• CAFC rules on attorney conflict of interest in Dr. Falk Pharma case
    in: 未分類  | 

    CAFC rules on attorney conflict of interest in Dr. Falk Pharma case

    The outcome was disqualification:

    At issue are three motions to disqualify Katten Muchin
    Rosenman LLP as counsel for Mylan Pharmaceuticals Inc.
    (“Mylan”) in three appeals before this court. Valeant Pharmaceuticals
    International, Inc. (“Valeant-CA”) and Salix
    Pharmaceuticals, Inc. (“Salix”) move to disqualify in Valeant
    Pharmaceuticals International, Inc. v. Mylan Pharmaceuticals Inc.,
    No. 2018-2097 (“Valeant II”), Salix moves to
    disqualify in Salix Pharmaceuticals, Inc. v. Mylan Pharmaceuticals Inc.,
    Nos. 2017-2636, 2018-1320 (“Salix II”), and
    Valeant-CA and Salix move to disqualify in Dr. Falk
    Pharma GmbH v. GeneriCo, LLC, No. 2017-2312 (“Dr. Falk
    II”). Because we find that Katten has an ongoing attorney client
    relationship with Valeant-CA and its subsidiaries,
    including Salix, we conclude that Katten’s representation
    of Mylan in these appeals presents concurrent conflicts of
    interest. Therefore, we grant the motions to disqualify.

    Of the issue


    Specifically, Salix—a movant in all three appeals—
    is a wholly-owned subsidiary of Salix Pharmaceuticals,
    Limited, which is a wholly-owned subsidiary of ValeantDE, which is an indirect,
    wholly-owned subsidiary of Valeant-CA. Bausch & Lomb is also an indirect subsidiary of
    Valeant-CA and an affiliate of the above-listed entities.
    Valeant-CA contends that it has been a longstanding
    client of Katten, both directly and through its subsidiaries.

    (…)

    Mukerjee and Soderstrom, then at Alston & Bird, represented Mylan
    throughout the district court litigation. On
    May 3, 2018, Mylan notified the district court that Mukerjee and Soderstrom
    had left Alston & Bird to join Katten.
    On May 25, 2018, Valeant-CA filed a motion to disqualify
    Katten in the district court action. Mylan timely appealed
    the district court’s summary judgment on June 22, 2018.
    Valeant-CA then filed a motion to disqualify Katten in this
    court on July 9, 2018, and the district court stayed a decision
    on the motion to disqualify pending before it. We
    stayed the parties’ briefing on the merits in this appeal
    pending our decision on the motion. Valeant II, ECF No.
    24.

    Of applicable rules


    In Valeant, the relevant regional circuit is the
    Third Circuit, which applies the professional conduct rules
    of the forum state. See United States v. Miller, 624 F.2d
    1198, 1200 (3d Cir. 1980). The forum state, New Jersey,
    has adopted the Model Rules of Professional Conduct. N.J.
    Rule of Prof’l Conduct 1.7(a). In Salix, the relevant regional
    circuit is the Fourth Circuit, which applies the rules
    of professional conduct of the forum state. See Shaffer v.
    Farm Fresh, Inc., 966 F.2d 142, 145 (4th Cir. 1992). The
    forum state, West Virginia, has also adopted the Model
    Rules. W. Va. Rule of Prof’l Conduct 1.7(a). Finally, in Dr.
    Falk, the U.S. Patent and Trademark Office is the relevant
    forum and it has also adopted the Model Rules. 37 C.F.R.
    § 11.107(a).
    (…)
    Indeed, Comment
    34 to Rule 1.7, which addresses “organizational clients,”
    states:
    A lawyer who represents a corporation or other organization does not,
    by virtue of that representation, necessarily represent any constituent or
    affiliated organization, such as a parent or subsidiary. See Rule 1.13(a).
    Thus, the lawyer for an organization is not barred from accepting
    representation adverse to an affiliate in an unrelated matter, unless the circumstances are such
    that the affiliate should also be considered a client
    of the lawyer, there is an understanding between
    the lawyer and the organizational client that the
    lawyer will avoid representation adverse to the client’s affiliates, or the lawyer’s obligations to either
    the organizational client or the new client are
    likely to limit materially the lawyer’s representation of the other client.
    Model Rules of Prof’l Conduct r. 1.7 cmt. 34 (Am. Bar Ass’n
    2018) (emphasis added). Circumstances in which an affiliate is considered a client of a lawyer can arise by express
    agreement or when affiliates are so interrelated that representation of one constitutes representation of all. GSI
    Commerce Sols., Inc. v. BabyCenter, LLC, 618 F.3d 204,
    210–12 (2d Cir. 2010)

    Irrational!

    We find this reading of the engagement letter to be irrational.
    Section 1.2 does not indirectly authorize Katten
    to represent parties adverse to Valeant-CA and Salix so
    long as Katten remains a non-key firm. Rather, section 1.2
    expects a heightened degree of loyalty from key firms,
    requiring something more than mere adherence to the ethical
    rules. It states that key firms should not represent “any
    party” in “any matters” that would conflict with “any Valeant entity.”
    Gorman Decl. Ex. A, at § 1.2. This reference
    to “any matters” encompasses, as Valeant-CA stated at oral
    argument, a “blunderbuss” limitation on key firms to avoid,
    not only matters that give rise to ethical conflicts, but also
    those that give rise to other types of conflicts. See Oral Arg.
    at 9:36. Other types of conflicts could include, for example,
    a matter involving the filing of an amicus brief that presents
    no ethical conflict under the rules of professional conduct, but that espouses a legal position contrary to one
    taken by a Valeant entity in another case. Thus, section
    1.2 broadens the degree and type of loyalty expected from
    key firms.

  • The retraction by Nature of the Samaha work:  is Gaetan Burgio correct on who is responsible for improper submissions to journals?
    in: 未分類  | 

    The retraction by Nature of the Samaha work: is Gaetan Burgio correct on who is responsible for improper submissions to journals?

    DIANA KWON of The Scientist discusses the retraction by Nature of a paper co-authored by oncologist Nabil Ahmed and Heba Samaha. Of note within her text:


    But starting last October, a few weeks after the paper was posted online, comments about potential image manipulation in the article began to appear on PubPeer, and the issue quickly caught the attention of scientists on social media.

    Gaetan Burgio, a geneticist at Australian National University who posted a widely circulated Tweet about the manuscript, notes that the extent of alleged image duplication identified in this paper was “quite exceptional.”

    (…)

    According to the retraction notice posted today, the authors are pulling the paper “due to issues with figure presentation and underlying data.” All the authors, except Samaha, the first author, agreed with the retraction.

    “Unfortunately, issues were identified in the presentation of several figure panels and the underlying data [in the paper],” Ahmed writes in an email to The Scientist. “I promptly notified the office of research at Baylor College of Medicine, which is looking into the cause of these issues.”

    (…)

    Some commenters on both PubPeer and social media suggested that the duplicated images should have been caught by peer reviewers. But Burgio believes that the responsibility lies with the publisher, not the reviewer. “I think it’s on the publisher to ensure that the paper doesn’t contain any image duplication or plagiarism,” he says. “It’s unfair to rely solely on the reviewer to police the paper.”

    Nature currently conducts random spot checks of images in manuscripts prior to publication. “If concerns about a figure in a Nature paper are raised, we have software tools that enable us to evaluate images in detail,” a Nature spokesperson writes in an emailed statement to The Scientist. (The spokesperson also noted that the journal could not comment on individual articles for confidentiality reasons).

    Some journals, such as the Journal of Cell Biology and The EMBO Journal, have implemented procedures to screen figures in every article prior to publication. “This [practice] is absolutely admirable,” Ferguson says. “How to screen really carefully for image manipulation prior to publication is something that most journals will have to address.”

    As to the issue of plagiarism, IPBiz disagrees with Burgio: it is the people who have knowledge of the field (the reviewers) who should be most responsible for identifying the copying of material, whether it is slavish word-for-word duplication or more subtle forms of intellectual theft.
    IPbiz has already posted examples of plagiarism identified by readers, who are familiar with the given field, rather than publishers, who are not.

  • Mandamus Relief Denied: Federal Circuit Avoids Clarifying TC Heartland in In re Google LLC
    in: CAFC, Chief Judge Sharon Prost, courts, en banc rehearing, Federal Circuit, Federal Circuit Review, Google, Guest Contributor, Guest Contributors, In re Cray, In re Google, Intellectual Property, IP News, IPWatchdog Articles, Judge Alan Lourie, Judge Chen, Judge Evan Wallach, Judge Jimmie Reyna, Judge Kara Stoll, Judge Kathleen O'Malley, Judge Moore, Judge Pauline Newman, Judge Richard Taranto, Judge Timothy Dyk, Judge Todd Hughes, Litigation, Mandamus, Patent Litigation, Patently-O, patents, TC Heartland v. Kraft Foods, venue  | 

    Mandamus Relief Denied: Federal Circuit Avoids Clarifying TC Heartland in In re Google LLC

    The Federal Circuit recently elected not to decide en banc “whether servers are a regular and established place of business, such that venue is proper under 35 U.S.C. § 1400(b). In re: Google LLC, No. 2018-152 (Fed. Cir. Feb. 5, 2019) (Before Prost, Chief Judge, Newman, Lourie, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Chen, Hughes, and Stoll, Circuit Judges) (Dissent by Reyna, Circuit Judge, joined by Newman and Lourie, Circuit Judges). SEVEN Networks, LLC’s (SEVEN) patent infringement…

CAFC rules on attorney conflict of interest in Dr. Falk Pharma case

The outcome was disqualification:

At issue are three motions to disqualify Katten Muchin
Rosenman LLP as counsel for Mylan Pharmaceuticals Inc.
(“Mylan”) in three appeals before this court. Valeant Pharmaceuticals
International, Inc. (“Valeant-CA”) and Salix
Pharmaceuticals, Inc. (“Salix”) move to disqualify in Valeant
Pharmaceuticals International, Inc. v. Mylan Pharmaceuticals Inc.,
No. 2018-2097 (“Valeant II”), Salix moves to
disqualify in Salix Pharmaceuticals, Inc. v. Mylan Pharmaceuticals Inc.,
Nos. 2017-2636, 2018-1320 (“Salix II”), and
Valeant-CA and Salix move to disqualify in Dr. Falk
Pharma GmbH v. GeneriCo, LLC, No. 2017-2312 (“Dr. Falk
II”). Because we find that Katten has an ongoing attorney client
relationship with Valeant-CA and its subsidiaries,
including Salix, we conclude that Katten’s representation
of Mylan in these appeals presents concurrent conflicts of
interest. Therefore, we grant the motions to disqualify.

Of the issue


Specifically, Salix—a movant in all three appeals—
is a wholly-owned subsidiary of Salix Pharmaceuticals,
Limited, which is a wholly-owned subsidiary of ValeantDE, which is an indirect,
wholly-owned subsidiary of Valeant-CA. Bausch & Lomb is also an indirect subsidiary of
Valeant-CA and an affiliate of the above-listed entities.
Valeant-CA contends that it has been a longstanding
client of Katten, both directly and through its subsidiaries.

(…)

Mukerjee and Soderstrom, then at Alston & Bird, represented Mylan
throughout the district court litigation. On
May 3, 2018, Mylan notified the district court that Mukerjee and Soderstrom
had left Alston & Bird to join Katten.
On May 25, 2018, Valeant-CA filed a motion to disqualify
Katten in the district court action. Mylan timely appealed
the district court’s summary judgment on June 22, 2018.
Valeant-CA then filed a motion to disqualify Katten in this
court on July 9, 2018, and the district court stayed a decision
on the motion to disqualify pending before it. We
stayed the parties’ briefing on the merits in this appeal
pending our decision on the motion. Valeant II, ECF No.
24.

Of applicable rules


In Valeant, the relevant regional circuit is the
Third Circuit, which applies the professional conduct rules
of the forum state. See United States v. Miller, 624 F.2d
1198, 1200 (3d Cir. 1980). The forum state, New Jersey,
has adopted the Model Rules of Professional Conduct. N.J.
Rule of Prof’l Conduct 1.7(a). In Salix, the relevant regional
circuit is the Fourth Circuit, which applies the rules
of professional conduct of the forum state. See Shaffer v.
Farm Fresh, Inc., 966 F.2d 142, 145 (4th Cir. 1992). The
forum state, West Virginia, has also adopted the Model
Rules. W. Va. Rule of Prof’l Conduct 1.7(a). Finally, in Dr.
Falk, the U.S. Patent and Trademark Office is the relevant
forum and it has also adopted the Model Rules. 37 C.F.R.
§ 11.107(a).
(…)
Indeed, Comment
34 to Rule 1.7, which addresses “organizational clients,”
states:
A lawyer who represents a corporation or other organization does not,
by virtue of that representation, necessarily represent any constituent or
affiliated organization, such as a parent or subsidiary. See Rule 1.13(a).
Thus, the lawyer for an organization is not barred from accepting
representation adverse to an affiliate in an unrelated matter, unless the circumstances are such
that the affiliate should also be considered a client
of the lawyer, there is an understanding between
the lawyer and the organizational client that the
lawyer will avoid representation adverse to the client’s affiliates, or the lawyer’s obligations to either
the organizational client or the new client are
likely to limit materially the lawyer’s representation of the other client.
Model Rules of Prof’l Conduct r. 1.7 cmt. 34 (Am. Bar Ass’n
2018) (emphasis added). Circumstances in which an affiliate is considered a client of a lawyer can arise by express
agreement or when affiliates are so interrelated that representation of one constitutes representation of all. GSI
Commerce Sols., Inc. v. BabyCenter, LLC, 618 F.3d 204,
210–12 (2d Cir. 2010)

Irrational!

We find this reading of the engagement letter to be irrational.
Section 1.2 does not indirectly authorize Katten
to represent parties adverse to Valeant-CA and Salix so
long as Katten remains a non-key firm. Rather, section 1.2
expects a heightened degree of loyalty from key firms,
requiring something more than mere adherence to the ethical
rules. It states that key firms should not represent “any
party” in “any matters” that would conflict with “any Valeant entity.”
Gorman Decl. Ex. A, at § 1.2. This reference
to “any matters” encompasses, as Valeant-CA stated at oral
argument, a “blunderbuss” limitation on key firms to avoid,
not only matters that give rise to ethical conflicts, but also
those that give rise to other types of conflicts. See Oral Arg.
at 9:36. Other types of conflicts could include, for example,
a matter involving the filing of an amicus brief that presents
no ethical conflict under the rules of professional conduct, but that espouses a legal position contrary to one
taken by a Valeant entity in another case. Thus, section
1.2 broadens the degree and type of loyalty expected from
key firms.

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  • The retraction by Nature of the Samaha work: is Gaetan Burgio correct on who is responsible for improper submissions to journals?

    DIANA KWON of The Scientist discusses the retraction by Nature of a paper co-authored by oncologist Nabil Ahmed and Heba Samaha. Of note within her text:


    But starting last October, a few weeks after the paper was posted online, comments about potential image manipulation in the article began to appear on PubPeer, and the issue quickly caught the attention of scientists on social media.

    Gaetan Burgio, a geneticist at Australian National University who posted a widely circulated Tweet about the manuscript, notes that the extent of alleged image duplication identified in this paper was “quite exceptional.”

    (…)

    According to the retraction notice posted today, the authors are pulling the paper “due to issues with figure presentation and underlying data.” All the authors, except Samaha, the first author, agreed with the retraction.

    “Unfortunately, issues were identified in the presentation of several figure panels and the underlying data [in the paper],” Ahmed writes in an email to The Scientist. “I promptly notified the office of research at Baylor College of Medicine, which is looking into the cause of these issues.”

    (…)

    Some commenters on both PubPeer and social media suggested that the duplicated images should have been caught by peer reviewers. But Burgio believes that the responsibility lies with the publisher, not the reviewer. “I think it’s on the publisher to ensure that the paper doesn’t contain any image duplication or plagiarism,” he says. “It’s unfair to rely solely on the reviewer to police the paper.”

    Nature currently conducts random spot checks of images in manuscripts prior to publication. “If concerns about a figure in a Nature paper are raised, we have software tools that enable us to evaluate images in detail,” a Nature spokesperson writes in an emailed statement to The Scientist. (The spokesperson also noted that the journal could not comment on individual articles for confidentiality reasons).

    Some journals, such as the Journal of Cell Biology and The EMBO Journal, have implemented procedures to screen figures in every article prior to publication. “This [practice] is absolutely admirable,” Ferguson says. “How to screen really carefully for image manipulation prior to publication is something that most journals will have to address.”

    As to the issue of plagiarism, IPBiz disagrees with Burgio: it is the people who have knowledge of the field (the reviewers) who should be most responsible for identifying the copying of material, whether it is slavish word-for-word duplication or more subtle forms of intellectual theft.
    IPbiz has already posted examples of plagiarism identified by readers, who are familiar with the given field, rather than publishers, who are not.

    Continue Reading ...
  • Heavily Taxing Billionaires to Promote Innovation

    An important issue confronting the world concerns the high concentration of wealth and redistribution of that wealth through the tax system. Part of the problem is what to do with the wealth gained from additional taxation of billionaires (and what is a politically defensible use of that additional revenue). Democratic presidential candidates are starting to create a “dream list” of things to do with billionaires’ money.  Well, why not use that money to invest in research and development which may lead to more jobs, innovation (even life saving innovation), and additional tax revenue.  
    Professor Michael Simkovic from University of Southern California Gould School of Law takes on general claims that taxing billionaires may lead to less innovation in a short five page article titled, “Taxes, Spending and Innovation.”  Professor Simkovic points to studies concerning patents and Nobel Prize winners.  Professor Simkovic states:

    Public policy can be used to promote innovation by raising taxes and extensively funding high quality science, math, and engineering education, or by encouraging immigration of people with those skills.

    There has been a general decline in the amount of federal funding in terms of real dollars for some time for the National Institutes of Health.  Well, billionaires give to universities and other charities, right?  We don’t need to heavily tax them as they choose to give their wealth to charitable organizations that innovate.  Professor Simkovic notes that voluntary gifts to charity, including to universities, is relatively small at “2% of GDP”—for gifts from all donors.  He concludes we should look to peer-reviewed empirical work to test claims and that, “Claims that we can drive more innovation and growth through a higher concentration of resources in the hands of a small number of billionaires—while providing fewer resources to middle and upper middle–‐class knowledge workers—are not empirically supported.”  [Hat Tip to Professor Paul Caron’s Tax Prof Blog]. 

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  • Who was the oldest inventor to receive a U.S. patent?

    In 2014, the Los Angeles Times discussed US Patent 8606170 to Si Ramo (the R in TRW), then 100 years old.

    On June 12, 2018, US Patent 8606170 issued to Charles Bliss, with Chip Reid of CBS noting of Bliss:


    Last June, the chemical engineer became what’s believed to be the oldest American ever awarded a patent. [at age 101]

    See also

    https://www.cbsnews.com/news/charlie-bliss-climage-change-plan-101-year-old-inventor/

    https://www.support.cooper.edu/s/1289/support/interior-hybrid.aspx?sid=1289&gid=1&pgid=1837&cid=4585&ecid=4585&ciid=24018&crid=0

    https://patents.google.com/patent/US8110395, Photobioreactor systems and methods for treating CO2-enriched gas and producing biomass

    https://www.coe.utah.edu/2014/11/24/100-year-old-u-engineering-grad-oldest-to-receive-patent/

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  • Cotter, Hovenkamp, and Siebrasse on Patent Holdup

    Erik Hovenkamp, Norman Siebrasse, and I have posted a paper on ssrn titled Demystifying Patent Holdup, 76 Washington & Lee Law Review __ (forthcoming 2019).  Here is a link to the paper, and here is the abstract: 
    Patent holdup can arise when circumstances enable a patent owner to extract a larger royalty ex post than it could have obtained in an arm’s length transaction ex ante. While the concept of patent holdup is familiar to scholars and practitioners—particularly in the context of standard-essential patent (SEP) disputes—the economic details are frequently misunderstood. For example, the popular assumption that switching costs (those required to switch from the infringing technology to an alternative) necessarily contribute to holdup is false in general, and will tend to overstate the potential for extracting excessive royalties. On the other hand, some commentaries mistakenly presume that large fixed costs are an essential ingredient of patent holdup, which understates the scope of the problem. 
    In this article, we clarify and distinguish the most basic economic factors that contribute to patent holdup. This casts light on various points of confusion arising in many commentaries on the subject. Path dependence—which can act to inflate the value of a technology simply because it was adopted first—is a useful concept for understanding the problem. In particular, patent holdup can be viewed as opportunistic exploitation of path dependence effects serving to inflate the value of a patented technology (relative to the alternatives) after it is adopted. This clarifies that factors contributing to holdup are not static, but rather consist in changes in economic circumstances over time. By breaking down the problem into its most basic parts, our analysis provides a useful blueprint for applying patent holdup theory in complex cases.

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  • Qualcomm, Google, Verizon and Industry Reps Gather for Women’s High-Tech Coalition Women of Wireless Dialogue

    On February 13, global policymakers and technology company representatives gathered in Washington, D.C. at Google’s offices for the Women’s High-Tech Coalition (WHTC) Third Annual “Women of Wireless” dialogue. The speakers represented companies including Google, Verizon, and Qualcomm, as well as major industry organizations such as the Cellular Telecommunications and Internet Association (CTIA) and the Consumer Technology Association (CTA), and discussed the various infrastructure, policy, and…

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  • U.S. Cannabis Inventions on the Rise As Legal Marijuana Market Grows

    The shifting status of marijuana from an illegal controlled substance to regulated medicinal product to, in some jurisdictions, legalized recreational activity has created a market that promises to be incredibly valuable in the years to come. An April 2018 report from Grand View Research predicted the global market for legal marijuana products to exceed $146 billion by the year 2025. A 2018 cannabis report by Deloitte forecast Canada’s cannabis market to reach $7.17 billion in total sales…

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  • Termination Of Product Development Precludes Standing To Appeal PTAB IPR Decision Upholding Patent

    In Momenta Pharmaceuticals, Inc. v. Bristol-Meyers Squibb Co., the Federal Circuit issued another decision analyzing the contours of a petitioner’s Article III standing to appeal PTAB decisions upholding a patent. In contrast to Amerigen, where the court found standing for a would-be generic competitor whose ANDA was subject to a Paragraph III certification against the…… Continue reading this entry

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  • The Newest Patent ‘Rocket-Docket’: Waco, Texas

    Marshall, Texas has been, and will likely continue to be, one of the major patent litigation cities in the United States. But, Waco, Texas is quickly becoming the new mecca for patent infringement lawsuits due to recent case law and the arrival of a patent-savvy district judge. In the world of patent litigation, we all know Marshall, Texas. The Eastern District of Texas—which includes the Marshall Division—is known to be one of the largest as far as numbers of patent litigation lawsuit filings…

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  • Mandamus Relief Denied: Federal Circuit Avoids Clarifying TC Heartland in In re Google LLC

    The Federal Circuit recently elected not to decide en banc “whether servers are a regular and established place of business, such that venue is proper under 35 U.S.C. § 1400(b). In re: Google LLC, No. 2018-152 (Fed. Cir. Feb. 5, 2019) (Before Prost, Chief Judge, Newman, Lourie, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Chen, Hughes, and Stoll, Circuit Judges) (Dissent by Reyna, Circuit Judge, joined by Newman and Lourie, Circuit Judges). SEVEN Networks, LLC’s (SEVEN) patent infringement…

    Continue Reading ...
  • EU Reaches Copyright Reform Agreement But Opposition Remains

    Have European Union legislators finally agreed on the substance of a new Copyright Directive? That was the claim made in a statement by the European Commission on February 13. The Commission announced that it, the EU Council (which represents member state governments) and the European Parliament (comprising 751 elected members) had reached a “breakthrough” on controversial proposals that have been hotly debated for the past six years. The Commission explained that the three bodies had found a…

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  • Return Mail v. USPS Oral Arguments: Both Sides Struggle in Robust Questioning at Supreme Court

    On Tuesday, February 19, the U.S. Supreme Court heard oral arguments in Return Mail Inc. v. United States Postal Service, a case that asks the nation’s highest court to determine whether the federal government constitutes a “person” for the purposes of instituting review proceedings at the Patent Trial and Appeal Board (PTAB) under the Leahy-Smith America Invents Act (AIA). Although the Supreme Court Justices appeared to be dissatisfied with arguments from counsel for either side, they arguably…

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  • Don’t Be Fooled by His Patent Purge: Elon Musk is Just Another Hypocritical Tech Billionaire

    In 2014, Elon Musk made Tesla’s patents available for anyone to use for free, stating that “technology leadership is not defined by patents.” Earlier this month, Musk announced again that he had released all of Tesla’s patents, promising the company “will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” Musk believes patents only serve “to stifle progress” and that by releasing his patents he can help get progress moving again—and that progress will…

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  • Using Insurance to Deter Lawsuits

    The conventional wisdom (my anecdotal experience, anyway) is that the availability of insurance fuels lawsuits. People that otherwise might not sue would use litigation to access insurance funds. I’m sure there’s a literature on this. But most insurance covers both defense and indemnity – that is, litigation costs and settlements. But what if the insurance covered the defense and not any settlement costs? Would that serve as a disincentive to bring suit? It surely would change the litigation dynamic.

    In The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs, Bernhard Ganglmair (University of Mannheim – Economics), Christian Helmers (Santa Clara – Economics), Brian J. Love (Santa Clara – Law) explore this question with respect to NPE patent litigation insurance. The draft is on SSRN, and the abstract is here:

    We analyze the extent to which private defensive litigation insurance deters patent assertion by non-practicing entities (NPEs). We do so by studying the effect that a patent-specific defensive insurance product, offered by a leading litigation insurer, had on the litigation behavior of insured patents’ owners, all of which are NPEs. We first model the impact of defensive litigation insurance on the behavior of patent enforcers and accused infringers. Assuming that a firm’s purchase of insurance is not observed by patent enforcers, we show that the mere availability of defense litigation insurance can have an effect on how often patent enforcers will assert their patents. Next, we empirically evaluate the insurance policy’s effect on the behavior of owners of insured patents by comparing their subsequent assertion of insured patents with their subsequent assertion of their other patents not included in the policy. We additionally compare the assertion of insured patents with patents held by other NPEs with portfolios that were entirely excluded from the insurance product. Our findings suggest that the introduction of this insurance policy had a large, negative effect on the likelihood that a patent included in the policy was subsequently asserted, and our results are robust across different control groups. Our findings also have importance for ongoing debates on the need to reform the U.S. and European patent systems, and suggest that market-based mechanisms can deter so-called “patent trolling.”

    On reading the abstract, I was skeptical. After all, there are a bunch of reasons why more firms would defend against NPEs , why NPEs would be less likely to assert, and so forth. But the interesting dynamics of the patent litigation insurance market have me more convinced. Apparently, the insurance didn’t cover any old lawsuit; instead, only specific patents were covered. So, the authors were able to look at the differences between firms asserting covered patents, firms that held both covered and non-covered patents, and firms that had no covered patents. Because each of these firms should be equally affected by background law changes, the differences should be limited to the role of insurance.

    And that’s what they find, unsurprisingly. Assertions of insured patents went down as compared to uninsured patents, and those cases were less likely to settle — even with the same plaintiff. My one concern about this finding is that patents targeted for insurance may have been weaker in the first place (hence the willingness to insure), and thus there is self-selection. The paper presents some data on the different patents in order to quell this concern, but if there is a methodological challenge, it is here.

    This is a longish paper for an empirical paper, in part because they develop a complex game theory model of the insurance purchasing, patent assertion, and patent defense. It is interesting and worth a read.

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