Wednesday, 19 September 2018

Morse on Using Tax Transfer Prices to Inform Patent Damages


In a recent essay titled, "Seeking Comparable Transactions in Patent and Tax," in the University of Texas Law School Review of Litigation, Professor Susan C. Morse discusses the merits of whether tax transfer prices can help inform patent damages.  The introduction of her article states:

Most business firms do not go around licensing their crown jewel intellectual property to unrelated third parties.  This presents a problem for both patent law and tax law.  In patent litigation, setting damages for a reasonable royalty under Georgia Pacific[1] invites the use of a benchmark royalty rate that would have been agreed to had the litigating parties negotiated a market rate in advance.  This counterfactual analysis repeats in tax law when firms allocate taxable income among affiliates located in different tax jurisdictions.  Transfer pricing rules similarly seek a price, such as a royalty, that would have been agreed to had the related affiliates negotiated a market rate as adverse, or “arm’s length,” parties.[2]

In their article, Tax Solutions to Patent Damages, Jennifer Blouin and Melissa Wasserman argue that tax transfer prices can provide some of the data needed to set patent litigation damages.[3]  One could also ask the converse, which is whether patent litigation outcomes can provide some data that tax transfer pricing needs. If patent law looks to tax transfer prices, it sees the advantage that the tax transfer prices are set ex ante when IP developed by one affiliate was first used by another affiliate.  This roughly aligns with patent law’s touchstone of a “hypothetical negotiation” that produces an “ex ante” license.[4]   If tax law looks to patent law, it sees the advantage that patent damages emerge from an adversarial process.  Patent damages may be set ex post, but their validity is bolstered by the fact that they are contested.

Blouin and Wasserman argue that parties and courts should make use of the large body of tax transfer price information to help support reasonable royalty calculations in patent damages cases.  Perhaps so.  But transfer pricing data is messy.  Using tax transfer prices sets for parties and courts the challenging task of understanding the prices in context.[5]  The risk exists that the analysis will fail because of the weight of its own complexity.

She concludes:

Tax transfer prices are imperfect. They are motivated by the incentive to reduce tax, not by the incentive to get the prices right.  Theory, doctrine, and constrained administrative resources limit the quality or truth of transfer prices.  But this does not mean that tax transfer prices are irrelevant to the problem of patent damages.  It means that the prices are contextual.  If they are used, they should be used with attention to comparability of terms, taxpayer incentives, and government enforcement. Patent litigants may have ample incentive to engage with questions of comparability, but understanding the interaction between the complex tax system and the complex patent system as applied to transfer pricing data would not be easy.  It could be so hard that the transaction costs would exceed the benefit of any increase in the quality of patent damages awards.

The essay can be found, here. A draft of the Professor Blouin and Professor Wasserman paper, titled, "Tax Solutions to Patent Damages," is available, here.  

Trump Requests Comments for Joint Strategic Plan on IP Enforcement


The President Trump's U.S. Office of Management and Budget has released a Federal Register request for comments from the public to help develop the U.S. 3-year Joint Strategic Plan on Intellectual Property Enforcement.  A summary of the request states:

The Federal Government is starting the process to develop a new 3-year Joint Strategic Plan on Intellectual Property Enforcement. By committing to common goals, the U.S. Government will more effectively and efficiently promote and protect our intellectual property. In this request for comments, the Executive Office of the President (``EOP''), Office of the U.S. Intellectual Property Enforcement Coordinator invites public input and participation in shaping the Administration's intellectual property enforcement strategy. The Office of the U.S. Intellectual Property Enforcement Coordinator (``IPEC'') is charged with developing, with certain Federal departments and agencies, the Administration's Joint Strategic Plan on Intellectual Property Enforcement for submission to Congress every three years. The previous 3-year Joint Strategic Plans were issued in 2010, 2013, and 2016. To assist IPEC and Federal agencies in our preparation of the fourth 3-year plan, IPEC requests input and recommendations from the public for improving the U.S. Government's intellectual property enforcement efforts, along the lines of this Administration's four-part strategic approach, described in greater detail below.

The prior 3-year joint strategic plan can be found, here.  We previously discussed the 2013 plan, here.  The complete Federal Register request can be found, here. 

Thursday, 13 September 2018

MBA Apps Drop in United States: Could More of an IP Law Focus Help Some Schools?


In an article titled, “MBA Apps Take a Shocking Plunge” published at Poets & Quants,  John A. Byrne discusses how the number of MBA applications in the United States has dropped substantially.  The amount of the drop depends on the particular school; however, even top schools are experiencing a substantial decrease.  The article states:

At Rice University’s Jones Graduate School, for example, candidates to the school’s full-time programs plummeted by 27.7% to just 587 applications from 813 a year earlier.  At the McCombs School of Business at the University of Texas-Austin, applications fell 19.6%. At the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill, applicants declined by 18.3%. Applications dipped 16.2% at Georgetown University McDonough School of Business, while they fell 13.2% at Indiana University’s Kelley School of Business. 

The article provides several reasons for the decline in applications: difficulty for international students to obtain visas; some international students choosing MBA schools outside the U.S., such as in Canada; a booming economy; and high cost.  While I do not think it is a cause of the decline in applications, I do wonder if the business schools who have suffered a decline have adapted their curriculum to include intellectual property law related subjects.  I have not reviewed their course offerings, but I wonder if a school that did emphasize intellectual property would have a competitive edge.  Others have made this point, but I am not sure if there has been much change.  This may be a good time for innovation for some schools.  

A Presumption of Irreparable Harm for Injunctions for Trademark Matters?


The American Intellectual Property Law Association, Intellectual Property Owners Association, and the International Trademark Association have sent a letter to the Chairman and Ranking Member of the U.S. House of Representatives Judiciary Committee concerning the availability of a presumption of irreparable harm related to injunctions in trademark infringement and dilution.  The letter points to the erosion of the presumption by some courts following the U.S. Supreme Court eBay case concerning patent injunctions.  The letter states:

Injury in most Lanham Act violations is typically not readily or immediately quantifiable. Injunctive relief (which requires the claimant to meet a four-part test, including a showing of irreparable harm) most often is the only effective remedy to prevent harm to consumers and protect the trademark owner's reputation. For this reason, historically, U.S. federal courts, when considering a claim under the Lanham Act, almost uniformly applied a rebuttable presumption of irreparable harm upon a finding of liability or, in the context of a preliminary injunction, when liability was found to be probable. A rebuttable presumption of irreparable harm is an important avenue to adequate relief, given the difficulty of quantifying this type of injury.  . . .

Legislation reestablishing a presumption of irreparable harm under the Lanham Act would provide clarity for the courts and litigants alike. It would provide injunctive relief to trademark owners who prevail on the merits of their claim or who, in preliminary injunction proceedings, demonstrate that they are likely to prevail on the merits, and allow them to appropriately protect their brands and reputations. This will also protect consumers from harm arising from confusion about the source of products or services.

Hat tip to Professor Dennis Crouch of the Patently Obvious Blog. 

Tuesday, 11 September 2018

Reducing Regulation at the United States Patent and Trademark Office


The United States Patent and Trademark Office [USPTO] has formed a “Working Group on Regulatory Reform.” [Working Group].  The Working Group is responsible for following President Trump’s Executive Orders concerning reducing regulations: “federal agencies [must repeal] two regulations for every new significant regulation, and in such a way that the total cost of regulations does not increase.”  Notably, the USPTO website has a somewhat broader charge than that: “consider, review, and recommend ways that USPTO regulations can be improved, revised, and streamlined.”  The USPTO website further states:  

This Working Group consists of subject matter experts who are familiar with all of the agency’s regulations and will meet on a weekly basis. Members of this Working Group will also represent the USPTO on the Department of Commerce’s Regulatory Reform Task Force. Throughout this process, the USPTO Working Group will be seeking public input for any rulemaking that would revise or eliminate regulations.

Nicolas Oettinger, Senior Counsel for Regulatory and Legislative Affairs in the USPTO’s Office of General Counsel, will be leading this effort.

Additionally, members of the public may submit their ideas to improve, revise, and streamline USPTO regulations to: RegulatoryReformGroup@uspto.gov (link sends e-mail).

The Working Group’s recommendations will be interesting to follow.  Notably, the public can submit comments. 

Tuesday, 21 August 2018

Professor Nguyen on Sovereign Patent Funds


Professor Xuan-Thao Nguyen explores government created and funded patent funds in Sovereign Patent Funds recently published in the UC Davis Law Review.  In part, Professor Nguyen reviews and analyzes the sovereign patent funds of numerous countries and investigates their role in patent enforcement.  The following is a part of her introduction of her article:

What are SPFs? How are they created and structured? What purposes do SPFs serve? Are SPFs effective initiatives for foreign governments to encourage innovation and foster competition or are they merely state-sponsored patent trolls? Are they violating international trade law, specifically the World Trade Organization (“WTO”) Agreement on Subsidies and Countervailing Measures?

This Article is the first to address the above questions. The Article proceeds as follows. Part I traces the creation of SPFs in Japan, South Korea, Taiwan, China, and France. Part I also explains when, why, and how each country provides public funding to SPFs. There are many different types of SPFs in different technology and life sciences areas, and with specific goals and mandates, although several share the same goal of aggregating patents. Open innovation and patent licensing are two common themes among the different goals and approaches employed by SPFs. Part II investigates whether SPFs have engaged in patent assertions — attempts to use acquired patents “to generate revenue by asserting them against alleged infringers.” Part II focuses on the simultaneous litigations filed by the French SPF against LG Electronics Corporation and HTC Germany GmbH in Germany and the United States. Likewise, the Asian SPFs have filed lawsuits against multinational companies. The investigation reveals surprises, including that litigation is typically an SPF’s last resort. SPFs are reluctant to embrace litigation. Part II also examines SPFs’ licensing strategies. French and Korean SPFs seem to have success in licensing out. They direct more efforts to selecting quality patents for licensing. In addition, Korean and Japanese SPFs are engaging in licensing for open innovation.

SPFs have been condemned as global patent trolls and state sponsored patent trolls. Part III addresses whether the pejorative label is warranted. Exploring the popular narrative of patent trolls and the evolving landscape of the patent market where former manufacturing companies and research institutions, along with other non-practicing enterprises (“NPEs”), are participants, Part III reveals that the SPF label does not fit SPFs’ characteristics. SPFs are both diverse and complex. Some have collaborated with universities to engage in specific research and development projects. Some share their profits with original inventors. Some facilitate open innovation. Some are doing all of the above. Condemning SPFs as patent trolls amounts to dismissing the true innovations, research, and development that have been the hallmarks of many industries and sectors in Japan, South Korea, China, and France.

SPFs have also been condemned as a trade protectionist measure in violation of international trade law. Part IV examines the heavy charges that SPFs discourage international technology transfers, depress innovation, force foreign companies to accept unfavorable license terms akin to discriminatory tax, support domestic industries at the expense of foreign firms, resurrect ailing national companies, and cause a race to the bottom. Part IV found no evidence to support these condemnations. On the contrary, what SPFs have done since their existence refutes these charges.

If SPFs are illegal subsidies in violation of international trade law, there is an appropriate mechanism to remedy the harm. Part V turns to the WTO solution, analyzing relevant provisions of the WTO Agreement on Subsidies and Countervailing Measures. Part V discusses WTO Tribunal decisions, as they illuminate and interpret legal requirements in subsidy cases. Part V further suggests that the international framework is suited to eliminate SPFs if evidence exists that a particular subsidy is causing injury to a domestic industry. Certainly, using the appropriate channel to address SPFs is preferable to dismissive and pejorative labeling.

Part VI, however, posits that an international trade solution might be unnecessary because SPFs may soon be relics of the past. SPFs can easily alter their structure to remove the government-sponsored characteristic to quiet critics and restless nation litigants in the WTO Tribunal. Moreover, the global innovation and patent market is dynamic and complex; SPFs will not be able to survive and flourish if they are under governmental control. Part VI observes that, in fact, some prominent SPFs are planning to privatize in order to compete and adapt.

Overall, by creating and infusing SPFs with public funding to aggregate patents, a government can seem to have ownership and control of the patents while simultaneously wielding authority in dispute proceedings relating to those very same patents. The government can block or rule against others from challenging the validity of patents. The same government may coerce others into accepting unfavorable patent license terms. The same government also may protect domestic firms at the expense of foreign firms. Such an arrangement seems to create many conflicts. Additionally, SPFs may be illegal subsidies under international trade law. Also, the creation of SPFs suggests a new global chaos in patents. The new chaos raises fear that SPFs would cause a race to the bottom. SPFs become sovereign patent trolls with levers more potent than private patent trolls, depressing innovation for short-term gains. The fear about SPFs, however, is exaggerated. These concerns perhaps emanate from the tendency to group all SPFs from different countries into one and characterize them within the convenient patent troll narrative. Fear not, the present and future development of different SPFs should instead prompt us to rethink patents and the very laws creating them.

The article is available, here. 

Tuesday, 7 August 2018

The US Falling Behind on 5G Infrastructure: Lack of Funding and Slow Unified Policy Response?


Deloitte Consulting has released an informative report titled, “5G: The Chance to Lead for aDecade.” [Report]  The Report describes how the United States is falling behind in investing in 5G “both [in] relative and absolute terms” to other countries, and specifically China.  For example, the Report states:

Since 2015, China outspent the United States by approximately $24 billion in wireless communications infrastructure and built 350,000 new sites, while the United States built fewer than 30,000. Looking forward, China’s five-year economic plan specifies $400 billion in 5G-related investment. Consequently, China and other countries may be creating a 5G tsunami, making it near impossible to catch up.

The Report also describes the importance of the number of towers and small cells needed for the 5G network to operate well.  While advocating for a “light touch policy framework,” the Report notes that,

[T]his light-touch regulatory framework does not absolve policy makers of responsibility to inspire US leadership in 5G. Policy makers at the state, local, and federal levels can help reduce the friction associated with deploying next generations of communication infrastructure. Specifically, reducing the cost and deployment cycle times for small cells will help remove a major obstacle to network densification and allow carriers to add desperately needed low-cost capacity to our nation’s wireless networks.


Many cities continue to use the same approval standards and processes for small cell equipment deployed at the top of an existing city lamp post as they would for deployment of a new 70-foot macro tower in the public right of way; an unsustainable solution if the United States aims to keep pace with other countries’ 5G deployment. (emphasis added).

Notably, the Report also discusses the benefits of a “light touch policy framework:”

First, the United States should consider establishing a light-touch policy framework to address 5G’s inherent externalities that limit the value created by infrastructure investment from accruing to the carriers. Other countries may consider subsidizing, nationalizing, or otherwise regulating aspects of a nation’s communications infrastructure to speed 5G deployment. However, such interventions in the United States could risk disrupting a communications and technology ecosystem that has proven symbiotic and resilient over the past decade. Policy intervention in the same ecosystem of carriers, suppliers, Internet innovators, and consumers that enabled LTE leadership could inflict unintended consequences on competition and innovation. 

Instead, carriers and their ecosystem partners can address the potential pitfalls of externalities by negotiating efficient solutions. Negotiated contracts between carriers and Internet content and applications providers more effectively attribute profits to those making infrastructure investments on behalf of the users.

We have already seen examples of such negotiated solutions with LTE. Unlimited usage of video streaming applications come with service-level conditions that help curtail network congestion. In some cases, content providers agreed to reduce video resolution and steaming speeds in return for carriers granting unlimited access to that content for their subscribers. These conditions, negotiated between commercial entities, can offer a win-win-win for carriers, content providers, and consumers. Consumers receive access to as much content as they want without overage fees. Content providers get unlimited access to their viewer base. In turn, carriers can better plan for and/or avoid traffic increases that necessitate costly upgrades.

The Trump Administration released a plan to develop and rehabilitate infrastructure throughout the United States, and the Washington Post recently published an interesting article describing a recent study concerning long term prosperity in Europe and the path of Roman roads.  What about 5G (at least for a decade and not falling behind what’s next)?