The Subcommittee on IP in U.S. Senate Reinstated; First Action is Patent Eligible Subject Matter Reform

Recently, several members of Congress have reinstituted the Subcommittee on Intellectual Property in the U.S. Senate.  This, in and of itself, is relatively big news.  We can expect a good amount of proposed legislation moving out of this subcommittee concerning intellectual property in the near future.  

The first document to issue from the subcommittee (and includes support from members of the House of Representatives as well as the Senate) is essentially a framework for Section 101 patent eligible subject matter reform.  Patent eligible subject matter has been a controversial topic in the United States for years, and attempts to cabin the U.S. Supreme Court Alice v. CLS Bank/Mayo v. Prometheus decisions by the United States Patent and Trademark Office and some judges of the U.S. Court of Appeals for the Federal Circuit has led to a relatively messy and some may argue contradictory set of guidelines, rules and precedent.  This may be unhelpful to promote investment and innovation. 

A Press Release from Senator Christopher Coons from Delaware sets forth the outline of the framework:

·         Keep existing statutory categories of process, machine, manufacture, or composition of matter, or any useful improvement thereof.

·         Eliminate, within the eligibility requirement, that any invention or discovery be both “new and useful.” Instead, simply require that the invention meet existing statutory utility requirements. 

·         Define, in a closed list, exclusive categories of statutory subject matter which alone should not be eligible for patent protection. The sole list of exclusions might include the following categories, for example: 

·         Fundamental scientific principles;

·         Products that exist solely and exclusively in nature;

·         Pure mathematical formulas;

·         Economic or commercial principles;

·         Mental activities. 

·         Create a “practical application” test to ensure that the statutorily ineligible subject matter is construed narrowly.

·         Ensure that simply reciting generic technical language or generic functional language does not salvage an otherwise ineligible claim.

·         Statutorily abrogate judicially created exceptions to patent eligible subject matter in favor of exclusive statutory categories of ineligible subject matter.

·         Make clear that eligibility is determined by considering each and every element of the claim as a whole and without regard to considerations properly addressed by 102, 103 and 112. 

While this list appears to serve as a list of the broad strokes of the new legislation, it clearly appears to roll back the Alice/Mayo test.  Some of the parts of the framework appear to be concessions to some groups who might be opposed to broad subject matter eligibility, such as some technology companies.  For an IP legislative wish list by the AIPLA, please see, here.  A Congressional Research Service report on patent eligibility reform by Professor Jay Thomas is available, here.  The CRS report predates some of the more recent U.S. Court of Appeals for the Federal Circuit and USPTO decisions concerning eligibility, and includes a discussion of patent eligibility reform proposals from major IP trade associations.  If patent eligibility legislation is passed along the lines of the framework, it nicely sets up the question of how we should reform nonboviousness law, which will have increased importance as the major policy lever policing patentability. 

Here are some of the statements of Congressmen supporting patent eligibility reform:

“Today, U.S. patent law discourages innovation in some of the most critical areas of technology, including artificial intelligence, medical diagnostics, and personalized medicine,” said Senator Coons. “That’s why Senator Tillis and I launched this effort to improve U.S. patent law based on input from those impacted most. I am grateful for the engagement of all stakeholders participating in our roundtables, as well as the bipartisan and collaborative efforts of colleagues in both the Senate and the House. I look forward to continuing to receive feedback as we craft a legislative solution that encourages innovation.”

“Senator Coons and I requested to re-instate the Senate Judiciary Subcommittee on IP because we saw a need to reform our nation’s complicated patent process, starting with section 101,” said Senator Tillis. “The release of this framework comes after multiple roundtables and extensive discussions with stakeholders who would be affected by reforming Section 101. Senator Coons and I look forward to receiving feedback from the release of this framework and encourage anyone who might potentially be affected to contact our office and offer us input.”

 “Upgrading the patent eligibility test is critical if we want American innovation to continue to lead worldwide,” said Rep. Collins. “Encouraging innovation in Georgia and throughout our country means restoring confidence for inventors and investors that their patent rights will be upheld in court.”

“I’m pleased to participate in this important and relevant roundtable. Many have voiced concerns about uncertainties in in this area of patent law jurisprudence, and I’m interested in hearing from all stakeholders as we continue to work towards a consensus solution,” said Congressman Hank Johnson, who serves as Chairman of the Judiciary Subcommittee on Courts, IP and the Internet. “I particularly look forward to—and welcome—feedback on the outline proposal we’re considering here today.”

“In my home state of Ohio, leaders in the fields of biologics research and diagnostics will deliver the cures of tomorrow. This is only possible if we can protect those innovations with the patent protection that rewards the risks and investment necessary to discover the next great idea,” said Rep. Stivers. “We have the opportunity to advance our society in so many exciting and unknown ways, and we need to ensure we have a patent system that encourages that kind of game-changing innovation, instead of stifling it.”

South Africa's Acute IP Information Gap

I have been busy this past month researching and speaking on the important relationship between IP, governance, business finance and accounting in the context of the collapse of Steinhoff involving irregularities in reporting on IP, the dramatic sale of EOH shares following the termination of Microsoft reseller license, the ongoing Makate drama involving the value of a payment for IP successfully taken to market by Vodacom and the reputational elements of allegations of copying by Woolworths. These examples exist against an international backdrop created by the dramatic Theranos demise, following revelations that its patented technology did not work.

The research included a collaboration with the CEOs of governance group FluidRock - Ronelle Kleyn and Adv Annamarie Van Der Merwe, time spent with the helpful Institute of Directors in Southern Africa's new CEO - Parmi Natesan, a great read of the new book by Janice Denoncourt "Intellectual Property, Finance & Corporate Governance", an analysis of Brand Finance's Global Intangible Asset Tracker 2018, various discussions with local financial guru and Managing Partner of Cartesian Capital - Anthea Gardner, assistance from Adams & Adams' Mark Beckman and progressive associate Nicholas Rosslee.

In summary, there exists an increasingly important IP information gap in financial disclosures in South Africa that is severely hampering business growth, cultural preservation and opportunity. The IP information gap exists across the business spectrum; large, medium and small businesses are affected. Whilst this is a global challenge, it is particularly acute in South Africa especially in the area of patents. South Africa's patent economy is woeful and stands in stark contrast to its capacity to innovate. It is extremely important to address this gap which starts with a concerted drive on IP education, self audits and the cultivation of an economy that understands the benefit of investing in IP to stimulate growth and further innovation, and also how to draft, use and interrogate an IP narrative in financial accounts effectively.

The slide deck for the seminar co-hosted with FluidRock at the Johannesburg Stock Exchange that attracted over 200 people can be found: here, the article published in Business Day: here, the PowerTalk interview with the award winning journalist Iman Rappetti: here, and the talented 702 Morning Show presenter Relebogile Mabotja: here.

This is an ongoing conversation that traverses a number of different disciplines. I am hoping that this is start of more on the subject for a richer understanding of how innovation and stakeholder interest can be made more transparent, open and effective through the use of IP.  

Two New U.S. Supreme Court Cases on Copyright Law

The U.S. Supreme Court has issued a pair of copyright decisions.  The first concerns the award of costs and the second is directed to registration as a prerequisite to bringing an infringement action.  The first case, Rimini Street v. Oracle, determined that an award of costs is limited to the costs specified in 28 U.S.C. section 1920 and 1821.  The opinion quotes section 1920 and states:

The six categories that a federal court may award as costs are:
"(1) Fees of the clerk and marshal;
(2) Fees for printed or electronically recorded transcripts necessarily obtained for use in the case;
(3) Fees and disbursements for printing and witnesses;
(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;
(5) Docket fees under section 1923 of this title;
(6) Compensation of court appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section 1828 of this title." 28 U. S. C. §1920.

Moreover, the general costs statute “§1821 provides particular reimbursement rates for witnesses' "[p]er diem and mileage" expenses.”  Thus, Oracle is unable to recover for costs such as “expert witness fees, e-discovery expenses, and jury consultant fees.”

The second case, Fourth Estate Public Benefit Corp. v.Wall-Street.com, determined that generally a copyright owner must obtain a registration before filing an infringement suit.  This clears up a prior split of jurisdictions concerning whether an application for registration was sufficient to file an infringement suit. 

Clausing on the Benefits of Globalization

Professor Kimberly Clausing, the Thormund Miller and Walter Mintz Professor of Economics at Reed College, has authored a Harvard University Press book titled, “Open. The Progressive Case for Free Trade, Immigration, and Global Capital.”  The reviews of the book are very positive.  I’ve pasted them below.  Here is the abstract: 

With the winds of trade war blowing as they have not done in decades, and Left and Right flirting with protectionism, a leading economist forcefully shows how a free and open economy is still the best way to advance the interests of working Americans.

Globalization has a bad name. Critics on the left have long attacked it for exploiting the poor and undermining labor. Today, the Right challenges globalization for tilting the field against advanced economies. Kimberly Clausing faces down the critics from both sides, demonstrating in this vivid and compelling account that open economies are a force for good, not least in helping the most vulnerable.

A leading authority on corporate taxation and an advocate of a more equal economy, Clausing agrees that Americans, especially those with middle and lower incomes, face stark economic challenges. But these problems do not require us to retreat from the global economy. On the contrary, she shows, an open economy overwhelmingly helps. International trade makes countries richer, raises living standards, benefits consumers, and brings nations together. Global capital mobility helps both borrowers and lenders. International business improves efficiency and fosters innovation. And immigration remains one of America’s greatest strengths, as newcomers play an essential role in economic growth, innovation, and entrepreneurship. Closing the door to the benefits of an open economy would cause untold damage. Instead, Clausing outlines a progressive agenda to manage globalization more effectively, presenting strategies to equip workers for a modern economy, improve tax policy, and establish a better partnership between labor and the business community.

Accessible, rigorous, and passionate, Open is the book we need to help us navigate the debates currently convulsing national and international economics and politics.

Here are the reviews from the Harvard University Press website:

“Global integration will not work if it means local disintegration. Kim Clausing’s important book lays out the economics of globalization and, more important, shows how globalization can be made to work for the vast majority of Americans. I hope the next President of the United States takes its lessons on board.”—Lawrence H. Summers, Harvard University, former Secretary of the Treasury

“It is all too easy to blame the recent troubles of advanced economies—including slower growth, rising inequality, and lower social mobility—on economic globalization. Kimberly Clausing’s comprehensive but crystal-clear new book shows that ‘the fault lies not in our stars, but in ourselves’: if only the political will is there, national policy can harness globalization as a force for inclusive growth. This is a message that thoughtful citizens of every political stripe need to absorb.”—Maurice Obstfeld, University of California, Berkeley, and former Chief Economist, International Monetary Fund

“Open provides a vitally important corrective to the current populist moment. Clausing brings the underlying economics to life, showing that walls won’t keep prosperity trapped within; they’ll keep new ideas out, deter valuable foreign capital, close off investment opportunities, prevent our businesses from learning from others, and destroy the vigor that comes with a vibrant immigrant community. Most important, Open points the way to a kinder, gentler version of globalization that ensures that the gains are shared by all.”—Justin Wolfers, University of Michigan

“Anyone interested in the biggest economic debates of our time would benefit from reading Open. Kimberly Clausing marshals a wide range of evidence and analysis to address the question of how to advance the prospects of the middle class. Her answer is a combination of timeless truths about the importance of openness updated in often novel ways to address the challenges of today’s global economy.”—Jason Furman, Harvard University, former Chairman of the Council of Economic Advisers

“Clausing, a respected international economist and one of the world’s leading experts on multinational firms’ responses to tax policy, has created a clarion call for a return to reason by polarizing forces on both sides of the political isle. There is something in here for people on both sides to love and to hate, but plenty for everyone to learn.”—Katheryn Russ, University of California, Davis

Hat tip to Professor Paul Caron’s TaxProf Blog. 

Heavily Taxing Billionaires to Promote Innovation

An important issue confronting the world concerns the high concentration of wealth and redistribution of that wealth through the tax system. Part of the problem is what to do with the wealth gained from additional taxation of billionaires (and what is a politically defensible use of that additional revenue). Democratic presidential candidates are starting to create a "dream list" of things to do with billionaires' money.  Well, why not use that money to invest in research and development which may lead to more jobs, innovation (even life saving innovation), and additional tax revenue.  

Professor Michael Simkovic from University of Southern California Gould School of Law takes on general claims that taxing billionaires may lead to less innovation in a short five page article titled, “Taxes, Spending and Innovation.”  Professor Simkovic points to studies concerning patents and Nobel Prize winners.  Professor Simkovic states:

Public policy can be used to promote innovation by raising taxes and extensively funding high quality science, math, and engineering education, or by encouraging immigration of people with those skills.

There has been a general decline in the amount of federal funding in terms of real dollars for some time for the National Institutes of Health.  Well, billionaires give to universities and other charities, right?  We don't need to heavily tax them as they choose to give their wealth to charitable organizations that innovate.  Professor Simkovic notes that voluntary gifts to charity, including to universities, is relatively small at “2% of GDP”—for gifts from all donors.  He concludes we should look to peer-reviewed empirical work to test claims and that, “Claims that we can drive more innovation and growth through a higher concentration of resources in the hands of a small number of billionaires—while providing fewer resources to middle and upper middle--‐class knowledge workers—are not empirically supported.”  [Hat Tip to Professor Paul Caron’s Tax Prof Blog]. 

Noncompetition Agreements as Tax Evasion?

Professor Rebecca Morrow at Wake Forest University Law School has authored an interesting article, titled "Noncompetition Agreements as Tax Evasion," concerning the ubiquity of noncompetition agreements and potentially attacking those agreements through treatment of them as tax evasion.  Here is the abstract:

Al Capone famously boasted of his criminal empire: “Some call it bootlegging. Some call it racketeering. I call it a business.” Treasury Agent Frank Wilson and Prosecutor George Johnson put Capone behind bars not by disputing his characterization and pursuing murder or assault or RICO charges, but by accepting it and enforcing its tax implications. Irrespective of their legality, Capone’s businesses were profitable, and Capone had not reported their profits for tax purposes. A simple application of bedrock tax law achieved what other legal routes failed to achieve and sent Capone to Alcatraz. The trick was to see the tax argument.

Policymakers should use a similar approach to curtail the excessive, exploitative, and anticompetitive use of employment noncompete agreements. Currently, nearly one in five (or thirty million) American workers is bound by an employment noncompete. Employers claim that they adequately compensate employees for noncompete restrictions with higher wages, bigger raises, and/or more generous bonuses. Policymakers scoff at this claim and use contract law to attack them. Unfortunately, employment noncompetes are like Al Capone in that they have flourished despite the law’s efforts to restrain them. Recently, the largest study of noncompetes in U.S. history paradoxically found that their prevalence is unaffected by their enforceability. In states like California that refuse to enforce employment noncompetes, they are as common as in states that uphold them. Contract law has proved ill-equipped to respond to the pervasive, expanding, and damaging use of noncompetes.

This Article is the first to shift the focus and to argue that employment noncompetes, as employers currently use them, constitute tax evasion and should be attacked as such. If employers pay employees for noncompetes through compensation, then by employers’ own account, this compensation is not purely an expense associated with immediate benefits; rather, it is an expenditure associated with future benefits — benefits that the employer will enjoy years after payment. Thus, the IRS should stop allowing employers to fully immediately deduct the compensation they pay to employees subject to noncompetes and instead should require that an adequate portion of total compensation be allocated to the noncompete and amortized over the restricted period, beginning when employment ends.

The article is available, here.  [Hat tip to Professor Paul Caron's TaxProf Blog.]

Mayer Brown Cybersecurity and Data Privacy Report

The law firm of Mayer Brown has published its 2019 Outlook: Cybersecurity and Data Privacy Report.  The 20 page Report warns that cybersecurity breaches are likely to increase in 2019.  Helpfully, the Report provides an overview of numerous new and potentially forthcoming regulatory changes in the United States and other countries.  For example, the Report covers U.S. Department of Transportation and Federal Drug Administration regulation.  The Report also raises the National Association of Insurance Commissioners model data security law that was adopted by the state of South Carolina, Ohio and Michigan.  The Report also covers some potential differences in law across countries such as maintaining privilege and preserving documents in anticipation of litigation.  On trade secrets, the Report notes:

Trade Secret Theft. Companies should expect the current Administration to remain focused on the threat to American economic prosperity and national security posed by economic espionage in 2019. In 2015, China and the United States publicly committed to not engage in the cyber-enabled theft of intellectual property for commercial gain. Recent statements from senior administration officials and high-profile indictments brought by the Department of Justice indicate the view of some leading government officials that China has failed to adhere to that commitment. For example, the Department of Justice indicted two Chinese nationals associated with the Chinese Ministry of State Security of numerous hacking offensives associated with a global campaign to steal sensitive business information. Congress is also likely to consider legislative responses to trade secret theft and economic espionage. These actions suggest that 2019 is likely to see further disputes with China over cyber theft of trade secrets. Companies—especially those in industries that have previously been targeted by espionage campaigns— are likely to benefit from tracking developments in this space.

President Trump noted that he is continuing to push China on cybersecurity issues concerning trade secret theft in his recent State of the Union address:

We are now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end.

Therefore, we recently imposed tariffs on $250 billion of Chinese goods -- and now our Treasury is receiving billions of dollars a month from a country that never gave us a dime. But I don't blame China for taking advantage of us -- I blame our leaders and representatives for allowing this travesty to happen. I have great respect for President Xi, and we are now working on a new trade deal with China. But it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.

Mayer Brown has also issued a discussion of the European Union Agency for Network and Information Security ("ENISA") 2018 Threat Landscape Report. 

U.S. State Wants to Adopt "Netflix" Model for Paying for Pharmaceuticals

The state of Louisiana is attempting to adopt the Netflix model of paying for pharmaceuticals as a way to tackle the high cost of pharmaceuticals and public health issues.  The Netflix model was proposed in a recent article.  Basically, the state pays a set price for an unlimited number of drugs for its citizens.  This has the benefit of providing certainty as to price as well as opens up access to the drugs to more people than previously treated.  The Washington Post discusses Louisiana and the Netflix model, here.  The abstract of the article titled, Alternative State-Level Financing for Hepatitis C Treatment—The “Netflix Model”, authored by Mark R. Trusheim, MS; William M. Cassidy, MD; Peter B. Bach, MD is in the November issue of the Journal of the American Medical Association states:

Drug prices in the United States remain the highest in the world. New payment approaches are needed, a point illustrated by the new treatments for hepatitis C virus (HCV) infection that are highly effective but also very expensive, at least from the view of many payers, physicians, and patients. Five years after the introduction of these drugs, and due in many cases to budgetary constraints of state Medicaid programs and prisons, only 15% of the estimated population of more than 3 million individuals with HCV infection in the United States have been treated. Yet the optimal way to treat HCV is at the population level, that is, by treating every patient possible, with as much speed as is possible. Doing so would reduce the health consequences for those infected, generate the most future savings from improved health, and help decrease future transmission of HCV from person to person.

The Median Salaries of Bay Area Technology Companies

Have you ever wondered what are the median salaries at Silicon Valley/Bay Area technology companies?  It must be very high given the astronomical cost of living there, right?  The Silicon Valley Business Journal has collected the median salaries of the following companies:

Advanced Micro Devices, Inc.; Apple Inc. Arista Networks, Inc.; Autodesk, Inc.; BioMarin Pharmaceutical Inc.; Bio-Rad Laboratories, Inc.; Cadence Design Systems, Inc.; Cisco Systems, Inc.; Citrix Systems, Inc.; Dell Technologies; Dolby Laboratories Inc.; eBay Inc.; Equinix, Inc.; Electronic Arts Inc.; Facebook, Inc.; FireEye, Inc.; Fortinet, Inc.; GoPro, Inc.; Guidewire Software, Inc.; Illumina, Inc.; Intel Corporation; Intuit Inc.; Intuitive Surgical, Inc.; Marvell Technology Group Ltd.; Micron Technology, Inc.; Microsoft Corporation; Nektar Therapeutics; NetApp, Inc.; Netgear, Inc.; Nvidia Corporation; Oracle Corporation; Palo Alto Networks, Inc.; PayPal Holdings, Inc.; Raytheon Co.; Salesforce.com; ServiceNow, Inc.; Square, Inc.; Splunk, Inc; Symantec Corporation; Tesla Inc.; Twitter, Inc.; Varian Medical Systems, Inc.; Veeva Systems Inc.; Visa, Inc.; VMware, Inc.; Xilinx, Inc.; Yelp Inc.; Zynga Inc.

Here is a link.  Enjoy!