1802, 2015 WL 5449721 (Fed. Cir. Sept. 17, 2015), held that the lower court abused its discretion in failing to grant Apple the permanent injunction, and remanded the case to the lower court for reconsideration of the motion.

The current dispute between the competitors surrounds Apple’s patents covering its slide-to-unlock, autocorrect, and data detection features. The federal circuit notes that Apple has invested billions of dollars in introducing the iPhone. To decrease the risk associated with its large investments, Apple has applied for and received patents for much of the technology it has developed in the iPhone, including the features at issue. Furthermore, Apple filed a motion seeking permanent injunction that would bar Samsung from “making, using, selling, developing, advertising, or importing into the United States software or code capable of implementing the infringing features in its products.” The federal circuit found that Apple established a “causal nexus” between irreparable harm and Samsung’s infringement such that there was “some connection between infringing features and demand for competitor’s products,” Apple suffered irreparable harm, Apple lacked adequate remedy at law, and both the balance of hardships and public interest favored the injunction.

In determining the consequences of this decision, the court emphasizes the narrowness of this injunction: “This is not a case where the public would be deprived of Samsung’s product. Apple does not seek to enjoin the sale of lifesaving drugs, but to prevent Samsung from profiting from the unauthorized use of infringing features in its cellphones and tablets.” The court was also convinced that Samsung could remove the patented features without recalling products or disrupting customer use. Although the injunction is arguably narrow, the court’s decision may have a broad impact on product differentiation requirements with respect to complex technology. The federal circuit’s decision also signals a greater willingness to protect patent rights of inventors in the face of a key market rival.

The BPCIA Patent Dance: A Patent Law Cliffhanger

September 5, 2015
Intellectual Property, Patents

Will Orlady, MJLST Lead Articles Editor

In 2009, Congress enacted the Biologics Price Competition and Innovation Act (“BPCIA”), found at 42 U.S.C. § 262(k) and § 262(l). The BPCIA created an abbreviated pathway to FDA approval for biologic products that the agency found to be sufficiently similar to biologic products already approved for market sale (“biosimilars”). The BPCIA also created mechanisms for resolving patent disputes related to biosimilars. Colloquially known as the “patent dance,” the BPCIA’s patent dispute resolution mechanisms allows participants to go through a series of negotiations and disclosures—all in place to limit the complexity and cost of patent litigation. Parties complying with the “patent dance’s” requirements can enjoy safe harbor from costly patent litigation. The underlying policy of the BPCIA’s “patent dance” is to narrow the scope and reduce the costs associated with patent disputes.

Congress enacted the BPCIA. Time passed, and its “patent dance” flew under the radar—until this year. In 2014, Sandoz became the first company to file a Biologic License Application pursuant to the BPCIA’s abbreviated procedure. Despite availing itself of the BPCIA’s abbreviated approval procedures, Sandoz snubbed the “patent dance.” In its litigation against competitor Amgen, Sandoz argued that the BPCIA’s “patent dance” was not compulsory. The matter made its way to Judge Richard Seeborg in the Northern District of California. In a detailed opinion, Judge Seeborg outlined both Amgen’s and Sandoz’s positions and ultimately sided with Sandoz, ruling that the “patent dance” is optional (the abbreviated statutory biosimilar FDA approval scheme notwithstanding). The parties appealed the matter to the Federal Circuit. The Court heard the matter on June 3, 2015.

On July 21, 2015, the Federal Circuit handed down its decision in Amgen v. Sandoz, answering whether the BPCIA’s “patent dance” is compulsory for those manufacturers availing themselves of the BPCIA’s abbreviated FDA approval scheme. A fractured panel (led by J. Lourie) held that the “patent dance” is optional. Conceding that the statutory provisions involved are immensely complex, the Court stated that the provisions involved must be read in the context of the entire statute. The relevant provisions in light of the entire statute lead Judge Lourie to the conclusion that Congress intended the “patent dance” to be optional.

“We therefore conclude that, even though under paragraph (l)(2)(A), when read in isolation, a subsection (k) applicant would be required to disclose its aBLA and the manufacturing information to the RPS by the statutory deadline, we ultimately conclude that when a subsection (k) applicant fails the disclosure requirement, 42 U.S.C. § 262(l)(9)(C) and 35 U.S.C. § 271(e) expressly provide the only remedies as those being based on a claim of patent infringement. Because Sandoz took a path expressly contemplated by the BPCIA, it did not violate the BPCIA by not disclosing its aBLA and the manufacturing information by the statutory deadline.”

Judge Newman dissented on this point.

Though the Federal Circuit has answered whether the “patent dance” is compulsory for the time being, the parties have petitioned the court to hear the matter en banc. This is not surprising given the divided tone of the deciding panel’s opinion. Practitioners and scholars alike are now waiting to see whether the Court uses this matter to affirm or re-decide the “patent dance” question. Even if the Federal Circuit denies the en banc petition, a petition for certiorari would not be out of the question. The instant issue may just be juicy enough to grab SCOTUS’s attention.

Revisiting the Idea of a Patent Small Claims Court

February 24, 2015
Patents

Comi Sharif, Managing Editor

In 2009, Robert P. Greenspoon explored the idea of adjusting the patent court system to improve efficiency for the adjudication of small-scale claims. His article, Is the United States Finally Ready for a Patent Small Claims Court?, appearing in Volume 10 Issue 2 of the Minnesota Journal of Law, Science & Technology, pointed out the deterrent-like effect that high transaction costs involved with traditional patent litigation have on inventors trying to protect their intellectual property. Greenspoon argues that if patent holders are merely trying to recover small sums from infringers, the lengthy and expensive patent litigation system currently in effect often outweighs the remedies available through litigation. As a result, Greenspoon suggests the creation of a “Patent Small Claims Court” to resolve these issues. Seeing that it’s been over five years since Greenspoon’s article, it makes sense to reexamine this topic and identify the some of the recent developments related to the article.

In May of 2012, the USPTO and United States Copyright Office co-sponsored a roundtable discussion to consider the possible introduction of small claims courts for patent and copyright claims. A few months later, The USPTO held another forum focused solely on patent small claims proceedings. A major emphasis of these discussions was conformity of the new court with the U.S. Constitution (an issue addressed by Greenspoon in his article). In December of 2012 the USPTO published a questionnaire to seek feedback from the public on the idea of a patent small claims court. The focus of the survey involved matters relating to subject matter jurisdiction, venue, case management, appellate review, and available remedies. See this link for the official request and list of questions from the USPTO submitted in the Federal Register. The deadline for submitting responses has since passed, but the results of the survey are still unclear.

In Greenspoon’s article, he addresses a few of the unsuccessful past attempts to create a small claims patent court. In 2013, the House of Representative passed a bill, which authorized further study into the idea of developing a pilot program for patent small claims procedures in certain judicial districts. See H.R. 3309, 113th Cong. (2013). Senate did not pass the bill, however, so no further progress occurred.

Overall, though there appears to be continued interest in creating a patent small claims system, it doesn’t seem likely that one will be created in the near future. The idea is far from dead, though, and perhaps some of Greenspoon’s proposals can still help influence a change. Stay tuned.

Open Patenting, Innovation, and the Release of the Tesla Patents

November 11, 2014
Business Law, Ethics, Intellectual Property, Patents, Social Media

Blake Vettel, MJLST Staff Member

In Volume 14 Issue 2 of the Minnesota Journal of Law, Science & Technology, Mariateresa Maggiolino and Marie Lillá Montagnani proposed a framework for standardized terms and conditions for Open Patenting. This framework set forth a standard system for patent holders to license their patents in order to encourage open innovation, in a way that was easy to administer for patent holders of all sizes. Maggiolino and Montagnani argued for an open patenting scheme in which the patent owner would irrevocably spread their patented knowledge worldwide, based on non-exclusive and no-charge licensing. Futhermore, the licensing system would be centrally operated online and allow the patentee to customize certain clauses in the licensing agreement; while maintaining a few compulsory clauses such as a non-assertion pledge that would keep the license open.

On June 12, 2014 Elon Musk, CEO of Tesla Motors, shocked the business world by announcing via blog post that “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” Musk described his reasoning for opening Tesla’s patents for use by others as a way to encourage innovation and growth within the electric car market, and depicted Tesla’s true competition as gasoline cars instead of electric competitors. By allowing use of their patented technology, Tesla hopes to develop the electric car market and encourage innovation. Some commentators have been skeptical about the altruistic motive behind releasing the patents, arguing that it may in fact be a move intended to entice other electric car manufacturers to produce cars that are compatible with Tesla’s patented charging stations in an effort to develop the network of stations around the country.

However, Musk did not unequivocally release these patents; instead he conditioned their subsequent use upon being in “good faith.” What constitutes a good faith use of Tesla’s technology is not clear, but Tesla could have instead opted for a standardized licensing system as proposed by Maggiolino and Montagnani. A clear standardized licensing scheme with compulsory clauses designed to encourage free movement of patented technology and spur innovation may have been more effective in promoting use of Tesla’s patents. An inventor who wants to use Tesla’s patents may be hesitant under Musk’s promise not to initiate lawsuits, where he could be much more confident of his right to use the patented technology under a licensing agreement. The extent to which Tesla’s patents will be used and their effect on the car market and open innovation is yet to be seen, as is the true value of Tesla’s open innovation.

How Far is Too Far?: Some Patents Border on the Absurd

May 16, 2014
Intellectual Property, Patents

Michael Burke, MJLST Staff

Most people are not up to date on the latest and greatest patents. Most wait for the idea to be reported in the media, or see the idea’s physical manifestation at their favorite technology store. But this past week, Stephen Colbert made a point to inform his late night audience–and the public at large–about the latest patent filed by Amazon: taking photos against a white background. On March 18th, The U.S. Patent and Trademark Office awarded Amazon with their “Studio Arrangement” patent numbered U.S. 8,676,045. Amazon’s filing essentially gives the company the intellectual rights to taking any picture in front of seamless white backgrounds.

Michael S. Mireles, Jr.’s book review, The United States Patent Reform Quagmire: A Balanced Proposal, helps to provide a framework of why weak patent ideas unfortunately receive the blessing of the United States government, and how patent reform efforts can help resolve this problem. Mireles provides a two-tiered approach to solving the problems of the patent system by attacking the current system at its weakest points: the issuance of weak patent grants from the USPTO and the liberal upholding of the validity of weak patents.

Allowing weak patents to exist undermines the genuine purpose of assigning ownership of intellectual property. The result has been a “dangerous and expensive arms’ race, which now undermines rather than fosters the crucial process of technological innovations.” Most certainly, someone needs to develop and implement a quality idea for change. Who knows, under the current system, maybe he or she could patent it?

Alice Corporation: Is Software That Implements an Abstract Idea Patentable?

April 10, 2014
Intellectual Property, Patents

Nathan Peske, MJLST Staff

On March 31, 2014 the Supreme Court heard oral arguments in the case CLS Bank International v. Alice Corporation Pty. Ltd. This case examines patents held by the Alice Corporation for software that implements an abstract scheme for managing settlement risk in the series of transaction banks make back and forth over the course of the day. The question before the court is whether the software is patent-eligible subject matter under §101 of the Patent Act.

Section 101 sets out the initial statutory requirements for patent-eligible subject matter. An invention must be a “new and useful process, machine, manufacture, or composition of matter” or an improvement to one of those categories. Supreme Court jurisprudence has repeatedly affirmed that there are three judicial exceptions to these categories. These exceptions are laws of nature, natural phenomena, and abstract ideas. Einstein’s famous theory of relativity E = mc^2 is often cited in court opinions as an example of unpatentable subject matter. If patents this broad were granted they would foreclose any other innovation using the abstract idea. This would ultimately stifle innovation rather than encouraging it.

When an implementation of an abstract idea is patentable has proved a very difficult standard to establish, particularly when software is involved. In Gottschalk v. Benson a computer program implementing a mathematical formula was ruled unpatentable because simply incorporating an abstract idea into a software program is not sufficient to render it patent-eligible subject matter. In Diamond v. Diehr a software program that calculated the cook time for curing rubber was ruled patent-eligible subject matter because it also controlled the cook time and opened the mold when the rubber was done. Subsequent cases have generally been decided on narrow factual grounds and have failed to establish a general test.

The Federal Circuit en banc rehearing of Alice Corporation continued this trend. In a thoroughly fractured decision seven of the ten Federal Circuit judges held the Alice patents invalid and wrote five concurring and dissenting opinions to justify their reasoning. Chief Judge Rader also penned a series of Reflections discussing the current state of patent law. Since the Supreme Court granted Alice’s petition for certiorari it has the opportunity to establish a clear standard that will settle some of the continuing uncertainty over software and business method patents.

This decision has sweeping implication for the future of software patents. A broad interpretation of the patentability of software would open the door for endless patent litigation and reduced the patent system to dueling patent lawyers. A narrow interpretation would have the benefit of reducing the ability of “patent trolls” to harass other companies. Patent trolls acquire patents, often cheaply from struggling companies, and sue or threaten to sue other companies for infringing them. Rather than face years of expensive patent litigation many companies will settle even spurious claims. At the same time a narrow interpretation could drastically limit the abilities of software inventors to patent their inventions. Thus discouraging the innovation the patent system was designed to encourage.

Justice Breyer summarized the situation during oral arguments when he said “There is a risk that you will take business in the United States or large segments and instead of having competition on price, service and better production methods, we’ll have competition on who has the best patent lawyer. And if you go the other way and say never, then what you do is you rule out real inventions with computers.” The justices’ questions seemed to indicate they were unsure if and how to address this question.

There is ample precedent for the Supreme Court to issue a narrow ruling on the merits. Rather than attempting to issue a sweeping decision to establish a precedent for future cases. Indeed, they seem poised to do exactly this. Observers can only watch and wait to see how the Supreme Court will decide this time.

Why Antitrust Must Play a Role in Analyzing Drug Patent Settlements

March 28, 2014
Antitrust, Patents

Michael A. Carrier, Distinguished Professor, Rutgers School of Law, MJLST Guest Blogger

Think back several years to, say, 2006 or 2008. The world of drug patent settlements, by which brand-name drug companies pay generics to delay entering the market, was a far different place. A string of appellate courts–the Second, Federal, and Eleventh Circuits–had essentially immunized these agreements by applying a toothless framework based on the “scope of the patent.” The test applied by these courts assumed that the patent was valid and infringed and that a payment for delayed entry could not violate the antitrust laws.

In the landmark case of FTC v. Actavis, 133 S. Ct. 2223 (2013), the Supreme Court rejected such a narrow view. Writing for a majority of five, Justice Stephen Breyer concluded that these settlements “tend to have significant adverse effects on competition” and could violate the antitrust laws. The Court also found that such agreements could demonstrate market power and that the parties had ways to settle other than with payment.

In contrast, writing for three Justices in dissent, Chief Justice John Roberts downplayed antitrust law in contending that “the scope of the patent–i.e., what rights are conferred by the patent–should be determined by reference to patent law.” The claimed reason is that “a patent holder acting within the scope of its patent does not engage in any unlawful anticompetitive behavior” but “simply exercis[es] the monopoly rights granted to it by the Government.”

Roberts combined his exclusive preference for patent law with the position that activity within the nominal scope of the patent is immune from the antitrust laws. A patentee “acting within the scope of its patent has an obvious defense to any antitrust suit: that its patent allows it to engage in conduct that would otherwise violate the antitrust laws.” And even though he viewed “the question posed” as “fundamentally a question of patent law,” he lamented that “the majority declares that such questions should henceforth be scrutinized by antitrust law’s unruly rule of reason.”

My short article in the Minnesota Journal of Law, Science & Technology highlights three significant flaws with Roberts’ opinion. First, Roberts ignored the patent-law policy of challenging and eliminating invalid patents. Second, he downplayed the role of antitrust law. And third, he neglected the importance of the Hatch-Waxman Act, Congress’s resolution of the patent-antitrust intersection in the pharmaceutical industry.

First is patent law. Empirical studies have consistently shown that at least 40% of patents issued by the U.S. Patent and Trademark Office (PTO) that are litigated to decision are invalid. For that reason, the Actavis Court recognized the “patent-related policy of eliminating unwarranted patent grants so the public will not ‘continually be required to pay tribute to would-be monopolists without need or justification.'” Roberts’ suggestion to decide the issue solely on the grounds of patent law does not include this important aspect of patent policy.

Second is antitrust law. As the majority in Actavis recognized, reverse-payment settlements “tend to have significant adverse effects on competition.” Of all the types of business activity subject to the antitrust laws, agreements by which competitors divide markets could be the most dangerous since market division restricts all competition between the parties on all grounds.

Reverse-payment settlements result in generics dropping patent challenges and, in exchange for millions of dollars, agreeing to delay entry into the market. Because the brand makes more by keeping the generic out of the market than the two parties would receive by competing in the market, the parties have an incentive to cede the market to the brand firm and split the monopoly profits.

Third is the regulatory regime. As the Supreme Court has made clear, it is appropriate for courts applying antitrust law to “be attuned to the particular structure and circumstances of the industry at issue.” Congress resolved the tension between the patent and antitrust laws in the pharmaceutical industry by enacting the Hatch-Waxman Act.

The Act had a central purpose of encouraging challenges to invalid or not infringed patents during the term of the patent to encourage early market entry. Reverse-payment settlements directly contravene this goal by allowing brands to pay generics for delayed market entry. In short, not only does such conduct flout the patent policy of testing invalid patents and present significant antitrust harm, but it also disregards the Hatch-Waxman Act and important public-policy goal of increasing the number of affordable generic medicines.

As courts begin to interpret drug patent settlements in the wake of Actavis, they should not follow the approach to patent and antitrust law articulated by Chief Justice Roberts. For in addition to being rejected by the Supreme Court, it (1) shortchanges patent law, which includes a policy goal of testing invalid patents to ensure they do not block competition; (2) downplays antitrust law’s role in monitoring behavior that resembles market division between potential rivals; and (3) ignores the Hatch-Waxman Act’s encouragement of challenges to patents that are invalid and not infringed.

Athletic Performance Heavyweights on Verge of Patent Battle

February 16, 2014
Patents

Comi Sharif, MJLST Staff

Last week, athletic apparel giant Adidas filed a complaint accusing Under Armour of patent infringement. The complaint identifies ten Adidas-held patents that are used in mobile applications to collect and share workout-related data. The patents currently implemented in Adidas’s “miCoach” product line are allegedly being put to similar use in Under Armour’s “Armour39” products. The technology allows users to monitor their workout progress, and record and share statistics such as calories burned, heart rate intervals and distances traveled.

Both companies are major players in the fast-growing wearable technology fitness market. Adding fuel to the rivalry is the fact that Under Armour’s director of product and innovation previously worked as a senior innovation engineer at Adidas for over a decade. In addition, Under Armour recently announced a sponsorship deal with the University of Notre Dame, which ended a run for the school as one of Adidas’s biggest partners.

Though this dispute is only just getting underway, the results will be an important indicator for future events. If Adidas can succeed in preventing Under Armour and others from using the identified patents in its products, Adidas could put itself in a strong market position moving forward, while Under Armour would be relegated back to the drawing board. As fitness and mobile interconnectivity continue to trend worldwide, the intensity of the competition to gain market share is sure to increase as well. Holding and protecting patents could be the key that separates the winners and the losers in this race to the top. Stay tuned.

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