May 22, 2018 | ,

Correcting Misconceptions About The U.S. Patent System

There’s been a great deal of misinformation floating around about the inter partes review process (IPR) and how it impacts American inventors and innovators. So, ahead of today’s U.S. Patent Office Oversight (USPTO) Oversight Hearing with USPTO Director Andrei Iancu, IA wanted to correct some common myths about the U.S. patent system and IPR.

  • MYTH: The Patent Trial and Appeal Board (PTAB) is a death-squad.
  • FACT: Of 8,340 petitions, only 16 percent have resulted in an invalidation of all claims of a patent.1 
  • MYTH: PTAB has invalidated hundreds of patents found valid by district courts.
  • FACT: 3,056 patents challenged in IPRs through Q3 were also involved in lawsuits. Of the 3,056 patents, only 43 IPR cases – 1 percent – have resulted in different outcomes.2 
  • MYTH: The U.S. has an inefficient intellectual property and patents system.
  • FACT: The U.S. ranked #1 overall in the U.S. Chamber International IP Index.3 
  • MYTH: IPR dramatically reduced R&D investment.
  • FACT: R&D investments in the software and internet industry grew faster than any other industry in the years following the Alice decision.4 Venture capital funding for startup software and internet companies in the three years following the Alice decision increased by 88 percent compared to the three years prior.5 
  • MYTH: Patent evaluations are down and validity is uncertain.
  • FACT: From FY 2012 to 2016, filings increased 15%. In 2016, more than 650,000 applications were filed—the highest number ever. In 2016, the PTO issued over 334,000 patents, also the highest number ever.6

September 26, 2016 | ,

America Invents Act Five Year Anniversary Myth And Fact

This September marks five years since the America Invents Act (AIA) was signed into law, ushering our patent system into the 21st century through a series of reforms that focused on both the efficiency and quality of patents. The AIA created new post grant review programs, which are both time- and cost-effective mechanisms to take a second look at claims to determine if they meet the legal standards for patent protection. By offering new programs- including Inter Partes Review (IPR) and the Covered Business Methods (CBM) Program, the AIA provides small inventors and productive businesses with a meaningful tool to ward off the low quality patents that fuel patent troll litigation. Unfortunately, in the years since IPR was implemented, some parties have criticized the program and sought to upend its effectiveness.

Myth: IPR is a “death squad” for patents.

Fact: IPR isn’t killing patents: it promotes a quality patent system that fosters innovation by cleaning up claims that should have never been granted in the first place.

Parties attacking IPR often point to statistics of high invalidation of claims at the Patent Trial and Appeal Board (PTAB), which decides IPR cases. They argue that because PTAB has a high rate of tossing out claims, the program must not be working. However, PTAB will only institute a case when it’s likely there’s an invalid claim, and there’s a thorough review process before a case goes into the IPR process.

The statistics often cited to by parties challenging IPR’s success are misleading. Cases may only proceed when it is likely that there is an invalid claim. As of June 2016, only 51 percent of filed petitions were instituted. That means that nearly half of all cases never get into the system, because procedures are in place to discourage and prevent patentees from wasteful harassment in IPR. So of course the rate of invalidation for instituted is high, as it is already narrowed to a tiny group of likely low quality patents. IPR was designed that way, and it’s working.

Invalidating bad patent claims is a good thing. It’s what IPR should be doing. We know there’s still too many low quality patents in the system, because patent trolls regularly use them as vehicles for lawsuits against productive businesses. Low quality patents (the kind often invalidated by IPR) ultimately stifle innovation and discourage productive businesses from development of new products and services.

Myth: The structure of IPR disadvantages patent holders.

Fact: IPR has rigorous safeguards that ensure patent holders are protected from unsubstantiated cases.

IPR was designed to target low quality patents and protect legitimate claims of patentees. At the risk of being repetitious, PTAB requires that there be a likelihood of invalid claims before it will institute a proceeding, meaning that they weed out the frivolous challenges at the door. In addition, there are other mechanisms designed to both discourage harassment and safeguard patentees. Petitioners are barred from raising new issues in court that they could’ve raised at PTAB (estoppel), so they have to make wise decisions about using IPR. Petitioners also have to make their whole case up front, conserving resources and allowing PTAB to weed out cases that don’t belong.

The courts agree that IPR is working: we now have judicial records of review of the IPR program (and a few more on the way), and the results are a direct contradiction to the idea that IPR is broken. Since the inception of IPR through September 1, 2016, the Federal Circuit has only reversed 7 percent of PTAB’s decisions, demonstrating the high quality of PTAB’s work.

The courts have also reviewed various procedures at PTAB, including the standards for review of a patent claim. For example, in June 2016, in Cuozzo Speed Technologies, LLC v. Lee, the Supreme Court found that the “broadest reasonable interpretation” (BRI) standard (which allows PTAB to make sure claims are narrowly construed) is proper. IPR and district court litigation are different: IPR is a specialized process, with a specialized review board, that allows the Patent and Trademark Office (PTO) to correct errors, and the BRI standard allows them to do just that.

Opponents of IPR also point to the “preponderance of the evidence” standard as a source of discontent. PTAB makes decisions of validity based on preponderance of the evidence rather than by “clear and convincing” evidence, which is normally reserved for cases like civil rights. PTAB judges are experts (district courts are generalists) and the preponderance of the evidence standard allows IPR to work both efficiently and effectively by recognizing that expertise.

Myth: The threat of IPR devalues intellectual property rights.

Fact: IPR doesn’t threaten legitimate patent rights or enforcement: instead, it threatens low-quality patents that are undermining innovation and productivity nationwide.

IPR’s opponents claim that the very threat of IPR is making inventors worry about patented claims and the value of their intellectual property under high kill rates (see Myth #1 to prove there’s no validity in the high kill rate argument). As stated above, there’s no disadvantage to patent holders in IPR: not only do they receive significant safeguards, but the system is designed to only take up cases that deserve a second look.

Only a very small amount of patents are eligible for IPR, so it’s highly unlikely that a valid claim would be challenged. Of 2.5 million active patents, only about 4,700 have been challenged since IPR was instituted – and only about 15 percent of litigated patents are being challenged at IPR. And even within that small fraction of patents, PTAB has further processes that limit the cases they actually take, including the requirement that it be likely a claim is invalid before a case is even instituted. With such high barriers and standards, IPR is reserved for only the most questionable claims, without extraneous threat to inventors protecting their work.

IPR doesn’t devalue legitimate patent claims: but low quality patents do disadvantage inventors and productive businesses nationwide. A recent GAO report emphasized the point that low quality patents are often used to assert wasteful litigation against small, unknowing businesses. These low quality patents divert resources from development and innovation and create massive uncertainty for businesses and inventors under the cloud of broad claims and expensive litigation. Approximately 48 percent of IPR cases challenge patents held by so-called trolls, which could otherwise put small inventors and businesses through the expensive process of litigation that often forces defendants to settle and allows the troll to continue to use the low quality patent as a weapon. IPR offers a cost effective and quick way to check on the validity of work done at the PTO, while continuing to protect patentees who have put the work into new products and services that earn protection.

Myth: IPR is unconstitutional.

Fact: IPR is both constitutional and further fulfills the vision of our founders to foster an intellectual property system “to promote the progress of science.”

The assertion that IPR violates the Constitution has already been addressed by the Federal Circuit: and sure enough, they found that IPR is right in line with our nation’s founding document. In MCM Portfolio v. HP, it was alleged that IPR has both Article III (separation of powers) and Seventh Amendment (right to a jury) problems. The court was clear:

“The teachings of the Supreme Court in Thomas, Schor, and Stern compel the conclusion that assigning review of patent validity to the PTO is consistent with Article III…

Because patent rights are public rights, and their validity susceptible to review by an administrative agency, the Seventh Amendment poses no barrier to agency adjudication without a jury.”

We’d be remiss not to take a step back to the very part of the Constitution that our intellectual property system is founded upon. Article I, Section 8, Clause 8 reads:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

That’s 18th century speak to say that intellectual property should protect the exclusive rights of inventors in a system that further encourages new development of products and services. That’s why our patent system has standards- patent rights should protect and encourage research and development, and if claims shouldn’t be patentable or are too broad, inventors will be discouraged from furthering innovation and caught up in wasteful litigation. Low quality patent claims improperly remove subject matter from the public domain, and ultimately prevent the progress of the sciences benefiting our economy and society. IPR is about making sure those standards are met: a worthy goal that results in the competitive intellectual property system that best serves our economy and society.

September 15, 2016 |

Department of Justive and Music Licensing Myths and Fact

There’s been a lot of misinformation about the DOJ’s music licensing consent decrees. In this post, we’ll explore the three biggest misconceptions about what the consent decrees mean for the internet ecosystem.

Myth #1: The Department Of Justice’s (DOJ’s) decision is bad for songwriters.

Fact: The DOJ’s decision to reject calls for fractional licensing benefits songwriters. It prevents anticompetitive practices by performance rights organizations (PROs) and major publishers.

Perhaps the top argument, and misconception, about the DOJ’s decision is that America’s songwriters will be harmed and disadvantaged. In fact, this decision is good news for songwriters and consumers, who are best served by a competitive marketplace.

Publishers have pushed for the DOJ to allow them to directly license digital rights, claiming they could and would get “fair market value” for songwriters. Direct licensing, however, would not have changed the available pot of money for the many interests at stake. Rather, it would have granted new, unprecedented power to publishers seeking to abuse market power to negotiate deals that dramatically increase the amount of money paid by streaming services – without any guarantee that songwriters would see the trickle down of the new payments. Rather than open the door for songwriters’ benefits, direct licensing would have invited new opportunities for those at the top of the food chain, rather than bringing more cash to songwriters.

In addition, DOJ clarified that ASCAP and BMI must license complete song rights, denying partial/fractional licensing rights. This point is critical for songwriters, streaming services, small businesses like restaurants and bars, and the consumers that benefit from them. Imagine if all stakeholders had to determine and acquire the rights for every rightsholder of every song separately: playing music (so that songwriters and artists can get paid) would be an even more complex and inefficient process.

Myth #2: The consent decrees must be updated because they are outdated.

Fact: The consent decrees are just as (if not more) needed today because of concentrated market power that shows no signs of shifting.

While it’s true that changes to market structure over time sometimes create the need for fresh thinking about consent decrees, this is not the case today. The PROs’ persistent market power, combined with the ease with which they will seemingly coordinate with the major publishers rather than compete with them, strongly suggests that the consent decrees serve to promote competition – even more so today than when they were first entered into in 1941. Just this year, ASCAP entered into a settlement with DOJ as the result of anticompetitive behavior under the consent decrees.

The underlying need for the consent decrees – the market power of the PROs – isn’t and never will be temporary in nature because it’s inherent in the licensing structure they’ve chosen to establish. Furthermore, their market power is proven to be persistent: today ASCAP and BMI jointly retain the performance rights for about 90 percent of all American compositions. Similarly, the market presence of the major publishers has only increased since the 1940s; UMPG and Sony/ATV now control more than 50 percent of the U.S. music publishing market.

Myth #3: The consent decrees are anticompetitive.

Fact: The consent decrees are necessary to promote competition. Market concentration and the potential for collusion between major power players are the real threat.

Major publishers and their partners advocated for changes to the consent decrees that would allow for partial withdrawals, claiming that this would create a more competitive ecosystem. In fact, it appears the opposite is true. Market share isn’t a perfect proxy for market power, but there’s recent and direct evidence that both the PROs and the major publishers are willing to use their dominant market positions in ways detrimental to competition and to consumers. In fact, it appears they’ve recently used partial withdrawals to stymie competition, not enhance it.

In the Pandora rate court case decided last year, Judge Cote sets out in remarkable detail how ASCAP, Sony/ATV, and UMPG together acted to facilitate partial withdrawals from ASCAP solely for the purpose of implementing anticompetitive royalty rate increases.

There is no evidence that the partial withdrawal changes – which major publishers supported – served a procompetitive, welfare enhancing purpose: the publishers and ASCAP didn’t use the withdrawals to compete for share with one another. There’s also no evidence that the withdrawals were used to lower transaction costs. As a matter of fact, the Pandora case showed that the publishers reached agreements with ASCAP after their withdrawal, allowing ASCAP to continue to administer the collection and distribution of any royalties collected.

The DOJ designed the consent decrees to prevent the type of anticompetitive, unfair activity by major market players that occurred in the Pandora case. Rather than restrain competition, the consent decrees seek to prevent dominant market players from collusion that threatens songwriters, digital music services, and, ultimately, the public interest.

July 14, 2016 | ,

DMCA Safe Harbors Myth And Fact

Following our previous work in defense of the Digital Millennium Copyright Act (DMCA) safe harbors, we’ve seen a lot of misinformation circulating about what DMCA safe harbors are and what they’ve done for the online ecosystem. In this series, we’ll explore five common myths asserted about the DMCA and break them down.

Myth #1: The DMCA is technologically out of date.

Fact: The DMCA was created to be future proof and work for technology not imagined when the law was written: under it, the internet has flourished.

One of the worst arguments for changing the DMCA is that it is old – the whole point of the safe harbors was that they weren’t meant for the technology of 1998.

Imagine if Congress had to rewrite the law every time the next Facebook or Twitter was created? What if every time an entrepreneur envisioned the new Reddits or Amazons of the world, they had to lobby Congress for new laws?

Congress clearly envisioned- and intended- the law to change the online landscape: “… by limiting the liability of service providers, the DMCA ensures that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will continue to expand.”

Congress didn’t write the law about 1998 technology for a reason: doing so would create a ceiling on creativity. If the laws were written to only address the platforms existing twenty years ago, new platforms would have faced insurmountable uncertainty in entering the market and would not have been able to scale and diversify the way that they did in the United States. Instead, policy makers knew the law could never keep pace with technology in the digital age, so they created a future-proof, clear system that established a firm floor of action and (critically) enacted strong incentives for good actors to develop practices that benefitted both platforms and creators. Thanks to that forward-looking mentality, the United States is home to the world’s leading online innovators, who have all benefitted from the safe harbors created years before they were even imagined into existence.

The DMCA is not out of date, but the scope of today’s scale, diversity, and creativity of the internet ecosystem are in fact evidence that the safe harbors are both working and needed more now than ever.

Myth: #2: The DMCA isn’t working because piracy is up.

Fact: In the United States, where the DMCA applies, piracy is down.

The DMCA had multiple goals: to both grow and empower the internet, and to provide rightsholders with an effective tool to combat infringement as the internet grew. While some interest groups have attempted to diminish the effectiveness of safe harbors by claiming that piracy is up and therefore the law isn’t working for rightsholders, statistical evidence proves just the opposite.

In fact, in the U.S., the growth of the internet as a whole, and the growth of users connected to the internet, surpasses the growth of infringing activity on a percentage basis. DMCA-compliant platforms seeking legal distribution have flourished, reaching billions of users and growing to 6 percent of U.S. GDP, while infamous sites like Napster and Grooveshark have been unable to survive.

The facts are even more compelling when you consider just how piracy is defeated. Not only does the DMCA allow rightsholders to efficiently take down infringing content, it provides safe harbors for good actors to grow and reach users, directing them to legal content rather than infringing work.

For example, only a few years ago, rights holders complained that pirated works using BitTorrent platforms accounted for 50 percent of internet traffic in the U.S. Now, that traffic has dropped to the single digits with Netflix and Youtube replacing piracy with legal distribution. In fact, Netflix and YouTube represent over 50 percent of prime time viewing traffic, respectively.

The numbers don’t lie: in the effort to grow the legal online ecosystem and fight infringement, the DMCA is working.

Myth #3: The DMCA is bad for creators and diminishes the value of creativity.

Fact: Creative industries, both traditional and emerging, have greatly benefitted from the growth of legal online platforms that lower barriers to entry and increase access to global audiences.

The idea that creators are losing out in the digital age is especially troubling, given the wealth of data and examples that we have to prove that just the opposite is true. The worldwide entertainment industry has flourished with these technological advancements, demonstrating staggering growth from $449 billion in 1998 to $745 billion in 2010. Music, movies, television, and books all saw increased production, even during an economic recession. The internet under the DMCA has not threatened the entertainment industry’s survival; it has enhanced its growth and fueled new forms of cultural expression.

Success isn’t just found in the big numbers and industry growth, either. Creators now have access to global markets at the touch of their fingertips, drastically lowering barriers to entry for artists and creators and allowing a more diverse creative landscape than ever before. Millions of small and independent artists use online platforms to allow public access to their songs, photos, novels, and more. For example, Amazon’s self-publishing book service Kindle Direct Publishing allows authors to format and sell their work in e-book format and retain as much as 70 percent of the revenues. Flickr Marketplace is a photo-licensing program for Flickr users to partner with photo agencies, editors, bloggers, and other creative minds seeking original content. Platforms like IndiFlix allow consumers to stream a diverse library of independently produced movies, bringing lesser-known works to new audiences. And Justin Bieber isn’t the only star to break out on the internet: artists like Lindsey Stirling have found success through the transformative power of today’s online markets.

In short, thanks to the success of the DMCA, we have a more diverse and dynamic market than ever before, bringing both opportunity and value to those who harness the power of the digital age.

Myth #4: The DMCA isn’t balanced because rightsholders have to identify infringing content.

Fact: All stakeholders have responsibilities under the DMCA, and internet companies are going above and beyond those responsibilities to create a thriving ecosystem.

Service providers are required to take other steps beyond expeditious removal, including policies and procedures that further prevent abusive infringement, or they lose their legal protections.

Why do rightsholders identify the content? Because they are the only ones who can. Rightsholders know what content is theirs, who has a license for specific use, and when and how their content can be used. Online platforms don’t have that information – and requiring them to make legal judgements about the nature of a work would make them the “internet cops,” endangering all kinds of legal content that could be removedto avoid liability.

When some interest groups call for internet companies to take on more responsibility, they’re looking in the wrong place. These calls focus on changing the law to create dangerous requirements to police the internet (more on that here). These efforts aren’t about creating balance: they ultimately work against the public interest in both stopping infringement and protecting legal work online.

Policy makers knew the law couldn’t keep pace with technology, so in addition to sharing the responsibilities, they gave online platforms good incentives to innovate on top of the law – to the benefit of creators. The result is a plethora of “DMCA-plus” programs, which internet companies are developing, enhancing, and making available to rightsholders to make it more efficient and easier than ever to protect against infringement. ContentID, Pinterest’s attribution program, Facebook’s Rights Manager, and eBay’s VERO program are just a couple of examples.

The digital space is constantly evolving, and so too are the efforts of platforms to develop bespoke programs that keep pace with the needs of creators and innovators online.

Myth #5: The DMCA creates an eternal “whac-a-mole” problem, and a “notice and staydown” system is the solution.

Fact: “Notice and staydown” would result in internet censorship, endangering user speech and creativity, in addition to establishing tough barriers to entry online.

The premise of “notice and staydown” is simple: once an internet platform knows about allegedly infringing content, they are then responsible for preventing that material from appearing again on their platform. The results aren’t so simple: a “notice and staydown” regime would censor users by requiring platforms to police the web and block legal content, and would be a legal barrier that prevented new and emerging technologies from competing with today’s established players (all without actually having the desired result for proponents).

“Notice and staydown” would shift the responsibility of identifying infringing works from rightsholders to the parties least qualified to make legal determinations about the nature of a work. To avoid staggering liability, platforms would be forced to keep a broad array of potentially legal content offline, limiting the public’s ability to meaningfully access and distribute legitimate sources of creative works. This censorship regime ignores critical provisions of copyright law like fair use, which allows users legal access to content in certain circumstances and helps foster new forms of follow-on creative works.

“Notice and staydown” would also favor large actors and prevent new, innovative services from competing. YouTube’s ContentID cost around $60 million to get started and is still constantly being developed. For startups looking to scale the next great internet company, such a requirement would be an insurmountable barrier to entry that diminishes diversity online by preventing new players from ever having the chance to bring new ideas to market.

In response, some groups are proposing a “compromise” that only focuses on full-length content. They say this would avoid the issue of total “notice and staydown” disregarding fair use. Except that there have been circumstances where the flexible doctrine of fair use has applied to full-length works, including the famous Betamax case.

More concerningly, this “compromise” proposal does nothing to address other drastic censorship consequences (and marketplace barrier inevitabilities) of “notice and staydown” that directly contravene the public’s interest. And let’s not forget- the public interest is what’s at stake in copyright law. Public policy should encourage a diverse, vibrant online ecosystem of legal content, where user speech and creativity are protected.

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IA and Columbia’s Richard Paul Richman Center today released a new research paper entitled, “Toward A Better Understanding Of Internet Economics.”

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