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.

Friday, October 7, 2016

Apple v. Samsung, Part ?? (not the Supreme Court case)

I've lost count of the rounds back and forth in Apple v. Samsung. But another opinion issued today, and it was a doozy. When we last left our intrepid litigants in late March, the panel had reversed the $120m verdict in favor of Apple, ruling a) non-infringement of a patent, and b) obviousness of two patents (slide to unlock and autocorrect). These rulings were as a matter of law - that is, they reversed jury findings to the contrary.

Apple filed for an en banc hearing, and we never heard anything again...until today. The en banc Federal Circuit (except Judge Taranto, who did not participate) vacated the panel opinion. The decision came without briefing, and it was unanimous...except for the three members of the original panel, who all dissented.

The opinion begins with a statement (rebuke?) about what appellate review should do: take the facts as found by the factfinder, and then review them for substantial evidence. The opinion takes umbrage at the fact that substantial evidence is not really addressed by the original panel at all. The opinion also takes issue with "extra record" material being considered for claim construction on appeal. The opinion then goes through each patent and shows the substantial evidence that would support a verdict, even if the appeals court would disagree with it.

Perhaps most telling of the deferential approach is the slide to unlock patent, which I think is the weakest of the bunch. The prior art, when combined, clearly has all the elements. But in finding non-obviousness, the jury found that the person with skill in the art would not have combined the references. That might be wrong, but evidence was submitted to support it, and thus the claim is non-obvious. The dissent takes issue with this, saying that KSR loosened up the combination standard. More on this later.

This opinion has a lot of important aspects:
1. It is another en banc opinion without briefing. I am sure the litigants (especially the losing ones) hate that. As an observer, I'm not so bothered in this case. The briefing was full and complete, and there was little to add in the way of analysis.

2. Why is the en banc circuit showing up only now to defend substantial evidence? I can think of at least two prominent cases in which juries made non-obvious findings of fact that a Federal Circuit panel disregarded to find a patent obvious and the en banc request was denied. Why now?

3. Just what is the obviousness standard of review and who is supposed to make these decisions? In general, the final obviousness determination is one of law, based on underlying findings of fact. Many judges have juries decide those underlying findings of fact, such as the scope of the prior art or the motivations to combine references. Some jury instructions ask in detail, and some just say "is it obvious?" If it is the latter case, then any jury finding is entitled to all inferences on appeal - if the jury said non-obvious, then it must have found no motivation to combine. The problem with this approach (and even the specific question approach) is that it makes it hard to "loosen" a standard as KSR v. Teleflex says we should. KSR affirmed a grant of summary judgment by the district court - in other words, it affirmed a finding that references could be combined as a matter of law. It is unclear why an appellate court could not have made the same determination here. At the same time, why have trials and findings of fact if we are simply going to ignore them? Deciding how obviousness should get decided is almost as important as the obviousness standard itself.

4. This opinion shows the importance of which panel you draw at the Federal Circuit. Apple had the bad fortune to draw the only three judges to disagree here. Of course, we don't know how the en banc dynamics work, and perhaps some in the majority here would have concurred in the original panel opinion. To generalize, though, judicial preferences may drive the disparity in opinions in Section 101 right now. A couple cases that have just issued are ripe targets for en banc review as well to aid this.

This is my final takeaway - if any part of this case is to make it to the Supreme Court, it will be the slide to unlock patent. This is a patent where all the elements are in the prior art, and there is a real dispute about the procedure for determining obviousness. This question has been presented to the Court before, but perhaps this version will take hold.

Thursday, October 6, 2016

The Long Awaited FTC Study on Patent Assertion and Nuisance Litigation

After months of speculation that the FTC's long awaited FTC study on patent assertion entities was going to issue any day now, the study has finally issued. The press release is here, and the full PDF is here.There is a lot to learn from this study - the FTC had subpoena power to obtain data unavailable to mere mortals like the scholars who study this area. I thought that the study was generally balanced and well researched. A scan of the footnotes alone will make a great literature review for anyone new to this area (even if it is missing a couple of my articles...).

Some of the highlights of the study come right out of the press release:
The report found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. They negotiated broad licenses, covering large patent portfolios, frequently worth more than $1 million. The second, more common, type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses, which covered a small number of patents and were generally less valuable.
The report found that, among the PAEs in the study, Litigation PAEs accounted for 96 percent of all patent infringement lawsuits, but generated only about 20 percent of all reported PAE revenues. The report also found that 93 percent of the patent licensing agreements held by Litigation PAEs resulted from litigation, while for Portfolio PAEs that figure was 29 percent.
The separation of portfolio versus litigation business models was an important one - something I discuss in Patent Portfolios as Securities and Lemley & Melamed discuss in Missing the Forest for the Trolls.

The study also debunks the notion of widespread demand letter abuse, but does show that PAEs tend to sue first and demand later. It shows about $4B in revenues for all study respondents over a 6 year period, 80% of which came from portfolio companies (and mostly not after litigation). The study is unclear what this $4B represents if extended to all PAEs, but provides some statistics that might aid in a ball park calculation for the whole market.

There's more -- a lot more -- to this report, which runs 150 pages before the appendices. The study concludes with some reasonable and mostly uncontroversial ways the system can be made better, such as limiting expensive discovery at the early stages of a case. That said, I do take issue with one point of the study - relating to nuisance litigation. More on this after the jump.

Wednesday, October 5, 2016

Helsinn v. Teva Oral Argument Recap

In March, I posted about an amicus brief filed by 42 IP profs in Helsinn v. Teva, which argued that contrary to the district court's opinion and position taken by the USPTO, the America Invents Act (AIA) did not change the meaning of "on sale" and "public use" in 35 U.S.C. § 102(a)(1). The case was argued yesterday before the Federal Circuit, and the panel (Judge Dyk, Judge Mayer, and Judge O'Malley) didn't seem eager to conclude that the AIA wrought a significant change.

The appeal involves Teva's challenge to Helsinn's post-AIA patent on the nausea drug palonosetron, which was filed over a year after a secret licensing and supply contract for the drug. In Pfaff v. Wells Electronics (1998), the Supreme Court held that the on-sale bar applies when a product is (1) "the subject of a commercial offer for sale" and (2) "ready for patenting" as of the critical date (one year before filing). Both issues are contested here, as the district court said that the drug was neither ready for patenting nor on sale within the meaning of the post-AIA § 102. I'll focus here just on the AIA issue, but note that Judge O'Malley asked about remanding for further factfinding and whether it is necessary to reach the AIA issue.

The only line of questioning on the AIA issue for Teva was Judge Dyk's criticism of the dueling canons of statutory interpretation for figuring out what "or otherwise available to the public" means in the new § 102. Teva argued that under the "last antecedent" canon, "to the public" modifies only "otherwise available"; Helsinn countered that under the "series qualifier" canon, the concluding phrase "otherwise available to the public" qualifies everything in the series, including "on sale." But Judge Dyk stated that neither canon can apply because the modifier would be "available to the public," leaving just the word "otherwise," which doesn't make sense. Teva pivoted to its argument that "or otherwise available to the public" is a catchall category for new technologies, which the panel seemed comfortable with; Judge Dyk suggested "an oral description at a conference" as something that might fall into this bucket.

Tuesday, October 4, 2016

A Comprehensive Study of Trade Secret Damages

Elizabeth Rowe (Florida) has shared a draft of "Unpacking Trade Secret Damages" on SSRN. The paper is an ambitious one, examining all of the federal trade secret verdicts she could find (which she believes is a reasonably complete set based on her methods) that issued between 2000 and 2014. The abstract is:
This study is the first to conduct an in-depth empirical analysis of damages in trade secret cases in the U.S. From an original data set of cases in federal courts from 2000 to 2014, I assess the damages awarded on trade secret claims. In addition, a wide range of other variables are incorporated into the analysis, including those related to background court and jurisdiction information, the kinds of trade secrets at issue, background details about the parties, the related causes of action included with claims of trade secret misappropriation, and details about the damages awarded.
Analysis of this data and the relationship between and among the variables yields insightful observations and answers fundamental questions about the patterns and the nature of damages in trade secret misappropriation cases. For instance, I find average trade secret damage awards comparable to those in patent cases and much larger than trademark cases, very positive overall outcomes for plaintiffs, and higher damages on business information than other types of trade secrets. The results make significant contributions in providing deeper context and understanding for trade secret litigation and IP litigation generally, especially now that we enter a new era of trade secret litigation in federal courts under the Defend Trade Secrets Act of 2016.
I think this study has a lot to offer. Although it doesn't include state court cases, it provides a detailed look at trade secret cases in the first part of this century. Of course, the verdicts, which were about 6% of all trade secret cases filed, are subject to the same selection effects as any other verdict analysis - there is a whole array of cases (more than 2000 of them in the federal system alone) that never made it this far, and we don't know what the tried cases tells us about the shorter-lived cases.

The study offers a lot of details: amounts of awards, states with the highest awards, states with the most litigation, judge v. jury, attorneys' fees, punitive damages, the effect of NDAs on damages, etc. It goes a step further and offers information about the types of information at issue, and even the types of information that garner different sizes of awards. It's really useful information, and I recommend this study to anyone interested in the state of trade secret litigation today.

There are, however, a couple ways I think the information could have been presented differently. First, the study has some percentile information which was great, but most of it focuses on averages. This is a concern because the data is highly skewed; one nearly billion dollar verdict drives much of the relevant totals. Thus, it is difficult to get a real sense for how the verdicts look and there is no standard deviation reported.

Of course, the median award according to the paper is zero, so reporting medians is a problem. I particularly liked the percentile table and discussion, and I wonder whether a 25/50/75 presentation would work. Speaking of zero dollar awards, though, I thought the paper could be improved by clarifying what is calculated in the average. Is it the average of all verdicts? All verdicts where the plaintiff wins? All non-zero verdicts? Related to this, I thought that clearly disaggregating defendant verdicts would be helpful. The paper reports how many plaintiffs won, but this is not reflected in either the median or average award data (that I can tell - only total cases are reported). At one point the paper discusses the average verdict for defendants (more than $800,000) which is confusing since defendants shouldn't win any damages. Are these part of the averages? Are they calculated as a negative value? If these are fee awards, they should be reported separately, I would think.

Though I would like more data resolution, I should note that this really is just a presentation issue. The hard part is done, and the data is clearly available to slice and dice in a variety of ways, and I look forward to further reporting of it.

Tuesday, September 27, 2016

Network Neutrality in 1992

I've been remiss in blogging of late; I had a really busy summer and beginning of Fall. I have a bit more time now and hope to resume some blogging about papers and cases shortly. In the meantime, it doesn't take long to write a post about your own work, so I figured it would be an easy way to (re)break the ice.

I've written an essay with a former student, Christie Larochelle, who is now clerking in Delaware (she was a tenured physics professor before attending law school). As part of a hometown symposium for the Villanova Law Review's 60th anniversary, we tackled an interesting topic: rumblings about network neutrality at the birth of the commercial internet. More on the article and on coauthoring after the jump.

Tuesday, September 6, 2016

Sandeen and Seaman: Toward a Federal Jurisprudence of Trade Secret Law

If you're interested in the fate of trade secrets law, and you like conflicts of law, I recommend taking a look at Sharon Sandeen and Chris Seaman's paper, Toward a Federal Jurisprudence of Trade Secret Law, when it comes out. As we know, Congress has now passed a federal civil cause of action for trade secret misappropriation: the Defend Trade Secret Act of 2016 (DTSA). For the first time, civil trade secret plaintiffs can choose to sue under federal law. But the DTSA leaves courts with some major interpretive challenges. This is the subject of Sandeen and Seaman's project. I was fortunate to get a glimpse at the IP Scholars trade secrets panel last month.  Read more at the jump.

Thursday, September 1, 2016

Mark Rose: The Authors and their Personalities that Shaped Copyright Law

“Great cases like hard cases make bad law” said Justice Holmes at the turn of the twentieth century. By contrast in copyright law, complex personalities and facts seem to allow the law to work itself pure. That seems to be the principal takeaway from Mark Rose’s illuminating new book Authors in Court: Scenes from the Theater of Copyright.

A literary historian of copyright whose prior book is considered a seminal contribution to the field, Rose sets out in Authors in Court to tell the story behind several of copyright’s leading cases through an investigation of the personalities that prompted the dispute and its eventual resolution. The book’s main chapters each tell the story of a major copyright case that is today part of the copyright canon: Pope v. Curll, Stowe v. Thomas, Burrow-Giles v. Sarony, Nichols v. Universal, Salinger v. Random House, and Rogers v. Koons. Some of these cases (e.g., Nichols, Koons) continue to be cited by courts to this day.

Rich in detail, and lucidly written, each chapter showcases what the idea of “authorship” meant to the protagonists in each dispute and the range of values and influences that motivated the construct. To some, it involved the maintenance and policing of their public personae (e.g. Pope), to others it involved balancing the conflation of art and value (e.g. Sarony), and to yet others it involved melding authorship with narratives of honesty and authenticity. Rose does an excellent job of bringing to life the colorful personalities that initiated these famed copyright disputes.

Introducing New Blogger: Shyam Balganesh

I am very pleased to welcome Professor Shyam Balganesh as a new Written Description blogger. He is a Professor of Law at the University of Pennsylvania Law School, where he is also a Co-Director of the Center for Technology, Innovation & Competition (CTIC). His scholarship focuses on understanding how copyright law and intellectual property can benefit from the use of ideas, concepts and structures from different areas of the common law, especially private law. His article Causing Copyright (forthcoming in the Columbia Law Review) was featured on this blog in March, and Foreseeability and Copyright Incentives (published in the Harvard Law Review) is one of the most cited IP articles. I look forward to reading his contributions to Written Description!

Tuesday, August 30, 2016

Brennan, Kapczynski, Monahan & Rizvi: Leveraging Government Patent Use for Health

The federal government can and should use its power to buy generic medicines at a fraction of their current price, according to Hannah Brennan, Amy Kapczynski, Christine H. Monahan, and Zain Rizvi in their new article, A Prescription for Excessive Drug Pricing: Leveraging Government Patent Use for Health. They note that 28 U.S.C. § 1498 allows the federal government to use patents without license as long as it pays "reasonable and entire compensation for such use." This provision "is regularly used by the government in other sectors, including defense," and was relied on "numerous times to procure cheaper generic drugs in the 1960s," and should "once again be used to increase access to life-saving medicines." The article is chock-full of interesting details and is a recommended read even for those who disagree with their ultimate policy conclusions.

The authors discuss how § 1498 has been used recently to acquire patented inventions ranging from electronic passports to genetically mutated mice, and how the Defense Department used § 1498 to buy generic antibiotics from Italian firms before Italy started issuing patents on drugs. They synthesize the § 1498 caselaw and note that it is not a replication of the patent damages award; e.g., lost profits are strongly disfavored, and the cases show concern with "excessive compensation" to the patent owner. Adjustments to § 1498 royalties have been made based on risks and expenses incurred by the patentee in developing and creating a market for the products, and to account for "reasonable" profits, so the authors advocate awarding pharmaceutical patentees their risk-adjusted R&D costs plus average industry returns (perhaps a 10-30% bounty). This approach to calculating patent royalties is similar in many ways to that advocated by Ted Sichelman for all patent cases, as discussed on this blog in June.

Wednesday, August 10, 2016

16th IP Scholars Conference at Stanford

The 16th IP Scholars Conference (IPSC) will be held at Stanford Law School tomorrow and Friday, with about 150 presentations and 200 attendees from around the world. The conference schedule is here (which is largely thanks to the work of our terrific fellow, Shawn Miller). IPSC was my first law conference right out of law school, and I was overwhelmed by how welcoming and generous the IP scholarly community was.

I'll post in the coming weeks about some of the papers I hear about at the conference, but for those who want more immediate updates, Jake Linford (whose work I've written about here) will be live-blogging at PrawfsBlawg, and Rebecca Tushnet (who was just featured on this blog) likely will do the same at her 43(B)log. Given the size of the IP prof twitter network, I'm sure there also will be plenty of tweets about #IPSC16.

Looking forward to welcoming IP scholars to Stanford! (And if you read Written Description but haven't met me yet, please find me and say hello.)