Chips Act heading for President Biden's Signature

The U.S. Congress has passed the CHIPS Act.  Senator Schumer’s office released the following press release:

After years of relentless advocacy, U.S. Senate Majority Leader Charles E. Schumer today announced the Senate has passed his historic federal semiconductor incentive, scientific research, and technological competitiveness bill to bring manufacturing back from overseas to places like Upstate New York. The senator explained this will help build more resilient domestic supply chains to help lower costs for families, address inflation, and strengthen national security by manufacturing more microchips in America. Schumer said that the historic federal semiconductor manufacturing incentivizes will be the lightning rod for existing chip and tech companies to grow in New York, helping attract new major employers, creating thousands of new good paying jobs, and ensuring the foundation for the future is built in Upstate New York.

“This bill means lowering costs for families, strengthening our national security, and bringing manufacturing back to Upstate New York. With its rare combination of a world-class workforce, advanced manufacturers, and renowned higher education institutions, I wrote and championed this legislation with Upstate New York always at the forefront of my mind and now it is primed to reap the rewards. I want to see the future made in Upstate New York,” said Senator Schumer. “When you combine the chip manufacturing potential at sites like White Pine Commerce Park in Central New York, Marcy Nanocenter in the Mohawk Valley, and STAMP in Genesee County, with Globalfoundries and Wolfspeed’s existing plants and onsemi soon acquiring a facility in East Fishkill, NY, all coupled with world-renowned research capabilities at the Albany Nanocenter and across the SUNY system and the state’s universities and labs, Upstate New York could be the nation’s leader in microchips and other tech industries that will dominate this century. Simply put – this is the 21^st Century’s Erie Canal”

Currently, only 12% of chips are manufactured domestically, compared to 37% in the 1990s, and many foreign competitors, including China, are investing heavily to dominate the industry. Nearly 75% of global semiconductor production is now occurring in East Asia and foreign government subsidies drive the majority of the cost difference for producing semiconductors overseas. Schumer said that his legislation would help turn the tide on this trend by bringing manufacturing back to America, along with investing in other key technology and R&D so New York and the country can lead the world in innovation.

Specifically, Schumer highlighted that the bill includes:

• $39 billion for the CHIPS for America Fund to provide federal incentives to build, expand, or modernize domestic facilities and equipment for semiconductor fabrication, assembly, testing, advanced packaging, or research and development.
• $11 billion for Department of Commerce research and development including creating a National Semiconductor Technology Center (NSTC) a public-private partnership to conduct advanced semiconductor manufacturing, with Albany Nanotech primed to be a top contender to serve as a major hub for the NSTC, and other specialized R&D programs that universities across the state are in a strong position to compete for.
• $2 billion for the DoD CHIPS for America Defense Fund.
• $200 million for the CHIPS for America Workforce and Education Fund to kick start development of the domestic semiconductor workforce, which faces near-term labor shortages, by leveraging activities of the National Science Foundation.
• A new Investment Tax Credit for semiconductor manufacturing facilities and equipment.
• $10 billion Regional Technology Hubs to support regional economic development efforts around the country to not only research and innovate technologies, but also manufacture them here in America.
• $1.5 billion for the Public Wireless Supply Chain Innovation Fund to spur the race to 5G, software-based wireless technologies, and innovative ‘leap-ahead’ technologies in the U.S. mobile broadband market. Schumer said that New York companies like JMA Wireless would be first in line for the $1.5 billion in federal incentives for next generation telecommunications tech included in his bill. This investments builds on the $65 billion to expand high-speed internet across the country passed in the Bipartisan Infrastructure & Jobs Law in which Schumer made sure to include Build America, Buy America provisions to ensure companies like JMA Wireless would build the technology used in the high-speed internet expansion.
• Increased investment for National Science Foundation (NSF) Research and Development Programs, including through a new technology directorate as proposed in Schumer’s original bipartisan Endless Frontier Act, and STEM education and training programs. Schumer said the region’s top research schools connected throughout the SUNY system, and others would be able to tap the increased investment for the NSF. Community colleges would also be able to utilize new investment for workforce training, including for the semiconductor industry.
• $13 billion to build the STEM workforce. Authorizes funding for STEM education, including scholarships, fellowships, and traineeships to create workers in critical fields, including to establishing an artificial intelligence scholarship-for-service program, a national network for microelectronics education, and cybersecurity workforce development programs. 
• $2 billion to strengthen small manufacturers. Triples funding for Manufacturing Extension Partnership, to support small- and medium-sized manufacturers with cybersecurity, workforce training, and supply chain resiliency.
• New investment to combat Supply Chain Disruption. Leverages the Manufacturing Extension Partnership to creates a National Supply Chain Database, to assist the businesses with supplier scouting and minimizing supply chain disruptions.
• Over $800 million to grow Manufacturing USA. Supports the creation of new competitively-awarded manufacturing research institutes with expanded capacity for education and workforce development.
• Infusion of new funds for the Department of Energy National Labs like Brookhaven National Lab. Funds will advance research and development, including in key technology areas like quantum computing, artificial intelligence (AI), and more.

Schumer explained that New York is uniquely suited to take advantage of these federal investments to reassert America’s global technological leadership. New York is currently home to over 80 semiconductor companies that employ over 34,000 NY workers, including global industry leaders like GlobalFoundries, Wolfspeed, onsemi, IBM, and other major microchip and innovation companies that support them like Corning Inc. In addition, Schumer said that New York offers dozens of shovel-ready sites primed for new investment from the semiconductor industry other companies in the innovation economy. 

Schumer has a long history of fighting to advance semiconductor manufacturing and R&D and the broader tech economy at the federal level. In May 2020, Schumer introduced his bipartisan Endless Frontier Act to make a surge new resources into federal R&D through the creation of a National Science Foundation technology directorate focused on key technology areas like quantum computing, advanced energy, AI, high performance computing, and more. Schumer’s Endless Frontier Act also proposed a new $10 billion regional technology hub program to invest in regions around the country with great potential to lead the nation in technology research, development, and manufacturing. In June 2020, Schumer introduced his bipartisan American Foundries Act to authorize new federal incentives for expanding domestic semiconductor manufacturing and R&D. Schumer successfully added this bill as an amendment to the Fiscal Year 2021 National Defense Authorization Act (NDAA). In June 2021, Schumer then successfully passed through the Senate his U.S. Innovation and Competition Act (USICA), legislation he introduced that combined his Endless Frontier Act to make a significant investment in research, development, manufacturing and innovation with other competitiveness legislation. As part of this package, Schumer also included $52 billion in emergency supplemental appropriations to implement the semiconductor-related manufacturing and R&D programs that he had successfully pushed to authorize in the Fiscal Year 2021 National Defense Authorization Act and that are at the heart of the bill which passed today. The House passed its companion legislation to USICA, the America COMPETES Act, this past January and negotiations continue to reconcile the differences between the two bills.  The bill that has passed this week combines the federal semiconductor incentives Schumer has been pushing with the investment in R&D, tech hubs, manufacturing, and other innovation programs from his Endless Frontier Act.

Schumer said that this major federal investment would touch every corner of New York:

Capital Region

Schumer’s legislation will help speed up and expand further opportunities to build on the Capital Region’s GlobalFoundries’ announcement last year of building a second chip fab in Malta, focused primarily on auto and military chip production, creating thousands of jobs on top of the 3,000 employees that GlobalFoundries already employs in the area.

The Capital Region is also poised to benefit with the Albany Nanotech complex potentially becoming the major hub of the nation’s first National Semiconductor Technology Center (NSTC), which is created by Schumer’s bill. Schumer has worked non-stop to uplift Albany Nanotech and the Capital Region as the best candidate to lead the nation in semiconductor research. In March 2021, following a call with the CEOs of IBM and Intel, Schumer announced a new partnership that will bring hundreds of jobs to the Albany region to conduct new semiconductor research, boosting the region’s already robust local chip research presence. Then, after bringing the Commerce Secretary to Malta to announce GlobalFoundries second chip fab last year, Schumer had Secretary Raimondo meet with Albany Nanotech leaders to discuss the facility’s cutting-edge capabilities. The senator continued this momentum earlier this year by bringing the Commerce Deputy Secretary Don Graves to tour the facility as well and meet with Governor Hochul and industry leaders to reiterate how the Capital Region and Albany Nanotech are uniquely suited to quickly stand up the NSTC. 

Central New York & The Mohawk Valley

Major sites like the Marcy Nanocenter and White Pine Commerce Park are already attracting interest from large semiconductor-related companies due to their shovel-ready infrastructure, and Schumer said his legislation would be the lightning rod for luring more jobs to Central NY and the Mohawk Valley. The industry has already taken notice, as highlighted by Cree-Wolfspeed’s $1.2 billion investment to build the world’s largest 200mm Silicon Carbide semiconductor facilities at Marcy, which will create over 600 jobs.

Schumer also said Syracuse tech companies like JMA Wireless would be able to take advantage of other historic incentives like the $1.5B in 5G and telecomm tech development that could accelerate their expansion locally, and the R&D investments included in the bill will support the region’s efforts in UAVs, quantum computing, and other technologies at Syracuse University, Rome Lab, and other area research institutions.

Finger Lakes

Schumer said the federal investment in his bill will further build on the recent $139M, 270 job expansion in Monroe County by Corning Inc. to support optic technology for the growing chip industry, with further expansion of the domestic semiconductor industry helping bolster this plant as more companies would rely on the components made at the new Fairport facility. Other companies that can benefit and grow are Akoustis Inc that employ about 100 in Canandaigua making semiconductor “RF Filter” chips used in mobile phones and Wi-Fi routers.

In addition, the Finger Lakes’ high concentration of research institutions from the University of Rochester to RIT make the region uniquely suited to benefit from the historic increases in the bill for to the National Science Foundation, which the Director of the NSF got to see firsthand when Schumer personally brought him to see their research facilities earlier this year. Schumer also cited a recent study authored MIT economists that analyzed over 100 regions to determine which are best poised to become new Tech-Economy hubs if provided federal scientific research and development investment and determined that Rochester, NY ranked No. 1 as the nation's top region ripe for technological and economic growth.

 

Western New York

In addition to shovel-ready sites like STAMP that could benefit from the chip incentive legislation, Schumer said that Western New York’s spot as a current finalist in the EDA Regional Challenge for its manufacturing cluster proposal make it a top candidate to compete for funding through the new regional technology hub program in his bill.

Schumer also said that research institutions like the University at Buffalo and technical training schools like Erie Community College are in a strong position to compete for manufacturing training and new NSF funds set to be boosted as well by his bill.

Southern Tier

The greater Binghamton area has already emerged as a growing hub for battery manufacturing and with Binghamton University (BU) as a finalist in the EDA Regional Challenge for its battery R&D proposal, Schumer said his bill could strengthen this plan even further by helping grow this critical supply chain in the Southern Tier.  In addition, top research schools like BU and Cornell University would be able to enhance their efforts through more federal research dollars and bolstering their workforce training initiatives. 

Hudson Valley

Schumer said the Hudson Valley is home to many chip and tech companies looking to grow like IBM in Westchester and Dutchess Counties, SeeQc in Elmsford, and onsemi, which will soon be fully taking over the GlobalFoundries facility at iPark in East Fishkill that will be able to utilize these historic incentives to bolster their operations. Plus, the close proximity to NYC and available sites like the former TechCity Campus in Ulster County, which Schumer recently pitched to a major battery company for a potential 500 job expansion, making the region a prime area for growth from his tech investment. Schumer said that the Hudson Valley’s colleges and universities can also benefit from this investment. For example, SUNY New Paltz is home to the Hudson Valley Additive Manufacturing Center and the Hudson Valley Venture Hub which are both are longstanding technology and entrepreneurial hubs that can grow with this new kind of investment, providing additional guidance and support beyond the hundreds of Hudson Valley and state businesses and entrepreneurs they have served to date.

USPTO and WIPO on ADR for SEP Disputes

The USPTO has announced a partnership with WIPO concerning utilizing alternative dispute resolution for SEP disputes.  The Press Release states:

The United States Patent and Trademark Office (USPTO) and the World Intellectual Property Organization (WIPO) today agreed to undertake joint efforts to facilitate the resolution of disputes related to standard essential patents.

Standard essential patents, or SEPs, are patents that have been declared essential to a given technical standard. As part of the standards-setting process, patent owners may agree to license SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms. Standards touch all aspects of modern life and include video compression, wireless communication technologies, computer connection standards, automotive technology, and more.

“International standards, and the role of patents that are essential to them, play an important role in promoting a strong national and global economy,” said Under Secretary of Commerce for Intellectual Property and USPTO Director Kathi Vidal. “The USPTO is grateful that Director General Tang recognized the USPTO’s leadership role in advancing discussions on standard essential patent policies. Our work with WIPO underscores the USPTO’s view that SEP policy is an international issue of international importance. This agreement will leverage existing resources at both the USPTO and WIPO, supporting options to enhance the efficiency of licensing of standard essential patents, and promote resolution of disputes related to those standards.”

The signing of the memorandum of understanding occurred during a meeting this week between Director Vidal and WIPO Director General Daren Tang on the sidelines of WIPO’s General Assembly in Geneva, Switzerland.

Under the terms of the agreement, the USPTO and WIPO will:

• Cooperate on activities that will lend efficiency and effectiveness to the resolution of disputed standard essential patent matters by leveraging existing WIPO Arbitration and Mediation Center and USPTO resources, and
• Engage in stakeholder outreach to raise awareness of the services provided by the WIPO Arbitration and Mediation Center through joint USPTO-WIPO programs.

The agreement will continue in operation for five years from the date of signing.

“We appreciate all the work Director General Tang and WIPO have done in this critical area. We look forward to a successful collaboration and engaging stakeholders to ensure we shape dispute resolution that will facilitate participation and implementation of standards by all innovators including small to medium-sized enterprises,” remarked Director Vidal.

“Alternative Dispute Resolution (ADR) has time and again demonstrated its value in the efficient and timely resolution of commercial disputes. In the last few years, the WIPO Arbitration and Mediation Center has been facilitating the resolution of SEP-related disputes and the new collaboration with the USPTO is an exciting development which will contribute to improving the efficiency of standard implementation,” noted Director General Tang.     

Senator Leahy Statement on proposed PTAB Reform Act of 2022

Senator Patrick Leahy, who is chair of the Senate IP Subcommittee, has released a statement concerning the bipartisan proposed PTAB Reform Act of 2022.  The statement provides:

Patents drive our economy, allowing innovators to do what they do best while knowing they can reap the benefits of their hard work.  Good quality patents thus give small businesses and inventors certainty that they can defend their inventions from others who didn’t put in the work. Without the rights guaranteed by patents, the engine of our economy, American innovation, simply would not be as strong.  

Given the power that a patent conveys, though, a patent issued by the U.S. Patent and Trademark Office needs to actually represent innovation.  There are serious consequences for our entire economy when the system permits enforcement of a patent that never should have issued.  Vermonters and small businesses all across the country have suffered these consequences.  Several years ago, an out-of-state company asserted poor-quality patents against dozens of Vermont small businesses and non-profits, demanding payments for each and every time a business scanned a document and then emailed it. It was a scam. And it was an egregious abuse of our patent system.    

That is why I am proud of the work we did in 2011to pass the Leahy-Smith America Invents Act, which allowed the public to take their concerns about a questionable patent back to the Patent Office for a more in-depth review.  Through proceedings created by the Leahy-Smith Act, the scan-to-email patents were brought back to the Patent Office and invalidated, allowing Vermont companies and non-profits to continue their important work.  The Patent Trial and Appeal Board, or PTAB, created under the Act, resolved those disputes in a way that was faster, less expensive, and more accurate than a district court because the disputes were overseen by technically trained patent judges under a strict deadline.  In the past decade of the PTAB’s existence, the public has brought thousands of patents to the Patent Office’s attention, and the Patent Office has expertly addressed validity, reinforcing the strength of high-quality patents and cancelling ones that never should have issued. 

As with any big new undertaking, that success has also brought new questions. And all enacted laws—particularly those dealing with ever-evolving technologies and science—need to be revisited and updated from time to time. That is why I am thrilled that Ranking Member Tillis, Senator Cornyn, and I just last week introduced the PTAB Reform Act of 2022.  We gathered feedback from participants in the patent system, including the public broadly and businesses across the country covering a vast array sectors and technologies.  We looked at concerns from all corners and presented a series of different options for addressing them.  This bill, the product of months of hard work and compromise, addresses the biggest concerns of stakeholders from across the spectrum.  This bill will update the PTAB so it can continue its important work into the next decade and beyond.

This is important legislation for a number of reasons.  One big question it addresses:  If a petition to the Patent Office to review a patent is meritorious on its face, should the Patent Office decline review anyway?  Many believe that all meritorious petitions should result in a review.  Many others believe that it is harassing to patent owners to have the same members of the public able to request review of the same patent repeatedly over time, when the patent owner has already defended the patent.  We addressed these issues—as we often do in the Senate—through compromise.  While meritorious petitions to review a patent should generally be granted, serial petitions over time from the same or related parties will not be allowed.

Another big question:  Who has the authority to make a final validity decision, civil-servant PTAB judges or the politically appointed Director of the Patent Office?  While the Supreme Court last year resolved that the Director is the final decision-maker, it left open questions about how the Director may make decisions.  This bill ensures that the decision-making process must be open to the public.  The public has a right to know when independent PTAB judges are making a decision, and when a politically-appointed Director is making a decision. We should not have a patent system where any given PTO Director can influence and decree decisions non-transparently and behind the scenes.

Our bill also addresses a concern raised by small business patent owners:  They had to pay to apply for a patent and then may have to pay again to defend it at the PTAB.  This is expensive, and we want to help small businesses shoulder the expense.  Thus, if a small entity has not already decided to undertake the expense of litigation, the Patent Office will cover the expense of a PTAB proceeding for that small business under our bill. 

. . . 

I know that Ranking Member Tillis and Senator Cornyn share my belief that the patent system should work well for all Americans and all sectors of our economy.  I look forward to continuing the bipartisan work of our IP Subcommittee to help deliver real improvements to our patent system. I want to leave behind an even stronger patent system that further empowers America’s greatest natural resource: our ingenuity and innovation. 

A Great Idea to Raise Funding for Research: University of Pennsylvania and NFTs

The University of Pennsylvania appears to be one of the first universities to use NFTs to raise additional funding for research.  The university is offering for sale an NFT that commemorates the development of the mRNA technology used to develop vaccines for COVID-19.  Here is a description of the project:

The NFT features a stunning, one-minute 3D animation of the type of modified mRNA that protects the immune system from SARS-CoV-2 and the platform technology which holds promise for combatting other infectious diseases, as well as immunotherapeutics, cancer treatments, genetic diseases, and more. The video shows mRNA encapsulated inside of lipid nanoparticles, the fat droplets that are the delivery technique Weissman’s lab applied to ensure mRNA reaches the right part of the body to trigger an immune response. The NFT also includes images of Penn mRNA patent documents and a letter from Weissman, who directs the Penn Institute for RNA Innovation, about the ways in which he and colleagues are leveraging the mRNA technology platform to fight not only coronaviruses but also influenza, herpes, malaria, sickle cell anemia and cancer.

Funds raised by the sale of the NFT—the first digital asset Penn has offered—will further important research across the university.

TRIPS Waiver Agreement Released

The following appears to be the “Draft Ministerial Decision on the TRIPS Agreement.”  Will COVID-19 vaccines become more available based on the waiver?  I am sure this will be carefully tracked. 

Ministerial Conference Twelfth Session Geneva, 12-15 June 2022 Original: English

DRAFT MINISTERIAL DECISION ON THE TRIPS AGREEMENT Revision

. . . The Ministerial Conference, Having regard to paragraphs 1, 3 and 4 of Article IX of the Marrakesh Agreement Establishing the World Trade Organization. Noting the exceptional circumstances of the COVID-19 pandemic; Decides as follows:

1. Notwithstanding the provision of patent rights under its domestic legislation, an eligible Member[Footnote 1] may limit the rights provided for under Article 28.1 of the TRIPS Agreement (hereinafter "the Agreement") by authorizing the use of the subject matter of a patent [Footnote 2] required for the production and supply of COVID-19 vaccines without the consent of the right holder to the extent necessary to address the COVID-19 pandemic, in accordance with the provisions of Article 31 of the Agreement, as clarified and waived in paragraphs 2 to 6 below.

2. For greater clarity, an eligible Member may authorize the use of the subject matter of a patent under Article 31 without the right holder's consent through any instrument available in the law of the Member such as executive orders, emergency decrees, government use authorizations, and judicial or administrative orders, whether or not a Member has a compulsory license regime in place. For the purpose of this Decision, the "law of a Member" referred to in Article 31 is not limited to legislative acts such as those laying down rules on compulsory licensing, but it also includes other acts, such as executive orders, emergency decrees, and judicial or administrative orders.

3. Members agree on the following clarifications and waiver for eligible Members to authorize the use of the subject matter of a patent in accordance with paragraphs 1 and 2:

(a) An eligible Member need not require the proposed user of the subject matter of a patent to make efforts to obtain an authorization from the right holder as set out in Article 31(b).

(b) An eligible Member may waive the requirement of Article 31(f) that authorized use under Article 31 be predominantly to supply its domestic market and may allow any proportion of the products manufactured under the authorization in accordance with this Decision to be exported to eligible Members, including through international or regional joint initiatives that aim to ensure the equitable access of eligible Members to the COVID-19 vaccine covered by the authorization.

(c) Eligible Members shall undertake all reasonable efforts to prevent the re-exportation of the products manufactured under the authorization in accordance with this Decision that have been imported into their territories under this Decision. [Footnote 3] Members shall ensure the availability of effective legal means to prevent the importation into, and sale in, their territories of products manufactured under the authorization in accordance with this Decision, and diverted to their markets inconsistently with its provisions, using the means already required to be available under the TRIPS Agreement.

(d) Determination of adequate remuneration under Article 31(h) may take account of the humanitarian and not-for-profit purpose of specific vaccine distribution programs aimed at providing equitable access to COVID-19 vaccines in order to support manufacturers in eligible Members to produce and supply these vaccines at affordable prices for eligible Members. In setting the adequate remuneration in these cases, eligible Members may take into consideration existing good practices in instances of national emergencies, pandemics, or similar circumstances. [Footnote 4]

4. Recognizing the importance of the timely availability of and access to COVID-19 vaccines, it is understood that Article 39.3 of the Agreement does not prevent an eligible Member from enabling the rapid approval for use of a COVID-19 vaccine produced under this Decision.

5. For purposes of transparency, as soon as possible after the adoption of the measure, an eligible Member shall communicate to the Council for TRIPS any measure related to the implementation of this Decision, including the granting of an authorization. [Footnote 5]

6. An eligible Member may apply the provisions of this Decision until 5 years from the date of this Decision. The General Council may extend such a period taking into consideration the exceptional circumstances of the COVID-19 pandemic. The General Council will review annually the operation of this Decision.

7. Members shall not challenge any measures taken in conformity with this Decision under subparagraphs 1(b) and 1(c) of Article XXIII of the GATT 1994.

8. No later than six months from the date of this Decision, Members will decide on its extension to cover the production and supply of COVID-19 diagnostics and therapeutics.

9. This Decision is without prejudice to the flexibilities that Members have under the TRIPS Agreement, including flexibilities affirmed in the Doha Declaration on the TRIPS Agreement and Public Health, and without prejudice to their rights and obligations under the TRIPS Agreement, except as otherwise provided for in paragraph 3(b). For greater certainty, this Decision is without prejudice to the interpretation of the above-mentioned flexibilities, rights and obligations outside the scope of this Decision.

Footnote 1: For the purpose of this Decision, all developing country Members are eligible Members. Developing country Members with existing capacity to manufacture COVID-19 vaccines are encouraged to make a binding commitment not to avail themselves of this Decision. Such binding commitments include statements made by eligible Members to the General Council, such as those made at the General Council meeting on 10 May 2022, and will be recorded by the Council for TRIPS and will be compiled and published publicly on the WTO website.

Footnote 2: For the purpose of this Decision, it is understood that 'subject matter of a patent' includes ingredients and processes necessary for the manufacture of the COVID-19 vaccine.

Footnote 3: In exceptional circumstances, an eligible Member may re-export COVID-19 vaccines to another eligible Member for humanitarian and not-for-profit purposes, as long as the eligible Member communicates in accordance with paragraph 5.

Footnote 4: This includes the remuneration aspects of the WHO-WIPO-WTO Study on Promoting Access to Medical Technologies and Innovation (2020), and the Remuneration Guidelines for Non-Voluntary Use of a Patent on Medical Technologies published by the WHO (WHO/TCM/2005.1).

Footnote 5: The information provided shall include the name and address of the authorized entity, the product(s) for which the authorization has been granted and the duration of the authorization. The quantity(ies) for which the authorization has been granted and the country(ies) to which the product(s) is(are) to be supplied shall be notified as soon as possible after the information is available

[Hat tip to Professor Justin Hughes]

Retraction of 2019 Statement on Remedies and SEPs

The USPTO, DOJ and NIST have issued a statement retracting the 2019 policy statement on remedies for SEPs.  The Press Release states:

WASHINGTON—The Department of Justice, U.S. Patent and Trademark Office (USPTO) and the National Institute of Standards and Technology (NIST) (the Agencies) announced today the withdrawal of the 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (2019 Statement). After considering public input on the 2019 Statement and possible revisions, the Agencies have concluded that withdrawal of the 2019 Statement is the best course of action for promoting both competition and innovation in the standards ecosystem.

On Jan. 8, 2013, the Antitrust Division of the Department of Justice and the USPTO issued a Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (2013 Statement). On Dec. 19, 2019 the Agencies withdrew the 2013 Statement and issued the 2019 Statement, which offered the views of the Agencies and expressly recognized that it had “no force or effect of law.” 

In July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy noting that, “[a] fair, open, and competitive marketplace has long been a cornerstone of the American economy.” He encouraged the Agencies to review the 2019 Statement to ensure that it adequately promoted competition.

In response to the Executive Order, on Dec. 6, 2021, the Agencies issued a Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments and a request for public comments through a Dec. 6, 2021 news release, extending the deadline for comments in a Dec. 13, 2021 news release. The Agencies thank the wide range of individuals, organizations and other stakeholders who submitted comments, all of which have been considered.

After a review of those comments and a collaborative deliberation on how best to proceed, the Agencies are announcing the withdrawal of the 2019 Statement. As noted in the Withdrawal of the 2019 Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments, “[a]fter considering potential revisions to that statement, the Agencies have concluded that withdrawal best serves the interests of innovation and competition.” 

“The U.S. Patent and Trademark Office is focused on creating incentives to generate more innovation, especially in underserved communities and in key technology areas, and maximizing that innovation’s widespread impact,” said Under Secretary of Commerce for Intellectual Property and USPTO Director Kathi Vidal. “Forging our global leadership in new industries cannot happen without greater investment in research and development in technologies that may become international standards. We also need greater U.S. engagement in global standards-setting organizations from our large multinational companies, as well as from small- to medium-sized businesses and start-ups. I stand behind any measure that will enable innovation that will drive sustainable, long-term growth in the U.S. economy.”

“The withdrawal of the 2019 Statement will strengthen the ability of U.S. companies to engage and influence international standards that are essential to our nation’s technology leadership and that will enable the global technology markets of today and tomorrow,” said Under Secretary of Commerce for Standards and Technology and NIST Director Laurie E. Locascio. “A common thread in so many of the thoughtful stakeholder comments we received is a commitment to America’s industry-led, voluntary, consensus-based approach to standards development. This approach consistently delivers the best technical solutions, and I wholeheartedly support it.”

“The Antitrust Division will carefully scrutinize opportunistic conduct by any market player that threatens to stifle competition in violation of the law, with a particular focus on abusive practices that disproportionately affect small and medium sized businesses or highly concentrated markets,” said Assistant Attorney General Jonathan Kanter. “I am hopeful our case-by-case approach will encourage good-faith efforts to reach F/RAND licenses and create consistency for antitrust enforcement policy so that competition may flourish in this important sector of the U.S. economy.”

In exercising its law enforcement role, the Justice Department will review conduct by standards essential patent (SEP) holders or standards implementers on a case-by-case basis to determine if either party is engaging in practices that result in the anticompetitive use of market power or other abusive processes that harm competition. In addition, in accord with President Biden’s Executive Order, the Agencies plan to continue to cooperate as appropriate on matters that affect the intersection of competition, standards development, and intellectual property rights. 

Standards-developing organizations (SDOs) and the widespread and efficient licensing of SEPs on reasonable and non-discriminatory (RAND) or fair, reasonable and non-discriminatory (FRAND) terms (collectively F/RAND) help to promote technological innovation, further consumer choice, and enable industry competitiveness, including in emerging technologies and by new and small- to medium-sized market entrants. 

SDOs may require parties participating in the standards development process to voluntarily commit to making patents essential to the standard available on F/RAND terms. The specific F/RAND commitments are contractual obligations that vary by SDO. United States laws and regulations govern the interpretation of those contractual obligations and otherwise govern the conduct of parties participating in SDOs.

Practicalities and Problems in Comparing and Setting FRAND Royalties for SEPs

I was a speaker last week at the Patents in Telecoms & the Internet of Things conference in London. This is an excellent biennial event, organized this year by Professor Sir Robin Jacob of UCL Laws and James Marshall of Taylor Wessing. It focuses on the topic of licensing Standard-essential Patents (SEPs) on Fair, Reasonable and Non-Discriminatory terms. I was on a panel among economists Jorge Padilla, Avantika Chowdbury, Tim Pohlman and Mark Schankerman in one of two sessions on FRAND Determination Methodologies: Principles, procedures and problems. The other session focused on comparable licenses. Our session also considered top-down and value-based methods as well as the economics in bargaining agreements.

I have received some requests from conference attendees asking for my panel session talking points. I am posting these here for access by all. My spoken remarks were slightly different, so as not to duplicate what had been said earlier at the event and to save some time. I have added several hyperlinks —mostly to articles of mine—to provide support to some of my assertions.

Value of SEPs in a large ecosystem downstream

Patented intellectual property in products and services such as cellular is clearly very valuable. In an ecosystem that is only 40 years old for voice services, 30 years old for text messaging and just 25 years old for Internet services, more than 6 billion of the world’s 8 billion population have a mobile phone. There are now more cellular connections than there are people on the planet. For most of these people their mobile phone is their primary or only means of calling or accessing the Internet for communications, information, entertainment and commerce.

According to a new report prepared by Kearney for the GSM Association of mobile operators, the Internet value chain was worth $ 6.7 trillion in 2020, with 28% of that value through connectivity services and devices and the vast majority of that in cellular.

Notwithstanding all that, a big question for us here today is what proportion of that value is attributable to cellular SEPs, as distinct from other SEPs and other forms of intellectual property. What are fair shares of value vertically down the supply chain from SEP owners to implementers in device manufacturing and further downstream. And, in the case of SEPs, what are fair and non-discriminatory charges horizontally among different patent owners and licensees?

Patent policies and business models

SEP licensing occurs with different patent policies among different standards setting organizations, and with differing business models among patent owners and voluntary licensing groups.

Some technology standards such as Bluetooth, USB and DOCSIS for cable modems are largely licensed royalty-free by mutual consent among most patent owners. With no patent fees, the only opportunity to monetize intellectual property  is downstream, for example, by implementation along with others’ IP in products.  

In the case of video standards such as AVC/H.264 the vast majority of SEPs are monetized through patent pooling. This voluntary private solution with licensing costing no more than around 20 cents per device divides royalties among patent owners, most of whom are also implementers.

Monetizing SEPs in cellular

In the special case of cellular, SEP owners justifiably seek rather higher royalties, in partial compensation for multi-billion dollar annual R&D investments for innovation and standards development, for example, by the likes of Ericsson, Nokia and Qualcomm at around $5 billion apiece annually. These fees are charged at the handset level at an average aggregate of approximately $10, which is 4% of the $250 average wholesale selling price for mobile phones.

In my previous presentation at this conference series— in Tokyo at the end of 2019— I showed that the economic value added of cellular connectivity, after incremental product costs, in a 4G smartphone was more than 20 times higher than that aggregate royalty rate percentage of 4%. I showed the example of an iPhone model that was priced by Apple at an additional $250 over that for a $200 iPod Touch with near identical functionality apart from the cellular capability costing $32 in manufacture. I also emphasized the significance of this beyond price setting by Apple in what economists call consumers’ “revealed preferences” with 12 times the volume and 46 times the value in sales of iPhones over all iPods.

While there is no cellular SEP licensing further downstream, SEP technologies also generate value in the extended ecosystem of Internet services and beyond including externalities (e.g. human health and safety).

Cellular SEP licensing in mobile phones is almost entirely bilateral among parties with various business models in developing standard-essential technologies and implementing them in devices.  Companies like Qualcomm and InterDigital are more dependent on out-licensing to generate revenue than are vertically-integrated SEP owners like Samsung that is more interested in protecting its downstream handset business with cross-licensing, and in minimizing licensing out-payments for its leading market share of handset sales.

Licensing frameworks

Licensing cellular SEPs is a complex matter given all the above and with FRAND commitments.

So now to the heart of the matter: including practicalities and problems with techniques employed in comparing and setting royalties.

There are various ways of: 1. Defining royalty prices and 2. Determining levels for these.

1.Price definitions

Pricing royalties can be ad valorem – i.e. a percentage of the device cost, or in dollars-per-unit charges, or with a hybrid of the two including dollar floors and caps. Lump sum prepayments are also common. Making comparisons among all these can be tricky and can be presented to give various impressions.

We tend to refer to percentage rates when, for example, talking about aggregate royalties.

Effective royalty rates paid (what I call royalty yields) including aggregate figures have fallen as royalty caps have been exceeded with increasing handset average selling prices as smartphone sales have surged since the mid-2000s.

2.Determining charges

Three commonly used methods include top-down, comparable licenses and value-based methods.

Top-down valuation

Use of top-down methods is inevitable, but I do not like them because of the way the aggregate is set and because of the way this is apportioned. Top-down is increasingly popular with the courts because it is simple and easy to apply. Serious shortcomings include:

• If the royalty base is a chip (e.g. in the  Innovatio case with royalties based on manufacturing profits there) it underrepresents where infringement occurs and where value is generated and is ordinarily paid for.
• As an antidote to alleged “royalty-stacking”, top-down is overkill.
• Even where royalty charges are based on handset prices, an aggregate rate cap is misleading.  The figure is commonly defined as the “worst case” maximum aggregate royalty rate that a licensee without anything to cross-license would be charged. But nobody would ever have to pay that much after various adjustments also demanded e.g. in nations with few patents, or in China were rates tend to be lower that the US and Europe.
• Resulting average payments are a small proportion of aggregate caps.
• I have seen no evidence that these caps were ever derived from any estimate of the economic value of the all the SEPs in the standard and how that should be apportioned vertically, versus downstream stakeholders including implementers.
• Caps are typically figures in announcements by a few self-selected industry players, who had self-serving motivations to limit royalties they would pay out as licensees — particularly with competition among different standards. Selected caps bear no relationship to aggregates actually paid.
• The use of top-down encourages what is called over-declaration. Goodhard’s Law effects result— "When a measure becomes a target, it ceases to be a good measure".
• Top-down regards all portfolios as having proportionately the same value. But not all patents are standard-essential, essentiality rates vary among SEP owners with some over-declaring, many patents would be found invalid if challenged, and patent values can vary enormously.
• Essentiality checking is very costly, inconsistent, biased and inaccurate.
• Bias is amplified by the courts’ habit of using more exacting and more accurate measures of essentiality checking in the numerator than in a less accurate and bloated denominator in their top-down calculations.
• The US Department of Justice’s 2019 Policy Statement on Remedies for SEPs subject to FRAND Commitments recognized these kinds of problems and instructed courts to avoid rote reference to any particular damages formula when instructing the jury.

Comparable licenses

These are seemingly ideal if they are well established with years of substantial licensed sales volumes and royalty payments. But we can have a chicken and egg problem with new standards such as 5G and some agreements have too little trading associated with them, or are associated with side deals and other actions that make them of dubious applicability.  In my experience with litigation, parties usually differ on which licenses are suitable comps. Some licensees object to use of agreements that were signed under the threat of alleged "patent hold-up". Comparing percentage rates with capped, dollar-per-unit or lump sum figures in different agreements is tricky.

Cross-licenses need to be unpacked to derive one-way rates, which is also problematic including because unpacking calculations tend to use SEP counts that are subject to similar shortcomings as where patent counts are used in top-down methods.

Implementers with small numbers of SEPs can have disproportionately strong leverage against major vertically integrated players with both large SEP portfolios and large downstream businesses to protect from patent infringement claims. Unpacking these cross-licenses underrates the major party.

Value-based methods

These methods are in accordance with patent law and are commonly used where few patents are involved. They seek to measure and apportion economic value. Techniques can include use of hedonic pricing models and consumer preference measurements with conjoint analysis.  I’ve used such techniques as a testifying expert witness in a non-SEP case and in cartel price-fixing litigation.

But judges seem less inclined to consider such methods in FRAND cases where they have misplaced concerns about alleged and unproven patent hold-up and royalty stacking, because they now have the crutch of top-down valuation methods to use in addition to comparable licenses. For example, in the TCL v. Ericsson Decision (which as unanimously and entirely vacated on appeal), Judge Selna threw out an Ericsson expert’s so called “Ex-Standard” valuation approach for lacking fundamental credibility and because the judge thought it suggestive of royalty stacking, even though the judge agreed that TCL did not challenge the methodology, but rather the inputs to the calculations.

I believe that value-based methods should be increasingly employed — not disregarded.  Imperfect though they all are, various different techniques should be explored to figure out where and how much real economic value is generated, and to set royalties accordingly.

Fair Use and the Future Explored: Chip N' Dale: Rescue Rangers Movie

Yesterday, my kids and I watched the new movie, Chip N’ Dale:Rescue Rangers.  This is probably the funniest Intellectual Property law related movie I’ve seen.  Disney takes on IP Law doctrine and policy in a very humorous way.  As an exercise in understanding U.S. IP law, the facts the movie raises are very nice.  Here’s a few examples: ET v. Batman; Ugly Sonic; Chippendales; and on and on.  They also take on: a glimpse at the future of augmented reality; artificial intelligence and creativity; culture wars; Hollywood nostalgia reboots (talk about bootlegging); and the future of counterfeiting. There are so many references my brain almost exploded from overload. As a tip, be sure to take in the background materials, e.g., advertisements. Lol. They take some pretty nice shots at competitors, but I wonder what’s going to come back.  Interestingly, the Pirates of the Caribbean ride at Disneyland has been closed for “refurbishment.”  [In full disclosure, I am a very big fan of Disney and may be extremely biased.]

White Hat Hackers Safe from CFAA Prosecution?

The U.S. Department of Justice announced yesterday that it will not prosecute white hat researchers under the Computer Fraud and Abuse Act!  However, white hat hackers beware: There are many state laws that criminalize such behavior.  The press release states:

The Department of Justice today announced the revision of its policy regarding charging violations of the Computer Fraud and Abuse Act (CFAA). 

The policy for the first time directs that good-faith security research should not be charged. Good faith security research means accessing a computer solely for purposes of good-faith testing, investigation, and/or correction of a security flaw or vulnerability, where such activity is carried out in a manner designed to avoid any harm to individuals or the public, and where the information derived from the activity is used primarily to promote the security or safety of the class of devices, machines, or online services to which the accessed computer belongs, or those who use such devices, machines, or online services. 

“Computer security research is a key driver of improved cybersecurity,” said Deputy Attorney General Lisa O. Monaco. “The department has never been interested in prosecuting good-faith computer security research as a crime, and today’s announcement promotes cybersecurity by providing clarity for good-faith security researchers who root out vulnerabilities for the common good.”

The new policy states explicitly the longstanding practice that “the department’s goals for CFAA enforcement are to promote privacy and cybersecurity by upholding the legal right of individuals, network owners, operators, and other persons to ensure the confidentiality, integrity, and availability of information stored in their information systems.” Accordingly, the policy clarifies that hypothetical CFAA violations that have concerned some courts and commentators are not to be charged. Embellishing an online dating profile contrary to the terms of service of the dating website; creating fictional accounts on hiring, housing, or rental websites; using a pseudonym on a social networking site that prohibits them; checking sports scores at work; paying bills at work; or violating an access restriction contained in a term of service are not themselves sufficient to warrant federal criminal charges. The policy focuses the department’s resources on cases where a defendant is either not authorized at all to access a computer or was authorized to access one part of a computer — such as one email account — and, despite knowing about that restriction, accessed a part of the computer to which his authorized access did not extend, such as other users’ emails.

However, the new policy acknowledges that claiming to be conducting security research is not a free pass for those acting in bad faith. For example, discovering vulnerabilities in devices in order to extort their owners, even if claimed as “research,” is not in good faith. The policy advises prosecutors to consult with the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) about specific applications of this factor. 

All federal prosecutors who wish to charge cases under the Computer Fraud and Abuse Act are required to follow the new policy, and to consult with CCIPS before bringing any charges. Prosecutors must inform the Deputy Attorney General (DAG), and in some cases receive approval from the DAG, before charging a CFAA case if CCIPS recommends against it. 

The new policy replaces an earlier policy that was issued in 2014, and takes effect immediately.