Category Archives: Intellectual Property/Privilege

The Supreme Court Ends Patent Troll Friendly Forum Shopping

Walter Olson reports:

This morning’s Supreme Court opinion in TC Heartland v. Kraft Foods… A unanimous Court (8-0, Thomas writing, Gorsuch not participating) rejected the broad reading of a venue statute by which the Federal Circuit had empowered lawyers to forum-shop disputes from all over the country into a few decidedly pro-plaintiff venues, above all the largely rural Eastern District of Texas. From here out, defendants can still be sued in a district such as E.D. Tex. if they have a regular and established place of business in it, but the decision is likely to shrink what I called in my January preview a “jackpot patent litigation sector… that shifts around billions of dollars.” By redirecting cases into more neutral venues, it should bring outcomes closer to reflecting cases’ actual merits, which would in turn do much toward restoring confidence in this sector of the law…

Thomas Babington Macaulay on copyright extensions (circa 1841)

Thomas Babington Macaulay:

The question of copyright. Sir, like most questions of civil prudence, is neither black nor white, but gray. The system of copyright has great advantages and great disadvantages; and it is our business to ascertain what these are, and then to make an arrangement under which the advantages may be as far as possible secured, and the disadvantages as far as possible excluded…

The advantages arising from a system of copyright are obvious. It is desirable that we should have a supply of good books; we cannot have such a supply unless men of letters are liberally remunerated: and the least objectionable way of remunerating them is by means of copyright…

Copyright is monopoly, and produces all the effects which the general voice of mankind attributes to monopoly…

monopoly is an evil. For the sake of the good we must submit to the evil; but the evil ought not to last a day longer than is necessary for the purpose of securing the good…

the evil effects of the monopoly are proportioned to the length of its duration. But the good effects for the sake of which we bear with the evil effects are by no means proportioned to the length of its duration. A monopoly of sixty years produces twice as much evil as a monopoly of thirty years, and thrice as much evil as a monopoly of twenty years. But it is by no means the fact that a posthumous monopoly of sixty years gives to an author thrice as much pleasure and thrice as strong a motive as a posthumous monopoly of twenty years. On the contrary, the difference is so small as to be hardly perceptible…

The principle of copyright is this. It is a tax on readers for the purpose of giving a bounty to writers… I admit, however, the necessity of giving a bounty to genius and learning. In order to give such a bounty, I willingly submit even to this severe and burdensome tax…My complaint is, that my honorable and learned friend doubles, triples, quadruples, the tax, and makes scarcely any perceptible addition to the bounty…

an evil, which is perhaps more to be apprehended when an author’s copyright remains in the hands of his family, than when it is transferred to booksellers. I seriously fear that, if such a measure as this should be adopted, many valuable works will be either totally suppressed or grievously mutilated…

Just as the absurd Acts which prohibited the sale of game were virtually repealed by the poacher, just as many absurd revenue Acts have been virtually repealed by the smuggler, so will this law be virtually repealed by piratical booksellers…

At present the holder of copyright has the public feeling on his side. Those who invade copyright are regarded as knaves who take the bread out of the mouths of deserving men… Pass this law: and that feeling is at an end… once it ceases to be considered as wrong and discreditable to invade literary property, no person can say where the invasion will stop. The public seldom makes nice distinctions. The wholesome copyright which now exists will share in the disgrace and danger of the new copyright which you are about to create. And you will find that, in attempting to impose unreasonable restraints on the reprinting of the works of the dead, you have, to a great extent, annulled those restraints which now prevent men from pillaging and defrauding the living.

Glyn Moody explains an example of patent product hopping

Glyn Moody:

known as “product hopping”. That’s where:

“a company makes modest changes to a product to extend its patent protections so that other companies cannot enter the market and offer less-expensive generic alternatives”…

why Reckitt would want to pay for and then publicize a study that showed one of its own products was dangerous became clearer just a few hours later, when it submitted a “citizen petition” to the Food and Drug Administration:

“urging the US regulator to ban any future competitor pills to its suboxone tablets that were insufficiently “child resistant”.”

In other words, Reckitt effectively wanted the FDA to ban any generic versions of its own tablets, now out of patent, while leaving its patented film formulation on the market to enjoy a new monopoly…

Scott Alexander on how bad government regulation begets more goverment regulation (EpiPen edition)

Scott Alexander

EpiPens, useful medical devices which reverse potentially fatal allergic reactions, have recently quadrupled in price…

Let me ask Vox a question: when was the last time that America’s chair industry hiked the price of chairs 400% and suddenly nobody in the country could afford to sit down? When was the last time that the mug industry decided to charge $300 per cup, and everyone had to drink coffee straight from the pot or face bankruptcy? When was the last time greedy shoe executives forced most Americans to go barefoot? And why do you think that is?

The problem with the pharmaceutical industry isn’t that they’re unregulated just like chairs and mugs. The problem with the pharmaceutical industry is that they’re part of a highly-regulated cronyist system that works completely differently from chairs and mugs.

If a chair company decided to charge $300 for their chairs, somebody else would set up a woodshop, sell their chairs for $250, and make a killing – and so on until chairs cost normal-chair-prices again. When Mylan decided to sell EpiPens for $300, in any normal system somebody would have made their own EpiPens and sold them for less. It wouldn’t have been hard. Its active ingredient, epinephrine, is off-patent, was being synthesized as early as 1906, and costs about ten cents per EpiPen-load.

Why don’t they? They keep trying, and the FDA keeps refusing to approve them for human use…

EpiPen manufacturer Mylan Inc spends about a million dollars on lobbying per year.OpenSecrets.org tells us what bills got all that money. They seem to have given the most to defeat S.214, the “Preserve Access to Affordable Generics Act”. The bill would ban pharmaceutical companies from bribing generic companies not to create generic drugs…

So let me try to make this easier to understand.

Imagine that the government creates the Furniture and Desk Association, an agency which declares that only IKEA is allowed to sell chairs. IKEA responds by charging $300 per chair. Other companies try to sell stools or sofas, but get bogged down for years in litigation over whether these technically count as “chairs”. When a few of them win their court cases, the FDA shoots them down anyway for vague reasons it refuses to share…

Imagine that this whole system is going on at the same time that IKEA spends millions of dollars lobbying senators about chair-related issues, and that these same senators vote down a bill preventing IKEA from paying off other companies to stay out of the chair industry. Also, suppose that a bunch of people are dying each year of exhaustion from having to stand up all the time because chairs are too expensive unless you’ve got really good furniture insurance, which is totally a thing and which everybody is legally required to have.

And now imagine that a news site responds with an article saying the government doesn’t regulate chairs enough.

Scott Sumner on understanding why the US takes various positions in international negotiations

Scott Sumner

I see three looming fronts in the war over rents:

  1.  The allocation of multinational profits for purposes of taxation.
  2.  Intellectual property rights.
  3.  Anti-trust laws.

Because the US is the dominant producer of intellectual property, the US government (both liberal and conservative administrations) will argue for low overseas taxes on multinational earnings, weak anti-trust laws to preserve the profits of US companies with patents, copyrights and/or large network externalities, and strong intellectual property rights, to extract money from non-American consumers of stuff developed in California…

Government Accountability Office on the Need for Patent Office Reforms

Government Accountability Office:

GAO found that district court filings of new patent infringement lawsuits increased from about 2,000 in 2007 to more than 5,000 in 2015, while the number of defendants named in these lawsuits increased from 5,000 to 8,000 over the same period. In 2007, about 20 percent of all defendants named in new patent infringement lawsuits were sued in the Eastern District of Texas, and by 2015 this had risen to almost 50 percent. According to stakeholders, patent infringement suits are increasingly being tried in the predominantly rural Eastern District of Texas, likely due to recent practices in that district that are favorable to the patent owners who bring these infringement suits. GAO also found that most patent suits involve software-related patents and computer and communications technologies. Several stakeholders told GAO that it is easy to unintentionally infringe on patents associated with these technologies because the patents can be unclear and overly broad, which several stakeholders believe is a characteristic of low patent quality.

The U.S. Patent and Trademark Office (USPTO)… does not currently have a consistent definition for patent quality… Without a consistent definition, USPTO is unable to fully measure progress toward meeting its patent quality goals. Additionally… time pressures on examiners are a central challenge for patent quality… Without assessing the effects of current incentives for examiners or the time allotted for examination, USPTO cannot be assured that its time allotments and incentives support the agency’s patent quality goals…

Kieu-Trang Nguyen and John Van Reenen on UK R&D tax credit effectiveness

Kieu-Trang Nguyen and John Van Reenen:

In April 2000, the UK joined the growing list of countries offering a more generous tax deal for R&D…

UK R&D began a sharp downhill slide from the early 1980s… the downward trend levelled off in the 2000s, at the same time as the tax credit system became more generous…

Could the improvement in R&D and the tax changes just be a coincidence?

It’s hard to know from the macro data, but there was a neat policy experiment in 2008 that helps to tease this out…

The UK, like most other countries, offers more generous subsidies to small and medium-sized enterprises (SMEs) than larger firms… in 2008, the government decided to raise the thresholds for what counted as an SME only for the R&D tax credit system…

Firms with assets below above €43m but below €86m weren’t counted as SMEs before 2008; then after 2008 they were counted as SMEs! This reduced the cost of their R&D by over 30% – and our research finds that this led to big increases in their R&D…

Elliot Harmon on patent troll venue reform

Elliot Harmon:

There’s a new bill in Congress that would finally address the egregious forum shopping that dominates patent litigation. The Venue Equity and Non-Uniformity Elimination Act of 2016(VENUE Act, S. 2733) would bring a modicum of fairness to a broken patent system…

In 1990, the Federal Circuit (the court that hears appeals of patent lawsuits) ruled that a patent owner can file suit in any district in which the defendant does business. A few years later, the court further clarified that for the purposes of determining where a patent case is heard, a business is considered active in any state in which its products or services are available. No one could have predicted the mess that the court invited with those decisions.

Today, nearly half of all patent lawsuits are filed in one district, the Eastern District of Texas. It’s not hard to see why: Eastern District courts have extremely plaintiff-friendly practices in patent lawsuits. Eastern District judges have adopted practices that can make a patent suitmore expensive for defendants. Eastern District judges have routinely imposed rules seemingly designed to frustrate defendants and raise costs…

Let’s be clear: the VENUE Act won’t end patent trolling. It won’t stop the endless parade ofstupid software patents from the Patent Office. Innovators will still be hit with egregious demand letters all the time, and a lot of them will simply pay the fee rather than fight back.

What it will do is take away one of the trolls’ weapons…

Pharmaceutical drugs aren’t quite the poster child for patents we tend to think they are

Pharmaceutical drugs are the poster child for why we need patents. Huge R&D and regulatory approval (FDA) costs coupled with minimal copying costs would conspire to ensure that pretty much no one would invest in discovering new drugs if we didn’t have patents. But that doesn’t mean that the current patent system is working correctly for drugs. The new blog Pro-Market reports:

In the U.S., drug patents last for 20 years from the date of filing. (Drugs are often protected by multiple patents.) Drug companies, however, utilize a number of methods to extend patents and maintain monopolies, by preventing generic manufacturers from entering the market. One of these tactics is called “evergreening,” or “lifecycle management,” a practice in which patent protections are artificially extended through minor tweaks, such as new dosages or formulations (for instance, creating extended-release versions of existing drugs). The process of making minor alterations that have no therapeutic benefits in order to preserve monopoly profits is also sometimes referred to as “product hopping”: after tweaking the existing formulation of the drug, the companies often drastically limit the supply of the older version, in order to ensure that doctors prescribe the new version.

Other ways to prevent generics from reducing branded drug prices include tactics like “no-authorized-generic,” when a manufacturer of a brand-name drug agrees not to market a generic version of its own once the first generic option is released; and the use of safety guidelines known as REMS as an excuse not to provide generic companies with samples of branded drugs.

Another legal tactic to keep drug prices up is called “pay for delay,” or reverse payment patent settlements. When the patent on a branded drug is about to expire, generic manufacturers looking to release their own versions file a challenge on the patent. In order to protect their patent, pharmaceutical companies pay the generic manufacturers handsomely to delay the introduction of competition to the market. Even after a generic enters the market, there will often be an extended period of time where it is the only generic choice. Essentially, these settlements protect monopoly profits, by allowing branded and generic manufacturers to “share the wealth.”

In 1984, Congress passed the Hatch-Waxman Act, a bill that was meant to balance the need to keep patent protections in order to encourage innovation among pharmaceuticals with the need to encourage generic manufacturers to enter the market more quickly. In many ways, the bill was a success — the number of generic drugs in the market has increased dramatically since 1984 — but one of its unintended consequences was that it also made “pay for delay” common practice…

Also note the benefits of competition after the patents have expired:

If one generic enters the market, though, the effects are swift and dramatic: the average price drops by 6 percent. If two generics enter the market, the price drops by 58 percent. If a market has 20 generics, the price drops by 94 percent. According to the FTC, generics saved consumers $239 billion in 2013 alone…