A generic post about trademark overclaiming

Posted on March 17, 2016 by rtushnet
Miller’s Ale House, Inc. v. DCCM Restaurant Group, LLC, 2016
WL 1040005, No: 6:15-cv-1109-Orl-22TBS (M.D. Fla. Mar. 16, 2016)
 
Miller sued DCCM for false designation of origin/unfair
competition under state and federal law. Miller’s operates approximately
seventy sports bar restaurants throughout Florida and the United States, using
a similar, but not always identical, sign on each. “Sometimes the sign appears
with the name Miller’s in italics preceding a geographical prefix and followed
by the phrase ‘ale house;’ and other times the sign omits “Miller’s” and
contains only a geographical prefix and ‘ale house.’” Thus: “Miller’s ORLANDO
ALE HOUSE,” or “ORLANDO ALE HOUSE,” generally but not always in red letters and
not always in italics.
 
DCCM’s sports bar restaurant, located in Davenport, Florida,
is called Davenport’s Ale House, with a sign comprised of Davenport’s in
italics preceding the phrase “ale house.” Miller’s argued that the relevant public,
central Florida, associated an italicized word followed by ALE HOUSE with
Miller’s restaurants, regardless of the nature of the italicized word.
 
In  Ale House Mgmt,
Inc. v. Raleigh Ale House, Inc., 205 F.3d 137 (4th Cir. 2000), the Fourth
Circuit concluded that Miller’s predecessor had no protectable interest in the
phrase “ale house” because they are generic words. In Miller’s Ale House, Inc.
v. Boynton Carolina Ale House, LLC, 745 F. Supp. 2d 1359 (S.D. Fla. 2010), the
court found that issue preclusion barred Miller’s claim based on “[geographic
prefix] ALE HOUSE” because the Fourth Circuit had already determined that “ale
house” is generic, and Miller’s had failed to present evidence showing that it
had “recaptured” the generic term “ale house.” The Eleventh Circuit affirmed,
emphasizing that “Miller’s still has no protectable interest in the words ‘ale
house,’ ” nor any protectable trade dress in red letters on an outside
sign.  Miller’s Ale House, Inc. v.
Boynton Carolina Ale House, LLC, 702 F.3d 1312 (11th Cir. 2012).
 
Here, Miller argued that it wasn’t relitigating its
trademark claims, but rather seeking protection against misuse of a generic
term under the head of unfair competition. 
(Now-Justice Ginsburg said this kind of claim was ok in Blinded American Veterans, but the judge
here pointed out that Eleventh Circuit precedent controls.)  DCCM pointed out that this looked a lot like
the prior litigation, and noted that Miller’s does not use italics consistently
on its buildings, nor do any of its signs italicize the geographical prefix.
 
Font style wasn’t raised in previous litigation and wasn’t
directly precluded, but summary judgment was warranted because of a lack of a
genuine issue of material fact. The magistrate judge reasoned that Miller’s
evidence, at most, could show confusion among consumers in central Florida, but
didn’t show that the general public, outside of just central Florida,
associated the font and style of the sign with Miller’s.
 
Adopting the magistrate’s recommendation, the district judge
reasoned that courts in the Eleventh Circuit treat trademark infringement and
false designation of origin identically, other than the presumptions afforded
by registration.  Knights Armament Co. v.
Optical Sys. Tech. Inc., 654 F.3d 1179 (11th Cir. 2011) (declining to consider
claims for unfair competition and false designation of origin under §43(a)(1)(A)
because the defendant did not have enforceable rights in a mark). Miller failed
to distinguish its claims from trademark infringement claims; the only
difference here from the previous Miller case was DCCM’s use of italics, but
Miller conceded that it only occasionally used italics in its signage and didn’t
do so for the geographical prefix. Thus, the false designation of origin claim
was premised on nearly identical allegations as the trademark infringement
claim, and Miller’s didn’t have enforceable rights in the relevant symbol.
 
Miller objected to the magistrate’s recommendation, arguing
that the appropriate geographical area for the likelihood of consumer confusion
element was central Florida, not nationwide. But without a mark in which there
were rights, that issue was irrelevant. 
The state law claims suffered the same fate.
 
Comment: I hope the court awards defendant its fees.  “Ale house” was born generic and there’s no
good reason to allow claims over it to persist, even if there is some policy
reason for holding out hope for formerly non-generic terms like SINGER for
sewing machines.  Right now, Miller seems
to believe that it’s worth harassing competing ale houses in the hope that it
can deter enough of them to make a better case for having claimed the
term.  The next suit will presumably be
over the size and shape of the outside sign, also not previously
litigated.  Miller would be better served
by focusing on building up a brand in MILLER’S ALE HOUSE, if it can.

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Checkered result for Uber: some false advertising claims survive

Posted on March 16, 2016 by rtushnet
Checker CAB Philadelphia, Inc. v. Uber Technologies, Inc., 2016
WL 950934, NO. 14-7265 (E.D. Pa. Mar. 7, 2016)
 
Checker sued Uber and Google for Lanham Act and RICO
violations.  Unsurprisingly, this opinion
kicks out Google and RICO, leaving Uber to face some but not all of the
remaining false advertising claims. 
(Google was sued in its role as an investor in Uber.)
 
In October 2014, Uber, through Jon Feldman, posted an ad on
Uber’s website and sent a blast email to its account holders in the
Philadelphia Metropolitan Area about the launch of UberX service in
Philadelphia. The ad included the claim: “This week the largest taxi insurer
went bankrupt, which means that as of 5:00 p.m. today, there is no guarantee
that your taxicab will be insured.” Uber and Feldman “tweeted” a similar ad on
social media with a link to a post on its blog that said: “In October the
largest taxi insurer in Pennsylvania went bankrupt. Many uninsured taxis are
still on the road; though some may have new policies, there’s no guarantee that
your taxi ride will be insured.”
 
The reference was to First Keyston, which provided insurance
to many of the taxi plaintiffs and was going through bankruptcy.  Pursuant to an order of the bankruptcy court,
all existing insurance policies issued by First Keystone were cancelled as of
November 20, 2014.  The taxi authority
told First Keystone policyholders whose proof of insurance was on file with the
authority to get replacement coverage within two days, or risk being put out of
service.  According to plaintiffs, by
that time “almost all” of the First Keystone policyholders contacted by the authority
had obtained replacement insurance coverage, and “the rest were awaiting
underwriting approval.” The authority then extended its deadline three days,
leaving “only a handful” without replacement insurance.  Plaintiffs alleged that no First Keystone
policyholders was ever placed out-of-service and no medallion taxicabs
operating in Philadelphia were ever uninsured, because the First Keystone
policies remained effective until November 20, 2014, or an earlier date when
replacement coverage was secured.
 
The ads also claimed that Uber’s UberX fares were 20%
cheaper than a taxi’s fare, using three sample comparisons of Uber’s fares with
those of a non-Uber affiliated taxi.
 
The court first dismissed claims based on Uber’s alleged
provision of taxicab services in violation of local and state regulations,
which themselves didn’t provide for private causes of action. in Sandoz
Pharmaceuticals Corp. v. Richardson-Vicks, Inc., 902 F.2d 222 (3d Cir. 1990),
the Third Circuit held that “what the FD&C Act and the FTC Act did not
create directly, the Lanham Act does not create indirectly, at least not in
cases requiring original interpretation of these Acts or their accompanying
regulations,” and affirmed the district court’s denial of a preliminary
injunction. The same was true here. “For example, in Dial A Car, Inc. v.
Transportation, Inc., 82 F.3d 484 (D.C. Cir. 1996), the D.C. Circuit Court of
Appeals relied on Sandoz to hold that private parties may not invoke the Lanham
Act to create a private cause of action for enforcement of local taxi
regulations.”
 
Statements based on fare comparisons: Plaintiffs alleged
that the 20% cheaper claim was literally false, but the fare samples used in
the blog posts “show the literal truth of the challenged statement, i.e., the
sample UberX rates are at least 20% lower than the sample non-Uber taxicab
fares.”  Plaintiffs didn’t allege that
any of these samples were false.
 
Statements based on claims about plaintiffs’ insured status:
Here Uber fell down.  Uber argued that,
in light of the facts, Uber’s statement that there was “no guarantee” that a
consumer’s cab was insured was literally true since, when Uber disseminated the
ads, some Philadelphia taxicab drivers had not obtained replacement insurance
coverage.  Uber failed to grapple with
the allegation that the Keystone insurance policies were in fact valid until
November 20, more than three weeks after the “no guarantee” statements.  The express claim that the insurance policies
were terminated/cancelled in October was literally false.
 
Proximate cause under Lexmark:
Plaintiffs alleged that Uber was “willfully, knowingly and intentionally making
false claims and descriptions in their advertising and, unless immediately
enjoined by this Court, will continue to deceive, mislead, and confuse the
riding public into believing that, among other things, Plaintiffs’ taxicab
service is inferior, less safe, risky, more expensive, and unsuitable for its
intended purpose.”  That was enough, in
conjunction with the other factual allegations in the complaint.  (I understand that Lexmark could in theory be used to contract standing.  But not when the ads at issue are comparative
ads targeting the plaintiff/s!)
 
Relation of false advertising to RICO: the false advertising
allegations couldn’t support a RICO claim “because the three alleged instances
of false advertising (even if deemed to be racketeering activity) do not form
the requisite continuous pattern of racketeering activity. The advertisements
occurred within a three-day period in October 2014.”  Also, no facts were alleged that could
establish that these misrepresentations were part of Uber’s “regular way of
doing business.”

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I don’t go into yours, you don’t go into mine: copyright preempts Dirty Dancing trademark claim

Posted on March 15, 2016 by rtushnet
I don’t go into yours, you don’t go into mine: copyright
preempts Dirty Dancing trademark claim
 
Lions Gate Ent. Inc. v. TD Ameritrade Servs. Co., No. cv
15-05024  (C.D. Cal. Mar. 14, 2016)
 
Lions Gate sued TD for infringing its rights in Dirty Dancing, specifically the
well-known line “Nobody puts Baby in a corner,” which Lions Gate claimed as a
mark for various goods and services and alleged that it had licensed for “a
variety of merchandise.”  TD ran a series
of ads, including video, online, and print versions with the theme “Nobody puts
your old 401k in a corner,” with an encouragement to enroll in the TD IRA plans.
The ads often included images to conjure up Dirty Dancing, such as “a still
and/or moving image of a man lifting a piggy bank over his head after the piggy
bank ran into the man’s arms.”
 
Some versions of the ads “invoked” the song,
“(I’ve Had) the Time of My Life,” which played during the final dance scene in
the movie, with lines like “[b]ecause retirement should be the time of your
life.”
 

Start of TV ad
Middle of TV ad
Big finish of TV ad
 
 
After finding specific personal jurisdiction in California,
the court turned to Dastar.  For underexplained reasons, the court decided
to apply §301 preemption doctrine to see whether the trademark claims were
precluded, when it probably ought to be conflict preemption.  (1) Were the claims within the subject matter
of copyright? Yes, they were based on the motion picture Dirty Dancing and associated literary/musical works.
 

(2) Was there an extra element?  This is important because Dastar said that federal trademark law can’t
be used to extend copyright or patent rights. “Origin of goods” refers “to the producer
of the tangible goods that are offered for sale, and not to the author of any
idea, concept, or communication embodied in those goods.” TD argued that the
claims were Dastar-barred, and that,
to the extent the elements claimed were famous, they weren’t famous as marks but rather as part of a
copyrighted film.
 
Lions Gate responded that it made separate copyright
infringement claims, and that “a single work may be protected as an original
work of authorship under copyright law and as a trademark.”

The court found that the complaint bled together its copyright, trademark, and
unfair competition claims “making it challenging for the Court, much less
Defendants, to determine the allegedly separate theories underlying the
different rights.”  Lions Gate was using
copyright “either as a bolster for its trademark and unfair competition claims,
or as the real basis of the claims — the latter of which is certainly not permissible.”  It was even unclear what NOBODY PUTS BABY IN
A CORNER was used for—Lions Gate said at oral argument that it was on goods
such as posters, journals, and clothing (which sound awfully
ornamental/expressive to me). 
 
The court found the claim barred by Dastar.  Unfair competition
and trademark infringement claims also failed as preempted.  “These causes of action are based on
Defendants essentially copying Plaintiff’s intellectual property and slightly
changing the words — creating a derivative work, perhaps — and using the
changed sentence in advertising its own products.”  (A little worrisome that a sentence fragment
might be enough for copyright infringement, but I hope substantial similarity
analysis will ultimately be sensible. 
The fact that there might be a gap between copyright and trademark
rights isn’t a problem; it’s a function of the system!)  State and common-law claims were also preempted
by copyright law “because the same rights are asserted in these causes of
action as are asserted in the copyright infringement cause of action, namely reproduction
and distribution of the copyrighted work and preparation of a derivative work.”
 
The court distinguished Dastar-barred
claims from acceptable passing off claims:
 
[I]f the TD Defendants were to sell
posters, journals, and clothing with NOBODY PUTS BABY IN A CORNER on them, or
take the goods Lions Gate alleges it produces or licenses and put TD’s own mark
on it, then there would be a solid origin claim under the Lanham Act, and
surely any state and common-law equivalent. Dastar explicitly provided for that
— the distinction it drew for origin claims was between “the producer of the
tangible goods that are offered for sale” (allowable) and “the author of any
idea, concept, or communication embodied in those goods” (preempted). The
problem is that nothing like that has occurred here.
 
Instead, Lions Gate argued that TD’s use of “a slightly
altered version” of its marks would cause consumer confusion as to Lions Gate’s
endorsement or association with those services, “even though the advertisements
clearly promote TD’s financial services and do not mention Lions Gate or Dirty Dancing, or attempt to pass off
products of TD as from Lions Gate or vice versa.”  Lions Gate argued that this confusion flowed
from the use of NOBODY PUTS BABY IN A CORNER, but the court couldn’t see how
that differed from a copyright infringement claim, “or a claim that Defendants
have failed to obtain the permission of the author of the ‘idea, concept, or communication
embodied in those goods.’”  TD made a new
tag line, “Nobody puts your old 401k in a corner”; it “played on the famous
concluding dance scene”; and it “referenced” the famous song playing during
that dance with another tag line, “Because retirement should be the time of
your life.” That might be copyright infringement, but not trademark
infringement.
 
A communicative good can be protected under both copyright
and trademark, but not here.  The alleged
wrongful conduct is just unauthorized use of the protected elements of Dirty Dancing; though Lions Gate added
the allegation that consumers would be confused about association, the right
alleged was exactly the same: “the right to be the exclusive licensor and user
of the sentence ‘Nobody puts Baby in a corner.’”
 
The court then discussed Lions Gate’s strongest cases, Bach
v. Forever Living Products U.S., Inc., 473 F. Supp. 2d 1110 (W.D. Wash. 2007),
and Butler v. Target Corp., 323 F. Supp. 2d 1052 (C.D. Cal. 2004). Bach
involved the defendants’ use of the title, character, name, text, and
photographs from the book Jonathan
Livingston Seagull. “The defendants not only used the intellectual property
associated with the book in their own materials, but they also stated in
advertising their products that the brand ‘is the Jonathan brand’ and that ‘Jonathan
is really the basis of what Forever is about.’” The court found that the name,
title, and trade dress of the book cover were protected under trademark, not
copyright, because those were source-identifying marks.  By contrast, NOBODY PUTS BABY IN A CORNER was
part of the text of the copyrighted work Dirty
Dancing, especially given that Lions Gate relied on other elements from the
film to bolster its claim.
 
Butler involved
the defendant’s use of plaintiffs’ copyrighted musical work and sound
recording, Rebirth of Slick (Cool like Dat). The defendant played the sound
recording as the soundtrack to its national advertising campaign, and also had
ads and signs at stores stating, “Jeans Like That,” “Denim Like That,” “Shoes
Like That,” and so on. The plaintiffs sued for infringement of the right to
publicity, unfair business practices, and Lanham Act claims. The court found
claims based on the use of the sound recording to be preempted, but not right of
publicity/unfair business practices based on the use of the plaintiffs’
identity/false endorsement claims. Butler
never mentioned Dastar; the
plaintiffs weren’t claiming solely that a modified use of a famous line
violated their trademark rights. 
Instead, they claimed that “the use of something so closely associated
to their famous persona was a misappropriation of their publicity and a false
endorsement where the ‘mark’ for Lanham Act purposes is their celebrity
identity.”  This wasn’t similar to Lions
Gate’s theory, and it wasn’t necessarily covered by Dastar.  (Ugh.  See also: why we need the Supreme Court to
fix the right of publicity.)
 
Dilution claims led to a beautiful ruling on “use as a mark,”
even in the possible absence of preemption:
 
Plaintiff claims that Defendants have
used the mark in Defendants’ ads, but that is not the same as alleging that
Defendants use Plaintiff’s mark, or a mark nearly identical to it, as the mark
for Defendants’ own goods — which would be an allegation that appears clearly
contradicted by the facts of this case. Thus, it does not appear that as pled, Defendants
have used the mark in commerce in the sense that the law requires. There does
not appear to be any dispute or contrary facts that Plaintiff could plead to
show that Defendants used the allegedly famous mark as Defendants’ own mark or
to identify Defendants’ services.
 
Last comment: The best way to understand this result may be plaintiffs
are actually attempting to use the whole film as the trademark/the film as a trademark
for itself, which is what a pure licensing model means in this context, and
that can’t work without conflicting with Dastar.

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Reading list: dilution fails an empirical test

Posted on March 14, 2016 by rtushnet
Christo Boshoff , The lady doth protest too much: a
neurophysiological perspective on brand tarnishment, 25 J. Product & Brand
Management (2016):
 
[C]onsumers’ emotional responses to
a series of brand tarnishment advertisements are investigated in this study.
The purpose is to assess whether attempts to harm a trademark by tarnishment
lead to negative emotional responses and eventual economic harm, as suggested
by many plaintiffs in trademark dilution legal disputes….
 
Twelve brands were investigated
[using EEG and EMG]. The brands were selected because they were ‘well-known’
but not overly famous brands…. Participating subjects were exposed to a static,
on-screen print advertisement of the senior brand (untarnished) and of the
tarnished brand [tarnished using humor]…
 
In the case of exposure to the
tarnished brands, all but two (the clothing retailer Cropp Village (EEG = 0.394;
p < 0.05) and Sony Ericsson (0.4067; p < 0.05) of the EEG responses were
neutral. However, contrary to expectations, these responses were also positive.
This result implies that these three [two?] brands will most probably not be
harmed if the ‘tarnishment’ consists of social commentary. It could also
suggest that consumers can differentiate between different forms of
tarnishment, and that tarnishment involving social commentary is not frowned
upon. This may be because the consumer agrees with the social commentary, or
finds it amusing.
 
… Based on the results of this
study, it appears as if the tarnishment of relatively strong brands does not
elicit much emotional response among consumers. Most neurophysiological
responses to the brand tarnishment were neither negative nor positive.
 
This conclusion about neutral
emotional responses holds, regardless of the temporal order of the exposure. In
other words, regardless of whether the respondents were exposed to the
tarnished brand first or to the untarnished brand first, the emotional responses
were the same. The conclusion also holds for different product categories. In
other words, the same empirical results emerged, irrespective of whether respondents
were exposed to ‘rational/thinking’ brands or ‘emotional/feeling’ brands. These
results seem to provide some support for the view that well-known trademarks/brands
are practically immune to dilution. But it also shows that tarnishment cases
should each be considered on their own merit….
 
The primary contribution of this
study is that, for the first time, some light is shed on consumers’ emotional
responses to brand tarnishment. Regardless of the neurophysiological measure
used, the results demonstrate that the responses to brand tarnishment are
generally neutral. The results thus do not suggest a strong likelihood of
severe economic harm due to negative emotional responses to brand tarnishment among
consumers.
 
On the title, see Christine Haight Farley, The Feminine
Mystique of the Brand in Trademark Law Today.

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Private Law & IP, Remedies and Prizes

Posted on March 12, 2016 by rtushnet
Session 7: Remedies and Prizes
Moderator: Chief Judge Patti B. Saris (D. Mass.): 50% of all
claim constructions are reversed, and 80% of all damages.  So judges are interested in improvements.
 
John M. Golden, “Reasonable Certainty in Contract and Patent
Damages”: Damages controversy and uncertainty about reasonable royalties. There’s
eBay, then sometimes huge amounts,
and apportionment—not a new issue, but reappeared under reasonable royalty
analysis. Not clear there ever will be a great methodology, and there certainly
isn’t now.  Only easily done with a
limited subset, as when a new process lowers costs by $1.  Was a court appointed expert in Motorola case
w/Posner presiding by designation: trying to figure out value of particular
gestures for a tablet/cellphone.  Posner
threw out basically all the party experts; almost his only materials were reports
produced by the experts who’d been thrown out on Daubert grounds; Posner then decided there were no damages that
could be proven, and no need for an injunction, so he threw out the case.  That was reversed, but it did solve Golden’s
immediate problem.
 
What could we do to reach an acceptable result?  Reasonable certainty standard in contract law
might be used to address situations in which damages were difficult to
assess.  Statute here says that damages
shall be awarded adequate to compensate for the infringement, and in no event
less than a reasonable royalty.  Learned
Hand: reasonable royalty is really “a device in aid of justice, by which that
which is really incalculable shall be approximated, rather than that the
patentee, who has suffered an indubitable wrong, shall be dismissed with empty
hands.” Admission that it’s a replacement for disgorgement, also equitable.
 
Georgia-Pacific multifactor test: courts look to it, more
than a dozen factors; not clear that many of them are useful in particular
cases. The framework factor is “hypothetical negotiation approach.”  What a willing licensor and licensee would’ve
agreed to as a royalty if they’d successfully negotiated before infringement began,
w/assumption that relevant claims were valid and would be infringed by d’s
activity.  At least if injunction is off
the table, we get a circularity problem out of this approach.  Cross-licensing and other terms such as
benchmarks/milestones are common in real agreements.  Difficult counterfactual!  Uncertainty is not surprising/susceptible to
elimination.  So we need to work with
uncertainty.

Reasonable certainty doctrine in contract arose in the 19th c.
relaxing the requirements for showing damages, while still putting some limits
on what a jury could do.  Certainty
doctrine: consequential damages allowed if provable with certaintyàover
time became reasonable certainty.  Rise
of expert testimony; decline of rule against allowing a new business that
failed because of the breach to recover lost profits.
 
Potential factors in intensity of demand for proof:
blameworthiness or egregiousness of conduct; state of art/availability of evidence;
magnitude of damages alleged—if $400,000 claimed, then shouldn’t require $1
million to prove it.
 
Commentator: Keith N. Hylton: Note that standard for
reviewing contract damages is abuse of discretion—much more generous to lower
court.  Don’t want to have damages so
variable that certain activities become unpredictably risky.  Need to police courts/juries’ damage awards
may differ as between contracts and torts in terms of private
expectations/managing liability (replicating different methods of private
interactions)—so which should be the model for patent?  Tort law is more a mix of public-private than
contract is.  There is no pure private
law (though criminal law may be as close to pure public law as you can get).
 
Ted Sichelman, “Patents, Prizes, and Property Rules”: recent
scholarship questions sharp distinctions between patents and prizes. Taxes,
subsidies, price controls can make the two look quite similar.  E.g., gov’t prize funded by sales tax on product,
rather than general tax, creates deadweight losses that mirror those of
patents.  Patents w/subsidies from the
general fisc for consumers priced out of the market resembles the zero
deadweight loss of a prize, cf. pharma.
 
Fungibility blurs distinction b/t patents and prizes, public
and private. Ben Roin says patents are still different (as do Hemill &
Willete (sp?)).  Fungibility implies the
key concerns are less about deadweight losses than transaction and error costs.  Roin says property rules allow patentees to
fully exclude third parties, esp. competitors; prizes provide no such absolute
property right.  In dynamic setting,
property rights may result in substantially lower transaction costs in
important circumstances, providing more innovation incentives (in other
circumstances property rights may make transaction costs substantially higher);
there can also be endogenous effects on transaction costs.  Why are there patents even when gov’ts fully
set drug prices?   Roin says: allows pharma co to credibly
threaten not to provide the product at all to the country.  Why is that rational/credible? It’s a dynamic
repeat game among many countries.  Forces
the next gov’t to negotiate in good faith, lowering transaction costs of
innovating and disseminating over the long run.
 
More important role for property rules in patent:
commercialization/coordination, from Kitch. 
Lowers the cost of coordination in the post-invention phase.  Central to patent/prize distinction—follow-on
invention is not key as Merges & Nelson say; Kitch also includes
commercialization such as testing, marketing, pricing, not just follow-on
invention.  The role of property rules in
pharma commercialization may thus yield greater benefits than narrower power of
renegotiation w/gov’t actors, even if gov’t is setting drug prices—can still
exclude others from follow-on activities for commercially viable drug.
 
What does this say about regulatory model of patents?  I have paper on purging patent of private law
remedies; aren’t I contradicting myself like a political candidate?  One must distinguish between goals and
means.  Purging patent law of private law
goals was my aim; patent’s goals are primarily public in nature.  Innovation is a public oriented goal; at the
same time, we may want to achieve them through private oriented means like
property rights.
 
But it’s important not to forget about the aims.  Compare tort law, where individual interests
play an important role—the bilateral right-duty relationship—then a private law
baseline for remedies is essentially mandated: a wrong has occurred and we want
to return the victim to the status quo ante. Patent is not like that.  One can unite public and private aspects of
patent through functionally inclusive approach: private oriented legal rights,
duties, powers, and concepts (Cohen’s transcendental nonsense) can serve public
oriented functional aims.
 
Commentator: John F. Duffy: Patent racing self adjusts the
patent prize. It doesn’t dissipate rents. 
It dissipates private rents.  Even
if we had a prize system, we might have patent-like litigation from
competitors.  Patent damages again
harness private parties to define the appropriate scope of the right—both plaintiffs’
and defendants’ attorneys work to define the scope of the right through
assertion and challenge.
 
Tort law is often public too: punitive damages aren’t about
corrective justice; class actions aren’t really either.  Qui tam action; citizen suits to enforce anti
pollution statutes—tort or tort-like things that do what patent tries to do;
don’t give so much to people who claim that tort is about corrective
justice. 
 
Q: different conceptions of IP–are we arming a private actor with the right to sue in order to achieve a public good, as in qui tam/punitive damages, or with a right to corrective justice (recognizing that it might be both).

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Private Law & IP, Standards

Posted on March 12, 2016 by rtushnet
Session 6: Standards
Moderator: Kirti Gupta
 
Jorge L. Contreras, “Private Ordering or Public Law? The
Legal Character of Technical Standard Setting”: Private ordering structure
arises when public enforcement mechanisms are unavailable (crime syndicates,
rural settings) or less efficient/logical (credit rating, accounting
standards). Standard setting: collaboration among competitors; technical focus,
not legal; ideally the priority is on optimizing solutions—wi-fi, USB (my
favorite USB joke). Most standard-setting bodies have formal policies about
due process, and also about patents (disclosure requirement, FRAND licensing
requirement—some bodies have one, some the other, some have both).  Informal norms and practices also: tribal
culture.
 
What did courts do when disclosure obligations were
allegedly violated? Looked to informal norms of community.  Rambus: written policy was quite vague and
treated badly by Fed. Cir. (shockingly vague and imprecise) but still an
affirmative obligation to disclose arising from practice; so too with Broadcom
v. Qualcomm, where the written policy simply said parties are “encouraged” to
disclose.  FRAND: vague standard, but
where challenged in litigation, looked at comparable licenses and patent pools
to find reasonable range based on norms and practices in the industry.  Private practice finds its way into private law
disputes.  That’s not unusual.
 
Federal recognition of standardization’s public character:
DOJ/FTC report on IP from 2007 calls it one of the engines of th emodern
economy.  DOJ/PTO statement in 2013:
voluntary consensus standards serve the public interest, fuel innovation.  Debates over whether that should affect
injunction against violator?  There is a
tendency to talk about the availability of injunctions in terms of public characteristics
of standard-setting prices—harm to competition from allowing injunctions or
exclusion orders on standard-essential patents in Apple v. Samsung (ITC).  USTR says the same thing.  That is public law.
 
But is that appropriate to regulate standard-setting under
public law/antitrust framework?  EU/US
agencies seem to believe so, but dissenting voices say private law/contract enough,
and overdeterrence of patent enforcement may chill innovation/SDO
participation. Tentantive conclusion: public law frameworks should be applied
w/caution after private ordering is permitted to address potential problems.
 
Commentator: Joseph P. Liu: Private ordering can mean
different things to different people.  More
expansive understanding of private law might provide a way to respond.
 
Private ordering: at least 3 definitions.  (1) Contracting around existing legal rules;
ordering that results from private transactions.  (2) The kinds of private dispute resolution
systems identified by Ellickson (ranchers), diamond merchants, etc. With their
own rules & customs, typically enforced through self-help. (3) Private
promulgation of rules to govern internal organizations.  Homeowners’ associations; sports league
rules. Like (2) in that content is privately created, but unlike in that it’s
more top down than bottom up and more reliant on enforcement from courts. 
 
Paper places technical standard setting within (2) when it
might be more like (3).  Rules tend to be
more top down.  This might be important
b/c if you put it in category (2), order w/o law, you get presumptive benefits
of that category—superiority to judicial proceedings in some cases—when they
aren’t warranted. 
 
What turns on private ordering v. public law
characterization? Paper sometimes suggests that if standard setting is private
ordering it should be left to internal rules, whereas if it’s public then it
should be subject to regulation via antitrust etc. Hard for me to see why
degree of regulation should depend on characterization; private agreements are
pervasively subject to public regulation. Real q: whether regulation is
required to achieve the substantive policy goals we have—e.g., solving holdup
problems—is antitrust or other regulation required to solve them?
 
Paper identifies issues arising from particular type of
private behavior, coordinated activity by industry participants: ostensibly
private/technical, but has a public character. 
Paper expresses doubt over whether antitrust/criminal law are the
appropriate mechanisms.  Consider third
option, between private ordering and public law. Tools available in private law
understood more broadly as the substantive doctrines of patent law.  Paper discusses tort, contract and not
property claims.  Other private law
doctrines like promissory estoppel might be relevant as well.  Avoids the bind of choosing between “pure”
private ordering or public law. Richer set of public interests into the
considerations.
 
Janet Freilich & Jay P. Kesan, “Towards Patent
Standardization”: We don’t have a good theory of what standardization would
mean, if it’s desirable.  What is
standardization of patent content?  We
mean the most general sense: something that is agreed upon, whether it’s
standard nomenclature or sections in the patent description. Beneficial for
purposes of notice and disclosure, reducing search costs and fuzziness of
patent boundaries; easier to read and identify information.  Can improve databases, also helpful for
disclosure.
 
How to make it happen? Congress could maybe try, but not
going to happen in the real world. PTO can make rules but there are practical
and political problems.  Standardization
could arise through voluntary measures—soft standardization could get us part
of the way to the goal.  WIPO standard
for disclosure of nucleotide and amino acid sequences: PTO adopted it, using
the rationales of quality and efficiency of examination—easier to compare
w/prior art; conformity for scientific community, using language they’re used
to; improved dissemination of information in electronic format.  But most standardization in life sciences
doesn’t come from regulations. 
Taxonomies, controlled vocabularies created by public/private
institutions—new vocabularies are created for new technologies. Often fairly
well-defined; FDA won’t let you use a drug name for something it doesn’t think
the name encompasses. 
 
In patent, you don’t have to use these standards; the
patentee is her own lexicographer and can define a term differently from any
standard. But outside the patent world, these standards usually do have to be
used.  Journals, for example, require
authors to use standards.  Thus patents
can diverge from conversation in rest of life/science. So it would be easier to
use the nomenclature in patents too.  Case
study: percent of granted patents that use celsius or fahrenheit—number using
celsius is going up as a percentage of those who use either, simultaneous
w/increase of use in celsius in the scientific community generally.  1988: Congress again said we should use
metric, but we don’t have to; metric required in patent in 1995, but the trend
in using celsius in patents started before that: a result of general scientific
community convergence.
 
Possibilities for software: Representational languages:
pseudocode; object-oriented languages; modeling languages—better comprehend the
new/inventive features for which patent protection is sought in software. More
useful and technically discernible software patent repository compared to the
current problems in figuring out what prior art is.  SSOs can encourage the detailed
specifications needed.  They discover the
best technology/certification of the process. Use IPR policies that are fairly
detailed, taking disclosure into account and penalties for noncompliance. They’re
uniquely positioned to provide standardization guidance, especially since they’re
dealing with patents that will be very valuable if the standard is accepted.
 
Templates: universities’ tech transfer offices could have
templates, as Stanford and MIT do, as starting points.  Possible problems: powerful interest groups
dominate/exclude others; allow hidden patents that resurface at some
point.  Criticisms of standards: often
that they are in fact reducing the scope of protection; we don’t think that’s
the case.  Standardized patents can be
drafted broadly, and vague patents can be drafted narrowly. 
 
Next: empirical studies to see if patents with standardized
disclosures are likely to be more valuable.
 
Commentator: Michael J. Meurer: Like the data on the metric
system, but it’s not clear it provides benefit in more disclosure or more
notice/clarity. We need examples of success in disclosure/notice.  Mendeleev: periodic table facilitated
codification and spread of knowledge—Mokyr, von Hippel, Winter; Moser
identified jump in patenting of chemicals after Mendeleev: codification,
reverse engineering became easier and trade secret, which had been used, became
less attractive.  W/semiconductors, a de
facto standard crept into the industry based on the TTL Data Book—might be a
helpful examples.
 
Incentives of applicants to embrace standard language:
Teaching/reduce transaction costs in licensing or assignment.  Clarity of property rights/notice (borrowing
ideas from literature on standard contract terms): good language might come
from collective wisdom on the breadth I want/what design around opportunities
are available; I might like the fact that courts have already interpreted what “anodize”
means, but since courts interpret “a” differently in different patents that’s
not such a successful enterprise. Network effects are associated w/standard
terms of contracts and might arise here.
 
Reasons they won’t embrace standard language: if I want to
practice exclusively and keep tech as secret as possible, I’d like the
advantage in the race to generate follow-on innovation; we know many inventors
get the benefit of both patent and trade secret. Notice: lots of patent
applicants are looking for opportunistic profit, and they want to hide/obscure
for ex post bargaining advantage. In re Kubin case: protein in a patent;
examiner found prior art identifying the protein under another name; applicant
will lose novelty once the link is found.
 
Private associations generating public goods, like
standards: there is reason to be optimistic that private parties can do
this.  Caution: setup costs of codifying
tacit knowledge—depends on market conditions and pace of technological change
(if too fast, don’t bother codifying).
 
PTO maintains the acceptable ID of goods and services manual
to classify trademarks, and the US Patent Classification to classify patents.
Improving due to global cooperation; agents are capable of standardizing. 
 
Why not private/public cooperation, as b/t PTO and Google;
PTO could subsidize development of IP registry search tools.  Probably the right result is a mix.
 
Kappos: Nautilus
case provides impetus for standardization, because functional claiming is now a
quick and dirty way to get an invalid patent.

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Private Law & IP, Institutions II

Posted on March 12, 2016 by rtushnet
Session 5: Institutions II
Moderator: Alfred C. Yen
 
F. Scott Kieff, “Pragmatism, Perspectives, and Trade:
Intellectual Property, Antitrust, and International Trade as Mostly Private
Law”: These fields are inherently blends of private and public law, so let’s
try pragmatically enbracing diverse perspective.  Private law features do and should dominate.
Explicit goals: improving dynamic efficiency through increased
commercialization and competition: shared, achievable goals. Welcome other
perspectives, goals, mechanisms, as long as they’re explicit.  Mitigating the efficiency and fairness
eroding effects of public choice and strengthen the opportunity for democratic
review.
 
By design, executive branch agencies are supposed to be
responsive to politics—PTO, DOJ; courts are designed to be less
responsive.  FTC is more responsive than
ITC, which is more like courts.  Patent
validity, infringement, remedy, antitrust are the issues; there’s an inherent
tension that causes each side to engage in aggressive self-discipline when
presenting arguments when all four buckets are on the table at the same time—at
the infringement stage, plaintiff claims everything but then at the validity
stage that makes it cover prior art; also might give it market power.  That means that ITC gets massive benefit in
decisionmaking ability coming from aggressive self-discipline parties have when
they argue before us—they have a tiger by the tail.
 
Where only validity or antitrust is on the table, you get
massive overclaiming; there’s no tension which is necessary to create limits. ITC
is a lot cheaper to run than DOJ, FTC.  The
amount of money you have to invest in getting decisionmaking right is less if
the private actors have self-discipline.  
 
Commentator: Michael B. Abramowicz: Patents as a way to
encourage private coordination around inventive products; Kieff argues that b/c
these areas of law encourage contracting, they should be and mostly are private
law. To the extent we move toward public law end, that can threaten the
coordination function of law and thus threaten commercialization. There’s lots
of ways to think about what public/private law means. Kieff thinks of private
law as mostly involving interpretations of documents written by private
parties; public law is more interpretations of statutes.  He sees patent law as primarily private.  Tend to think of them as more public than he
does. 
 
What would patent law look like if it were more
private?  Sichelman’s commercialization
system w/relatively little discretion? Maybe patent should be more of a
registration system, where we rely on litigation rather than examination.  Fee-shifting to reduce abuse.  Now: private parties draft patents, but that’s
heavily constrained by the law. In the end, there’s a fair degree of gov’t
discretion at PTO and in courts.
 
Mosseff: Samsung v. Apple: parties went through the process,
relied on the experts; then they went up to the President and got a different
result through lobbying. 
 
Kieff: Yes, sensitive to that; that was explicitly not
appellate review, but political.
 
R. Polk Wagner, “The Private Design of the Patent Law”:
Patent law can be understood as private law in its commitment to fostering
private interactions. We want to promote certain kinds of activity/generation
of certain information. The value of calling that a patent is that it allows
private actors to build on that/transact around it/understand it in a useful
way. If all we wanted was incentives/information, you could do that a lot of
different ways—prizes, direct gov’t regulation—and we do, but we have this
thing called a patent, whose very idea is classically private. 
 
Other thing that’s important is how much the patent system
seems to be designed to generate information that is intended to be shared. The
patent prosecution process is structured to have you record who you worked
with, what you consulted, etc.  A lot of
what goes on in prosecution directly affects scope and validity of patent as
well as its future uses, so it’s a private process as well.  Inventorship/ownership rules are also
interesting from a private law perspective though they seem regulatory/have
clear policy goals.  Contribute to an
invention = inventor; seems non-malleable, except that the definition of the
invention is very malleable.  What is and
what isn’t defined as prior art is a set of rules clearly designed to foster
the way people interact around innovation. 
Determines whether you research or create your own; how much you have to
search and where.  Determines what
researchers will publish or not, where you publish, who you talk to—private behaviors
shaped, though not directed, by patent rules.
 
Finally, invalidity as a defense.  Raises the stakes of litigation; entire
prosecution process can be redone, which interacts w/ forcing people to behave
themselves in the prosecution process & take consistent positions in the
later infringement proceeding. Operates independently of defendant culpability,
which is an interesting feature.  You can
infringe w/o liability!
 
These features might not seem private in nature but they can
be seen as such. Big question: now what? We don’t know what we’re optimizing so
we have the same debates over & again. Can we use the lens of private law
to get us out of some of these debates that just go straight to policy?
 
Commentator: Kali Murray: Patent as having the ability to
disrupt, undermine various social relationships, just as property law can
disrupt in real/personal property—disruption of the commons and use rights
there.  19th C.: Populists
hated patents, not b/c they disrupted market relationships but b/c they disrupted
social relationships in specific communities. Use rights over farming implements,
for example.  Private law was used to
structure a critique of patents too.  Now,
state AGs are once again getting involved in patent laws b/c patent laws are
again disrupting social relationships we think are important.  Not necessarily about inventor’s relationship
to employment contract or licensing, but about how patent itself can disrupt a
social world. This helps us see how private law is/can be about public debates
linked to governance.
 
Standing for third parties’ declaratory judgments: if
patents harm parties’ relationships, such as researchers who are hampered in
their research, she wants to provide standing to them.  If patent has in its goals and aims an
attention to private relationships, then the argument for standing is stronger.
 
Sichelman: Lots of public law, like securities, functions to
encourage private interactions.  So the
definition of private law needs to be different. Compare: You petition the
state for the invention; you could treat that like criminal law, where the DA
brings an action on behalf of the victim. 
Torts is private parties; criminal law is public law.  So there needs to be more specificity in what
constitutes private law.
 
Wagner: I am conceiving the design of the patent system as
involving private enforcement. If state were enforcing, it’d be different, and
the doctrines wouldn’t necessarily be the same. The prosecution process as
information-forcing mechanism: if it was just a version of criminal law, you
wouldn’t have that set of rules, or they wouldn’t have the teeth that they do
b/c people would not enforce themselves. Private parties now have to use that
info to make critical decisions on a day to day basis.  As long as it’s private enforcement and not
state, all of these doctrines are linked to private relationships, different
than pure public law. But part of this is that we don’t exactly know the scope
of private law or even if that definition ultimately matters much.

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Private Law & IP, Licensing II

Posted on March 11, 2016 by rtushnet
Session 4: Licensing II
Moderator: David J. Kappos
 
Karen Sandrik, “Empowering Inventors”: Reformers must
understand the law they are planning to reform before trying to reform it.
Stephen Smith, Contract Theory. 
Shiffrin, Divergence of Contract & Promise: two sets of norms—legal and
moral. Shiffrin says you are the author of your own story and the law should
accommodate this. Kar: broad range of human needs can work together:
efficiency, fairness, trust, reliance, harmony, etc. R&D collaboration
partnerships—innovation in the shadow of the law.
 
Normal pharma contract: Eli Lilly v. Emisphere Tech: Eli
Lilly wants to help them develop it; very complex agreement. Very clear that
the tech now and after collaboration would belong to Emisphere, even after
commercialization, and that Eli Lilly shouldn’t work in their own lab on
it.  Other aspects of the agreement were
loose/informal, but the court looked at this and saw Eli Lilly as having cut
out Emisphere in commercializing it. 
Emisphere learns after the fact after both walked away, as the contract
allowed, that Eli Lilly had a patent in the area Emisphere had spent years
developing. Emisphere sues for breach of contract/return of patent.
 
A gap in morality and law may be corrosive to our
institutions.  Kimble v. Marvel: a patent
attorney who comes up w/shooting web toy. 
Court didn’t enforce clear intention of the parties for licensee to pay
for its continued use of the invention post-patent expiration.  We should treat promises the same or we get
conflicting results.  Court isn’t
transparent about why there’s no enforcement. 
Although it’s an outdated rule, that’s not the key reason—contract law
would have handled it differently. 
Promise should be enforced unless there’s clear harm to the public.  Promissory obligation should have more
weight; otherwise there’s corrosive effect on R&D, which often starts out
w/ simple agreement & grows into multilayered license.
 
Where not to enforce: Harry Steenbock comes up w/
groundbreaking tech that will eradicate rickets. Doesn’t want to take out
patents; he’s a researcher, but he’s persuaded to apply & gets several
patents covering his inventions. He wanted to get patents in order to avoid
patent pirates that would use patents to restrict access.  He also wanted to control the quality of the
product, including down to the taste of the food.  You had to come to his lab to learn his
technique.  At first it worked.  Empowered by contract law to let others use
his tech with a promise to maintain quality. 
Over time: Access to his tech was blocked; prices got too high (even
with high quality, he wouldn’t release it); other licensing practices looked
bad.  Patents were eventually invalidated
on antitrust grounds. We can learn from contract: contract handles this well,
and patent doesn’t. Public policy defense would be a way for licensees to say
they have a right not to uphold their promises.
 
Commentator: Oren Bracha: Kimble was a case of refusing to
overrule prior precedent even if it doesn’t make any sense.  We can keep the rule saying certain promises
won’t be enforced b/c it’s easily evaded. 
That’s a bit unfair, but it’s sort of what the Court says.  Sandrik says that’s a terrible reason.  What does that have to do with the
relationship of contract law to the norms of promise-keeping?  It makes the rationale nontransparent/incoherent,
so a moral person who wants to assess this particular norm is left helpless.  Beyond that, there’s a more fundamental problem:
the parties agreed/promised.  Strong
separation between public policy, whether efficiency or something else, and
contract law, which is the realm of keeping promises.
 
As to the first argument: it’s limited to those specific circumstances
of Kimble: Court bases decision on stare decisis, not relevant elsewhere.  But exactly under the Shiffrin framework,
there might be good justification for divergence b/t norms of promise keeping
and contract: Shiffrin says divergence is ok where there are distinctively
legal normative arguments for the divergence. 
And stare decisis is distinctively legal.
 
Assume that Kimble has
some justification in patent policy (though that’s not the majority).  Still conflicts w/ keeping promises norm.
What exactly is wrong with a general structure that says, even within contract law,
this norm of keeping promises is overridden by other considerations, including public policy.  Rather than building contract law on promise
keeping; it’s saying that promise-keeping is a consideration w/in contract law,
as well as others.
 
Kappos: Example of other cases where contract would work
well?
 
Sandrik: other patent licensing cases where there are
agreements to assign, involving universities. 
If you don’t say “I grant you” and say “I will grant” we don’t enforce
the promise.  We create this weird rigid
formal structure that doesn’t work, and contract law would handle it if you
clearly anticipated an assignment.  Four
corners/intent are contract principles that would be useful.  IP licensing has weird doctrines, leads to
wordsmithing/routes around special rules. Contract = if the parties agree,
absent public policy issues, then that’s enough.  Exceptions include public health; enforcing a
statute (antitrust); etc.
 
Bracha: Contract law has formalities, with well-known
purposes. We can debate what formalities ought to be required, and innovation
policy can bear on which they should be.
 
Scott Kieff: Kimble/Brulotte/Quickpoint: the language of the
SCt speaks about speaking clearly: if you’re straightforward, and you’re
contracting over the option—patent may exist, may be valid, may never be
issued, may expire—if you price each state differently, at least the majority
in Aronson seems to say such a commercial contract between sophisticated
parties would be complete and enforceable. Maybe it’s about protecting smaller
entities (even though Marvel wins in Kimble) and clear contracting.
 
Sandrik:  Kimble seems
to be more about Roe v. Wade. Contract in Kimble seems to be more about trade
secret/something else than the patent, which they sold.  She’s ok with formalities; Quanta was just a poorly drafted
contract, and Intel tried to get what it didn’t get with contract law. 
 
Jacques de Werra, “Two Challenges of Global Intellectual
Property Licensing at the Interface between Contract and Property”: Non-US
focus.  Atomization/fragmentation due to
different rules.  Paper explores how to
minimize fragmentation.  Freedom of
contract may create tensions with local public policies.  Issue of standing is beyond the power of
contracting parties in US.  But still
worth exploring role of freedom of contract.
 
Who can sue for patent infringement? Exclusive licensee?
Parties should select rather than local courts. 
Is the right to sublicense relevant? 
Yes, but should be decided under local law.  Can we have a uniform solution?  Current rules split between China, Japan,
Europe.  IP asset purchases: allow
licensor termination because licensor sold to another?  One way would be to invoke the concept of a
third-party beneficiary, including implied obligation of licensor to tolerate
former licensee.  Difficulty may arise
b/c of confidentiality clauses.  Content
can’t be disclosed to third parties, who might still be told they’re
bound.  Local registries for licenses:
notice to third parties? In many cases the license itself isn’t recorded, just
a one page document—doesn’t really make sense, because third party is formally
notified about existence of license but has no idea of the content.
 
Commentator: Bruce Boyden: Even if countries agree that
exclusive licensees have standing to sue, there are still issues with who
counts as an exclusive licensee.  How far
down the line can we realistically go and get int’l agreement?  On persistence of license post-sale—significant
policy differences exist.  May be unfair
to licensee who reasonably expected a longer agreement if new owner can
terminate; may also be unfair to new owner if it didn’t know what the terms of
the license were before it bought.  So
this is not an easy question.
 
Single transaction can mutate into different forms depending
on where executed—arises from analogy to real property; IP tries to make
intangible rights more thing-like by giving rights to exclude that in the real
world might be subject to physical exclusion. 
Here, might be able to make them more thing-like by giving more legal
force to equally intangible agreements: IP rights as the wavicles of law, with
property and contract like elements. There’s no transfer of possession that
occurs as a result of an exclusive license—the buyer starts doing something and
the seller stops.  With physical
property, you’re only subject to one state’s law at any given time, but IP
object seems to be present simultaneously everywhere the IP owner has
rights.  Weird to say that those
dimensions can vary from place to place simultaneously.  Contract law handles that particular problem
better than standard property law, at least to the parties’ expectations ex
ante. Maybe there’s not one IP right but a set of national IP rights under each
nation’s law, in a way that physical objects don’t divide.
 
Kappos: China, India, Korea putting into place requirements for
how you can license your US patents if you want to do business there. Gov’ts
reaching into contract regime and not allowing you to contract around the
baseline they set.
 
A: this is a matter of state resistance; not easy to
overcome. We sometimes focus too much on hard law int’l agreements. Soft law
may be helpful.  WIPO recommendations on
TM licenses, where you can see definitions of exclusive license etc.  IP law will have to be treated locally,
subject to conflict of laws; one way to avoid that would be to try to find a
unanimously recognized ability to pick one set of laws. 

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Private Law and IP: Licensing I

Posted on March 11, 2016 by rtushnet
Session 3: Licensing I
Moderator: Yonathan Arbel
Jonathan M. Barnett, “Why is Everyone Afraid of IP
Licensing?”: Conventional view—be wary of encroachment on public domain from
licensing transactions.  Medley of
limitations lay minefield for construction of transactions w/minimum legal
risk.  Preemption, misuse, naked
licensing/assignments in gross in TM; first sale, exhaustions. Legal
scholarship thinks these limits are good and courts should be more vigorous
about enforcing them. IP markets haven’t agreed, nor have lower courts until
recently—attenuated or abolished by courts. 
1976 Copyright Act abolished the doctrine of indivisibility. 1988:
Congress amended Patent Act to say that some misuse claims needed a showing of
market power.  Exhaustion/first sale
commonly detoured around by recharacterizing sale as a license.  Antitrust has treated non-price-vertical restraints
under rule of reason, including IP licenses; now includes price
restraints.  Freely divisible and
tradable: a core element of every robust content and tech market.  Lawyers have mostly figured out ways to
detour around these limits.
 
But out of 6 license-related decisions since 2006, 1 was
split, Monsanto favored patentee, but
4 decisions strengthened these limits, even specifically rejecting suggestion
to reconcile IP law with antitrust’s rule of reason.  Thesis: both recent decisions and dominant legal
scholarship misappreciate/underappreciate critical role played by licensing in
content and tech markets and that function is predominantly efficient. Licensing
is critical as an enabler of commercial transactions that would otherwise be
infeasible, given risks of expropriation from unrelated third parties.  IP scholarship in general focuses on
incentives to upstream innovator, but real world markets only generate value by
embedding that innovation in a product or service for the end user, and that
requires a multitude of costly commercialization steps that require expertise,
almost always carried out by actors who care only about delivering value to
shareholders, not the things that matter to artists and scientists.
 
Three main categories of efficiency gains through licensing.
Thesis of the paper: secure IP rights + secure licensing deliver these sources
of value.  Efficient supply chains;
efficient risk diversification; efficient fractionalization.  Most important: supply chains.  Traditional story of using license to
encroach on public domain always assumes that the licensor has market power,
dictating prices and nonprice terms to market, but that’s the exceptional case,
not the typical case. Most patents and © don’t have value.  Even a powerful standard-holder is often
subject to competition that exists or could be introduced; the history of IT
markets shows that dominant standard-holder often gives away at zero or below
market royalties in order to grow the market/sell related services.  Antitrust would require market power to even
begin thinking about liability.  Can’t
presume market power in a patent claim; IP should do the same.
 
Next step: revisit these limitations and ask the added value
of an IP-law specific limit on this practice given that antitrust law already
regulates it?
 
Licensing transactions can be evaluated: (1) is it one-way
or reciprocal exchange of knowledge? (2) Is it horizontal or vertical?  Anticompetitive risks are higher in
horizontal.  Any tech/content market, to
extract value from innovation, has to go through different levels of the supply
chain.  Classic decision: make or
buy.  You will choose the cheaper
one.  But when you choose buy, you have
expropriation risks identified by Arrow’s information paradox. License + IP
right is modularization, but must be combined with contract that allows you,
not necessarily to expand the grant you got, but to fine-tune the relationship
in customized way to regulate info flow between third parties who otherwise
lack reliable instrument to do that. Combination of secure IP + secure
licensing is good because it maximizes the total universe of transactions
because a priori we have no idea what the efficient supply structure is in any
given market.  Licensor has that info and
will adjust that structure as long as it’s subject to competition (or even not;
it will do so to pocket more gains for itself).
 
Semiconductor industry: 25 years ago they’d always make;
25-30% of manufacturers today are fabless. 
How did they enter?  Didn’t get $1
billion to set up new fab, but stayed in design market and monetized by
licensing—dependent on the licensing structure, not encroaching on the public
domain. Licensing obliterates an entry barrier.
 
Risk diversification: tech markets & content markets
have extreme skew problems. Most movies are losers; hits cover the losers.  How can you spread that risk? Create a
portfolio, whether internal (studio system) or external.  Biotech market now looks like Hollywood: risk
spread by external portfolio; innovators shoulder the risk and contract w/large
incumbents who have scale to carry out the rest of the supply chain.
 
Fractionalization: Combine divisibility with full
alienability: you can slice and dice among multiple users; field of use
restrictions; time delay.  Lower entry
barriers into industry by allowing IP owner to sell off among universe of
licensees who can fund distribution costs up front (movies).  Field of use restrictions/windows: this is
just price discrimination, whose effects are ambiguous in theory but are
efficient here, eliminating deadweight loss.
 
Commentator: Brett Frischmann: There’s some description
here; factual claims may be in need of empirical support.  How are you defining innovation?  Hard to evaluate assertions; also doesn’t
think that traditional scholarship ignores claims about the benefits of
licensing.  Us/them, black/white framing
may not be helpful in discourse, even as to private law/public law.
 
What’s the theory?  Is
it refutable?  Can it be evaluated/tested
and does it have boundaries?  Is it a
normative claim?  Yes—suggests that we should
adopt a new view supportive of IP licensing. But most scholars understand that
IP enables licensing in various segments of the supply chain. As a result of
framing, the if/then statements in the paper collapse.  If we understood the facts, then we won’t
necessarily adopt this new view of licensing: I need more proof.  Different baselines might give different
answers. IP isn’t fundamentally about transactional efficiency or market-based
metrics of efficiency—that’s important, but other things are important too.
Even understanding the facts Barnett offers, judges might disagree w/the
baseline.
 
Even w/the same baseline, we might disagree—not clear that
these examples generalize.  Hollywood,
big pharma—but does that reach a wide variety of other industries, markets, and
nonmarkets that shape/rely on IP?  Not
clear that examples prove the point about efficiency—do we believe that
Hollywood and big pharma are efficient structures w/which to produce movies.
Laughed when I read “the market evidently prefers hub & spoke.”  Did you interview the market?  The idea that the market speaks about what it
prefers as if it’s not shaped by the law is confusing to him.
 
No discussion of spillovers: how can you talk about supply
chains w/o spillovers?  Even w/efficiency—depends
on free flow of spillovers; there’s lots of empirical/theoretical work on
this.  IP is a little bit about
internalizing externalities, but also about promoting participation in
activities. Some of the limits on licensing freedom might be welfare-enhancing
and even efficient if they promote spillovers.
 
Barnett: I think the literature does focus on the expansion
of the monopoly by licensors—SCt decisions do that—I want to shift the focus.  Distributive effects: price discrimination;
semiconductors—when you don’t allow free licensing choice you limit transaction
structures, forcing them to take place in house which can raise capital
costs/favor incumbents.  On the market’s
preference: we’re agnostic about market structures, and as long as there’s free
entry, whatever structures we observe are efficient, so I don’t need to
interview Sony or “the market.”
 
Arbel: Market power (lack thereof) is key to your analysis.
Circularity: if you allow that, won’t market power increase/the empirical world
may change.  Comparative
institutionalism: compare other jurisdictions, where there are different
licensing rules; could show inefficiencies in those industries perhaps.  Do you see a problem of the anticommons,
fragmentation? 
 
RT: In Barnett’s model, what are TMs for? What do they incentivize the creation of, because the model of
efficiency offered in the paper depends on incentive structures and not on
consumer understanding? More generally, why class patent, TM, and © together
here with antitrust law (and notable that most papers here don’t cover TM,
which suggests some uncertainty about the overlap between private and public
law here—larger question for the group, is TM already private law so we aren’t
worrying about it here (I have thoughts about why that shouldn’t be true)?),
and what about trade secret, misappropriation, or advertising law? Relatedly: Different
kinds of wrongs to consumers and competitors exist—antitrust law doesn’t
recognize most false advertising as actionable, or most product liability (I
think), but that doesn’t mean those torts shouldn’t exist.
 
John Golden: You argue we shouldn’t do more than antitrust,
but do antitrust scholars disagree? Herbert Hovenkamp wants to shift the
problems of regulation from antitrust to IP b/c he thinks antitrust isn’t
designed well to deal with the problems of IP.
 
Van Houweling: paper sets up troubling mismatch b/t
critiques of licensing and benefits of licensing.  That’s a problem if there’s a complete
overlap. But we aren’t skeptical of all these
licensing practices; the skepticism isn’t that thoroughgoing, but covers
overreaching rather than all licensing. Would be more convincing with some
examples of beneficial licenses that the critics undermine.
 
Barnett: Mismatch is worth addressing, yes.  Division of labor b/t antitrust and IP—do they
have the same normative objectives, maybe we shouldn’t have overlap, but
otherwise it might be ok. Major antitrust case of the last 3 decades is Microsoft,
all about IP.  Market power is always
important b/c you’re taking terms from the market rather than dictating terms.
 
Greg R. Vetter, “Opportunistic FOSS Development Pathways”: Modular,
in H. Smith’s sense, not technical sense. 
Software licenses deploy permissions against a set of rights—©, trade
secret, patent, but mostly ©.  Whatever
license you have targets some type of opportunism. License might work with or
against the rights basis.  FOSS/GPL works
against the rights of © in that it uses © to enable copying and to defeat trade
secrecy in the source code.  One person’s
opportunism is another person’s business model. Some modes of opportunism are
illegal. Licenses operate as quasi public instruments.
 
Forking is allowed; GPL is hard to get out of—locks usable
value of software to the license b/c there are so many contributors and it
would be hard to get them all to agree to a different licensing scheme.  Property as a shortcut over many contracts
that would otherwise have to take place. 
Small startup can shift to permissive license, but hard to shift back;
could start a permissive fork.
 
Commentator: Christina Mulligan: Are incompatible licenses a
problem of property at all?  Potentially
separate issue—could be a problem of modularity or a problem of anticommons.
The worry is that public licenses create a bad interface b/t pieces of property
blocking us from bringing 2 pieces of software together.  The public license didn’t cause the problem;
companies can license a work under a public license such as the GPL, and then
if there’s some other reason they might want another deal, can license it to
specific people in a proprietary/specific way. 
Conceivably, you could imagine a license that tried to be an exclusive
GPL/public license, but she doesn’t think any license purports to do this.  Would create the same problem as the fee
tail, where no combination of people could make a separate deal; our
commitments make us not want have attempts to control property like that
work.  The software: can conceptualize it
as the software as it currently exists and as its possible derivatives, but she
thinks that’s wrong.  The property right
can include the work and the right to make derivative works, but not the
derivative works that don’t yet exist. 
Breeding racehorses: you want to blend them together—we wouldn’t about
whether it’s A or B; we can see it’s a third thing and the owners can agree
about how to share rights in the new thing. 
Pre-commiting to waiving your right to exclude in a certain
circumstances doesn’t redraw the boundaries of property; it’s not a problem of
defining the property interest correctly b/c you can always make side deals to
license, which means that the fundamental problem is one of the anticommons.
 
Vetter: one point to remember is that GPL uses © to defeat
trade secrecy—this makes me think there’s more instability here than there
otherwise might be.
 
Smith: One way of reconciling this idea of anticommons v.
modularity: maybe here your identification of the difficulty of modularity
arises not up front but after the fact. 
You have an intersection b/t the running covenants problem w/confusion
(you have grain, I have grain, they intermingle) or conceivably accession (if
you don’t have a deal and there’s a new calf, it belongs to the owner of the
mother)—the reason we don’t worry about that in property is that even ex post
we can modularize really easily—to the mother; divide pro rata; punish the
person who caused the problem. Not as difficult as intertwined software with
conflicting licenses.  There is an
anticommons aspect but it’s a lack of modularity, b/c even after the fact we
can’t draw lines about contributions very easily.
 
Michael Abramowicz: Biggest concern justifying viral license
was risk of proprietary fork that would add so much it would be hard to avoid;
GPL is attempt to deal with that risk.
 
Vetter: thought that forking was usually a result of
disagreement, not a purposeful deviation.

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Private Law & IP: Institutions

Posted on March 11, 2016 by rtushnet
Session 2: Institutions I
Moderator: Patrick R. Goold
Wendy J. Gordon, “Proximate Cause in Torts becomes Proximate
Use in Copyright”: Common law has useful intuitions—tort for copyright—though I
don’t pretend to know whether tort is optimal.
Both tort and © are about internalizing externalities; creating
incentives for people who are similarly situated; correspond to intuitively
common-sense moral intuitions about desert and merit—negligent actor deserves
to pay, meritorious author deserves to be paid.
Tort law focuses on defendants and internalizing negative externalities;
© focuses on plaintiffs and internalizing positive externalities—make © owners work
harder by giving them more $ and make negligent drivers drive better by
requiring them to pay.
Definition of employer/employee—SCt seems to follow my lead
by looking at the Restatement of Agency for vicarious liability. But that’s
crazy b/c they forgot the reversal. Vicarious liability is about spreading—making
the person with least incentive/low marginal utility of money pay.  Copyright is all about credit/control—we want
them to have the right if they’re sensitive
to incentives, but that’s most likely the actual person—concentration/control
is more beneficial than decentralized control.
Proximate cause in tort is mostly about whether the
defendant could have foreseen. Proximate use in © is about what the plaintiff
could have foreseen at the time of creation.
Shyam Balganesh and Christina Bohannon have written on this, but the
concept goes beyond the scope of foreseeability, which alone isn’t as useful as
it is in tort, b/c © isn’t just a post-accident deal but an ex ante creation of
rights.  Larger project: How we figure
out more easily delineated lines than vague foreseeability.
© and tort use causation.
Patent law doesn’t require cause in fact; neither does TM law.  If interaction w/P’s © work made a difference
to what D did, that’s cause in fact.
Restatement of Torts: no proximate cause where liability wouldn’t make a
difference in creation of risk/harm. Proximate cause is a question of fit: does
liability serve the purposes of the imposition of the duty?  Negligence: you negligently place a bookbag
in the hall.  Mr. Smith trips but is
unharmed; however he is delayed by the stumble and therefore steps outside just
as a gargoyle detaches from the building and falls on him.  No proximate cause despite negligence.
Analogies: transformative fair use and functionality.  It’s fair use to make copies for judicial
use, for example, b/c of the lack of connection b/t the facts at hand (why
there was copying) and the purpose of the law.
Functionality/interoperability: if someone is copying only to make two
things fit together, the only need is for them to be the same; they’re not
copying for the expression—like getting a key made for a guest staying at your
house.
Commentator: Shyamkrishna Balganesh: Fit: © would benefit
from developing a structure to see if the goals of © are being furthered by any
particular instance—Ziporsky/Goldberg in tort; antitrust (substantive
standing/antitrust injury)—whether the harm is of the type we want to impose
liability for given the underyling purposes of the institution.  Needs more determinative logic to be a real
constraint.  Gordon assumes normative
logic comes from incentives. But given the way incentives have become
understood/handwaving in jurisprudence, this isn’t a real constraint.  Rule v. act utilitarianism: for rule
utilitarianism, we wouldn’t use an individual instance but systemically. We all
know the effect of that: everything in some ways contributes to incentives;
merge with expectations; retroactive extensions come to be seen as
incentivizing. But for act utilitarianism, we need better specification of the
nature of the incentive—who is to calibrate it? Is it market based?  One of the enduring problems of fit in ©.
Proximate cause: one of the big debates over whether
proximate cause needs to continue in the Restatement and needs to go into the
scope of risk/the “duty wars” is how we think about specific v. general
deterrence. Is © a general incentive structure for future authors, or this
particular case?  Proximate cause has its
own set of problems/debates that should be addressed squarely if incorporated
into ©.
Gordon appears to allow both instrumental and deontological
considerations into the question of fit.
If one has this plural accommodating conception, does it operate as a
constraint at all? Drassinower says incentive-based system can’t explain why
originality is important; need autonomy-based conception. But what gets
excluded if we use autonomy? Doesn’t it destabilize the very conception of fit?
Bigger question: What is the overarching justification for
introducing a fit requirement?  It’s
clear that © is instrumental, meant to serve a particular purpose.  But where does that come from? Is it prior to
©, Constitution specifying a purpose, or is it to be deductively derived from ©
itself? Analogy to common law: if we identify purposive nature of common law,
we derive it from the workings of the institution, not a priori.  Given that © is statutory, we have a slightly
different approach: but where then is the basis for the fit criterion?
Liability for benefit: We might fruitfully analogize © to
liability for unjust enrichment.  His
question: what exactly is the benefit?
Is it the trigger of liability or the basis of recovery?  Analytic distinction: bifurcation b/t unjust
and wrongful enrichment. Unjust enrichment doesn’t require a wrong to trigger
recovery: recovery of a mistaken payment to the wrong person.  Wrongful enrichment recognizes a wrong caused
by a harm, and the profits accompanying the harm ought to be disgorged—the basis
of the disgorgement is not distributive, as in unjust enrichment; it’s
triggered by the wrong.
In ©: you can’t altogether assume away the problem.  © affirmatively recognizes the wrongness to
trigger recovery. It’s not just “was there copying?” but “is the copying there
was normatively wrongful?” (whether that means market-based justification or
not).  A positive externality acquired
through a wrongful act.  Gordon
recognizes that volitional conduct is required.
Gordon: [Edited to improve match with what Gordon said/correct my misunderstanding] In the distinction between restitution arising out of ‘non-wrongful’ versus wrongful’ enrichment, the ‘wrongfulness’ cases don’t much concern me.   Those cases are easy: if someone trespasses, even 100 feet underground, it’s pretty easy to see why a court might give the landowner a share of any profit the trespasser earned.*  And the benefit is not the basis for liability.  Instead, I’m interested in exploring circumstances under which a ‘non-wrongful’ reaping of benefit is urged to provide the basis for liability. Copying in itself isn’t wrongful.  Among the ‘non-wrongful’ restitution cases, there’s a subset that pose a particular challenge to me, namely, the ‘volunteer’ cases where someone, for instance, paints or repairs the wrong house because of a mistake, and sues on the basis that the recipient got a benefit without paying.

The volunteer cases are interesting because they seem to challenge my argument that the common law is concerned with internalizing benefits — the challenge arises because the common law rule tells the house painter she is not entitled to sue for the benefits she has conferred. This seems to contrast with the treatment copyright gives authors.  An author is a kind of volunteer, yet authors are empowered to sue copiers regardless of whether or not the copiers have agreed to a contract.


  I argue that the contrast between the rules doesn’t show that the common law rejects the internalization of benefits.  Rather the same consideration operates in both rules:   a common-law preference for achieving internalization through contracting, in markets, as opposed to requiring internalization after the fact by judicial fiat.


Courts generally adopt rules that encourage markets to form.  For ordinary services, markets will be discouraged if service-providers can routinely get paid without contracts, while markets will be encouraged by an opposite rule that routinely makes contracts essential.  So the latter is the baseline rule adopted: Volunteers need contracts if they wish payment. That rule works well for services because as a practical matter, service-providers have natural leverage to obtain contractual agreements.  Most customers can’t get their houses painted without promising payment.  Authors don’t have this leverage.  It’s physically quite easy for a publisher or a customer to make copies of most authorial works without consulting anyone.


Copyright law provides a substitute for physical leverage; without it, potential publishers or customers might withhold payment from potential authors in the hope of free-riding on an authorial work which (they hope) won’t need their contribution in order to be created and circulated.  A fear of such scenarios leads to a concern that, in a world without copyright, strategic behavior by potential beneficiaries might make it quite difficult for authors to find sufficient promises of payment, and that as a result the public might have fewer works created than it would in fact prefer.  The copyright rule requiring payment for copying allows the potential beneficiaries and potential benefactors to coordinate (through contract) what is wanted and what can be supplied, avoiding the frustration of demand unfulfilled because unexpressed.


The no-payment rule applied to volunteers who provide services is interesting not because it’s a perfect analogy to copyright. To the contrary, it’s interesting as ‘the exception that tests the rule.’ Comparing authors with ordinary volunteers reveals — I think unsurprisingly — -that the operative common-law rule isn’t “internalize by whatever means possible,” but rather, “internalize by market if you can, and turn to lawsuits only to the extent that unassisted markets aren’t likely to do the job.”  For non-excludable goods like works of authorship, internalization via contracts and markets might not occur unless the law gives authors (a particular subset of volunteer benefactors) a right to sue for benefits conferred.


Originality:  My concepts of authorship or originality aren’t mystical; I don’t think you need autonomy justifications for copyright law that go beyond the ordinary.  Rather, original authorship marks out an area where imposing liability for certain non-consensual uses of ‘privately-produced public goods’ turned out, at least arguably, to be socially tolerable and limit-able – an area where prohibiting a particular form of free-riding seemed (at least sometimes) to be capable of resisting a slide into a general rule against free-riding.


A general rule against free-riding would, of course, dangerously impair community.  Originality functions as a concept useful to mark the territory where a historical experiment in ‘internalizing positive externalities’ by non-market methods arguably had some success.

Van Houweling: Why not trespass, with its lack of fit
requirement (though there are issues with accidental trespass)?
Christopher M. Newman, “Vested Use-Privileges in Property
and Copyright”: How do I know what a servitude is?  You can’t use your property to do X because
of my right.  That could be called tort
law—some one else asserts that you harm me w/r/t my other property interests,
even though you’re using your own property.
Servitude seems different; a right to control what is in other respects
your property w/o having to justify it w/r/t some other harm.  Servitude instead requires some preexisting
link b/t me and that thing that gives me the right to assert arbitrary control.
Public regulation doesn’t require the tort law fit, but it’s contested—to what
extent should we regard public regulation of what house I can build on my
property as appropriate? Does that protect others from injury? Does it further
collective good?  Takings issues?
So, does it make sense to regard copyright as servitude on
the physical chattel?  Or is it a
protected interest in the copyright that is protected by tort-like
considerations, which brings in issues of fit?
Commentator: Timothy R. Holbrook: The book is mixed
property, both rights at once—hard to apply the real property matrix to
that.  Maybe what the book owner has is
an easement against the © owner: a right to use for certain reasons, but the
uses are limited—a more compelling story for exhaustion doctrine.  Public domain: not re-appropriable.
Balganesh: debates over quasi-property have this same
character of relationship v. object.  The
right of sepulchre is another variety: what rights over unauthorized
interference w/corpse do relatives have?  Recognizing emotional harm w/o property
rights.
Van Houweling: We can see touch and concern as requiring
some connection to the common good for servitudes; there might be a similar
kind of fit requirement there. And further there might be more justification
for a fit requirement in ©–we’re not as agnostic about the purposes property
serves in ©; we have a constitutional purpose, and that means we can and should
have a fit requirement.  Also there are
difficulties of asset definition that help justify a fit requirement.
Cohen: the fact that you get very different results when you
analogize to servitudes v. public trust v. something else is suggestive of
Cohen’s family relationship argument: these are useful concepts for finding
relationships between types of property and doctrines, but very little follows
from the family resemblance as such. When none of the analogies are on all
fours, you can cycle madly or you can broaden out.
Newman: or you can use it to navigate/extrapolate—what are
likely to be useful answers/policies to keep in mind when answering a question.

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