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. 

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. 

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.