Intellectual Property

Impact on IP: What Effect Will The US-China “Phase 1” Trade Deal Have

Ian Sannes, MJLST Staffer

After 18 months of intense negotiations, the US and China finally reached an agreement with many provisions covering a wide variety of topics. Although the agreement has a focus on tariffs, it also addresses intellectual property (IP) rights both in China and the US. This deal is referred to as “Phase 1” and went into effect last week. In part, the deal is meant to increase and facilitate the ability of US businesses to operate in China.

From the US point of view, this deal strengthens IP rights of US patents in China. In fact, this strengthening of IP rights is arguably the most significant part of the entire deal. However, China also benefits from this because, as the previous deputy director of the National Economic Council Clete Willems said, “better intellectual property protection means more investment in China.” This makes sense, if US products are protected in China, then US companies will want to invest heavily to develop those products in a country that has more purchasing power than any other country in the world.

So, what changes to IP protections have been made?

The cornerstones of the IP protections implemented in the deal are wide-ranging. They include increasing trade secret protections, increasing pharmaceutical IP protections, extending patent terms, combating counterfeits, reforming trademark provisions, and improving judicial enforcement in IP cases. Some of these changes are discussed in more detail below.

The deal also put a stop to “forced technology transfers” that require US firms to share technology with Chinese companies to compete in their market. However, some are concerned that since this provision requires a wronged company to file a complaint with the Office of the US Trade Representative that may depend on other Chinese government approvals, this provision may be hard to enforce in practice.

Many US companies believe certain judicial proceedings in China are a pretext to force them to disclose valuable trade secrets. Phase 1 prohibits any proceeding from forcing such unauthorized disclosure of information. The deal also shifts the burden to the defendant in a trade secret case to prove their innocence after the plaintiff survives dismissal of the case. The deal brings the Chinese definition of trade secret more in line with the definition used in the US by expanding it to include “electronic intrusion and breach of confidentiality.”

The deal also increases patent terms for pharmaceuticals “to compensate for unreasonable delays” made in granting the pharmaceutical patents. This makes it easier for US drugs that took many years to make it through the Chinese patent system to recoup the development costs and to turn a profit. The deal allows for up to five years of extension to patent terms. Furthermore, the deal includes provisions for “effective and expeditious” actions against “counterfeit medicines and biologics, including active pharmaceutical ingredients, bulk chemicals, and biological substances.”

Finally, the deal also increases the severity of punishments for stealing or infringing IP rights. Besides improvements to detect and stop infringing counterfeits, audits may also be used to show that the Chinese government itself only uses licensed software.

These are just some of the many provisions included in Phase 1. The deal helps to make the US and Chinese IP systems “further aligned” and this can create efficiencies in standardization, improve clarity, and promote cooperation. This deal strengthens both the US and China economies and promotes trade and investment in each country while protecting IP. Furthermore, a Phase 2 trade deal is likely in the future. Hopefully, this new deal will include more IP protections for both countries and strengthen the economic bond between the countries even more.


Orange Book, Purple Book, Complex Products, and Process Patents

Philip E. Alford, Ph.D., MJLST Staffer

Complex Products and Process Claims

The most economically important pharmaceutical innovations of the past decade have centered around biologics and complex non-biologic products. Biologics are a diverse class of therapeutic products, typically produced via biotechnology or obtained from biological sources. Biologics often contain complex mixtures or large, elaborate molecules that are intricately folded into a specific desired conformation. In many respects, we do not yet have the technology to characterize all the functional elements of these products fully, and sometimes it is not possible to make the products synthetically or according to alternative processes. Even minor variations in biologic manufacturing can result in a product having different properties. Since the manufacturing process may be one of the most accurate ways to describe a biologic, patent strategies for biologics typically give extra emphasis around process patents. Indeed, biologic process claims have proven to be a powerful tool, and process patents have been at the core of the first waves of biosimilar litigation.

Non-biologic drugs can also be so complex as to defy characterization and reproduction. Such products are now referred to as complex products or non-biological complex drugs (NBCDs), as well as “nanomedicine” or “synthetic biologics.” Like biologics, many complex products have the challenge that different manufacturing processes can result in the product having divergent properties. Thus, manufacturing aspects are uniquely important to both complex products and biologics. Where the patent system is involved in the regulatory framework, process patents should play a central role in protecting complex products from generic entry. Yet for complex drug products, FDA does not integrate process patents into the generic entry process.

Despite being difficult to truly reproduce, complex products are nonetheless susceptible to market pressure under Hatch-Waxman-type generic entry 21 USC 355(b)(2) and 355(j), i.e., via Food Drug & Cosmetic Act 505(b)(2) and 505(j) applications. The Hatch-Waxman Act, discussed in more detail below, ingeniously incorporated the patent system as a secondary gatekeeper in FDA’s generic drug approval process. The so-called Orange Book is the nexus uniting two separate regulatory regimes. However, FDA has interpreted that the Orange Book and Hatch-Waxman provisions invoke only on the types of patents that were important for determining infringement of traditional, small molecule drugs, namely, drug and therapeutic use claims. The Orange Book expressly excludes process patents. 21 C.F.R. §314.53.

Although product-by-process claims can be permitted, the resulting product must be novel, and product-by-process claims are not interchangeable with process claims. (For example, see, MPEP 2113 and Judge Newman’s dissent in Abbott Labs. v. Sandoz, Inc, suggesting that process claims and product-by-process claims are held to different validity standards.)

Hatch-Waxman as a political bargain.

When Congress passed the Hatch-Waxman Act was passed in 1984, the Act represented a classic political bargain. The hope was to strike a balance between innovation and competition by strengthening the golden years of brand drugs while facilitating subsequent generic entry. Pioneers of approved new drugs were given up to 5 years of data exclusivity during which FDA would not approve a generic of the drug. Additionally, one of the pioneer’s patents could be extended up to 5 additional years to compensate for lost patent term consumed while seeking FDA approval. In turn, the Act provided a new, streamlined process for drug makers to obtain approval of generic drugs.

A key provision of the Act directs the drug pioneer to identify its patents in the Orange Book. The listed patents must (1) claim the new drug, or (2) claim a method of using the drug, in so far as a claim of infringement could reasonably be asserted if another engaged in the manufacture, use, or sale of the drug. 21 U.S.C. §355(b)(1)(G). The Orange Book thus represents an essential part of the Hatch-Waxman political bargain. Process (manufacturing) patents are expressly excluded from the Orange Book, as are patents relating to packaging, metabolites, or intermediates. 21 C.F.R. §314.53.

The Orange Book lists these patents alongside each FDA approved drug. Before obtaining approval of a generic, the generic drug maker must certify to FDA that the patents listed in the Orange Book are expired, invalid, or will not be infringed by its generic. 21 U.S.C. §355(b)(2)(A) and 21 U.S.C. 355(j)(2)(vii). Under 35 U.S.C. § 271(e)(2), such certifications of invalidity or non-infringement constitutes an act of infringement permitting the pioneer to sue the generic drug maker before the generic ever reaches the market. Prompt litigation can trigger a stay on the generic’s approval. In this manner, the Orange Book serves not only as a mechanism for transparency (informing the public of patent and regulatory exclusivities), but also as a mechanism for litigation. The Orange Book has served both causes well.

As blockbuster biologics began to approach the end of the foreseeable patent life, FDA created a compendium of BLA-approved biological products loosely mirroring the Orange Book, but for biologics instead of drugs. Reverently, FDA named this volume the Purple Book. Unlike the Orange Book, the Purple Book has had no reason to list patents because the generic drug provisions of the Hatch–Waxman Act apply only to drug approvals under 21 U.S.C. §355(b) and 21 U.S.C §355(j). The Biologics Price Competition and Innovation Act of 2009 (BPCIA) provides a framework for approving biosimilars and resolving patent disputes. Instead of referring to a book of approvals and patents, the BPCIA invokes a so-called patent dance exchange of patent information. 42 USC § 262 (l). This patent information includes not only composition and use claims, but also process of manufacture claims. Conceptually, the dance was expected to lead the parties to agree on an initial set of patents to litigate and thus control the tempo and scope of litigation. However, the parties soon recognized that dancing is optional. Sandoz Inc. v. Amgen Inc., 137 S. Ct. 1664. Dance or no dance, the parties ultimately litigate their patent disputes, which often center the methods of manufacturing the biologic product.

As new biologics and complex drug products come to market, process claims are likely to be increasingly important.

Possible Legislation to the Orange Book and Purple Book

This year, Congress considered legislation sponsored by members of the House Committee on Energy and Commerce proposing changes to the way the Purple Book and Orange Book function.

The Purple Book Continuity Act of 2019 proposes that the purple book be updated to list patents generated during the ‘patent dance’ of 42 USC § 262 (l), which would include process patents or any other patent likely to be important in an infringement claim. Any such patents listed in the Purple Book would not function as a regulatory gatekeeper for generics since no mechanism yet exists for the Purple Book to do so. Still, from a transparency point-of-view, it seems like a reasonable choice to have the Purple Book act at least as a compendium of relevant patents. The Orange Book Transparency Act of 2019 proposes a requirement to list the drug substance, drug product, and method of use patents, while also requiring removal of any patents that are improperly listed (presumably including process patents absent any change to 21 C.F.R. §314.53). Although the House Committee on Energy and Commerce sponsored both acts, each take differing approaches to process patents. It seems illogical to insert process patents into the Purple Book, while more tightly excluding process patents from the Orange Book at a time when process claims are increasingly more important to modern therapeutics.

Indeed, FDA has expressly focused on the manufacturing process when trying to understand how a generic relates to a reference complex product. For example, FDA explained that a central part of their inquiry was whether the generic is made according to the same process as the original®, a non-biologic complex product, FDA explained that a central part of their inquiry was whether the generic is made according to the same process as the original. See, also, Bell et al., which discusses FDA’s criteria for approving a generic even when there is no physicochemical or biological characterization technique to establish active ingredient sameness. If such an inquiry is part of FDA’s analysis for permitting the sale of a generic drug, then it should be more than enough to justify listing process patents in the orange book.

If Congress revisits either of these matters, it should adjust the code to include process patents in both the Orange Book and the Purple Book. Listing process patents in the Orange Book would serve a public good, namely, that of transparency, but also would notify competitors of the manufacturing space the pioneer drug company intends to protect. Delaying such litigation until after a possible generic approval is messy for all parties involved. As more medications become too complex to manufacture by alternative routes, the importance of process patents in complex biologic and nonbiologic drugs will only increase.

 


Information Sharing: Tesla and the Open Patent Framework

Bernard Cryan, MJLST Staffer

Information Sharing: Tesla and the Open Patent Framework

By Bernard Cryan

Patents offer powerful protection of intellectual property, i.e., inventions. Patents confer the patent owner the right to exclude others from making, using, or selling the patented invention for a limited time. In return for a limited monopoly, the inventor must disclose the invention. This is the classic quid pro quo of the patent system—a limited monopoly granted by the government to an inventor in exchange for revealing helpful information to society. Tesla owns many patents on its electric vehicle technology. Under Elon Musk’s direction, Tesla has decided to allow others to use its patented technologies to “accelerate sustainable transport.”

The Patent System

The patent system often works as expected—the patent owner practices the patented invention and prevents others from doing so. Sometimes, however, the patent system can behave oddly. For example, contrary to popular belief, patents do not grant the patent owner automatic permission to practice the invention. This situation can occur in the pharmaceutical industry. For instance, a drug maker can acquire a patent on a pharmaceutical not yet approved by the Food and Drug Administration (FDA). As a result, the drug company cannot itself make, use, or sell the drug—even though it owns a patent on the drug. Therefore, a patent alone is insufficient to practice the invention. An additional inquiry is required, i.e., is the patent owner allowed to make, use, or sell the patented invention?

An opposite oddity can also occur. One can practice an invention that is patented by another. This occurs through either a formal license agreement or an open patent framework. A license, in the patent context, is simply an agreement between the patent owner and another party granting legal permission to use the patented invention. The more interesting framework, however, is the use of an open patent system. An open patent is a patent that is intentionally not enforced. In other words, the owner of the patent allows others to use the invention and actively avoids filing an infringement lawsuit—which is the main platform to enforce patent rights.

Tesla’s Pledge

Elon Musk believes the carbon crisis calls for joint efforts amongst all automakers to build electric vehicles. In 2014, Tesla pledged that it would not file patent infringement lawsuits against companies that use, in good faith, Tesla’s electric vehicle patented technology. In Tesla’s words:

“What this pledge means is that as long as someone uses our patents for electric vehicles and doesn’t do bad things, such as knocking off our products or using our patents and then suing us for intellectual property infringement, they should have no fear of Tesla asserting its patents against them.”

The Good

Another car company can use Tesla’s patented technology instead of spending resources developing similar electric vehicle technology. Tesla is the leading seller of electric vehicles and has sold more than 380,000 electric vehicles (as of April 2019). There is still opportunity for electric vehicle development as the electric vehicle market share is small (1.8% as of March 2019). As a result, Tesla’s pledge is significant because it encourages the sharing and use of powerful information in the auto industry, which should accelerate society’s move toward electric vehicles. The use of proven technology can facilitate a start-up company’s path to success or focus an established automaker’s efforts to develop electric vehicles. Further, Toyota has followed Tesla’s approach with respect to its hydrogen fuel cell technology. This open patent framework is not limited to only the auto industry. Google, for example, has pledged to open some of its patents directed at encryption technologies.

The Bad

While Tesla’s pledge may appear revolutionary, it has drawbacks. Some companies may fear the legal tools to enforce Tesla’s pledge are insufficient. As a result, automakers may be reluctant to use the patented technology out of fear that Tesla will not follow through on its promise. While a formal license agreement to use patented technology is enforceable through reliable legal tools, an informal pledge posted in blog format by a CEO on the company website may not carry the force of law. Is Tesla required to follow through with its pledge? Maybe, under the legal doctrine of estoppel. Will Tesla withdraw its pledge? It is unlikely as Elon Musk recently reminded the world of Tesla’s pledge. Nevertheless, Tesla’s pledge may have only limited impact if other automakers lack confidence to legally enforce the pledge.

The Takeaway

This open patent framework has enormous potential to facilitate innovation by concentrating companies’ efforts to build on each other’s prior work, rather than around it. Time will reveal the true impact of open patent pledges like Tesla’s. Most recently, XPeng, a Chinese automaker inspired by Tesla, has secured a $400M investment.

Perhaps the biggest impact of Tesla’s pledge is not the acceleration of the electric vehicle use, but rather teaching the world that openly sharing valuable information is priceless. This reminder may encourage other industries to adopt similar pledges, thereby accelerating all kinds of innovation.


TERMINAL DISCLAIMERS: QUICK FIX OR SIMPLE RUIN?

Amanda Jackson, MJLST Staffer

Terminal disclaimers, a limit on patent term of a patent that is substantially similar to another co-owned patent, are often thought of as a quick and easy way for a patent applicant to overcome a non-statutory double patenting rejection.  Non-statutory double patenting rejections arise when the claimed subject matter is not patentably distinct from the subject matter claimed in a commonly owned patent.  This judicially created doctrine arose to prevent extension of a patent term by filing subsequent patent applications claiming substantially similar subject matter as earlier applications.  In addition, non-statutory double patenting rejections seek to prevent multiple lawsuits against an alleged infringer by multiple assignees of the patentably indistinct patents (e.g., in the case where the patentably indistinct patents were assigned to different entities).

To overcome a non-statutory double patenting rejection, patent applicants can cancel the rejected claims, amend the claims to be patentably distinct, argue against the rejection, or file a terminal disclaimer.  By filing a terminal disclaimer, the patent applicant agrees that the later-filed patent (if granted) expires when the first patent does (the patent that resulted in the double patenting rejection).  Moreover, in order to alleviate the concerns of harassment by multiple assignees, 37 C.F.R. § 1.321 requires that a terminal disclaimer, to obviate a non-statutory double patenting rejection, must “[i]nclude a provision that any patent granted on that application . . . shall be enforceable only for and during such period that said patent is commonly owned with the application or patent which formed the basis for the judicially created double patenting.”  The patent office makes fulfilling that requirement easy by providing applicants with a standard terminal disclaimer form that states, “[t]he owner hereby agrees that any patent so granted on the instant application shall be enforceable only for and during such period that it and the prior patent are commonly owned.”  The terminal disclaimer runs with any patent granted from the application.

Seems harmless, right?  As long as the applicant does not have a problem with a reduced patent term, including any patent term adjustment, terminal disclaimers seem like a relatively painless fix to a non-statutory double patenting rejection.  Terminal disclaimers might also be appealing to avoid characterizing prior work by the applicant (e.g., putting statements on the record construing aspects of the prior work that could be limiting in litigation).  It may also be difficult to overcome non-statutory double patenting rejections by arguments alone.  However, terminal disclaimers can render patents invalid or unenforceable, many times without the patent owner realizing it.

As a first example, when less than all of the patents attached to a terminal disclaimer are owned by one entity, the patent may be rendered unenforceable.  In Voda v. Medtronic, Inc., Voda had filed a terminal disclaimer linking three patents together.  At the time of filing the terminal disclaimer, Voda owned all three patents.  Voda later assigned two of the patents to another entity.  One of those patents was reassigned to Voda, but the other remained owned by the third party.  Medtronic asserted that the patent at issue was unenforceable because Voda did not own one of the patents included in the terminal disclaimer.  Dismissing Voda’s argument that the patents only had to be commonly owned during the period of infringement, the court stated,

Terminal [d]isclaimers, however, do not speak in terms of ownership during times of infringement; rather, they require common ownership for enforceability. . . . To enforce the ‘195 patent, plaintiff must not only own all three patents for the period he seeks enforcement of the ‘195 patent he must also own all three patents during the period he files suit to do so. As it is undisputed that plaintiff does not own the ‘625 patent, the ‘195 patent is unenforceable as a matter of law under the plain language of the [t]erminal [d]isclaimers.

When a patent owner fails to have common ownership of terminally disclaimed patents, some courts have held that the plaintiff lacks Article III standing.  However, other courts have held the opposite, namely that “enforceable title” is required to have standing to bring a patent infringement suit, but that “enforceable title” is not the same as “enforceability” (e.g., with respect to lack of common ownership of terminally disclaimed patents).

As another example, terminal disclaimers involving patents (or applications) that are not commonly owned at the time of filing the terminal disclaimer may be invalid due to non-statutory double patenting.  For example, in In re Fallaux, the court asserted that “[i]f the Fallaux application and the Vogels patents were commonly owned, the terminal disclaimer filed in this case would have been effective to overcome the double patenting rejection. We note that this defect was of the applicant’s creation as through assignment it allowed ownership of the applications to be divided among different entities.”  Joint ownership and ownership by subsidies may also present enforceability issues with respect to terminal disclaimed patents.

Thus, patent owners and practitioners should be a little more weary in filing terminal disclaimers to overcome non-statutory double patenting rejections.  And if a terminal disclaimer is filed, patent owners should pay close attention to patents that have a terminal disclaimer, as well as to the patents to which the patent is terminally disclaimed.  This is especially important in licensing agreements and assignments, when patents—even in different patent families—may be unknowingly linked by terminal disclaimers.


New Year, New Chinese Intellectual Property System

Sherrie Holdman, MJLST Staffer 

Since the beginning of the new year, China has implemented various new Intellectual Property (“IP”) changes. Three major changes are particularly critical for promoting an enhanced IP system in China.

The first change is the establishment of a new IP appellate court. On October 26, 2018, China’s National People’s Congress (NPC) Standing Committee issued the Decision on Several Issues Concerning the Litigation Procedures in Patent and Other Intellectual Property Cases. On December 3, 2018, in a plenary session of the Judicial Committee of the Supreme Court chaired by Chief Justice Zhou Qiang, the Committee passed the Supreme Court Guidance Re Intellectual Property Tribunal. The official IP court was finally launched in January 2019. The new body is expected to hear appeals from both civil and administrative matters. According to Chief Justice Zhou Qiang, handing civil and administrative patent appeals to the new IP court will help unify adjudications related to patent validity and infringement, improve the efficiency and quality of court proceedings, and thus improve judicial protection of IP rights. The protection of IP rights has been a key issue of the trade war between the United States and China. China has been criticized for its lax IP protection for many years. The new IP court seems to come as a trade negotiation of the two countries.

Another change is China’s new policy on IP enforcement. On December 4, 2018, the National Development and Reform Commission, along with 37 government departments, released a Chinese interagency Cooperation Memorandum of Understanding. The goal of the Memorandum was to punish entities who seriously violate the patent law, including acts such as repeated patent infringement, non-compliance with the patent law, and serious illegal patent agency conduct. Like the new IP court, this policy seems to be another negotiation between the United States and China. Indeed, the policy was released days after the meeting of United States President Donald Trump and Chinese leader Xi Jinping at a summit in Argentina. The policy took a further step to enhance the IP protection in China.

The third change is the Fourth Amendment of the Chinese Patent Law. On December 5, 2018, the latest Draft of the Chinese Patent Law was presented to China’s State Council in a meeting chaired by Premier Li Keqiang. The new Amendment aimed to strengthen the protection of patent rights holder’s legitimate rights and interests, stimulate innovations, and promulgate legislations to effectively protect patent rights. Specifically, the Draft aimed to increase the penalties for IP infringement, to increase the amount of compensation and fines for willful infringement and counterfeiting patents, and thus increase the infringement cost in order to deter illegal acts. Particularly, the Draft proposed to raise the minimum fine to 100,000 RMB and the maximum fine to 5 million RMB. The Draft also stated that an infringer shall be cooperative in an infringement lawsuit. The Draft further set forth that network service providers shall bear joint liability for not stopping infringement in a timely manner. The Draft provided an incentive mechanism for employee inventors so that they could equitably share profits from inventions invented by the employees in the course of their employment.. Further, the Draft introduced a patent term extension system for innovative drugs, strengthened public information systems, and proposed to make basic patent data available in the China National Intellectual Property Administration (“CNIPA”) website. In order to foster patent dissemination and utilization, the Draft provided national and local authorities to increase public patent services and introduced an open patent license system. In addition, the Draft introduced a domestic priority of six months for design applications, extended patent term for design patents to fifteen years, and extended the time period for priority document submission for patents/utility models applications. The Draft Amendments were released for public comment from January 4, 2019 to February 3, 2019. The final rule is expected to come out soon this year.

It remains to be seen how these changes would improve China’s IP system. Nevertheless, the impact of these changes should not be underestimated. China is known as a big market for technology and business. However, foreign investors have been hesitate to invest in China due to China’s lax patent protection. With these changes aiming to establish an enhanced IP system, China is expected to build a friendly commercial environment to foreign inventors and investors, continue to improve domestic innovations, and encourage collaborations between foreign corporations with local companies. For instance, it has been said that these changes would attract global pharmaceuticals and tech companies to China because an enhanced IP system would enable foreign companies to uphold their IP in specialist courts, which is a great reassurance for foreign investors and inventors.


The First Amendment and Trademarks: Are Offensive Trademarks Registrable?

Kelly Brandenburg, MJLST Staffer 

The Lanham Act, which is the federal statute that governs trademarks, had a disparagement clause, that prohibited the registration of a trademark “which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” This provision has been the focal issue in several cases over the years, but was finally brought up to the Supreme Court of the United States (“SCOTUS”) which decided that the clause was unconstitutional.. In that case, Matal v. Tam, an Asian-American dance-rock band with the name “The Slants” was originally denied trademark protection on their name because “slant” is a derogatory term for people of Asian descent. In the end, the Court found the disparagement clause violated the free speech clause of the First Amendment. The Court said the clause violated the basic principle of the First Amendment that “speech may not be banned on the ground that it expresses ideas that offend.”

This decision had a significant impact on a well-known case involving the Washington Redskins. The team had six trademarks that were cancelled by the Trademark Office in 2014, but after the Matal decision, the U.S. Court of Appeals for the Fourth Circuit vacated that prior decision since the disparagement clause was the basis for the Native American’s argument to revoke the Redskin registrations.

Currently, there is a case awaiting a Supreme Court hearing that discusses a closely related topic. In re Brunetti involves a trademark for the word “Fuct,” which is the name of a clothing brand. The Trademark Trial and Appeal Board found the word to be “vulgar,” which violates the immoral or scandalous provision of the same statute that was at issue in Matal. The case was appealed and the Federal Circuit upheld the rejection of the registration. The ruling in Matal was discussed as an argument for the immoral or scandalous clause being unconstitutional, but the Court decided the case without addressing the constitutionality of the clause; instead, it determined that the word “impermissibly discriminates based on content in violation of the First Amendment,” and is therefore not registerable. However, SCOTUS granted certiorari in the case and depending on how the Court defines the word, it will potentially have to address the constitutionality of the immoral or scandalous provision. An argument was made at the Federal Circuit that the immoral or scandalous clause would be constitutional because, unlike the disparagement clause, this clause is “viewpoint neutral.” This argument was not addressed by the Federal Circuit, but could potentially be addressed in the upcoming SCOTUS hearing. If so, will  SCOTUS find enough of a difference between the disparagement clause and the immoral or scandalous clause to consider it constitutional, or will the same free speech issues be present? The oral argument is scheduled for April 15, 2019, so stay tuned!


Today in 1923: The Return of the Public Domain

Zander Walker, MJLST Staffer 

It’s 2019 and copyrighted works are finally returning to the public domain for the first time in over twenty years. The copyright term was extended in 1976 and 1998 to yield a total term of life of the author plus 70 years for works created after 1978 (with notable exceptions to this rule for certain categories of works), or 95 years from publication for certain works published before 1978. The second term extension in 1998 was created by the Copyright Term Extension Act (“CTEA”) and resulted in an additional 20 years of copyright term. The CTEA is known somewhat derisively as the “Mickey Mouse Act” because of Disney’s lobbying efforts during the 1990’s to extend copyright term.  

This years’ crop of new public domain entries hail from 1923, a time when cloche hats, art deco, and prohibition were all the rage. I have compiled some “highlights” below:

 

  • “The Charleston”: For the unfamiliar, “The Charleston” is a song written to accompany a particular dance that was, confusingly, also known as the Charleston. The dance was relatively simple, repetitive, and meant for mass appeal, making it not too unlike more modern song/dance combinations like the Y.M.C.A., the Macarena, that horse thing from Gangnam Style, the Hokey Pokey, or the Harlem Shake.

 

  • The Pilgrim: a silent film made by Charlie Chaplin about a convict that pretends to be a southern minister. It’s tough to find reviews of The Pilgrim made by legitimate critics, but it has an IMDB user rating of 7.4 (the same as 2018’s Aquaman, for what that’s worth). One review I did manage to find characterized The Pilgrim as “Chaplin when he isn’t swinging for the fences.”

 

  • The Ten Commandments: not to be confused with the famous and highly-grossing 1956 version of the film, Cecil B. DeMille’s 1923 version of The Ten Commandments was a silent film and one of the first films shot on technicolor. In a way, DeMille had already committed it to the public domain—after he was done filming, he buried the set in the Guadalupe desert.

 

  • Tarzan and the Golden Lion: a lesser known story about Edgar Rice Burroughs’ classic Tarzan character, in which Tarzan raises a lion and hunts for lost gold. This is not the first of Tarzan’s works to enter the public domain, as the first Tarzan book was published in 1912 and has been in the public domain for over 30 years. However, Edgar Rice Burroughs created the eponymous Edgar Rice Burroughs, Inc., which continues to hold rights to his works, including trademarks on the Tarzan characters. For works that have entered the public domain, Edgar Rice Burroughs, Inc. has been rather successful in using trademark as a vehicle to prevent use of the Tarzan characters in new works. See, e.g., Edgar Rice Burroughs, Inc. v. Manns Theatres, 195 USPQ 159 (C.D. Cal. 1976).

Edgar Rice Burroughs, Inc.’s protection of the Tarzan characters raises a relevant point. It is very likely that Disney was far more concerned about its copyright in the valuable Mickey Mouse character than in the film containing the first appearance of Mickey Mouse (Steamboat Willie) when it lobbied Congress to extend copyright term. Further, a significant number of intellectual property commentators predict that Disney will continue to protect their Micky Mouse character through trademark when its copyright protection expires, citing Tarzan as a proof-of-concept.

Though copyright term length is perhaps most criticized in the context of traditional works of authorship like books, movies, or plays, it has ramifications on a number of more recent categories of work. For example, computer software is protected under copyright, meaning that Windows 98, which has been unsupported by Microsoft since 2006, can be protected by copyright until at least 2094. Likewise, the original 2007 Apple iOS is eligible for copyright protection through at least 2102. Recent litigation involving read-only memory (ROM) files of older video games highlights a tension between software archivists, who often perceive themselves as responding to a market failure, and copyright holders that is exacerbated by an overly-lengthy copyright term.

The short list of newly public domain works I compiled should really hit this point home—the works themselves have almost no commercial value in 2019. “The Charleston” is just as likely to become the next hit song as is “Greensleeves.” Lesser known works from Chaplin, DeMille, and Burroughs are going to have no higher commercial value in 2019 than they did the previous year. In fact, the only really valuable thing on that list is the Tarzan character, which is likely protected through trademark. What, then, was the point of the CTEA?


Impact of China’s Generics Push on Innovator Drug Companies

Sherrie Holdman, MJLST Staffer

With a population of 1.42 billion, China presents a large market for both innovator manufacturer and generic drug companies.  Currently, about 95% of marketed drugs are sold by generics. However, many patients in China opt to use more expensive, imported, brand-name drugs.  In an effort to address this problem, China’s State Council has announced its “Opinions Concerning Reforms of Policies to Improve the Supply and Utilization of Generics” to encourage the people of China to use generic drugs early this year.  As a regulatory document, the Opinion shed light on the future direction of China’s generic market.

The Opinion identifies three important suggestions to guide implementation. The first suggestion is to promote research and development of generic drugs in China.  The Opinion proposes a drug list to be compiled that identifies drugs for which generic counterparts don’t exist yet. The Opinion also encourages the government to develop key technologies in manufacturing generics.  The second suggestion aims to improve the quality and efficacy of generic drugs. Generics will only be approved if their quality and efficacy are equivalent to the original drugs.  To facilitate this goal, the State Council proposes speeding up the conformity assessment of quality and efficacy of generic drugs and improving the quality management of generic drugs.  The third suggestion is to provide policy incentives for generics development, including implementation of a tax policy for generic manufacturers. Under this policy, a generic manufacturer, once designated as a “high technology enterprise,” will have a preferential tax rate of 15%, compared to the 25% rate for other companies.  In order to be a “high technology enterprise,” the generic manufacturer will need to meet certain qualifications. Meanwhile, the Opinion encourages patentees to voluntarily grant compulsory licenses to Chinese generic manufacturers when there is “a serious threat to the public health.”  However, despite its long existence in Chinese patent law and regulation, the compulsory licenses are historically rare in practice, partly because of the difficulty in defining what constitutes a “serious threat to the public health.”    

In order to balance the interests of innovator and generic drug companies, the Opinion provides recommendations for strengthening the enforcement of intellectual property rights.  For example, the Opinion proposes establishing an “early warning patent system” to prevent generic manufacturers from infringing on valid patents and thus mitigating the risk of infringement.  Moreover, the State Council proposed to enhance accessibility of innovative drugs, especially imported oncology drugs, by applying no tariffs on imported new drugs. A five-year patent extension for new drugs was also proposed to enhance the intellectual property protection of innovator drugs.

Following the announcements promulgated in the Opinion, on April 25, 2018, China Food and Drug Administration (CFDA) released its “Public Comment Draft of Pharmaceutical Data Exclusivity Implementing Rules (provisional).” The Draft proposes that “innovative new drugs” will enjoy six years of data protection and “innovative therapeutic biologics” will enjoy 12 years of data protection.  By proposing data protection for new drugs, China encourages multinational corporations to include China in international multicenter clinical trials and to concurrently apply for market introduction in China.  Even if the new drug is introduced to China at a later time, the drug will still be entitled to a data protection period (e.g., from one to five years). The public comment period for the Draft was closed on May 31, 2018 and the final rule is expected soon.  

Facing China’s generics push, innovator drug makers can strengthen their IP strategy in numerous ways.  For example, companies should disclose information about the patents in the drug list in a timely manner, making the public and government aware of the patents.  Further, companies should also establish a multi-directional scheme for IP rights protection including not only patent, but also knowhow, trade secret, design, trademark and copyright.


The Music Modernization Act May Limit Big Name Recording Artists’ Leverage in Negotiations with Music Streaming Companies

By: Julia Lisi, MJLST Staffer

Encircled by several supportive recording artists, President Trump signed the Music Modernization Act (“MMA”) into law on October 11, 2018. Supporters laud the MMA as a long overdue update for U.S. copyright law. Federal law governs roughly 75% of recording artists’ compensation, according to some estimates. The federal regulatory scheme for music license fees dates back to 1909, before the advent of music streaming. Though the scheme has been tweaked since 1909, the MMA marks a major regulatory shift to accommodate the large market for music streaming services like Spotify and Apple Music.

Prior to the MMA, streaming services virtually had two options for acquiring music catalogs: (1) either acquire licenses for each individual song or, (2) provide music without licenses and prepare for infringement suits. Apple Music adopted the first strategy and as a result initially suffered from a much leaner music catalog. Spotify went with the second strategy, setting aside funds to weather litigation.

The MMA offers a preexisting mechanism, the mechanical license, on a broader scale. Once the MMA takes full effect, streaming services can receive blanket licenses to entire catalogs of music, all in one transaction. The MMA establishes the Mechanical Licensing Collective (the “Collective”), a board of industry participants, which will set license prices. The MMA is, in part, meant to ensure that more participants in the music industry will be paid for their work. For example, music producers and engineers can expect to receive more compensation under the MMA.

While the MMA may broaden the pool of industry participants who get compensation from streaming, the MMA could weaken big name artists’ bargaining positions with streaming services. Recording artists like Taylor Swift and Adele have struggled to keep their albums off streaming services like Spotify. Swift resisted music streaming based on her conviction that streaming services did not fairly compensate artists, writers, and producers. While Swift may have come to an agreement with Spotify and allowed her albums to be streamed, there are still holdouts. More than two years after its release, Beyoncé’s Lemonade still is not on Spotify.

With the Collective controlling royalty rates, big name artists might not have the holdout power that they wield now. If Swift’s music had been lumped into a collective mechanical license, she may not have had the authority to withdraw or withhold her albums from streaming services. The MMA’s mechanical licenses are compulsory, indicating the lower level of control copyright owners may have. Despite this potential loss of leverage, the MMA is widely supported by artists and industry executives alike. Only time will tell whether the Collective’s set prices will make compensation within the music industry fairer, as proponents suggest.


Counterfeit Products: A Growing Issue for Online Retailers

Caleb Holtz, MJLST Staffer

Two years ago, my girlfriend gave me an Amazon receipt showing she had ordered a really cool jersey from the German national soccer team. I was very excited. Not only had my girlfriend purchased for me a great jersey, but she had also found a reputable, accessible retailer for buying soccer jerseys in the United States. My excitement soon faded however. The jersey was delayed and delayed, and eventually Amazon cancelled the order and issued a refund. It turned out the jersey was sold by a popular counterfeiter hosting products on Amazon’s site through Amazon’s popular “Fulfilled by Amazon” program. Unaware that this existed prior to this experience, my girlfriend had been lured into a false sense of security that she was purchasing something from the world’s largest retailer, rather than from an obscure counterfeiter.

As it turns out, we were far from the only consumers to fall prey to counterfeit goods being sold on Amazon. Per a recent Engadget article discussing the issue, “the Counterfeit Report, an advocacy group that works with brands to detect fake goods, has found around 58,000 counterfeit products on Amazon since May 2016.” Amazon, recognizing that customers are more likely to trust counterfeits sold on its website, set a goal in 2017 to fight counterfeits.

Amazon is hardly the only retailer dealing with counterfeiting issues. The International Trademark Association said that trade in pirated and counterfeited intellectual property accounted for $461 billion in 2013. The Chinese retail giant Alibaba was at one point put on a U.S. anti-counterfeiting blacklist because of the large quantities of counterfeit goods sold on its website. Ebay, Walmart, Sears, and Newegg have also faced allegations of hosting counterfeited products. Importantly, however, for each of the retailers, there are few legal repercussions for merely hosting counterfeit goods. With the exception of a 2008 case against eBay, the aforementioned retailers have largely avoided being found liable for the counterfeit products they aided in selling.

Amazon provides the best blueprint for avoiding liability. Amazon has avoided liability by arguing that while it may host sellers, it is not a seller itself. Fortunately for Amazon, the Federal Circuit agrees that it is not a seller of the counterfeit goods, and therefore cannot be liable for copyright infringement, even if Amazon stored and shipped the products from its own warehouses. Milo & Gabby LLC v. Amazon.com, Inc., 693 Fed.Appx. 879 (Fed. Cir. 2017). As it is merely a marketplace, Amazon can continue avoiding liability so long as it appropriately responds to complaints of intellectual property infringement.

It will be interesting to see how the parties involved handle this counterfeiting issue going forward, especially as the government anticipates counterfeiting business to continue to grow. Online retailers are taking proactive steps to limit the sale of counterfeits on their websites, although those have been far from effective. Some have suggested artificial intelligence holds the key to solving this problem. Wronged intellectual property owners have not given up on forcing a remedy through the judicial system, as can be seen by the lawsuit filed by Daimler against Amazon recently. Finally, some, such as the judge in the Milo & Gabby case, see a legislative approach such as closing the marketplace loophole that allows online retailers to skate by relatively untouched. Unfortunately for consumers, it does not appear like there is an imminent solution to this problem, so it is best to be aware of how to avoid accidentally purchasing a counterfeit.