Intellectual Property

NFTs and the Tweet Worth $2.9 Million: Beliefs Versus the Legal Reality

April 24, 2021
Copyrights, Intellectual Property, Internet, Property Law

Emily Newman, MJLST Staffer

A clip of Lebron James dunking a basketball, a picture of Lindsay Lohan’s face, and an X-ray of William Shatner’s teeth—what do all these seemingly random things have in common? They’ve all been sold as NFTs for thousands to hundreds of thousands of dollars. It seems like almost everyone, from celebrities to your “average Joe” is taking part in this newest trend, but do all parties really know what they’re getting themselves into? Before addressing that point, let’s look at what exactly are these “NFTs.”

What are they?

NFT stands for “non-fungible token.” In contrast to fungible items, this means that it is unique and can’t be traded or replaced for something else. As explained by Mitchell Clark from The Verge, “a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different.” NFTs can basically be anything digital, and while headlines have been made over Twitter founder Jack Dorsey selling his first tweet as an NFT for $2.9 million, their popularity has really exploded within the world of digital art. Examples include the Nyan Cat meme selling for around $700,000 and the artist Beeple selling a collage of his work at Christie’s for $69 million (for reference, Monet’s “Nymphéas,” was sold for $54 million in 2014).

Anyone can download and view NFTs for free, so what is all the hype about? Buyers get ownership of the NFT. “To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.” This originality provides a sense of authenticity to the art, which is important these days “when forged art is proliferating online.” To facilitate this buying, selling, and reselling of digital art, several online marketplaces have emerged such as OpenSea (where one can purchase their very own CryptoKitties), Nifty Gateway, and Rarible.

NFTs, Copyright Law, and Consumer Protection

As mentioned above, NFT purchasers can own an original piece of digital art—but there’s a catch. Owning the NFT itself does not necessarily equate to ownership of the original work and its underlying copyright. In other words, buying an NFT “does not mean that the copyright to that artwork transfers to the buyer,” it is simply a “digital receipt showing that the holder owns a version of the work.” Without the underlying copyright, the purchaser of an NFT does not have the right to reproduce or prepare derivative works, or to distribute the work—that right belongs exclusively to the copyright owner.

Mike Shinoda, one of the musicians behind Linkin Park and an NFT artist himself, states that “there’s nobody who’s serious about NFTs who really humors the idea that what you’re selling is the copyright  . . . .” However, as Pramod Chintalapoodi from the Chip Law Group points out, oftentimes “buyers’ beliefs about what they own do not translate to legal reality.” Chintalapoodi also describes how companies who sell NFTs are not transparent about this either; for instance, Decentraland describes itself as the “first-ever virtual world owned by its users,” but “according to Article 12.1 of Decentraland’s Terms of Use, it is Metaverse Holdings Ltd. that owns all IP rights on the site.” However, its users still spend millions of dollars on the site buying NFTs.

Going forward, NFT purchasers should clarify with the seller about what exactly it is they are purchasing. Preston J. Byrne from CoinDesk encourages consumers to ask “are you buying information, copyrights, bragging rights or none or all of those things? Do you have the documentation to back all of that up?” Additionally, are you even buying an original work or did the seller create an NFT of someone else’s work? Asking these questions early on can help with avoiding “significant financial or legal pain down the road.” While it may not be the norm to receive the underlying copyright when purchasing an NFT today, and while lawmakers may not step in anytime soon (or at all) and force sellers to display their terms explicitly, it is predicted that transferring copyrights to the purchaser will be a “valued feature for NFT platforms” in the future.

 

Intellectual Property in Crisis: Does SARS-CoV-2 Warrant Waiving TRIPS?

February 21, 2021
Bioethics, Biotechnology, COVID-19, Food and Drug Law, Health, Healthcare, Intellectual Property, Patents, Regulatory

Daniel Walsh, MJLST Staffer

The SARS-CoV-2 virus (which causes the disease COVID-19) has been a massive challenge to public health causing untold human suffering. Multiple vaccines and biotechnologies have been developed to combat the virus at a record pace, enabled by innovations in biotechnology. These technologies, vaccines in particular, represent the clearest path towards ending the pandemic. Governments have invested heavily in vaccine development. In May 2020 the United States made commitments to purchase, at the time, untested vaccines. These commitments were intended to indemnify the manufacture of vaccines allowing manufacturing to begin before regulatory approval was received from the Food and Drug Administration. The United States was not alone. China and Germany, just to name two, contributed heavily to funding the development of biotechnology in response to the pandemic. It is clear that both private and public institutions contributed heavily to the speed with which biotechnology has been developed in the context of the SARS-CoV-2 pandemic. However, there are criticisms that the public-private partnerships underlying vaccine manufacturing and distribution have been opaque. The contracts between governments and manufacturers are highly secretive, and contain clauses that disadvantage the developing world, for example forbidding the donation of extra vaccine doses.

Advanced biotechnology necessarily implicates intellectual property (IP) protections. Patents are the clearest example of this. Patents protect what is colloquially thought of as inventions or technological innovations. However, other forms of IP also have their place. Computer code, for example, can be subject to copyright protection. A therapy’s brand name might be subject to a trademark. Trade secrets can be used to protect things like clinical trial data needed for regulatory approval. IP involved in the pandemic is not limited to technologies developed directly in response to the emergence of SARS-CoV-2. Moderna, for example, has a variety of patents filed prior to the pandemic that protect its SARS-CoV-2 vaccine. IP necessarily restricts access, however, and in the context of the pandemic this has garnered significant criticism. Critics have argued that IP protections should be suspended or relaxed to expand access to lifesaving biotechnology. The current iteration of this debate is not unique; there is a perennial debate about whether it should be possible to obtain IP which could restrict access to medical therapies. Many nations have exceptions that limit IP rights for things like medical procedures. See, e.g., 35 U.S.C. 287(c).

In response to these concerns the waiver of a variety of IP protections has been proposed at the World Trade Organization (WTO). In October 2020 India and South Africa filed a communication proposing “a waiver from the implementation, application and enforcement of Sections 1, 4, 5, and 7 of Part II of the TRIPS Agreement in relation to prevention, containment or treatment of COVID-19.” The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) sets minimum standards for IP standards, acquisition, and enforcement and creates an intergovernmental dispute resolution process for member states. Charles R. McManis, Intellectual Property and International Mergers and Acquisitions, 66 U. Cin. L. Rev. 1283, 1288 (1998). It is necessary to accede to TRIPS in order to join the WTO, but membership in the WTO has significant benefits, especially for developing nations. “Sections 1, 4, 5, and 7 . . .” relate to the protection of copyrights, industrial designs, patents, and trade secrets respectively. Waiver would permit nation states to provide intellectual property protections “in relation to prevention, containment or treatment of COVID-19” that fall below the minimum standard set by the TRIPs Agreement. At time of writing, 10 nations have cosponsored this proposal.

This proposal has been criticized as unnecessary. There is an argument that patents will not enter effect until after the current crisis is resolved, implying they will have no preclusive effect. However, as previously mentioned, it is a matter of fact that preexisting patents apply to therapies that are being used to treat SARS-CoV-2. Repurposing is common in the field of biotechnology where existing therapies are often repurposed or used as platforms, as is the case with mRNA vaccines. However, it is true that therapies directly developed in response to the pandemic are unlikely to be under patent protection in the near future given lag between filing for and receiving a patent. Others argue that if investors perceive biotech as an area where IP rights are likely to be undermined in the event of an emergency, it will reduce marginal investment in vaccine and biotech therapies. Finally, critics argue that the proposal ignores the existing mechanisms in the TRIPS Agreement that would allow compulsory licensing of therapies that nations feel are unavailable. Supporters of the status quo argue that voluntary licensing agreements can serve the needs of developing nations while preserving the investments in innovation made by larger economies.

The waiver sponsors respond that a wholesale waiver would permit greater flexibility in the face of the crisis, and be a more proportionate response to the scale of the emergency. They also assert that the preexisting compulsory licensing provisions are undermined by lobbying against compulsory licensing by opponents of the waiver, though it is unlikely that this lobbying would cease even if a waiver were passed. The sponsors also argue that the public investment implies that any research products are a public good and should therefore be free to the public.

It is unclear how the current debate on TRIPS will be resolved. The voluntary licensing agreements might end up abrogating the need for a wholesale waiver of IP protections in practice rendering the debate moot. However, the WTO should consider taking up the issue of IP protections in a crisis after the current emergency is over. The current debate is a reflection of a larger underlying disagreement about the terms of the TRIPS Agreement. Further, uncertainty about the status of IP rights in emergencies can dissuade investment in the same way as erosion of IP rights, implying that society may pay the costs of decreased investment without reaping any of the benefits.

 

The Future of Software Industry Is at Stake—An Interview With Professor Thomas F. Cotter of University of Minnesota Law on the Supreme Court Case Google v. Oracle

November 21, 2020
Copyrights, Intellectual Property

Mengmeng Du, MJLST Staffer

Background

In the United States, intellectual property rights in computer software receive protection from copyright law. In 1980, Congress amended 17 U.S.C. § 101 to add software to the subject matters of copyright. Section 101 defines “computer program” as “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.”  At the same time, Congress added in § 117 exemption of infringement liability under certain circumstances such as when a user installs and runs the software or makes backup copies of the software.

With these seemingly clear definitions, the debate over the extent of the copyrightability of computer software, however, has not abated in the following decades. In Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983), the Third Circuit was asked to determine whether literal copying of computer program object codes constitutes copyright infringement. The Third Circuit ruled that object codes are copyrightable and thus literal copying of such infringes the copyright. In Whelan Ass’n, Inc. v. Jaslow Dental Lab., Inc., 797 F.2d 1222 (3d Cir. 1986) and Computer Ass’n Int’l v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992), the Third and Second Circuit faced the problem of where to draw the line for finding infringement when the copying of software at issue is non-literal. While the Third Circuit would find almost anything below the “purpose of the program” copyrightable, the Second Circuit later developed its more rigorous but more popular “abstraction-filtration-comparison” test, which would yield less copyright protection for non-literal components of computer software.

In 1996, the Supreme Court had a chance to further define the boundary for finding copyright protection in software but missed it. In Lotus Dev. Corp. v. Borland Int’l, Inc., 516 U.S. 233 (1996), the copyrightability of the Lotus menu command hierarchy was questioned. The First Circuit ruled found it an uncopyrightable method of operation by comparing the Lotus menu command hierarchy to the arrangement of buttons on a VCR [see Lotus Dev. Corp. v. Borland Int’l, Inc., 49 F.3d 807 (1st Cir. 1995)]. Lotus petitioned to the U.S. Supreme Court. Due to an even split court with Justice Stevens recusing, the Supreme Court affirmed the First Circuit’s judgment in a per curiam opinion without discussion on the reasoning.

Google v. Oracle

Finally, there is, again, hope to resolve the extent of computer software copyrightability. The Supreme Court granted certiorari to review the decision in Oracle America, Inc., v. Google LLC, 886 F.3d 1179 (Fed. Cir. 2018) on November 15, 2019. In this case, Oracle sued Google for copyright infringement for copying its Java Application Programing Interfaces (APIs) when developing Google’s Android platform. The two parties vehemently debated the copyrightability of the Java APIs and whether the fair use doctrine applies to exempt Google’s use of the declaring code and “structure, sequence, and organization” (SSO) of 37 Java APIs. The Federal Circuit eventually sided with Oracle, finding first in 2014 that the declaring code and SSO of Java APIs are copyrightable (Oracle America, Inc., v. Google LLC, 750 F.3d 1179 (Fed. Cir. 2014)) and then in 2018 that Google’s use is not a fair use (Oracle America, Inc., v. Google LLC, 886 F.3d 1179 (Fed. Cir. 2018)). Google successfully petitioned to the U.S. Supreme Court on its second try. The Supreme Court heard oral arguments from Google, Oracle, and Deputy Solicitor General Malcom Stewart on October 7, 2020.

Professor Thomas F. Cotter

Professor Cotter joined the University of Minnesota Law School faculty in 2006 and is Taft Stettinius & Hollister Professor of Law. With a background in economics and law, Professor Cotter’s principal research interests are in the field of intellectual property law, antitrust, and law and economics. He teaches a variety of intellectual property law courses, including patents, copyright, antitrust, international intellectual property, and patent remedies. For further information, please see his law school profile.

This semester, I attended Professor Cotter’s copyright course, where we studied the Federal Circuit’s decisions in Oracle v. Google. Professor Cotter encouraged the class to listen to the Supreme Court hearing for the now Google v. Oracle case on October 7.

To better understand the law and logic behind Google v. Oracle, I invited Professor Cotter to conduct this blog interview.

The Interview

Q: It is notable that after Federal Circuit’s decision in 2014, Google petitioned to the Supreme Court for the first time but was denied. What do you think is the main reason that the Supreme Court decided to grant cert at this time? Does it have something to do with the “ripeness” in this case, i.e., receiving a final judgement?

A: Like you have suggested, the Supreme Court might have wanted to see what would happen on the fair use issue. Other than that, it is hard to know why the Supreme Court denied cert. It seems like there are a lot of important issues, but often the Supreme Court wants to let them continue to percolate through the lower courts before chiming in, so it can be hard to guess sometimes.

Q: The Supreme Court justices raised a lot of questions during the oral argument. Which one is your favorite question, and why?

A: I’m not sure if I have a favorite question as such, but there were some questions I thought were more getting into the heart of the issue than others.

For example, at pages 80-81 of the transcript, Justice Kavanaugh’s questions to the Deputy Solicitor General Malcom Stewart. These were the two of the more perceptive questions in the entire oral argument. Question number one is on the merger doctrine. Justice Kavanaugh said: “First, Google says in its reply brief that the dispositive undisputed fact in this case is that the declarations could not be written in any other way and still properly respond to the calls used by Java programmers. Are they wrong in saying that?” I think that is a very important question. Justice Kavanaugh then followed that up with a second question on page 81: “And the method of operation, Google says that the declarations are a method of operation because they are for the developers to use, while the implementing code instructs the computer. Your response to that?” I think those are the fundamental questions of the case.

Generally speaking, I would say that I think the better questions were those searching for some kind of analogy, whether it is the QWERTY keyboard or whatever else. But analogies only go so far. Computer software is a thing unto itself. Maybe there is no precise analogy. But you do the best to try to draw inferences from something that is more familiar.

Q: Justice Sotomayor and Oracle disagreed as to whether the precedents have held that there is a distinction between declaring and implementing codes for copyright purpose, whether the precedents have held APIs are not copyrightable, and accordingly, what assumptions the software industry has built on for years. How would you read the precedents?

A: Yes. Particularly precedents from the Ninth Circuit on the question of whether APIs are copyrightable.

I tend to agree with Justice Sotomayor that in these two Ninth Circuit cases in particular— Sega v. Accolade [see Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992)] and Sony v. Connectix [see Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000)]—those were both cases in which the defendants copied software for the purpose of extracting interface specifications that would enable the defendants to create a compatible program, and Ninth Circuit in both cases held that was a fair use.

The response by Oracle’s counsel was to say among other things that those are fair-use cases and are not going to the fundamental issue of whether the interfaces themselves are copyrightable. But I would say many people have read those cases as premised on the belief that interfaces themselves are not copyrightable and that’s why you can copy the software in its entirety for the purpose of extracting interfaces so as to use them to make compatible programs. So many people would read those cases as standing for the proposition that interfaces are not copyrightable to the extent that they are necessary to enable others to make compatible systems and programs.

So, I’m inclined to think that Justice Sotomayor had the better argument that in construing those cases. But again, they are Ninth Circuit cases and not binding on the decision of the Supreme Court.

Q: So . . .  interfaces are not copyrightable is what the industry has understood for years?

A: I think that’s largely true. But I am not an industry insider. There are different opinions depending on who you talk to about whether there is an expectation that someone would pay a license fee to use interfaces, APIs, and the declaring code in particular. There are some instances where companies have paid for that. But my understanding, based on what I have read from the amicus briefs filed in this case, commentaries on it and so on, is that more people are of the view that declaring code was not copyrightable, or at least it was industry custom that you can go ahead and copy it to make a compatible program. Again, not everybody will agree on that, and I am not an insider in the industry. So please take whatever I said with a grain of salt. But based on what I saw, I think that is the dominant view.

Q: I talked to friends in the industry. According to some of them, Google could have developed its own declaring codes or APIs, or paid a “moderate” license fee to Oracle to use the Java SE. But Google chose not to.

A: That’s Oracle’s view, and the view of some commentators and people in the industry.

Here is how I would think of it: there are two viewpoints, and ultimately it comes down to which of the viewpoints the Supreme Court finds more persuasive.

On one hand, Oracle is saying: “You can’t copy our declaring code to make a rival platform. If you want to do that, you would have to ask us and pay us if we can reach an agreement. But you can’t just copy our declaring code to make a rival platform.” This sounds intuitively correct.

But on the other hand, Google comes back and says: “You Oracle cannot use your copyright to inhibit us from creating a rival platform. That would be analogous to Baker v. Selden [see Baker v. Selden, 101 U.S. 99 (1879)], where the attempt was made to leverage copyright to control over an uncopyrightable thing.” So basically, Google is saying that you can’t use your copyright to inhibit others from creating a competing product, as that would be undermining the purpose of copyright and extending copyright to some other endeavors or fields.

In response to that, Oracle says: “But if we can’t assert copyright in our declaring code, the incentive to innovate diminishes. The whole purpose of copyright is to provide that incentive.”  I also have long been of the view that many people at least intuitively, rightly or wrongly, feel that if they invest their labor and personality in something, they have some moral entitlement to it, even though you could debate the philosophical issues and how persuasive this really is.

In response to the argument that copyright in declaring code is necessary to validate the incentive to create, Google argues that if the declaring code is copyrightable, then the incentive for people like us to innovate is diminished, because negotiating and paying for the declaring code would give Oracle some control over our creation of the rival platform. This is analogous to the case in Sony v. Universal City Studios [see Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1984)], where if Sony had lost on the contributory infringement theory, the movie industry would have gained some control over how VCRs and other copying technologies would evolve. Google is also making a point here that were they to develop different declaring codes, it would put their rival platform at a disadvantage since people who are already familiar with the Java declarations would be less likely to use it if they need to learn all these new ones.

That’s where the analogy was made with the QWERTY keyboard. It’s also related to what economists call “network effects”—the value of certain things increases in proportion to the number of other people who are using them. My use of a telephone is negligible if I am the only person in the world who has one. But once more people come onto the network, the value to me of the telephone increases. Similar with the QWERTY keyboard, the network effect provides that if there is one single design in the world, the value of it is much greater and it becomes very difficult for any rival keyboard to ever maintain a position in the marketplace—no one wants to adopt it, even if in theory it is better.

Google would make similar arguments here as well—once people are familiar with the Java declarations, they will be less motivated to learn a new set of declarations to implement the new platform. Therefore, either Google pays for the existing declaration code or makes their own, it diminishes the incentive on Google to develop the rival platform, which enables interoperability for a wide variety of phones and apps.

Thinking beyond this case, if the copyright owners generally have the ability to exert control on declaring codes, maybe that will have the long-term effect of inhibiting innovation and interoperability from which the consumers benefit.

In summary, ultimately, it comes down to which side the Court thinks has the most persuasive arguments.

Q: There is one interesting fact that some people noticed—if you look at how Java originated, Sun actually created Java to break the monopoly of Microsoft. Had Google developed its own declaring codes, it could have ended up with achieving some technology breakthroughs just like Java. Could that be a potential argument to rebut Google’s position regarding inhibition of incentives?

A: Maybe. Network effects are not always insurmountable. Sometimes you might come up with a better product that ultimately does replace the earlier one. Then again, maybe not. People who support Google’s position are concerned that copyright owners having the ability to control the use of declaring code or APIs more generally would ultimately lead to what is called “walled gardens,” which refers to proprietary systems as opposed to open-source systems that enable greater interoperability.

Q: I recall that it was mentioned several times in our copyright law and patents class that it is hard to prove the effects on incentive by evidence. Is it correct to say that is also the case here?

A: Yes, it is. There are a few empirical studies on patent law, and even fewer on copyright law, on this issue.

For example, there may be some empirical evidence showing that the motion pictures industry benefits from having copyright protection. Motion pictures generally take huge amount of money to create. If there is no copyright in motion pictures, it would greatly reduce the incentive to produce, given the high fixed cost and the low marginal cost.

For other works, there is not much empirical evidence one way or the other, either to substantiate that the copyright incentive is necessary or to refute that. Some people would argue that the Oracles of the world would still have very substantial incentive to invest in coming up with new software products. Even if their ability to control the use of some aspects of their software is diminished, there are still substantial benefits to be gained from being the first in the marketplace, e.g., from having good products or from network effects. Maybe the copyright incentive is not altogether necessary. Maybe copyright has more of an inhibiting effect on innovation if it is used too aggressively.

The odd thing about software is that it covers something very functional and the justices were talking about it during the oral argument. It was Congress’s decision, and whether it is a good decision or a bad one, software is copyrightable. Back in the 1970s, there was a debate about whether copyright is a good fit, or maybe it would make sense to have some new and different system in intellectual property law that provides an intellectual property right that lasts for shorter period of time. But the decision was made. Code is copyrightable.

It appears to be some of the justices’ view that the declaring code cannot be viewed as a method of operation because § 101 says code is copyrightable and doesn’t distinguish between declaring code and implementing code. But then you get into a legal doctrine and not the policy. I am not sure whether that argument is necessarily persuasive because it seems you could have a literary work that prima facie looks copyrightable but counts as a method of operation. We will see how the Court resolves this issue.

Q: Justice Gorsuch said it was wise for Google not to linger on the main argument in their brief, i.e., not to make too much Baker v. Selden / § 102(b) arguments. Google did concede that their main argument is the merger doctrine and not the § 102(b) arguments.  Do you think it is wise?

A: I am not sure. Some of the justices seem to be skeptical about the Baker v. Selden argument. Though at the end of the day, it seems to me that the idea-expression dichotomy, the merger doctrine, and the Baker v. Selden argument all kind of go to the same issue—all of them refer to § 102(b) which says that you can’t copyright ideas, facts, concepts, systems and methods of operation. From a policy perspective, the idea is that there are certain things are off limits to copyright, and you shouldn’t be able to use your copyright to exert control over those things. So if the majority of justices see this case as implicating that principle, then whether they invoke the merger doctrine, the method of operation principle, or the Baker v. Selden principle, it comes down to the same outcome. But if the majority of justices don’t see this case as so (since Google could have either paid or made its own declaring code), then that analogy is not going to hold.

Q: Several justices have mentioned that other rivals such as Apple and Microsoft didn’t copy to create their competing platform and that Google could have spent the million dollars to develop its own. What do you think about that?

A: That is certainly one way to look at it. The ultimate question is should Google be required to develop its own system that does not require copying the Java declaring code. Maybe that would not be very productive. Allowing programmers to use Java SE may be better for innovation since it is a tool that so many programmers have already known how to use. If Google is to pay for the declaring code or to create its own new ones, there will be a lot of startup costs, which may be socially wasteful. Again, that’s the debate.

Q: Last question. There are many amicus briefs filed in support of Google, but not so many in support of Oracle. Do you think it reflects where the experts stand, and should it substantially impact the Court’s decision (as the Court frequently said that it does not possess the technical expertise to resolve many complex issues)?

A: Amicus briefs may or may not be representative of opinions as a whole. But I think the fact that many more amicus briefs in the case were filed on behalf of Google should at least give some pause. Maybe the amici have a point that code that enables you to make these calls is somehow different from the implementing code. They are all functional in some sense, but declaring code is probably more functional in a general sense and more analogous to a method of operation. This is the way the industry has grown for years. It is the underlying assumption of many people in the industry that it is perfectly lawful to do this. Maybe the Supreme Court should at least give serious consideration whether it should run up against the custom, since many people in the field of computer science and as well law are of the view that Google’s argument is more sensible. But again, there are people who disagree with that, and the Supreme Court has to evaluate all of the opinions.

(the end of the interview)

Closing

As Professor Cotter has pointed out, the debate behind Google v. Oracle comes down to the core issue of why we should provide copyright protection for computer software. Each side has important interests at stake—Oracle’s interest in guarding its investment of labor and personality in Java and Google’s interest in being free from inhibition of innovation. Society at large also has an interest in having a balanced intellectual property system that provides most incentive for people to create.

The 83 computer scientists mentioned in the amicus briefs are of the point that the sky will fall if the Supreme Court rule against Google in this case. Whether it is true or not, this time, the future of the software industry is really at stake. All we can do is wait and see what the Supreme Court will say about these important issues in months.

 

 

 

When Is an Invention Disclosure or Patent Application a Trade Secret?

May 26, 2020
Intellectual Property, New Technology, Patents

Philip Alford, MJLST Staffer

Patents and trade secrets are often presented as a dichotomy of legal protections, distinguished by disclosure versus secrecy. Under the patent bargain, the government offers patent protections in exchange for the public disclosure of new and useful inventions. 35 U.S.C. §101. Various trade secret protections, on the other hand, are available when a party has suffered harm from the misappropriation of secret information. See, e.g., 18 U.S.C. §1863 and Minn. Stat. § 325C et seq. While the two areas of law are complementary, they do not perfectly align. Although trade secrets generally refer to information, this information can be embodied by a patented article, a method, or in one case, a pineapple. See Del Monte Fresh Produce Co. v. Dole Food Co., 136 F. Supp. 2d 1271 (S.D. Fla. 2001).

Trade secret protections are lost as soon as the material is disclosed to the public, including the publication of patent applications by patent offices occurring 18 months after first filing. This is the case even if the patent application never matures into a patent. Inventors should be aware that giving up secrecy in exchange for pursuing a patent is not a guaranteed exchange. To obtain a patent, inventors need to convince the Patent Office that their invention is (1) new, (2) a useful and non-obvious contribution to the art, and (3) described in sufficient detail so that others would be able to make and use the invention. 35 U.S.C. §§101, 102, 103, 112. For this reason, inventors should undertake at least a preliminary analysis to determine whether the requirements for a patent are reasonable satisfied before making any decision to give up potential trade secrets. This analysis would typically involve finding a patent attorney, who can together with the inventors to conduct a search, review for potentially relevant art, and best understand the advantages of the invention before drafting the patent application.

Trade secret protection cannot be assumed as a default. Not all secret inventions are eligible for trade secret protections—even inventions that would otherwise satisfy the requirements for a patent. A secret invention is only eligible for trade secret protection if (1) it is secret, i.e., not generally known or readily ascertainable;  (2) it confers an economic or competitive advantage; and (3) it is subject to reasonable efforts to maintain secrecy. See 18 U.S.C. §1863 and Minn. Stat. § 325C et seq. If inventors are considering whether to forgo filing a patent application, or abandon an unpublished application in favor of maintaining secrecy, the inventors must consider whether the resulting secrecy will, in fact, afford any trade secret protections at all. On one hand, a patentable but unpublished disclosure will typically satisfy the secrecy requirement if it also satisfies the novelty and non-obviousness elements of patentability. Similarly, the type of subject matter for which a patent is pursued is typically of the type that would confer an economic or competitive advantage if withheld from competitors. On the other hand, trade secret protections require reasonable efforts to maintain trade secrecy. No part of patentability imposes a similar requirement.

The reasonable effort requirement for trade secret protection is not as likely to be satisfied in the normal course of invention. What exactly is meant by “reasonable efforts” in a trade secret context? Reasonable efforts differ based on the nature of the information, the field of endeavor, and the risks to secrecy. Generally, to show reasonable efforts, parties should plan in advance to protect their secrets, for example, by using confidentiality agreements, internal employee policies, vendor policies, and electronic information policies. Such policies should be monitor compliance, remind employees that information is secret, and limit access to the secret information, e.g., via locks, passwords, and security. The extent of effort deemed reasonable will be based on the value of the information, the cost of precautions, and the likelihood that secrecy will be lost. Maintenance of absolute secrecy is not required, nor is it necessary to take steps that will be ineffective to protect the secret. See E. I. du Pont de Nemours & Co. v. Christopher, 431 F.2d 1012 (5th Cir. 1970).

Inventors may intend to forgo patent or trade secret protection in favor of the other, only to subsequently learn that they lack the protection of either. Inventors and patent practitioners should be mindful that coverage gaps can arise due to the differing requirements for patent and trade secret protections.

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

February 28, 2020
Intellectual Property, International Law, Trade

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

December 23, 2019
Biotechnology, Intellectual Property, 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

November 23, 2019
Intellectual Property, New Technology, Patents

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?

November 12, 2019
Intellectual Property, Patents

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

March 31, 2019
Administrative Law, Intellectual Property, Patents

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?

February 25, 2019
First Amendment, Intellectual Property, Trademark Law

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!

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