Author Archives: Dan Rosenberg

Patents – What are they are Good For? Absolutely Nothing! (Say it again, y’all.)

catpatentWell, that is the opinion of Michele Boldrin and David K. Levine, two economists working for the St. Louis Federal Reserve, and long time patent antagonists. IntellectualIP  has discussed Boldrin and Levine’s work twice before. (1, 2)  They have recently authored a paper and a book on the subject where they advocate for abolishing the patent system. As a patent attorney, it would be easy to turn the question around and ask what good are economists?  After all, they completely failed to predict the worst financial crisis since the Great Depression, and once it occurred could not agree on what to do about it. But, I guess that is beside the point.

The paper, while citing a number of supporting studies (many of which are the authors own work), seems to rely largely on anecdote and unsupported conclusory statements. For example, they cite to the negative effect of patents in complex, computer-related technology as a hold-up cost to competitors by requiring developers to pay separate license fees for the countless features of mobile phones (for example). I suppose this is true – patents do make competition more costly – but without them innovation becomes a suckers game. Who is going to want to take on the burdens of innovating if the innovation instantly becomes a commodity?

They then cite to what they call the “actual” “real-world” effect of patents, which is to serve as a blocking tool. Large companies like Google, they state, merely acquire patents to make it dangerous for competitors to sue them. They cite no evidence that this is the actual or dominate use of patents in the real world. Based on my experience, patents are obtained by people who are offering actual goods and services embodying the patented invention.

In any event, the authors conclude therefore that patents are useless because all they are used for is to prevent companies from suing each other, which is exactly what would happen if there were no patents at all. Thus, patents result in nothing but “wasteful legal costs and no social benefit whatsoever.”  Wasteful Legal Cost?  Lawyers (and people who work for law firms) have to eat too!  I asked around the office and everyone I asked viewed their paycheck as a “social benefit.”

Seriously, it is highly doubtful that blocking is the dominant use of patents, or that it does not produce a benefit (Google presumably believes the money they “waste” on obtaining patents is worth more than what they would “waste” defending lawsuits that would happen if they did not have the patents). It is self-evident that if there are no patents there would be no patent litigation, but it is also true that there would not be much incentive to innovate.

Next, the authors address the information-disclosure benefit of patents. First, they state (without any support) that the usefulness of the disclosure in a modern patent to innovators is as negligible as the skills of patent attorneys can make it. Huh . . . I am not sure if that is a complement or not? Again, from my experience this is not the case. It is common for a patent attorney to forward prior art (for example art cited in an office action) to their inventor clients to have the client explain it to the attorney. This would not be the case if the disclosures were decipherable only to a patent attorney. They then state that it is usually impossible to build a functioning device from a patent disclosure, and cite to U.S. Patent no. 6,025,810 for support, which covers moving information through the fifth dimension – as if this one patent is a typical example of over 8,000,000 patents.

I do believe that there is a point in the authors’ favor to be made here. The information disclosure benefits of the patent system are limited, but not for the reasons cited by the authors. In many cases, the information contained in patents gets in the public domain before the patent become publically available. Patents disclosures are not publically available for 18 months. If the product is in marketplace before publication, and like many products can be reverse engineered, the patent disclosure comes too late to advance the state of knowledge.

Part of the problem with patents as disclosures is that until fairly recently there have not been good mechanism for the public to search and access patents. This is no longer the case with the introduction of tools like Google’s patent search feature and other patent analytical programs. We may see a greater benefit now that patents are more widely available, and can be analyzed more efficiently.

Finally, they address the issue of patents as an incentive to innovate. Of course, the authors are not impressed. They refer to Apple’s success in the iPhone and iPad markets, and they attribute the delay in serious competition to Apple’s first to market advantage and not to patents. They state that “[w]hile it is hard to prove this delayed imitation also would have occurred in the complete absence of patents, intuition suggests . . . that there is little reason to assert patent rights while the first-mover advantage is still active.” Very little reason, indeed – and it has nothing to do with intuition. Apple did not have any patents to assert during the first-mover period, they were pending in the PTO, but once they did (as Samsung found out) Apple did not hesitate to assert them. Furthermore, it is reasonable to assume that part of the delay in imitation was due to the fact that Apple’s competitors certainly knew patents were coming and proceeded with more caution than they would have otherwise.

The issue is not just what role do patents play in the initial success of a product – which is mitigated by the fact that patents will not issue until years after a product hits the market – but what would companies, like Apple, do if patent protection was not available at all. Would they have the same motive to invest in innovation, or would they wait to free-ride on the innovations of others?

I doubt anyone can definitively answer these questions, and they raise issues well beyond the scope of economics. It is clear that patents do create both incentives for innovation as well as entry barriers. Simply abolishing the patent systems certainly has to be the wrong way to deal with this circumstance. Especially, at expense of leaving the U.S. without any protection while the rest of the world is protected.

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The Foreign Trademark Scam – Why (Oh Why) do We Tolerate this?

I hate it when this happens – a client comes up with a great trademark for a great product, everyone is really excited and then – the knockout search uncovers one of those stinking foreign based US trademark registrations with a list of goods and services that is the trademark equivalent of a 40 car pileup on the freeway at rush hour.  The identification covers 17 classes and is thousands and thousands of words long, and everyone knows that none of the goods and services have ever been, or will ever be, used in commerce in the US (I actually feel sorry for whoever has to examine these applications).  And, there is basically nothing anyone can do about it.  How does this happen?

Well, let’s go back to 1984. In Crocker Nat’l Bank v. Canadian Imperial Bank of Commerce, 223 U.S.P.Q. 909 (TTAB 1984), the Board went on record stating that a foreign applicant could obtain registration of a mark in the United States based on a foreign registration, even if the trademark has never been used anywhere in the world, and whether or not the applicant had a bona fide intention to use the trademark in the United States.  Wow – that’s a bargain if I ever did see one, especially since US applicants have to prove use before they can get a US registration.

This happens because many countries, including most European countries – unlike the US, do not have use based trademark systems.  This allows a person in those countries to obtain a trademark registration for any mark without any use of the mark.  In the EU, a Community Trademark registration creates property right in a mark without any requirement of a bona fide intention to use, without goodwill, or without any actual use of the mark anywhere, and these rights extend throughout the entire EU (subject to cancellation for non-use after five years).

This foreign trademark registration then can be used under Section 44/66 as the basis of a valid US trademark registration, and there is no requirement that the trademark be used in the US (at least not until the statement of continued use is due 6 years after registration).  That’s a 6-year free ride for foreign applicants, allowing them to put extremely broad registrations on record with the USPTO effectively blocking anyone from registering a confusingly similar trademark.

The Crocker decision, in large part due to the efforts of the predecessor of INTA, led the US to adopt an intent-to-use basis for trademark filing in 1988, which allowed for filing a trademark solely based on an intent-to-use the mark, and includes a requirement that all foreign applicants declare an intent-to-use the mark in the US.  Problem solved, right?  Well – not exactly.

Applicants filing in the US based on a foreign registration are required to state that they have a bone fide intent-to-use the mark in the US, but what does that really mean, and how is that enforced?  Intent-to-use generally only requires a good faith intention to eventually use the mark in a real and legitimate commercial sense.  It is not all that hard to “intend” to do something.  It is certainly nothing like actually doing that something.  I can intend to go to Mars, and without having to actually go to Mars , I don’t have much on the line.  It does not take much to cover your tracks, and show an intent-to-use.

So, what happens if there really was no intention to use the mark?  Keep in mind that when a trademark application filed in a country without a use or intent-to-use requirement is filed in the US with the same colossal list of goods and services that appeared in the foreign registration, it is reasonable to assume that there was no intent-to-use the mark in the US (since there was no intention to use required when the foreign application was filed).  Then, there should be some hope of invalidating the US filing?

In reality, there is not much that can be done.  The client can try and cancel the registration, but that is an awful lot to ask of someone at the name selection stage, and they would need to make the challenge based on the mere existence of a long list of goods and services in a foreign based application (it would be hard to have more evidence than that).  That may be too speculative of a basis for most people to take on the expense and burden of litigation (no matter how reasonable the basis).  Also, since the Federal Circuit’s In re Bose decision, which requires clear and convincing evidence of a material misrepresentation and an intent to deceive to prove fraud, it has become more or less impossible to invalidate an registration based on fraud.

There have been cases that have invalidated registrations based on a lack of a bone fide intent-to-use, however, these have been generally limited to cases against unsophisticated registrants or those that have been unable to produce any documentation at all of an intent-to-use.  As stated above, it is not hard to create some basic documentation of an “intention” to do something thereby clearing the intent-to-use hurdle.

Thus, the available options have serious limitations.  In reality, that vast majority of people in the situation I described at the outset are not in a position to do anything except select another mark, and what is most certainly an invalid trademark registration stays on the register.

The real solution to this problem is to require all applicants for a US trademark to produce evidence of use before obtaining a registration.  Additionally, to deal with the problem of absurdly long identifications maybe there should be requirement to provide a specimen for every distinct good and service rather than just one specimen per class (but don’t get me started on that).

Intellectual Property Under Attack by Secret Chinese Military Unit

Does this sound like a Michael Crichton novel?  We can only hope.  Several news agencies are reporting on a study released by Mandiant, an American computer security firm, that has traced huge volumes of hacking activity to a building in a rundown neighborhood of Shanghai believed to be under the control of a Chinese military unit identified as the “Comment Crew” or “Shanghai Group.”

 

What are they after?  In addition to orchestrating attacks against high level US and Canadian government interests, they are increasingly targeting the intellectual property of companies involved in critical infrastructure such as the electrical power grid, gas lines, and waterworks.  Other industries targeted include information technology, aerospace, military contractors, satellite and telecommunications, financial services, and even legal services.   The group is reportedly draining terabytes of data from these sources.

 

The study details the efforts of the Comment Crew in hacking Coca-Cola during its acquisition of a large Chinese company, presumably in an effort to uncover negotiation strategies and other information critical to the deal.  The attack was traced to a “spearphising” email sent to a Coca-Cola executive.  The email appears to be from a friend and includes a link that initiated the download of malicious code.  The executive clicked on the link.

 

The group is also believed responsible for a similar attack on RSA, the computer security company owned by EMC, a large technology company. It is best known for its SecurID token, carried by employees at United States intelligence agencies, military contractors, and many major companies.

 

Scary stuff indeed!  Cyberwarfare, or government sponsored cyberattacks, are not new and there have been many high profile incidents in the news.  According to former US national security advisor Richard Clark, Israel used cyberwarefare to make their planes invisible to the Syrian air command system during a 2007 bombing raid carried out against a nuclear facility under construction in Syria.  The US and Israel are believed to be responsible for the attack on an Iranian uranium enrichment facility that supposedly destroyed several pieces of key equipment using a highly sophisticated computer virus.  The Chinese are also believed to have gained access to key elements of the F-35 advanced fighter jet when they hacked into the computer systems of BAE Systems, a British defense contractor.

 

In an attempt to head off more of these types of attacks the Obama administration last week issued a cybersecurity executive order designed to promote security through a joint government and industry self monitoring program.  The order puts into place key elements of the cybersecurity legislation that was defeated last term by a Republican filibuster and was opposed by key groups like the US Chamber of Commerce for fears that it would place undue regulatory burdens on business.

 

Government sponsored cyberattacks on business is somewhat of a new phenomena and seriously escalates the risks of business to business dealings.  I suspect we only know the tip of the iceberg when it comes to hacking, and the protection of key business intellectual assets should be at forefront of all business dealings.  It would appear that you cannot really be too cautious these days.

IP is SO Exhausting!

An important, and often overlooked, question involving intellectual property rights is, “When are the rights of IP owners exhausted?”  When you buy a book, movie, computer, or software at what point does the IP owner lose the ability to control what you can do with it?  The Supreme Court has taken two important cases this term that may help answer this question.

Whether you are acquiring intellectual property rights, or are a provider of goods and services covered by intellectual property rights, you need to understand exhaustion issues if you want to control and recognize your rights.  In other words, you may not have the rights you think you have, and you may not be able to use your property the way you think you can.

The law of exhaustion is well developed for both patents and copyrights, but the expanding scope of the type of things subject to IP protection and the global nature of our economy challenge existing law.  The law is a mixture of statute and common law, the general goal of which is to limit the ability of intellectual property rights holders from exacting tribute over and over again as goods and services are sold and resold.

The first case before the Court, Bowman v. Monsanto, is a patent case dealing with the question of exhaustion in the context of self replicating plants.  Monsanto owns patents covering its genetically engineered agricultural seeds.  The seeds are modified to include genes that make the plants immune to a Monsanto herbicide (Roundup), allowing broadcast application of the herbicide, which kills everything except plants grown from the patented seeds (although it has been reported that some weeds have now developed natural immunity).  Very clever idea, but the problem is that soybeans are self-fertilizing plants and each generation is genetically identical to the parent and is therefore immune allowing farmers to hold back seed to plant the next year (instead of buying new seed).

Monsanto, like the rest of the industry, solved this problem by providing the seed in accord with very particular restrictions – so called “bag licenses,” which license the seed to farmers to use only to grow plants which can then be harvested and sold as a commodity.  The farmers are forbidden under the license from holding back any harvested seed to grow a second generation of plants.  They must buy new seeds each growing season.  This scheme allows Monsanto to avoid hitting the exhaustion question head on with its direct customers.  Since the seeds are “licensed” not sold, Monsanto maintains control over the use and can enforce the license restriction.  Without the license the right to prevent planting second generation seeds might have been exhausted when the original seeds were purchased.

Bowman, however, did not buy the seeds from Monsanto, but instead bought the seeds on the commodity market from local grain elevators and so had not signed a bag license.  Bowman believed he was free to plant the seed, and then plant the seed from the seed, without restrictions.

Monsanto, of course, took the opposite view.  Monsanto contends it does not matter whether Bowman was under a bag license, because each generation of seed is effectively a new patented invention, and its use without permission is an infringement.  That has been the position the courts have taken as this case made its way up to the Supreme Court.  Presumably, the Court has something interesting to say on the issue because this is the second time they have taken a case like this.  A few years ago the Court took up the same issue but did not reach a decision because one of the justices recused herself.  This case has huge implications for the bio-tech industry as many technologies have the potential to self-replicate, and/or attempt to control use in a manner similar to the techniques used in the agricultural seed field. Read the rest of this entry

Can You Trademark Anything?

Apparently so.  After recently watching the movie Moneyball, I got to thinking about value in IP.  Trademarks, and in particular alternative trademarks, are the most undervalued and under-utilized form of IP protection.

Case in point, United States Trademark Registration No. 4,277,914 for the mark shown below:

apple store

The registration is owned by Apple and covers the design of an Apple Store, and issued on January 22nd.  That’s right – Apple trademarked the look of an Apple Store, and it really wasn’t that difficult.  They received an initial rejection on the grounds that the 3-dimensional store configuration was not inherently distinctive trade dress. (more…)

Supreme Court to resolve reverse-payment legality

The United States Supreme Court announced Friday that it has agreed to review the issue of reverse patent settlements in drug cases in Federal Trade Commission v. Watson Pharmaceuticals, Inc..  The Federal Trade Commission has been angling for nearly a decade to get this issue before the Supreme Court over concerns about the anticompetitive nature of these settlements. The actual question presented is pretty straightforward:

Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud, or instead are presumptively anticompetitive and unlawful.

The facts of these cases are troubling to many people.  The present case involves AndroGel – a testosterone gel product under patent until 2020.  A generic drug manufacturer filed documents indicating it planned to challenge the AndroGel patents by entering the market with a generic product.  The patent owner, initiated patent infringement litigation to stop the generic, which was settled pursuant to profit-sharing arrangement that included an agreement that would keep the generic versions of AndroGel off the market until 2015 in exchange for a considerable amount of money paid by the patent owner.  The patent owner was essentially paying to keep the generic off the market.

The FTC filed a complaint alleging the settlement violated antitrust law.  The district court dismissed the complaint stating that the FTC failed to state an antitrust claim.  The Eleventh Circuit affirmed the district court stating the general rule that absent sham patent litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.

In other words, as long as the infringement claim, and the patent it is based on, are not a sham the settlements do not constitute an antitrust violation.  These settlements are controversial because the patent owner is paying the generic drug manufacturer (and alleged infringer) to keep a cheaper version of the drug off the market allowing the patent owner to enjoy a longer period of exclusivity and therefore higher profits, without the patent owner proving its case or proving the validity of the patent.  The FTC’s position is that litigation that allows both litigants to benefit at the expense of the general public amounts to a conspiracy against the general public.

The Supreme Court is likely to take a strong look at these issues as they set directly into conflict intellectual property law, which is based on the idea of a monopoly, and antitrust law which abhors a monopoly.

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