Fordham 27 (Report 1): Key Current IP Issues: Reflections & Analysis

First panel of the day at this yea'r Fordham IP Conference 

A sunny morning greeted the attendees of the 27th Fordham IP Conference.  After a warm welcome from the chief Fordham IP guru, Hugh Hansen, the first session kicked off on "Key Current IP Issues:  Reflections & Analysis".

The first to take the floor was Bryan Zielinksi (Pfizer) on "The Value of IP - Where Are We Headed?" which covered a brief overview of patent legislation being proposed by the 116th Congress.  Although a split Congress (Republican Senate and Democratic House), both have focused attention on the pharmaceutical industry.  There have been a number of hearings already, mostly focused on the prices of medicines.  That will be a key focus on all the bills that are currently in draft.  In pharma, there is a split between small molecules and large molecules (ie monoclonal antibodies).  On the small molecule side you generally see fewer patents than on the larger molecule side given the associated  complexity with larger molecules  After outlining the Orange Book (and Hatch-Waxman) requirements for small molecules and Purple Book (and BPCIA) requirements for large molecules and the differences between the management of IP disputes and the benefits (or lack of) for generic competitors (in the case of biologics), Bryan then outlined the various draft legislation. The Preserving Access to Affordable Generics & Biosimilars Act's goal is to spur competition to drive down prices. It seeks to limit anti-competitive "pay-for-delay" deals that prevent or delay the introduction of affordable follow-on versions of branded pharmaceuticals.  The Medicare Negotiation & Competitive Licencing Act and the Prescription Drug Price Relief Act both aim to address prescription drug affordability.  The legislation that Bryan felt had the largest chance of passing was the Biologic Patent Transparency Act, the topic of which - patent transparency - is something that Pfizer supports.

The difference between big and small

Bryan explained that the value of IP in pharma is that it acts as an incentive to conduct research: "It provides us with a period of exclusivity in which we can exploit the invention.  It enabled Pfizer to provide breakthroughs in oncology and HPV". Bryan noted that it is not the only incentivization mechanism - there are others, like regulatory exclusivity.  You want to get patent protection so you have the protection for development.  Sir Robin Jacob commented that there is seldom a "eureka moment" in this field.  The value lies in the development of an idea. Bryan agreed noting that Pfizer files their patents early in the development stage when there is convincing in vitro data.  It is also important to remember that the failure rate for drug development to market is 90%.  There thus is a need for incentivization in order to be able to spend the money for R&D. Juergen Dressel commented from the audience that there is more pressure to file patents earlier given transparency initiatives - and with this trend there there are risks to patent protection.  Therefore, he asked, should we not be focusing more on regulatory data exclusivity?  Bryan agreed and commented that the EU has a good model for regulatory data exclusivity, whereas in the US for small molecules there is only 5 years (but for big molecules there is 12 years). 

Mr Justice Arnold (High Court of Justice, London) followed on "Website-blocking Injunctions" with an update from the UK following Cartier v Sky in the Supreme Court.  After setting out the background of the case, he summarized the three key propositions which informed the Supreme Court's reasoning and those factors which did not enter into the Court's considerations.   He then turned to the cases where orders for injunctions were made which required ISPs to block streaming servers (i.e. Premier League v BT, UEFA v BT, Matchroom v BT and Queensberry v BT).  He explained that since July 2017, the High Court has made orders requiring ISPs to block the IP addresses of streaming servers used to stream infringing copies of live broadcasts of Premier League and UEFA football matches and boxing matches. The orders set out criteria, some of which is confidential, for compiling on a rolling list, servers to be targeted, and provide for the blocking of servers for the duration of each match.  The usual safeguards apply as in website-blocking orders - the targeted servers are notified of the order and can apply to set it aside.

Mr Justice Arnold noted that the UK was not the first to grant website blocking injunctions in the EU but we were early movers (second or third in the EU) and were quicker in granting the relief.   There are still countries in the EU who have not granted website blocking injunctions . Mr Justice Arnold believes that the UK is the only country that has granted streaming service blocking injunctions.  In response to Hugh's question of whether Mr Justice Arnold considers that the law is going in the right direction, he replied "Well, since I granted most of the orders, I think the law is going in the right direction."

David Tan (National University Singapore) commented that last year, a court in Singapore granted the dynamic injunction (i.e., once a website changes the parties do not need to go back to court, they just need to file an affidavit), but the Federal Court in Australia declined a dynamic injunction.  In his view he did not see much convergence in the common law world.  Mr Justice Arnold said that dynamic injunctions are essential in this context.  In his view, a static injunction was worthless as it will be circumvented in minutes. As to the common law response more generally, the Canadian courts had regard to the UK decisions, so there is some alignment.  Justice Stephen Burley (Federal Court of Australia) commented that the process of granting dynamic injunctions is procedurally easier in Australia; amendments to orders can be made in chambers with an affidavit.  He also stated that he thought that the parallels drawn by the Supreme Court with the Norwich Pharmacal case law is potentially misleading.  Norwich Pharmacal relief is ancillary to another type of relief which is expected to be brought in court following the grant of a Norwich Pharmacal order.  In this case, the website blocking injunction relief is the final relief - it is not ancillary.  In Justice Burley's view, he considers these orders a significant addition to the Court's jurisdiction.  Mr Justice Arnold agreed, stating that this was the reasoning he gave for not following the rule for costs orders.  Although the reasoning in respect of the Norwich Pharmacal cases was compelling, the cases are different given the type of relief being granted.  Concluding, Mr Justice Arnold said there was a fair degree of consensus that there needs to be a balance between rights holders, users and exploiters.  Striking a balance is never an easy thing to do, but we have all learnt what are the good and bad ways of going about this.  In Europe, we have been trying to strike that balance; we don't just simply ignore the interests of rights owners.  In relation to the Digital Single Market Directive, Mr Justice Arnold said that it was really an "incremental change and not a radical change". It's aim was to consolidate what has already been done in the case law and move the legislation a little further forward.  People should therefore not expect any major changes over night.

A decrease in the granting of injunctions in patent cases in the US, but why?  

David Kappos (Cravath, Swain & Moore) focused on injunctions in the US patent world and changes in the grant rate and availability of injunctions.  Dave explained that injunctions have become significantly less available in the US in the last couple of years, particularly in 2018 (see graph above).  Fewer injunctions are being requested and even fewer are being granted.  However, this trend has not been widely reported.  So what has happened?  There was an obvious sea-change with eBay v MercEchange. but that was in 2006 so that case cannot explain what has happened.  More recently, in Apple  v Samsung (where patents were found valid and infringed), the Federal Circuit denied an injunction and articulated the so-called "causal nexus" test.  To show a "causal nexus", the patentee had to show that the patented features drove consumer demand.  This, explained Dave, was a brand new test.   The district courts interpreted this test narrowly and the Federal Circuit has tried a couple times to walk it back, but, in Dave's view, he considered that the damage had already been done.  Further cases provided additional criteria for a grant of an injunction, including denying injuctive relief where the loss of market share and sales are not directly tied to the defendant because there are other competitors in the market (Ecoservices).  "How is that supposed to work?", queried Dave.  Another case, Verinata Health v Ariosa, denied injunctive relief because the Court said Verinanta Health would not suffer irreparable harm as there was no direct competition between the plaintiff's and the defendants' products.  So now the concept that monetary damages as being sufficient to compensate for infringement has now entered the consideration (despite it never being there).  There are now all sorts of reasons why district courts are denying injunctions.  In his view, it leads to a state of affairs where a party may as well just infringe, as there is no disincentive not to.  A defendant essentially gets a cost free licence for a while and then you have to pay some money.  This is playing into the "efficient infringement" phenomena; it is not a good state of affairs for the US IP system.  Hugh asked whether it could be cured.  David said that it could be.  It is really best corrected by the courts, as opposed to the Section 101 problem that needed legislative intervention.  In his view, Dave felt that the PTO and the DoJ's Antitrust Division are doing a really good job in understanding that an "exclusive right" is an exclusive right and needs to be treated as such.

Mr Justice Arnold also pointed out that a reason for the Supreme Court's decision in eBay was that prior to that there was a practice in the Federal Circuit of essentially granting automatic injunctions.  eBay rolled this practice back.  He said that you have to decide injunctive relief on a case-by-case basis - whether it is proportionate in all the circumstances of the case, such that there is no de facto compulsory licensing.  Hugh countered - in taking away the possibility of an injunction, you are undermining the exclusive right.  Mr Justice Arnold responded that in an ordinary case an injunction is likely to be granted, but in a case of a life-saving medicine, for example, a judge might rightfully not.

Sir Robin Jacob (UCL) spoke on what he called an ill-rationalized principle - IP exhaustion.  Sir Robin demanded that there needed to be an international effort to really consider the rules underlying the principle of exhaustion.  When Robin first started in IP, he had never heard the concept "doctrine of exhaustion of an IP right".  For patents, where the patentee sold the patented article, then the customer could normally expect to do what he or she wanted to do with the patented article.  It did not matter where a person bought it or where a party sold it.  It was not because any right had been exhausted, but because in an ordinary contract of sale that would be what you could expect - an implied licence ran with the goods.  The solution was a licence.  But because it was a licence, the patentee could limit the licence its scope down the chain of ownership.  This was a question of national and international trade (i.e. resale pricing). In copyright, a similar rule applied but more restrictively in that it was more jurisdictionally limited.   Trade marks were more difficult.  Sir Robin says that we have an illogical doctrine, a doctrine that simply says "this is exhausted".  But what are the rules to decide whether something is exhausted?  Are they rational and should they not be the same around the world?  For example, what if big pharma decides to give drugs away at cost or a publisher provide cheap books  in a third world country.  It only works if the drugs or books that go there stays there - otherwise it undermines the business rationale to provide the products in that jurisdiction.  But under the current rules, there is no principle involved in exhaustion that takes this into account.  Sir Robin therefore proposed what he considered was a "rational rule, as follows:

• The default position that  there is international exhaustion, with 
• a system of rational exceptions justified by the nature of the product and business circumstances 

Will it happen?  No, said Robin.  Erich Anderson (Microsoft) said he "totally agreed" with Sir Robin, and expressed concern that the current system of exhaustion created opportunities for gamesmanship.  An exhaustion analysis will sometimes lead to a conclusion as to where you need to make an assertion in order to achieve result from a commercial perspective (even if such an assertion wouldn't naturally be there in your business or in that point in your supply chain).  Mr Justice Arnold says that we will need an international treaty and therefore need an amendment or supplement to TRIPS.  Sir Robin agreed - it is needed, he said.  "We need an international, holistic solution.  Exhaustion of rights was also an "add on" to IP.  It is at the back of every IP book - but it really matters to business".  Thus, it requires concerted attention.   Dave said that in the US there are two major decisions on exhaustion from the US Supreme Court which he considered to be both problematic - Kirtsaeng and Lexmark. These cases raise issues about there being good business reasons for applying the rules of exhaustion.  Sir Robin agreed that those types of cases show that there may be circumstances where a rightsholder could, under his proposal, argue that an exception applies.

The two types of open source business models

Erich Anderson (Microsoft) spoke on open-source licensing which he explained is an increasingly important in other fields other than traditional tech, like pharma and finance.  There is a perception out there that open source "is this monolithic, binary thing - open source or proprietary".  It really is not the case, said Erich.  Erich explained that there are two types of business models. The first is an open core model.  It is essentially a proprietary business model built on an open source "core" (i.e. android).  The second model is the dual licence model (i.e. Red Hat).  Red Hat's business model was to be respectful of open source licences and governance relating to Linux and those core technologies.  Companies like MongoDB, were going down this same path but were facing a fundamental challenge to the business model.  The challenge they were seeing was that one of the quirks or legacies of the open source licences was that they are classic copyright licences.  The act which the licensee takes, which in turn triggers a bunch of obligations under the licence, is the act of distribution of a derivative work of the technology.   Amazon was running service of the MongoDB services in the cloud, so weren't technically "distributing" it.  Mongo DB and other companies have thus internalized the challenge with a bifurcated model - a proprietary model and an open source model.  Another big trend in open source is AI open source (open AI), such as OpenAI (founded by Elon Musk).  Google has the TensorFlow project and Microsoft MT-DNN.  Part of the goal of open AI is to provide the source code behind the AI algorithms to advance transparency and to give the opportunity for stakeholders to shape the AI models so that they are beneficial for society. But what about the data? Erich said that there is a drive for opening up the data as well.  These are important developments to watch in the open source world.

David Carson (Senior Counsel, USPTO) closed the panel with a presentation of "Copyright in the Supreme Court:  Foruth Estate, Rimini Street and Candidates Certiorari".  On 4 March, the Supreme Court ruled on two cases - unanimously.  David said they got it right and were consistent with the Government's amicus briefs.