There is little doubt that the way intellectual property is viewed and protected has transformed over the last 12 years, at least in the eyes of those who strategically appreciate both the importance and limitations of rights available today. Once upon a time, corporations would seek to patent as much innovation as possible, working to obtain gargantuan patent portfolios. These gargantuan patent portfolios often provided protection in numbers, and not necessarily in quality. But with the Supreme Court becoming more interested in patents since 2007, and with decisions in KSR, Bilski, Myriad, Mayo and Alice, many of these gigantic portfolios were reduced to rubble. There were several very large technology companies that led the charge both in the courts and on Capitol Hill to change U.S. patent laws in a way that many believed would weaken patent rights and ultimately the patent grant itself. These companies enjoyed tremendous success, and today, U.S. patent laws simply do not look anything like they did a mere 12 years ago. This became indisputably clear last year when the U.S. Supreme Court decided Oil States and said that a patent is merely a government franchise, which shocked many observers.
We all talk about the importance of data as business assets, but when it comes to buying and selling the companies that own them, we seem not to pay much attention. My anecdotal survey reveals that colleagues who focus on mergers and acquisitions confess to a lack of focus on trade secrets. This may seem odd, even crazy, given the increasing percentage of industrial property represented by intangible assets—up from 17% in 1975 to 84% in 2015. The problem appears to start with the fact that secret information, no matter how central to the success of the business, is mysterious. Unlike the “registered rights” of patent, copyright and trademark, there are no government certificates defining secrets; and valuing them is hard. Add to that the imperative to get deals done faster and cheaper, and it’s easy to see how secrecy may have become the blind spot of transactional IP.
British automaker Jaguar Land Rover (JLR) has been engaged in a multi-jurisdiction battle against Chinese automaker Jiangling Motors (Jiangling) over JLR’s assertions that Jiangling copied distinctive design features of JLR’s RANGE ROVER Evoque (EVOQUE) in the LANDWIND X7 vehicle. JLR previously successfully took action in Brazil and the European Union, resulting in injunctions against the sale of Jiangling’s LANDWIND vehicle in those jurisdictions. JLR’s latest efforts has yielded additional success against Jiangling’s sale and production of the LANDWIND X7 in China, Jiangling’s home base. On March 13, the Beijing Chaoyang District Court in China found Jiangling liable for unfair competition in connection with the sale and manufacturing of the LANDWIND X7, finding that certain design features of the LANDWIND vehicle are “essentially identical” to JLR’s distinctive design features for the EVOQUE. This decision is the first case under China’s 2017 Anti-Unfair Competition Law to find in favor of a foreign company in the auto industry.
IPWatchdog’s most recent Patent Masters™ Symposium, held Monday and Tuesday March 25-26 in Washington, D.C., examined the state of the U.S. patent system and how we arrived here. Some concluded that Congress, rather than the courts, must take action to resolve the many conflicts that presently exist in the muddled judicial approach to patents that has been developed over the last two decades or the U.S. patent system will become irrelevant. While the mainstream narrative traditionally has held that patents impede innovation by making access to technology too difficult or expensive, the narrative that unfolded over the two days of discussions with some of the leading legal experts in the field told quite an opposite tale. Institutions such as the Cleveland Clinic are closing up their diagnostics shops due to uncertainty around Section 101 law in that area, and small businesses are unable to secure funding due to the many risks and expenses surrounding patent enforcement in a post-America Invents Act environment. These developments demonstrate that patents are vital to economic prosperity and that weak patents result in medical and other technologies simply not being made here. Many of the Masters lamented the fact that China and Europe currently have more reliable patent systems than the United States, precisely because those countries have begun to copy the previous U.S. approach, while we stray farther away from it. Alden Abbott, General Counsel of the U.S. Federal Trade Commission, delivered a keynote speech in which he emphasized that uncertainty around the ability to obtain patents is also harming the U.S. competitive process.
On April 15, the Supreme Court will hear oral argument in Iancu v. Brunetti, a case the International Trademark Association (INTA) has remarked raises a critical issue for all trademark owners—namely, which trademarks reliably can be expected to obtain registration under the Lanham Act. At the heart of the case, and of the amicus brief we helped file for INTA this week, is whether free speech concerns should trump the statutory bar on registration of “immoral” or “scandalous” marks. INTA says the First Amendment should win out, and the statutory bar should fall. The category of marks at issue is exemplified by the FUCT apparel mark, owned by Erik Brunetti, to which the U.S. Patent and Trademark Office (USPTO) denied federal registration. After the Federal Circuit reversed, holding that Section 2(a)’s bar on registering immoral or scandalous marks is an unconstitutional restriction of free speech, the U.S. government sought the Supreme Court’s review, and the Court granted certiorari. It must now decide whether the prohibition in Section 2(a) of the Lanham Act on the federal registration of “immoral . . . or scandalous” marks like FUCT is invalid under the Free Speech Clause of the First Amendment.
On March 14, Senators Thom Tillis (R-NC) and Chris Coons (D-DE), respectively the Chairman and Ranking Member of the Senate Judiciary Committee’s Subcommittee on Intellectual Property, sent a letter addressed to Karyn Temple, Acting Register of Copyrights at the U.S. Copyright Office expressing concerns that Tillis and Coons share about the U.S. Supreme Court’s recent decision in Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC. As the letter from Sens. Tillis and Coons notes, it takes an average of about six months for the Copyright Office to fully process registration applications. Given that the Supreme Court has now ruled that these applications must be fully processed prior to the filing of a suit, Senators Tillis and Coons said the real impact of the Fourth Estate decision “will be the extended unlawful exploitation of a copyright owner’s intellectual property.”
Thank you, Gene, and your colleagues from IP Watchdog, for having invited me to address this great conference. Today I will focus on the interaction between patent law reform and competition policy, with particular regard to questions of patentability raised by proposals to reform Section 101 of the Patent Act (“Section 101”), which specifies what subject matter is patentable. My remarks are solely attributable to me, and should not be taken to represent the views of the Federal Trade Commission or of any individual Federal Trade Commissioner. After briefly describing the interrelationship between patent law and antitrust law, I will highlight the role of the Federal Trade Commission’s policy interest in the structure of the law bearing on patentability. That interest is substantial, reflecting the reality that legal rules governing patents – and the use of patents in the economy – have a profound effect on the competitive process and innovation. In particular, I will focus on how Section 101 reform might enhance the vibrancy of competition. Let me caution that my remarks are meant to be a bit provocative and speculative, aimed at furthering a broader dialogue. I obviously cannot speak for the Patent and Trademark Office, which administers our patent law system.
In Natural Alternatives Int’l, Inc. v. Creative Compounds, LLC, the Federal Circuit reversed the decision of the United States District Court for the Southern District of California, which had held that a series of patents owned by Natural Alternatives International, Inc. (“Natural Alternatives”) were directed to laws of nature and lacked an inventive concept sufficient to render them patent eligible under 35 U.S.C. § 101. Natural Alternatives Int’l, Inc. v. Creative Compounds, LLC, No. 18-1295, 2019 U.S. App. LEXIS 7647 (Fed Cir. March 15, 2019) (Before Moore, Reyna, and Wallach, Circuit Judges) (Opinion for the Court, Moore, Circuit Judge) (Concurring-in-part and dissenting in part, Reyna, Circuit Judge). The patents at issue were directed to the use of beta-alanine in dietary supplements to “increas[e] the anaerobic working capacity of muscle and other tissue.” After Natural Alternatives asserted the patents in multiple lawsuits in California, Creative Compounds, LLC (“Creative Compounds”) moved for judgment on the pleadings. The district court granted the motion. In performing its eligibility analysis, the district court accepted Natural Alternatives’ proposed claim construction and held that the asserted claims were patent ineligible. Natural Alternatives appealed, and the Federal Circuit reversed and remanded.
On Monday, March 18, 2019, the Patent Trial and Appeal Board (PTAB) designated three decisions as precedential. Two of the three decisions—K40 Electronics LLC v. Escort Inc. (“K40 Electronics”),[AIA, live testimony at oral argument] and DePuy Synthes Products Inc. v. Medidea LLC (“DePuy Synthes Prods”) [AIA, live testimony at oral argument]—explained the limited circumstances in which live testimony may be allowed during PTAB proceedings. The third decision, Amazon.com Inc. v. Uniloc Luxembourg SA (“Amazon.com”) [AIA § 316(d), grounds that can be raised against substitute claims], affirmed that the PTAB has the authority to consider whether substitute claims are patentable on more grounds than just novelty and non-obviousness. The recent designations not only provide guidance to prospective litigants in PTAB proceedings, but develop the scope of PTAB litigation as a viable alternative to district court litigation.
New technologies create novel issues and inform our understanding of existing laws. The statutes that form the basis of the U.S. IP regime are decades old and, as such, could not have contemplated how technology (and technology-assisted infringement) would evolve. As a result, traditional methods of IP enforcement often lag behind the rapidly changing online environment. Though Congress has taken steps to modernize these sometimes antiquated laws—for example, the America Invents Act made significant changes to the U.S. patent system in 2016 and the Music Modernization Act updated the music licensing and royalty framework to account for digital streaming platforms like Spotify in 2018—these updates almost always function as an ex post solution to a problem that was already present. The core questions of what is “protectable,” what is “infringement” and what is “willful” in view of the fundamental shifts in technological advancement remain squarely in the gray.
This week in Other Barks & Bites: the Supreme Court asks for the U.S. Solicitor General’s view on whether patents that claim a method of medically treating a patient automatically satisfy Section 101; a jury gives Qualcomm a win in its ongoing patent battle with Apple; the World Intellectual Property Office announces record-breaking totals for international patent applications and cybersquatting actions; Cisco avoids a nearly $60 million damages award at the Federal Circuit; McDonald’s appeals its loss in the EU over its Big Mac trademark; Tesla files trade secret lawsuits against former employees; Peloton faces a copyright suit from music publishers who are seeking $150 million; and Google gets another billion-dollar-plus fine from antitrust regulators in the EU.
The business world has fundamentally changed, but most business people seem not to have noticed. Intangible assets and investments are increasingly dominating the leading economies. The world’s largest retailer holds no inventory; the world’s largest taxi service owns no cars; and the world’s largest hotel chain has no rooms. Property, plant, and equipment are no longer a company’s most vital assets. Intangible assets are swallowing the collective balance sheets of the strongest and most successful economies throughout the world—and are increasingly dominating investment and growth in such economies. Because the intangible revolution is only a few decades old, many companies have yet to develop or otherwise obtain robust intellectual capital management capabilities, including effective risk management of their intangible assets. Though virtually no mature businesses would consider operating without the protection of property and casualty insurance, very few companies effectively insure their intangible assets, despite such “assets that cannot be touched” often representing the most critical components of companies’ success and survival. This is partly because traditional IP insurance solutions have generally failed to meet the needs of corporate buyers.
Apple made headlines with its recent decision to close its stores in Frisco and my home town of Plano, Texas. The rumor is that Apple was afraid of the dreaded “patent troll.” However, Apple is not afraid of patent trolls. They are afraid of inventors. Whenever you hear the term patent troll, think of inventors. Inventors like my friend Bob Short, who solved an important technical problem in 1998 with his invention—a protocol that encrypts real-time audio and video transmissions. Apple wanted his technology for their FaceTime app, so they took it. Bob’s company, VirnetX, has spent six years trying to stop them and make them pay. Meanwhile Apple, Google, and other tech titans have spread propaganda and paid lawyers, academics, lobbyists, and politicians to destroy the U.S. patent system.
Since the 2014 Supreme Court decision in Alice v. CLS Bank International, patent claims including software have faced a much higher barrier for receiving patents than any other field of invention. This has also infected specialized software, such as artificial intelligence (AI), which is both distressing and sad. It also explains why Chinese AI start-ups are receiving more funding than U.S. AI start-ups, a fact that should be sending a shockwave through Capitol Hill. Since Alice, patent examiners have presumptively classified software claims that can be implemented on a general computer as covering nothing more than an abstract idea, which means they are ineligible subject matter under 35 U.S.C. § 101. To overcome this rejection, applicants must show why their claimed invention is something more than just a mere abstract idea. Ironically, what constitutes something more is itself an abstract idea, and even what is an abstract idea is itself an abstract idea. In something straight from out of the Monty Python version of patent eligibility, these key terms – something more and abstract idea – have not been defined by the Supreme Court or the Federal Circuit. As a result, most applications with software are routinely denied, which is understandable when frontline decision makers (i.e., patent examiners) are left without objective guidance. Subjectivity prevails.
USPTO Director Andrei Iancu participated in a fireside chat, titled “The Crossroads of Technology and Innovation,” hosted by the Consumer Technology Association (CTA) at its sixth annual Innovation Policy Day on Tuesday, March 12 at SXSW in Austin, Texas. Sitting with Director Iancu was host Michael Hayes, Sr. Manager of Government Affairs for the CTA. The chat was quite short and briefly touched on topics such as celebrating the 10 millionth-issued patent, the preparedness of the patent system for the future, artificial intelligence and patent eligibility, and the availability of patenting for all peoples. Then, in what some may consider to be an unscrupulous move, Hayes introduced the narrative of patent trolls.