Nexus: John Marshall Law School

JMLS IP Conference (Report 2): Patent eligibility, anti-anti suits and the era of unpredictability

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State of Patent Law Panel at the JMLS 63rd IP Conference

Back in Chicago at the 63rd UIC John Marshall Law School, Kat friend Amy Crouch (Simmons & Simmons, London) was reporting from the “The State of Patent Law & Policy: Views from the Top” session. This session boasted an impressive panel of leading figures and judges from the US and Europe, covering topics ranging from subject matter eligibility to SEP enforcement.

Over to Amy:

"Moderated by Nick Groombridge (Paul Weiss), the session began with USPTO Director Andrei Iancu discussing what he called the most important US patent law issue in recent years: s101 subject matter eligibility. In January 2019, the USPTO issued Guidance on the issue. Ten months on it can be said that the Guidance is working really well: both anecdotally and as can already be seen from the statistics. The new framework makes it very clear that s101 is a question of subject matter eligibility and not patentability. The Courts are independent and do not follow the Guidance, at least they don’t seem to be yet, although Director Iancu still thinks there is hope that the Supreme Court will look at it. Congress might also have to act but there is no pending legislation yet.

At the PTAB there have also been changes over the last 18 months which have resulted in largely eliminating multiple and parallel petitions, meaning that parties need to think carefully before filing petitions. Just the previous day (31 October) the Federal Circuit had issued a decision finding that the PTAB judges were unconstitutionally appointed, and whilst Director Iancu had not yet had a chance to fully consider all ramifications of that decision, it seemed that the fix offered meant that they were now constitutional again!

In relation to SEPs, Director Iancu’s view is that any policy needs to encourage good faith negotiations. To that end automatic rules are counterproductive – i.e. if an injunction is either always granted or never available. This approach must be discouraged.

Randall Rader (former Chief Judge US Court of Appeals for the Federal Circuit, CAFC) expressed the view that the anti-suit and anti-anti-suit injunctions being issued are interfering with a global market place. The jurisprudence for such international licensing disputes is broken and parties need to use arbitration. On s101, Judge Rader’s view is that the situation is a result of the judiciary having abandoned the statute but there is an opportunity for the judiciary and Congress to fix it quickly. In the Athena Diagnostics judgment on the en banc issue, the CAFC judges offered eight different eligibility opinions and the court was split. Some are of the view that s101 has the purpose of preventing overly broad patents, when in fact that is a s112 enablement issue and not one of eligibility. In his view, for the US to continue to be a leader in the patent world this huge issue needs to be resolved.

Lisa Jorgensen

Lisa Jorgensen (AIPLA) then summarised the status of possible legislative reform on s101. Congress have organised a number of roundtables on the issue since December 2018. In June, there were three days of hearings which involved an unprecedented forty-five witnesses testifying. There have been two versions of a draft legislation in May and then in August, but there is a concern that there isn’t enough consensus. Lisa was if the view that, whilst likely we won’t see anything out of the Hill any time soon, it is important to keep speaking to Congress.

Paul Coletti (Johnson & Johnson) commented that whilst there was an even split between the eight opinions in Athena, all of those opinions were asking the Supreme Court for help with the issue. Last month the American Axle decision again resulted in a split decision (2:1) from the CAFC. The dissenting judge in that case was of the view that the issue was a s112 one rather than a s101 one and referred to the situation as “validity goulash” due to conflating two different issues of patent law! In Paul’s view things are not fixed; they are better, but they are still broken. The USPTO Guidance is very helpful because now Examiners know what to do but, as Judge Rader also said, the decisions from the CAFC are panel dependent and that is not helpful for anyone.

David Webster Jones (High Tech Inventors Alliance) gave the contrary view from a tech sector standpoint, noting that at least the tech universe is happy with the current position because s112 does not always help on overly broad claims and eligibility does have role to play in those cases, i.e. in the three areas of exceptions: abstract ideas, laws of nature and natural phenomenon.

Ellisen Turner (Kirkland & Ellis) stressed how important it is to find a way to bring some consistency and predictability to the decisions. Over the last five years there have been a huge number of wildly inconsistent decisions and legislative reform will at least bring more predictability.

In Director Inancu’s view the issue is on the verge of becoming one of national security. The patent system must evolve for the technology that is important right now. s101 takes off the table some of the most important inventions of the future, including diagnostic testing and personalised medicine which are hugely important for humans to have access to in the future. In Athena, all of the judges said that diagnostic technology should be eligible but half of them found that they couldn’t find it to be eligible. That is a huge problem for the US, in particular because other jurisdictions do allow patenting of such subject matter. It is critical for consensus to be reached to allow the US to stay competitive in biotech, in AI, in blockchain etc. Either legislation is needed for the Federal Circuit to fix it or the Supreme Court must look at the issue. They could simply choose to apply the USPTO Guidelines, which are actually very similar to the European framework.

Judge Grabinski

Klaus Grabinski (German Federal Court of Justice) commented that whilst there are some patent issues that all jurisdictions are struggling with, patent eligibility is just an issue that the US is struggling with! In Europe there is a list of exclusions, but they are only excluded “as such” which means, for example, that whilst a particular sequence of algorithms is not patentable, once a function is added it is patentable. This puts the focus on the issue of obviousness, which is what decides most cases in Europe. In Germany the court structure is very different, with the Federal Court of Justice having the final say in all cases and having specialised judges. This may explain to some extent the development of patent law in Germany (and similarly in the UK).

In relation to SEP disputes, there are currently cases pending in Germany where the US courts have ordered anti-suit injunctions and subsequently the party in the German proceedings has aksed the Court for an anti-anti-suit injunction. Such cases raise a number of questions as to how to deal with cases pending in two jurisdictions dealing with overlapping subject matter. Which court should have jurisdiction? The better one? How would that be determined? In Europe the Brussels Regulation applies to result in the court first seized having jurisdiction but of course that does not apply to the US.

USPTO Director Iancu

Judge Rader agreed that of course in a global market place there will be global disputes. There will be an inevitable conflict as courts try to deal with a global market with only their sovereign remedies. A single international remedy is needed. Arbitration needs to be improved for a global resolution to a global problem.

Ellisen commented that the fundamental problem here is that there is unilateral obligation on an SEP owner but not on the implementer and that patents are territorial whereas contracts are international in scope. Huawei had only 1% of sales in the UK and 85% in China and yet the UK courts set a global FRAND rate much higher than the rate would have been in China. That is a global trade issue for Huawei and needs to be addressed at a contractual level with the standards setting organization (SSO). Maybe the SSO should set the rate itself, although of course there are competition issues with that as well. "

JMLS IP Conference (Report 1): Antitrust, IP, data and FRAND - time for a retool?

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Every Halloween, if the moon is right, the AmeriKat ventures west to the windy city of Chicago to take part in the UIC John Marshall Law School Annual IP Conference organized by the ever energetic Professor Daryl Lim. This year marked its 63rd Annual IP Conference. But this year the moon wasn't quite right, so instead some Kat friends appeared in Chicago. Having arrived in an unexpected Halloween snow storm, Amy Crouch (Simmons & Simmons, London) was ready to report and excited to be speaking on the afternoon patents panel session.

Over to Amy:

"After a rousing introduction from Daryl and Susan Posner (Provost UIC), the conference was opened by a keynote address from Hon. Diane Wood (U.S. Court of Appeals for the Seventh Circuit) on the topic of “Antitrust & IP: Does it Need to be Retooled?”

Chief Judge Wood explained that, in her view, there are reforms that could be helpful to rejuvenate the intersection between IP and Antitrust law, particularly on the procedural side, but also in some substantive respects. The question to be asked is: has the right balance been struck to date between intervention and restraint? To date the approach taken, whilst not being completely hands off, has been fairly cautious which begs the question as to whether that has been a mistake for 21st century industries.

Whilst there are things that can be done to preserve competition as it is in the market, once a tight oligopoly is established, the tools for fixing that are quite limited. This is true in relation to both conventional property and IP. IP is of course a type of property; it is simply harder to define, but for the purposes of antitrust the same analysis is applied: agencies do not presume that IP creates power in the antitrust context, rather it depends on the usual criteria.

Importantly, IP is a whole and should be considered that way. However, that is not how it is considered procedurally; where instead patents are carved off into one corner and everything else is dealt with separately. A choppy system is created as patent appeals are dealt with by the Federal Circuit, whereas anything else goes to the state Appeal Courts. This means that all types of cases that deal with patents more generally don’t go to the Federal Circuit, for example licensing disputes which end up in the regular Appeal Courts. Another lacuna is created by the fact that the statue dictates that “compulsory” counter claims for patents fall under the exclusive jurisdiction of the Federal Circuit, whereas “permissive” counter claims go to the regional courts.

Chief Judge Wood was of the view that this should change so that only one Court has authority over any one patent and that choice should be optional to allow the parties to decide the Court. This would allow the development of different thinking in the Courts. Statistics show that the Supreme Court has suffered from a lack of diversity of thinking in this area. Since 2000, they have affirmed the Federal Circuit 28% of the time and reversed it 72% if the time – so it is clear that there are other views out there. As such, the key procedural reform supported by Chief Judge Wood is to allow IP to be viewed as a whole in the tribunals.

In terms of substantive reform it is less clear. Much of the recent commentary in the US is calling for more aggressive intervention, in particularly in relation to big tech companies. Is SEP and FRAND licensing a good way to do this? Whilst this may work for IP, Chief Judge Wood was personally sceptical of how such an approach could be applied to other types of property.

The session then continued with a panel session on the same issues, moderated by Daryl . Koren Wong-Ervin (Qualcomm) explained that the Department of Justice Guidelines do highlight that IP is a type of property and also that ease of appropriation will be kept in mind. Whilst ideally there is a desire to provide it to everyone, the incentive to innovate is important. In Koren’s view there is a risk of equating the concentration issue with an effect on consumers. The concentration contention is not taking account of relevant antitrust markets but looking at hugely broad categories, not quite in the realm of “all plastics” / “all metals” but nearly this extreme in scope. A fundamental flaw in the court’s reasoning on SEP compulsory licensing to date is the failure to appreciate that licensing at the device level is more valuable than licensing at the component level, which does not fully value the IP.

Andrew Finch (Paul Weiss, previously U.S. Department of Justice’s Antitrust Division) explained that there is a sea change from the previous view at the DOJ. The DOJ intervened in the recent FTC v Qualcomm case (in which Judge Koh found in favour of the FTC) and now on appeal. The policy of the current administration and head of the Antitrust Division is in some senses a re-balancing of the risk of hold up versus hold out. All three briefs submitted by the DOJ reflect the view that the failure to licence on FRAND terms does not in itself equate to an antitrust violation. Instead that must depend on what happens in the market. The antitrust movement being seen today is on a scale that hasn’t been seen for a hundred years - including presidential debate. The market concentration debate is an important one to be having right now and the DOJ have walked right into that debate; as shown with Qualcomm case, if they don’t agree with the FTC in a market of significant importance then then will step in.

Milan Kristof (Court of Justice for the EU) explained that interestingly a different approach has been taken in Europe. In the UK the Supreme Court has just heard the appeal on the extraterritoriality and global FRAND issues. From the CJEU’s perspective, where a patent holder has given a commitment to license on FRAND terms, and there is a willing potential licensee, then an injunction based on the SEP may be an abuse of dominant position.

Steven Geiszler (Huawei) commented that it is difficult to even know what best practice is: as a matter of contract or as a matter of antitrust law? It is one thing looking at the appellate level but at the district court level it is clear that different judges have different views. As a result, every party has its own preferred Court and legislative framework that it wants to work through. Economically there is also a very important debate about licensing at the device level versus licensing at the component level. The current Qualcomm case clearly shows that the FTC are one side philosophically and the DOJ are on the other side.

Anne Gron (Alix Partners) gave the economist viewpoint, being asked to what extent should we be concerned that the likes of Google, Amazon and Facebook have a huge proportion of data? Should they be under an obligation to share it with other companies who might need it? In Anne’s view there is a concern that reduced competition in markets with strong digital platforms can harm consumers. “Tippy” markets are often seen in areas of strong IP; such markets tend to tip to one platform. This results in periods of intense competition until the market tips and there is then a period of waiting for new platforms to come up.

One particular concern is that companies with strong data platforms can use their position in the market and data collected to acquire competitors before they are large enough to come to the regulator’s attention as a likely “competitor”. These are sometimes called “killer acquisitions” as the platform acquired is often then shelved and not developed any further. This can often be identified more easily in the pharma industry than the tech industry. Whilst there are of course arguments that start-ups want to be bought, the concerns of economists are that the power of the dominant companies is very strong.

Asked about whether the US Courts should do something to disseminate technology and facilitate access to platforms, Chief Judge Wood stated that abuse of dominance assessments may be best carried out by an administrative agency as is the case with the European Commission. In the US, if a monopoly is found to exist then all the Courts can do is break it up. The European Commission, on the other hand, has a more flexible toolkit and can impose a civil fine, such as Google’s €2.4 billion fine - which even they must feel in their balance sheet! Milan Kristof commented that the Google decision is being appealed and so we will see what the General Court thinks about that in due course. He also noted that the European Commission is investigating Amazon over the issue of owning the platform on which its own products sell well.

Asked about the fact that the Federal Circuit has exclusive jurisdiction over patents, but that the judges clearly have very different views and what can be done to reconcile this, Koren noted that she was surprised that in the FTC v Qualcomm case there was not more reference to other Federal Circuit cases. Steven commented that it should be kept in mind that SEPs are either owned by a larger innovator company or may have been sold to a NPE. In the German related case to the UK Unwired Planet case, the patents were sold with a view to extracting a high royalty rate but without passing on the FRAND commitment. The Appellate Court in Dusseldorf found this to be an antitrust violation – i.e. selling on the patents but not the FRAND commitment. In Steven’s view that had to be the right decision. Milan commented that there is now European Commission guidelines on this point, namely that there be a requirement to ensure that the onward entity in any sale is bound by the same FRAND commitment. "

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JMLS IP Conference (Report 2): Patent eligibility, anti-anti suits and the era of unpredictability

JMLS IP Conference (Report 1): Antitrust, IP, data and FRAND - time for a retool?

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