Sunday, 23 April 2017

The Indie film industry: still looking for its long tail

What happened to the idea of the "long tail", as popularized by Chris Anderson over a decade ago? The very fact that this blogger feels the need to revisit the notion suggests the extent to which it has fallen into disfavor. In brief, Anderson’s idea contrasted the manner by which goods are typically sold in a bricks-and-mortar environment from the potential for distribution in an on-line world. The principal limiting factor in a bricks-and-mortar setting is that only a small number of products can be displayed in any given store; even within these displays, the specific placement can materially affect the sales potential of that good.

What follows is that only a small number of products will be available for purchase and success is built on selling a large quantity of these limited product options. Thinking in terms of a statistical distribution, from the point of view of product sales, the two tails fall very quickly from the elevated and narrow central tendency. There are few sales beyond those enjoyed by the small number of market leaders.

By contrast, in a long-tail world, where digital distribution allows an almost unlimited number of products that can be displayed on digital “shelves”. As such, as explained by Investopedia,
"... products in low demand or with low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters but only if the store or distribution channel is large enough.”
In other words, the sales of these items take place at the tails of the distribution. Unlike the bricks-and-mortar situation, consumers are navigating to on-line commerce, favoring niche products and markets over traditional main types.

As such, as optimistically characterized by Investopedia --
“…the demand overall for these less popular goods as a comprehensive whole could rival the demand for mainstream goods. While mainstream products achieve a greater number of hits through leading distribution channels and shelf space, their initial costs are high, which drags on their profitability. In comparison, long tail goods have remained in the market over long periods of time and are still sold through off-market channels. These goods have low distribution and production costs, yet are readily available for sale.”
The problem with the notion is that it has proved difficult, extremely so, to identify instances where the long tail has taken place. A reminder was reported in the February 25th issue of The Economist (Print title: “Indie blues: happy ends are rarer than ever for those trying to profit from Indie films”) in connection with the indie cinema industry. Short for “independent”, the indie film business refers to a movie that has been produced outside the major film studio framework. Distribution will also likely take place outside the major channels. Indie films are also usually characterized by lower production costs, limited first release and greater diversity of artistic expression.

While not common, an indie film on occasion can rival a film produced by a major studio, if it has sufficient financial backing, effective distribution and promotional buzz. The winner of the most recent Oscar awards was best picture was “Moonlight”, which shares indie film characteristics. Another indie movie that received an Oscar was the film “Manchester by the Sea.” With movie-watching no longer solely a cinema-based activity and on-line viewing taking place via a number of digital platforms, one might be tempted to imagine that the long tail model has been a boon to the indie film business.

According to the article, however, the answer would appear to be “no”. In the words of the piece—
“For every success story, there are thousands of indie films that go unwatched. The digital age has made it easier than ever to make a film, but also harder than ever to break through the clutter of entertainment options to an audience. Chris Moore, a producer of “Manchester by the Sea”, compares the output of indie films now to trees falling in the forest. ‘Nobody is making a dollar off this business’, he says.”
It turns out that for all the on-line options, success of an indie film still tends to rely on exposure to a cinema theatre audience, which is diminishing, especially among young viewers, and the DVD market, which is in freefall. Seen in this way, indie films look a lot like their major studio competitors, just less expensive in the making and with even a lesser likelihood of success.

But what about the potential for the long tail to ultimately make-up for these headwinds. Again, in the words of the magazine—
“But most minor films disappear online, since a viewer can scroll through only so many options. Even the streaming sites themselves, says Anne Thompson of IndieWire, a website, admit that ‘a cold start on one of their platforms can be very cold indeed’”.
All in all, it would seem that, as far as the indie film business is concerned, the long tail is no tail at all.

Photo on lower left by Alex Dunkel

Thursday, 20 April 2017

EMW Law Firm Releases Information on Fintech Patenting

The EMW Law Firm has released some information concerning Fintech patenting trends.  EMW states:

The number of ‘fintech patents’ filed worldwide is continuing to rise sharply, reaching 9,545 in 2016*, up 6% from 9,045 filed the year before in 2015 and up 49% from 6,399 filed five years ago in 2011[.]

“Fintech patents” are defined by EMW as:  Patents relating to banking, exchanges, investment, insurance, payment architecture and calculation of taxation, filed with the World Intellectual Property Organisation.”  For more information, please see EMW’s blog post, here.  Corporate Counsel also discusses EMW’s blog post, here.  The Corporate Counsel article notes the US lead over China in Fintech patenting.  I am still holding out hope for a publicly available report on the IP landscape for Fintech. 

Milken Institute: Best Universities for Technology Transfer

The Milken Institute has released a report on April 20, 2017, titled, “Concept to Commercialization: The Best Universities for Technology Transfer.”   The Report’s Executive Summary states some conclusions concerning technology transfer and then includes recommendations based on its findings.  The Report states:

Universities that succeed at technology transfer and commercialization include both public and private universities. They are spread across the country; 13 of the top 25 universities are based in red states, all are in major metropolitan areas, and all range in size. These universities can be leveraged to boost and spread middle class job creation in their home states. While innovation is not confined to blue states, blue states have been more successful in leveraging university research for economic benefit.

University research funding can support the creation of both middle- and high-skill industry jobs through innovation, commercialization, and technology transfer. As products and services are created and licensed, there are a myriad of multiplier impacts felt across the economy.

Universities are a source of competitive advantage; they create a skilled workforce and through R&D and tech-transfer help create new technologies and new industries.

Universities that lead the Milken Institute’s University Technology Transfer and Commercialization Index actively promote tech-transfer, allowing other universities to learn from their strategies. The below articulates the Milken Institute’s recommendations based on our recent findings:

             maintain basic scientific research funding. Basic research provides long term economic benefits by allowing universities to take on research that has a low probability of quick commercial success, but potential to deliver a high reward and to create whole new industries.

             incentivize technology transfer through a new federal commercialization fund. The federal government should increase research funding under a special commercialization pool. Universities demonstrating greater commercialization success in the market should receive higher funding in this program.

             increase technology transfer capacity through federal matching grants. The federal government should commence a matching grant program with states to fund an increase in staff and resources in TTOs. Higher rates of academic entrepreneurship are essential to reviving declining startup rates and productivity across the economy. New firms have higher productivity as they are at the cutting edge of technology.

             increase technology transfer efficiency by adopting best practices. At the state level, policies should be implemented that incentivize the adoption of best practices in commercialization at public universities, including TTOs. Efficiency gaps between universities outside of the top 25 in our Technology Transfer and Commercialization Index should be narrowed.

The Report ranks 225 universities and is available, here.  The Report specifically describes the attributes of some successful universities and includes a case study on life sciences.  [Hat Tip to Glen Gardner]

Wednesday, 12 April 2017

UB3: Uber's New Patent Purchase Program

Uber has launched a patent purchase program called, “UB3.”  The program sounds very similar to the one founded by Google and run by Allied Security Trust.  Indeed, the announcement by Uber references the Allied Security Trust program, “IP3.”  The development of the program arrives during Uber’s much publicized suit involving Google.  Interestingly, this is perhaps a move by Uber to build a patent portfolio to be used in acquiring negotiation leverage, and thus freedom to operate.  Additionally, the value of some patents may be rising because of changing Federal Circuit law and the belief that the Patent Trial and Appeal Board at the United States Patent and Trademark Office is easing up on patents, so to speak.  Uber’s press release states:

The current market for patents is extremely challenging, especially for sellers. There is a ton of friction in the secondary market for all parties, but with our new UP3 program, sellers will submit patent family details and a price they are willing to accept directly into our submission portal. By eliminating price negotiations and providing quick reviews, UP3 will reduce the total transaction time compared to a typical patent transaction.

It is also clear that sellers want the flexibility to package multiple patents into a single submission. That’s why the UP3 program allows sellers to submit portfolios of up to five (5) patent families in one submission. That way, sellers can group patent families that complement each other in a way that best markets their assets.

Our short timeline will speed up patent transactions. The UP3 submission portal opens April 24, 2017 and closes May 23, 2017. After the submission period ends, Uber will review the submissions and provide sellers with our decisions by July 7, 2017.

The Uber website includes helpful frequently asked questions with answers, the patent purchase agreement, additional information, and submission terms and conditions.  The submission form will be available on April 24, 2017. 

Some State Funding for Higher Education in the United States Growing Slightly

The American Association of University Professors (AAUP) has released its Annual Report on the Economic Status of the Profession (Report).  For the most part, the Report addresses salaries of professors, administrators and part-time lecturers in the United States.  Interestingly, the Report also reports on data concerning state investment in higher education.  As noted earlier, there is an innovation deficit in the United States based on a drop in federal spending on research in terms of real dollars.  And, as discussed previously, the Trump Administration budget is requesting a substantial cut in the amount of federal money invested in research.  The Report notes that after the Great Recession the amount of state funding for higher education dropped substantially.  Recently, there has been a slight overall uptick.  The uptick may be found in states that lean democratic versus republican in leadership; although this is not always the case for some states such as Texas and Nevada.  Hopefully, states continue to push more resources toward higher education and avoid pushing up tuition.  The full Report is available, here.  [Hat tip to my colleague Raquel Aldana.]

Friday, 7 April 2017

A Couple of New FinTech Resources: GW Survey of Money Transmission Laws and PWC Report

The George Washington University Center for Law, Economics, and Finance has published a helpful and accessible online fifty state survey of money transmission laws.  The aim of the product is to “lower the information costs for FinTech startups, investors, and academic researchers among many others.”  Thus, the website helpfully attempts to point out differences between the law of each state.  The site notes, “we hope this can serve as proof-of-concept for how state-based FinTech regulation can become more accessible while maintaining its biggest strength—adaptability.” 

And, in an article dated April 5, 2017, Bloomberg reports:

Almost 50 percent of financial services firms around the world plan to acquire fintech startups in the three to five years, according to a report Thursday by PricewaterhouseCoopers LLP. And eight out of 10 institutions foresee making strategic partnerships with peer-to-peer lenders, digital money transfer platforms, and myriad other firms that are reshaping the business of money.

The article suggests fear of loss of profits is the main motivation for acquisitions.  The PricewaterhouseCoopers report, Global Fintech Report 2017: Redrawing the Lines: Fintech's Growing Influence on Financial Services is available, here, and contains a lot of interesting information concerning the future and FinTech.  I have not seen an analysis of the IP landscape for FinTech yet.  Does anyone know of one? 

Thursday, 6 April 2017

Preparation for (more) Patent Assertion Entites in Europe: Intellectual Property 2 Innovate

As reported by Florian Mueller on the FOSS Patents Blog on April 5, a relatively new organization has been formed to raise awareness of and presumably lobby against patent assertion entities in Europe.  The organization is called Intellectual Property 2 Innovate and its members include: Adidas, Google, Intel, Bull AtWios Technologies, Proximus, Spotify, Wiko, Daimler, the European Semiconductor Industry Association, and Syndicat De Industrie Des Technologies De L'Information.  Notably, the Intellectual Property 2 Innovate website has references to a list of suits brought by patent assertion entities in Europe, media reports concerning patent assertion activity in Europe and third party studies concerning patent assertion entities in Europe.  The website includes link to a helpful seven page position paper, which states in part:

Patents support innovation by allowing companies to protect their technology from copying, to share and develop new technology, and to obtain the freedom to operate necessary to bring new products to market.  But a patent system that can be manipulated through abusive litigation tactics, including the assertion of low quality patents, will undermine rather than support innovation, disserving consumers and the economy by draining scarce resources from the development of new products.

The dramatic rise in patent litigation involving PAEs is a dangerous trend that merits the attention of EU policy makers. In the United States, lawsuits brought by PAEs have nearly quadrupled over the past decade.1 PAEs now account for a majority of all patent litigation.2  Small and medium-sized entities (SMEs) are frequently the targets of these assertions, facing lawsuits that can disrupt their business and even threaten their survival.3,4

In Europe, PAE lawsuits have begun to follow the same trajectory, growing in number and often targeting SMEs.  PAE activity has long existed in Europe, accounting for roughly 10% of the lawsuits filed in Germany between 2000 and 2008 and in the United Kingdom between 2000 and 2013.5 More recent evidence, however, suggests that PAE activity is accelerating rapidly. An empirical study of the registers for recording patent ownership in Europe demonstrated that PAE purchases of European patents increased ten-fold from 2005 to 2015.6 Most of the transferred patents involved communications or computer technology and were purchased by PAEs based in the United States. Those purchases now form the basis of a growing number of PAE lawsuits in Europe against productive companies. European countries together received 80% of all PAE cases filed outside the US over the past five years.7 Germany receives by far the greatest number, with the large majority of those cases proceeding during 2015 and 2016.8 A recent study provides examples of lawsuits brought by PAEs in Europe.9 According to this study, while PAEs account for 19% of known patent lawsuits filed in Europe accounted for in the study, it is nonetheless a significant fraction which will undoubtedly come to increase in the next years. This rate corresponds roughly to the same level of PAE activity in the US in the early 2000s to mid-2005. Despite the alarming data and active discussions amongst the legal community, US public authorities nevertheless did not seriously tackle this problem which has led patent lawsuits to skyrocket in the US since then.

The position paper further suggests: increasing judicial discretion to minimize abusive patent practices and encourage higher quality patents as well as make better data available concerning patent litigation across Europe.  According to the paper, these measures are necessary in light of the soon-to-be operational European Patent Court. 

Monday, 3 April 2017

Recording Industry of America Association Reports U.S. Double Digit Revenue Growth for 2016

In a March 30, 2017 article, Billboard magazine breaks down recently released numbers from the Recording Industry Association of America (RIAA) concerning the U.S. music industry.  The article notes:

It looks like happy days are here again: U.S. recorded music sales were up 11.4 percent in 2016. The industry brought in $7.65 billion in revenue, according to the RIAA, up from $6.87 million in 2015. Although the music business showed signs of a recovery at the half-year mark, the 2016 year-end results show more significant growth, led by streaming revenue.

This is the first time since 1998 that the U.S. industry has experienced a double digit increase in overall revenue. Back then, the industry enjoyed revenue of $13.7 billion.

The article further breakdown revenues based on streaming and vinyl sales among other categories.  Notably, streaming revenue is on the upswing and is accounting for a lot of the growth.  Interestingly, the article notes that the revenue is about half from the “good old days” of 1998.  The RIAA report is available, here. 

Wednesday, 29 March 2017

Good Practices Concerning Intellectual Property Ownership: Articles by Novagraaf

In a helpful series of articles, the law firm Novagraaf addresses the issue of good practices concerning intellectual property ownership (particularly internationally) that make the future transfer of intellectual property easier.  The first article titled, “IP Ownership Transfers: Getting Your IP Rights in Order,” concerns, in part, potential problems with the ownership of proposed acquired intellectual property that can be addressed in due diligence.  The article discusses the importance of ensuring the present owner of the acquired rights has a contractual obligation, for example, to assist in recording changes in ownership as well as providing assistance to utilize future rights.  A recent article, titled, “IP Transfers: Potential Pitfalls and Problems to Solve,” by Tom Farrand, discusses the quality of intellectual property records maintenance.  The article provides a helpful nonexclusive list of common pitfalls:

·         Difficulty tracking and identifying which IP assets have been updated and which have not;

·         Erroneous record of title may jeopardise the validity of IP in some jurisdictions;

·         Recently filed applications can be held up by IP registered in the old name;

·         Original evidentiary documents could be irretrievably lost;

·         Prior owners may go out of business, cease to exist, move or change names;

·         Prior owners may be unwilling to cooperate after the passage of too much time, especially if personnel have changed since the original transaction;

·         Default in applications and registered IP may occur if official documents are delivered to the old owners and answer deadlines are missed, potentially causing the rights to be lost;

·         Inability to file suit against infringers if the IP is in the wrong name;

·         Inability to get a temporary restraining order in infringement matters;

·         For trademarks, third parties may be more likely to adopt conflicting marks if they think the owner is defunct; and

·         May make divestiture of assets more difficult or may get lower offer if ownership appears split or the chain of title is not up to date.

Monday, 27 March 2017

Trump Proposes to Cut Government Funding for Research

CNN recently reported on President Trump’s proposed budget and noted serious cuts to government funding for research.  Specifically, the article states:

The National Institutes of Health budget would be cut by $5.8 billion, meaning it would lose about 20%. The Environmental Protection Agency would face $2.6 billion in cuts, that's 31% of the agency's budget. The Department of Energy would lose $900 million, or about 20% of its budget. Health and Human Services would see a $15.1 billion or 18% budget cut; as part of that, it shifts costs to industry from the Food and Drug Administration budget. The National Oceanic and Atmospheric Administration would face an 18% budget cut.

As the article describes, a number of groups have criticized the proposed budget.  A recent Denver Post opinion piece by Noah Smith, a Bloomberg commentator, notes that the U.S. innovation system works well because we actually have a “pipeline” of new discoveries running to commercialized inventions.  Smith states that Trump is cutting off the new discoveries and essentially putting the U.S. at a disadvantage.  As this blog has noted, the Obama Administration basically kept funding for research almost level, but the budget was decreasing in terms of real dollars.  This was considered bad.  If we actually cut at the levels Trump wants to cut, we will be in a much worse position.  As Smith notes, the rust belt has somewhat been revitalized by biotech and cutting the NIH budget will retard the growth of one of the United States’ most promising industries. 

Importantly, Congress must pass the budget.  And, if my memory serves me correctly, President George W. Bush also proposed to cut government funding for research at the outset of his presidency and later retracted that proposal.  I imagine that someone explained to the Bush Administration how important government funding for research is for industry and the U.S. economy—hopefully that will happen for the Trump Administration. 

Thursday, 16 March 2017

FRAND licensing: A call for greater transparency

No topic in technology licensing is more vexing than standard-setting organizations (SSO’s), standard essential patent (SEP) owners and FRAND terms. Anders Møller, a recent graduate of Oxford engaged as an independent economist, describes some interesting research that shows how much transparent FRAND licensing negotiations still need to be in order to achieve their expressed goals.

With the IEEE having updated its patent policy in 2015, some standard essential patent (SEP) owners raised concerns about the economic effectiveness of its move. While it is still too early to tell what economic impact their updated patent policy will have, it is worth paying attention to an econometric analysis of the patent policy introduced by VITA (VMEbus International Trade Association ) in 2007, undertaken by the now Chief Economist of the EPO, Professor Yann Ménière, and François Lévêque, Professor at CERNA, MINES ParisTech.

SSOs generally require firms to license their patents for a given piece of technology to users on a Fair, Reasonable and Non-Discriminatory basis, or FRAND. The FRAND principle is adopted to avoid the moral hazard of license holders ex post (after negotiations) using their intellectual property to extract supra-normal rents from licensees, once technologies have become indispensable to a given manufacturing process. This is commonly referred to as patent holdup. As Lévêque and Ménière point out--
“the mainstream view is that the rationale for [F]RAND is to mitigate holdup and that the R in RAND stands for the level of royalty resulting from competition in advance of standard selection (pp. 5-6).”
In turn, this promotes the broader adoption of new standards and, hence, higher royalty earnings for licensors. However, there is no common definition of what constitutes a “reasonable” royalty, which creates vagueness and thus greater uncertainty in licensing negotiations.

Lévêque and Ménière argue that the FRAND principle has worked surprisingly well up until recently, given that both licensors and licensees have an incentive to abide by it (i.e. licensors gain an increase in uptake of their IP while licensees mitigate holdup risk). However, a few cases have been highly publicized involving antitrust litigations over IP holdup. In the words of Lévêque and Ménière, this has “instilled doubts for standard users about [F]RAND as an effective safeguard against holdup (p. 16).”

This creates a social welfare loss because both licensors and licensees are disincentivized to negotiate and license new technology standards. According to the authors--
“the threat of being held up results in allocative and productive inefficiencies that are detrimental to society, especially to consumers for whom standard-compliment products are produced in lower quantities, later and at a higher cost (p. 21).”
So, what can SSOs do about this? Lévêque and Ménière Leveque model two policy approaches. The first is based on the January 2007 updated patent policy of VITA, which states that members “must declare the maximum royalty rate for all patent claims... that may become essential to implement the Draft VSO Specification.” Furthermore, this declaration is “irrevocable,” and subsequent declarations covering the same "may only supersede the prior Declaration if the subsequent Declaration is less restrictive."

This is quite a departure from the practice of simply relying on FRAND in principle and negotiating without disclosures, which Lévêque and Ménière show to be a helpful tactic for SSOs to deal with the with the growing uncertainty associated with what ‘reasonable’ means in the FRAND regime.

Based on a mathematical model, the authors find that licensing commitments before manufacturers sink fixed costs into new product standards “induce lower prices for standard compliant products (p. 41).” This is because the expected costs are always lower when manufacturers are guaranteed a maximum royalty rate than with no assurance at all. Although the licensor accepts a certain amount of risk by committing to charging lower royalties ex ante before demand is realized, this is offset by the promotion of higher technology uptake (as lower risk encourages market entry of more manufacturers). There is therefore a convergence of interests between licensors and consumers as doing otherwise would reduce the consumption of tariff compliant products.

The second policy approach is to make declarations optional, whether of a specific royalty or a ceiling. Lévêque and Ménière’s model shows that – assuming rational action – licensors will always choose either a royalty ceiling or an exact royalty rate, as a high maximum rate is always better than having no assurance in place at all. Moreover, such a flexible policy approach allows licensors to choose the option which maximizes expected profits, thus leading to more innovation which is a significant positive externality.

The authors therefore conclude that “although the VITA IP policy is an attractive one, the policy of IEEE-SA is even preferable”, because it maximises both licensor and consumer benefits. The implications are simple yet profound for policy makers. With the European Commission as well as the Joint Research Council having issued several studies on the topic , and the European Union considering guidelines on SSO policies by early summer of this year, such insights are invaluable.

The study from Professor Lévêque and Professor Ménière clearly shows that there is a need for more transparency in FRAND licensing negotiations and that SSOs need to assume their responsibility so to further clarify what FRAND means. This is needed so to restore confidence in the FRAND regime. A VITA-like policy requiring a specific or maximum royalty rate declared up front is essential to maximize social welfare from standards and the respective patents that read on them.

The challenge for other SSOs, like ETSI or CEN/CENELEC, now lies not only in adopting policies that include flexible disclosure regimes, but also in how to institutionalize the practice by all negotiating parties in order to avoid any one licensor attempting to gain a first-mover advantage. The success of this approach will increase innovation, which is ultimately the goal of a prudent IP framework.

Wednesday, 8 March 2017

Commercialization Activities as Part of the Tenure Process for Academics

Rachel Abbey McCafferty has published an article in Crain's Cleveland Business titled, State is Pushing Universities to Bring Research to Market, on March 5, 2017.  The article outlines how the proposed Ohio state budget includes provisions concerning making commercialization activities by academics part of the tenure process.  The article notes how the purpose of the proposal is to direct academics to engage in research that may have a potential market.  This, of course, is one of the criticisms of the Bayh-Dole Act--that indeed the Act would push researchers toward directing research efforts to "real world" problems as opposed to "blue sky" research, which could have broad uses.  Some universities have unilaterally made the move to requiring commercialization activities for academics for tenure, but this is one of the first state "top down" directives for research institutions to require it.  Notably, the state is apparently striking a nice balance by stating that commercialization activities are just one route to be considered in the tenure process--it is not the only way to obtain tenure.  This nicely preserves flexibility for each researcher to make their own choices.  There is still the question of whether requiring commercialization efforts for tenure is necessary given the substantial market incentives available to researchers. 

The article also discusses a new institute to be formed in Ohio, which will direct commercialization activities in state institutions.  I am not very familiar with the technology transfer processes in Ohio, but this sounds like a good idea to coordinate commercialization efforts and provide accountability and stewardship for public research funding.  Notably, Governor Kasich, the recent presidential candidate, is reportedly a big fan of technology transfer, and its potential to create jobs and benefit the public.  (Hat tip to Technology Transfer Tactics for the lead to the article.)

Tuesday, 7 March 2017

President Trump's 2017 Trade Policy Agenda Released

The United States Trade Representative has released the President’s 2017 Trade Policy Agenda document (Agenda) on March 1, 2017.  The Agenda sets forth its purpose as well as its top priorities.  Interestingly, the purpose points to the voters as the impetus for the focus of the Agenda:

In 2016, voters in both major parties [?] called for a fundamental change in direction of U.S. trade policy.  The American people grew frustrated with our prior trade policy not because they have ceased to believe in free trade and open markets, but because they did not all see clear benefits from international trade agreements.  President Trump has called for a new approach, and the Trump Administration will deliver on that promise.

The overarching purpose of our trade policy – the guiding principle behind all of our actions in this key area – will be to expand trade in a way that is freer and fairer for all Americans.  Every action we take with respect to trade will be designed to increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners, strengthen our manufacturing base and our ability to defend ourselves, and expand our agricultural and services industry exports.  As a general matter, we believe that these goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations – and by renegotiating and revising trade agreements when our goals are not being met.  Finally, we reject the notion that the United States should, for putative geopolitical advantage, turn a blind eye to unfair trade practices that disadvantage American workers, farmers, ranchers, and businesses in global markets.   [emphasis added]

One of the specific key objectives noted by the Agenda includes “Ensuring that U.S. owners of intellectual property (IP) have a full and fair opportunity to use and profit from their IP.”  The Agenda further lays out its top priorities as: “(1) defend U.S. national sovereignty over trade policy; (2) strictly enforce U.S. trade laws; (3) use all possible sources of leverage to encourage other countries to open their markets to U.S. exports of goods and services, and provide adequate and effective protection and enforcement of U.S. intellectual property rights; and (4) negotiate new and better trade deals with countries in key markets around the world.” [emphasis added].

In discussing the first priority and the WTO Dispute Settlement Understanding, the Agenda states: “[E]ven if a WTO dispute settlement panel – or the WTO Appellate Body – rules against the United States, such a ruling does not automatically lead to a change in U.S. law or practice.   Consistent with these important protections and applicable U.S. law, the Trump Administration will aggressively defend American sovereignty over matters of trade policy.”  On strictly enforcing U.S. trade laws, the Agenda states: “We strongly support true market based competition – and we welcome the partnership of any country that agrees with us.  Unfortunately, however, large portions of the global economy do not reflect market forces.  Important sectors of the global economy, and significant markets around the world, have been at times distorted by foreign government subsidies, theft of intellectual property, currency manipulation, unfair competitive behavior by state-owned enterprises, violations of labor laws, use of forced labor, and numerous other unfair practices.”

On using leverage to open markets, the Agenda asserts that: “Other countries have looked to harm U.S. companies by blocking or unreasonably restricting the flow of digital data and services, or through theft of trade secrets.  In still others, foreign countries can use technical barriers – such as unnecessary regulations on particular items – to limit competition, including in the services sector.  Concerns have also been raised over currency practices and their impact on the competitiveness of U.S. goods and services.  These are only a few examples of the tactics that can be used to block or impede the competitiveness of U.S. exporters.”  The Agenda notes that transparency in implementing regulations of WTO rules and trade agreements would be helpful. 

On the section on negotiating new and better trade deals, the Agenda notes the following issues:  

1. In 2000, the U.S. trade deficit in manufactured goods was $317 billion.  Last year, it was $648 billion – an increase of 100 percent.

2. Our trade deficit in goods and services with China soared from $81.9 billion in 2000 to almost $334 billion in 2015 (the last year for which such data are available), an increase of more than 300 percent.

3. Of course, a rising trade deficit may be consistent with a stronger economy.  However, that has not been the experience of the typical American household.  In 2000, U.S. real median household income (in 2015 dollars) was $57,790.  In 2015 (the most recent year for which data are available), it was $56,516.  In fact, despite the recovery since the financial crisis, real median household income in the United States remains lower today than it was 16 years ago.

4. In January 2000, there were 17,284,000 manufacturing jobs in the United States – a figure roughly in line with the total number of U.S. manufacturing jobs going back to the early 1980s.   In January 2017, there were only 12,341,000 manufacturing jobs in the United States – a loss of almost 5 million jobs.

5. In the 16 years before China joined the WTO – from 1984 to 2000 – U.S. industrial production grew by almost 71 percent.  In the period from 2000 to 2016, U.S. industrial production grew by less than 9 percent.

The Agenda also notes that the most important trade deal under the Obama Administration—with South Korea—resulted in a massive trade deficit.  It will be interesting to see how intellectual property policy works out in coming negotiations.  

Wednesday, 1 March 2017

John Huntsman and the Commission on the Theft of American IP's New Update

In an interesting development, John Huntsman, Jr. is being considered by the Trump Administration for the position of ambassador to Russia.  Mr. Huntsman was the previous U.S. ambassador to China (Obama Administration) and Singapore (G.H. Bush Administration), and was a credible candidate for the U.S. Presidency in 2012.  Importantly, Mr. Huntsman is also the co-chair for the Commission on the Theft of American Intellectual Property.  In 2013, the Commission released its first Report on the Theft of American Intellectual Property.  Recently, on February 27, 2017, the Commission released an Update to the IP Commission Report of 2013.  The new Update states:

Since 2013, at the release of the IP Commission Report, U.S. policy mechanisms have been markedly enhanced but gone largely unused. We estimate that the annual cost to the U.S. economy continues to exceed $225 billion in counterfeit goods, pirated software, and theft of trade secrets and could be as high as $600 billion.1 It is important to note that both the low- and high-end figures do not incorporate the full cost of patent infringement—an area sorely in need of greater research. We have found no evidence that casts doubt on the estimate provided by the Office of the Director of National Intelligence in November 2015 that economic espionage through hacking costs $400 billion per year.2 At this rate, the United States has suffered over $1.2 trillion in economic damage since the publication of the original IP Commission Report more than three years ago.

The Update notes that since the publication of the first Report that several recommendations were adopted by Congress and the Obama Administration including enactment of the Defend Trade Secrets Act, the 2015 National Defense Authorization Act , The National Cybersecurity Protection Act of 2014, The Federal Information Security Modernization Act of 2014, The Cybersecurity Workforce Assessment Act of 2014, and The Cybersecurity Enhancement Act of 2014. The Update continues to focus on China as a source of trade secret theft, but notes that cyberattacks from China have decreased.  The Update does hedge and note that this may be hard to measure.  In discussing China’s efforts to protect intellectual property, the Update also states:

To realize those reforms, China’s State Council issued a new action plan in 2016. Building on a 2015 policy document outlining goals to develop a stricter IPR regime, the action plan, titled “Opinion of the State Council on Accelerating the Construction of Intellectual Property Powers for China as an Intellectual Property Strong Country under the New Situation—Division of Tasks,” duplicates standing policy but also lists several priorities for reform of the IPR regime.50 According to analysis by Mark Cohen, a long-standing expert on China’s IP environment, the document suggests that China is making a greater effort to raise the damages a victim can sue for in Chinese courts.51 The action plan also stresses international cooperation and the placement of more IP officials overseas to protect Chinese companies. It goes on to encourage the study of China’s IP-intensive industries and the use of fiscal policy to promote their development.52 Taken as a whole, the plan appears to be more geared toward fostering stronger IP-intensive industries at home than developing the rule of law.

The Update notes that the recent United States Trade Representative’s 301 Report on China states that there are several areas of concern in China’s protection of intellectual property that require attention according to industry, such as the participation of foreign firms in standard setting in China.  Curiously, the Update then points to some potential fields in which it is alleged that state owned enterprises in China may be engaging in theft.  The Update provides two examples of possible issues; however, they both are not concretely closely tied to theft of trade secrets.  More information would be helpful.  The Update also points to state subsidization of industry and underbidding as two potential problems that help Chinese industry to the detriment of U.S. companies.  The Update concludes with a call to the Trump Administration to tackle the theft of intellectual property early in the Administration, and provides a list of recommendations that have not been adopted by the U.S. government.  For additional discussion of IP enforcement in China, please see here, here and here

Lexology Publishes Patent Damages Rules in 16 Jurisdictions

Lexology has recently published an article titled, "The Calculation of Patent Infringement Damages Awards in 15+ Jurisdictions." The article answers two questions for each jurisdiction: "How are damages calculated" and "Are punitive damages available?"  The jurisdictions include: the United Kingdom, Pakistan, China, Denmark, Ecuador, Finland, France, Greece, India, Israel, Italy, Japan, Malaysia, Netherlands, Romania and Turkey.  Notably, the answers for each jurisdiction appear to have been prepared by firms from each respective jurisdiction.  Interestingly, in Greece and Romania, one can obtain "moral damages." And, most jurisdictions do not allow for "punitive damages" for patent infringement.  It would be interesting to learn if there are any criminal penalties for patent infringement in the various jurisdictions--or a movement toward adding criminal penalties. 

Tuesday, 28 February 2017

A Closer Look at CRISPR Patents and Licensing: A More Nuanced Approach

Professors Jorge Contreras and Jacob Sherkow recently published an article on February 17, 2017, titled, "CRISPR, Surrogate Licensing and Scientific Discovery: Have Research Universities Abandoned Their Public Focus," in Science.  The authors examined the publicly available licenses between the research institutions and "spin-off" companies which include one of the principal researchers (the spin-off companies are called "surrogates" by the authors).  The authors believe that an apparent "bottleneck" exists with respect to some of the exclusive field of use licenses granted to surrogates which may result in underuse of the technology ultimately harming innovation.  This is, in part, because the surrogates may not be best positioned to utilize the technology under some of the broader fields of use that are exclusively licensed.  The authors note that a "platform technology" such as CRISPR should be broadly accessible and provide some suggestions for future licensing.  The authors also point to how the research institutions have attempted to make the technology available as a tool although without the rights to "market and develop products derived from their research."  This paper is three pages long and well-worth a read. 

Monday, 27 February 2017

US Senate Candidate in California Critical of Bayh-Dole Act

Michael Eisen, a geneticist at University of California, Berkeley, has written a blog post concerning the CRISPR dispute, the Bayh-Dole Act and academic science.  Notably, Dr. Eisen is running for the U.S. Senate in California.  Dr. Eisen is essentially critical of the Bayh-Dole Act for skewing incentives toward commercially valuable research, complicating accessing research, slowing the progress of research and creating incentives for researchers to “behave badly.”  Here is an excerpt from his post:

Academic science is, after all, largely funded by the public. By all rights discoveries made on with public funds should belong to the public. And not too long ago they did. But legislation passed in 1980 – the Bayh-Dole Act – gave universities the right to claim patents on inventions made by their researchers on the public dime. Prior to 1980 these patents belonged to the federal government and many languished unused. The logic of Bayh-Dole was that, if they owned patents in their work, universities and other grantees would be incentivized to have their inventions turned into products, thereby benefiting the public.

But this is not how things worked out. Encouraged by a small number of patents that made huge sums, universities developed massive infrastructure to profit from their researchers. Not only do they spend millions on patents, they’ve turned every interaction scientists have with each other into an intellectual property transaction. Everything I get from or send to a colleague at another academic institution involves a complex legal agreement whose purpose is not to promote science but to protect the university’s ability to profit from hypothetical inventions that might arise from scientists doing what we’re supposed to do – share our work with each other.

And the idea that this system promotes the transformation of inventions made with public funding into products is laughable. CRISPR is a perfect case in point. The patent battle between UC and The Broad is likely to last for years. Meanwhile companies interested in actually developing CRISPR into new products are stymied by a combination of a lack of clarity about with whom to negotiate, and universities being difficult negotiating partners.

It would be so much easier if the US government simply placed all work arising from federal dollars into the public domain. We have a robust science and technology industry ready to exploit new ideas, and entrepreneurs and venture capitalists eager to fill in where existing companies are uninterested. Taxpayers would benefit by allowing the market, and not university licensing offices, to decide whose ideas and products make the best use of publicly funded inventions.

And most importantly we all would benefit returning academic science to its roots in basic discovery oriented research. We see with CRISPR the toxic effects of turning academic institutions into money hungry hawkers of intellectual property. Pursuit of patent riches has transformed The Broad Institute, which houses some of the most talented scientists working today, into a prominent purveyor of calumny.

Wednesday, 22 February 2017

Public Universities Bringing More Patent Suits and May Be Immune to IPRs

A recent Technology Transfer Tactics article by Jesse Schwartz published on February 22, 2017 states that universities are bringing more intellectual property suits, particularly patent infringement actions, against large companies.  Notably, the article points to the University of Minnesota infringement suit against Gilead Life Sciences and states:

Litigation like the UM lawsuit indicates that universities are warming up to the idea that fighting for their patent rights is worth the effort and expense, says Joshua H. Haffner, JD, an attorney with Haffner Law in Los Angeles. The UM case continues a trend of schools stepping up and demanding payment for use of their patents, he notes. Carnegie Mellon University settled a patent infringement case with Marvell Technology Group for $750 million in 2016, and later that year a jury ordered Apple to pay the University of Wisconsin more than $234 million for using its microchip technology in iPhones and iPads without permission. In 2015, a jury awarded Boston University more than $13 million from three companies that infringed on its patent for blue light emitting diodes (LEDs).

“This trend is continuing because they’re making money off the cases,” Haffner says. “Patent infringement cases can be very profitable, and with every win by a university others are looking at that and saying maybe they could reap the same rewards. There are other principles at play, like protecting the inventors and the principle of ownership, but really if the invention is not making money those principles tend to fall by the wayside.”

Interestingly, the Patent Trial and Appeal Board (PTAB) recently decided the Covidien v. University of Florida Research Foundation (UFRF) matter.  In that matter, the PTAB analogized inter partes review proceedings (IPRs) to litigation and decided that public (state) universities have 11th Amendment immunity against IPRs.  Basically, this means that parties cannot bring IPRs against public universities to challenge their patents.  Notably, this immunity may be waived by the public university.  Interestingly, UFRF brought an action in state court for breach of a license agreement.  Covidien counterclaimed for a declaratory judgment of noninfringement and then filed IPRs at the United States Patent and Trademark Office challenging UFRF’s patents.  Covidien then removed the action to federal court; however, the federal district court sent the action back to state court because of UFRF’s 11th Amendment immunity.  That decision is pending resolution at the U.S. Court of Appeals for the Federal Circuit (Federal Circuit). 

Interestingly, the PTAB states:

Petitioner additionally argues that “immunizing patents owned by alleged state entities from IPR proceedings would have harmful and far-reaching consequences.” Opp. 15–17. Here, Petitioner’s arguments are three-fold. One, invalid patents would stand simply because they are assigned to a state entity. Two, a patent owned by a monetization foundation affiliated with a state university would be insulated from the inter partes review process. Three, determining whether an entity is entitled to sovereign immunity is a fact-intensive inquiry that the Patent Office is not designed to adjudicate.

With respect to the first two arguments, we are cognizant of the fact that applying an Eleventh Amendment immunity to inter partes review, absent waiver by the state entity4, precludes the institution of inter partes review against a state entity entitled to Eleventh Amendment immunity. This, indeed, is precisely the point of the Eleventh Amendment, which is the preservation of the dignity afforded to sovereign states. “The preeminent purpose of state sovereign immunity is to accord States the dignity that is consistent with their status as sovereign entities.” FMC, 535 U.S. at 760 (citing In re Ayers, 123 U.S. 443, 505 (1887)). When sovereign immunity conflicts with legislation, Congress may abrogate sovereign immunity if it has unequivocally expressed its intent to abrogate the immunity and has acted pursuant to a valid exercise of power. Seminole Tribe, 517 U.S. at 55. Petitioner does not point to, and we do not find there is, an unequivocal, express intent by Congress in the AIA to abrogate immunity for the purposes of inter partes review.  

[Footnote 4 states: Because there is no related federal district court patent infringement (or declaratory judgment of validity) case brought by Patent Owner, we do not decide here whether the existence of such a case would effect a waiver of sovereign immunity.]

Further, we are not persuaded that an application of sovereign immunity to inter partes review will do violence to the patent system. The Supreme Court in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999) held that Congress does not have authority to abrogate Eleventh Amendment immunity with respect to patent infringement by the States, for “Congress identified no pattern of patent infringement by the States, let alone a pattern of constitutional violations.” Id. at 640. Based on the record before us, there is no evidence that the harm to the patent system, described by the Petitioner, will come to pass, let alone exists as a basis to divest States of sovereign immunity.

Finally, we are not persuaded that our tribunal cannot perform the fact-finding duties that Petitioner alleges would be required to determine whether an entity is entitled to sovereign immunity. Our rules and procedures provide for discovery and motion practice which, at a minimum, would provide the parties an opportunity to present arguments and supporting evidence pertaining to sovereign immunity.  

The Federal Circuit decision on this issue will be interesting, particularly if public universities continue to bring more litigation matters involving patents.  However, if there is a pending federal patent infringement claim brought by the university, I believe the PTAB (and Federal Circuit) will find a waiver of sovereign immunity.  The monetization firm argument is interesting.  [Hat tip to the Goodwin Keeping Tabs on the PTAB Alert for the lead to the case.]