============================================================= IP & Business Strategy Fisher & Oberholzer (2014/05/28) ============================================================= ------------------------------------------------------------- 1 1. Assert a Legal Privilege ------------------------------------------------------------- 1.1 Weapons for resisting suits 1.1.1 a. Challenge Validity of the IP Right 1.1.1.1 Invalidity defense in patent law 1.1.1.1.1 Windsurfer 1.1.1.1.2 "One-Click" 1.1.1.2 Subject matter coverage in copyright law 1.1.1.2.1 Yoga 1.1.1.3 Misuse 1.1.1.3.1 Napster 1.1.1.4 Trademark Law 1.1.1.4.1 Genericity Defense 1.1.1.4.1.1 Murphy Bed 1.1.1.4.2 Functionality Defense 1.1.1.4.2.1 Traffix 1.1.2 b. Defend Legality of Use 1.1.2.1 No violation of exclusive rights 1.1.2.1.1 Cablevision 1.1.2.1.1.1 remote storage offers significant benefits 1.1.2.1.1.1.1 less expensive 1.1.2.1.1.1.2 less likely to break down 1.1.2.1.1.1.3 less reliant on skill of consumers 1.1.2.1.1.2 remote storage gives rise to several copyright hazards, but cable companies have been able to avoid them 1.1.2.1.1.3 the cost of avoidance, however, has been the preservation of significant inefficiency 1.1.2.1.2 Sirius XM 1.1.2.2 Fair Use in Copyright Law 1.1.2.2.1 White v. West (2013) 1.1.2.2.2 Hope Poster 1.1.2.2.2.1 slides 1.1.2.3 Fair Use in Trademark Law 1.1.2.3.1 KP Permanent Make-Up 1.1.3 c. Limit Remedies Available to IP Holder 1.1.3.1 eBay 1.1.3.2 Salinger 1.2 Hazards 1.2.1 High Cost of Litigation 1.2.2 Emotional toll 1.2.3 If you win, competitors are free to capitalize on one's success 1.2.4 If you lose, damage awards can be catastrophic 1.2.4.1 Taco Cabana 1.2.4.2 Kodak 1.2.4.3 MP3. com 1.3 Guidelines 1.3.1 1. Declaratory judgment is usually better than defending a suit 1.3.1.1 e.g., ANDA paragraph IV 1.3.1.2 but the delay in launching the technology may be disqualifying 1.3.2 2. Rare circumstances in which defensive litigation may be the preferred option: 1.3.2.1 a. dominant firm(s) can use litigation to establish a broad precedent 1.3.2.2 b. reputational deterrent ------------------------------------------------------------- 2 2. Develop an Alternative ------------------------------------------------------------- 2.1 Benefits 2.1.1 Avoid both Litigation and License Fees 2.1.2 Enhance Bargaining Position in License Negotiations and Acquisitions 2.1.2.1 Short term: improve BATNA 2.1.2.2 Long Term: strategic value of reputation 2.1.2.2.1 e.g., Microsoft 2.2 Hazards 2.2.1 Costs of "Inventing Around" 2.2.1.1 a. costs associated with the technology 2.2.1.1.1 probability of developing an alternative 2.2.1.1.1.1 e.g., in software, very high 2.2.1.1.1.2 e.g., in pharmaceuticals, lower 2.2.1.1.2 cost of developing an alternative 2.2.1.1.2.1 e.g., in software, medium 2.2.1.1.2.2 e.g., in pharmaceuticals, typically high 2.2.1.1.2.2.1 Sanofi v. Dabur 2.2.1.2 b. costs associated with the "thickness" of the legal protection for the pioneer 2.2.1.2.1 thick: patent equivalents 2.2.1.2.1.1 element-by-element approach 2.2.1.2.1.2 refinements 2.2.1.2.1.2.1 state of mind 2.2.1.2.1.2.1.1 bad intent on part of defendant is unnecessary 2.2.1.2.1.2.2 PHOSITA knowledge 2.2.1.2.1.2.2.1 a factor in the analysis is whether PHOSITA, at the time of the infringement, knew of the interchangeability of P's and D's components 2.2.1.2.1.2.2.1.1 Warner (1997) 2.2.1.2.1.2.3 limitations 2.2.1.2.1.2.3.1 prior art 2.2.1.2.1.2.3.1.1 Wilson (CAFC 1990) 2.2.1.2.1.2.3.2 material disclosed but not claimed 2.2.1.2.1.2.3.2.1 Johnson (CAFC 2002) 2.2.1.2.1.2.3.3 Prosecution History Estoppel 2.2.1.2.1.2.3.3.1 applies to any change designed to meet one of the substantive requirements of patent law 2.2.1.2.1.2.3.3.1.1 Festo 2.2.1.2.1.2.3.3.2 burden on patentee to show some other reason for change 2.2.1.2.1.2.3.3.3 Flexible standard, not "complete bar"; doesn't extend to: 2.2.1.2.1.2.3.3.3.1 equivalent unforseeable at time of application 2.2.1.2.1.2.3.3.3.2 rationale for the amendment bears only tangential relationship to the equivalent 2.2.1.2.1.2.3.3.3.3 patentee could not reasonably have been expected to describe the equivalent 2.2.1.2.1.3 special standard for software? 2.2.1.2.1.3.1 Cohen & Lemley (2001) advocate narrow standard of equivalents for software 2.2.1.2.1.3.2 courts have not as yet accepted it 2.2.1.2.2 thick: copyright substantial similarity 2.2.1.2.2.1 Methods 2.2.1.2.2.1.1 (i) filtration 2.2.1.2.2.1.1.1 abstraction/pattern test 2.2.1.2.2.1.1.1.1 Nichols (1930) 2.2.1.2.2.1.1.1.2 Kroft (1977) 2.2.1.2.2.1.2 (ii) totality analysis 2.2.1.2.2.1.3 (iii) "more discerning" ordinary observer 2.2.1.2.2.1.3.1 Boisson (2001) 2.2.1.2.2.2 Tests 2.2.1.2.2.2.1 "same aesthetic appeal" 2.2.1.2.2.2.1.1 Boisson 2.2.1.2.2.2.2 "total concept and feel" 2.2.1.2.2.2.2.1 Kroft 2.2.1.2.2.2.2.2 Boisson 2.2.1.2.2.2.3 essence of the author's expression 2.2.1.2.2.2.3.1 Sheldon 2.2.1.2.2.2.4 essential musical kernel 2.2.1.2.2.2.4.1 Bright Tunes 2.2.1.2.2.2.5 extrinsic/intrinsic test (CA9) 2.2.1.2.2.2.5.1 Kroft 2.2.1.2.2.2.5.1.1 extrinsic = "similarity of ideas" 2.2.1.2.2.2.5.1.2 intrinsic = "similarity in expressions" 2.2.1.2.2.2.5.2 Cavalier 2.2.1.2.2.2.5.2.1 extrinsic = "objective comparison of specific expressive elements" 2.2.1.2.2.2.5.2.2 intrinsic = "subjective comparison"/ "total concept and feel" 2.2.1.2.2.2.5.3 Swirsky 2.2.1.2.2.2.5.3.1 extrinsic = "whether two works share a similarity of ideas and expression as measured by external, objective criteria" 2.2.1.2.2.2.5.3.2 intrinsic = "total concept and feel" to an "ordinary, reasonable person" 2.2.1.2.2.2.6 appropriation 2.2.1.2.2.2.6.1 Steinberg 2.2.1.2.2.2.7 wrongful appropriation 2.2.1.2.2.2.7.1 Arnstein 2.2.1.2.2.2.8 market impact 2.2.1.2.2.2.8.1 Arnstein 2.2.1.2.2.3 Audience 2.2.1.2.2.3.1 lay 2.2.1.2.2.3.2 intended 2.2.1.2.2.4 Kookaburra 2.2.1.2.2.5 Steinberg 2.2.1.2.3 medium: copyright standard for software 2.2.1.2.3.1 Altai 2.2.1.2.3.2 Altai test (CA2 1992) 2.2.1.2.3.3 Spread of Altai SSO test, 1992-1996 2.2.1.2.3.3.1 see Samuelson 2009, 2011 2.2.1.2.3.4 Major software developers shift increasingly from copyright to patent protection 2.2.1.2.3.4.1 U.S. 2.2.1.2.3.4.1.1 Doctrinal History 2.2.1.2.3.4.1.1.1 1960s: CCPA forces PTO to increase availability of patent protection for software 2.2.1.2.3.4.1.1.1.1 Prater (1969) 2.2.1.2.3.4.1.1.1.2 Bernhart (1969) 2.2.1.2.3.4.1.1.1.2.1 software for depicting three dimensional objects in two dimensions 2.2.1.2.3.4.1.1.1.2.2 Held: A machine programmed in a new and nonobvious way is patentable 2.2.1.2.3.4.1.1.1.3 Musgrave (1970) 2.2.1.2.3.4.1.1.2 1970s: Supreme Court applies the brakes 2.2.1.2.3.4.1.1.2.1 Gottshalk v. Benson (1972) 2.2.1.2.3.4.1.1.2.1.1 computerized process for converting binary-coded numerals to pure binary form 2.2.1.2.3.4.1.1.2.1.2 Held: unpatentable because the invention claimed consists of no more than a mathematical algorithm; a patent would preempt its use 2.2.1.2.3.4.1.1.2.2 Parker v. Flook (1978) 2.2.1.2.3.4.1.1.2.2.1 computerized method for continuously recalculating the "alarm limit" during a chemical conversion process 2.2.1.2.3.4.1.1.2.2.2 Held: unpatentable, because if one ignores the algorithm on which the process is based, the claimed invention contains nothing new or inventive 2.2.1.2.3.4.1.1.2.2.3 Door left open a crack: "We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents. It is said that the decision precludes a patent for any program servicing a computer. We do not so hold." 2.2.1.2.3.4.1.1.3 1980s and early 1990s: Gradual Relaxation of impediments 2.2.1.2.3.4.1.1.3.1 CCPA 2.2.1.2.3.4.1.1.3.1.1 "Freeman-Walker-Abele test" 2.2.1.2.3.4.1.1.3.1.1.1 If the claimed invention (a) directly or indirectly recites a mathematical algorithm, but (b) applies that algorithm in an otherwise statutory appparatus or process claim, it's patentable 2.2.1.2.3.4.1.1.3.1.2 In re Freeman (1977) 2.2.1.2.3.4.1.1.3.1.3 In re Walter (1980) 2.2.1.2.3.4.1.1.3.1.4 In re Abele (1982) 2.2.1.2.3.4.1.1.3.2 Supreme Court 2.2.1.2.3.4.1.1.3.2.1 Diamond v. Diehr (US 1981) 2.2.1.2.3.4.1.1.3.2.1.1 a process for continuously monitoring the temperature inside a synthetic rubber mold, using a computer and the well-known Arrhenius equation for measuring cure time as a function of temperature and other variables 2.2.1.2.3.4.1.1.3.2.1.2 Held: patentable, because this is an ordinary industrial process that happens to incorporate a computer program 2.2.1.2.3.4.1.1.3.3 CAFC 2.2.1.2.3.4.1.1.3.3.1 Iwahashi (1989) 2.2.1.2.3.4.1.1.3.3.1.1 voice pattern recognition software 2.2.1.2.3.4.1.1.3.3.1.1.1 incorporating improved technique for calculating autocorrelation coefficients 2.2.1.2.3.4.1.1.3.3.1.1.2 i.e., compaing short snippets of speech 2.2.1.2.3.4.1.1.3.3.1.2 held: fact that it was embedded in a read-only device made it a patentable machine or manufacture 2.2.1.2.3.4.1.1.3.3.2 Arrhythmia (1992) 2.2.1.2.3.4.1.1.3.3.2.1 computerized method of analyzing electrocardiograph ("ECG") patterns to detect persons at risk for certain heart diseases 2.2.1.2.3.4.1.1.3.3.2.2 "These claimed steps of 'converting,' 'applying,' 'determining,' and "comparing' are physical process steps that transform one physical, electrical signal into another." 2.2.1.2.3.4.1.1.3.3.3 Allappat (1994) 2.2.1.2.3.4.1.1.3.3.3.1 software for controlling the illumination of pixels on an oscilliscope to minimize discontinuity and jaggedness 2.2.1.2.3.4.1.1.3.3.3.2 Held: an algorithm embedded in general purpose computer is patentable 2.2.1.2.3.4.1.1.3.4 PTO 2.2.1.2.3.4.1.1.3.4.1 1996 Guidelines 2.2.1.2.3.4.1.1.3.4.1.1 will accept applications for patents on software on disks 2.2.1.2.3.4.1.1.4 late 1990s: Culmination 2.2.1.2.3.4.1.1.4.1 State Street Bank (1998) 2.2.1.2.3.4.1.1.4.1.1 computerized hub & spoke accounting method 2.2.1.2.3.4.1.1.4.1.2 Transformation of data by a machine into a final share price constitutes a practical application of an algorithm and is therefore patentable subject matter 2.2.1.2.3.4.1.1.4.1.3 Repudiate "business methods" exception to patentability 2.2.1.2.3.4.1.1.4.2 AT&T (1999) 2.2.1.2.3.4.1.2 Data 2.2.1.2.3.4.2 E.U. 2.2.1.2.3.4.3 imperfect strategy: increased cost; patent protection not available in all countries 2.2.1.2.4 medium: trademark law 2.2.1.2.4.1 "consumer confusion" 2.2.1.2.4.2 dilution 2.2.1.2.5 thinnest: copyright standard for sound recordings 2.2.1.2.5.1 Digital Sampling in Hip Hop 2.2.1.2.5.2 17 U.S.C. 114(b) 2.2.1.2.5.2.1 The exclusive right of the owner of copyright in a sound recording under clause (1) of section 106 is limited to the right to duplicate the sound recording in the form of phonorecords or copies that directly or indirectly recapture the actual sounds fixed in the recording. 2.2.1.2.5.3 Bridgeport Music (CA6 2005) 2.2.2 Regulatory Costs 2.2.2.1 Bioequivalent Drugs 2.2.2.2 increased by data exclusivity rules in pharmaceutical industry 2.2.2.2.1 5 years for NCEs 2.2.2.2.2 3 years for IMPs 2.2.2.2.3 12 years for biologics 2.2.3 Resulting Competition 2.2.3.1 pharmaceuticals 2.2.3.1.1 oligopolistic pricing among me-too drugs 2.2.3.1.1.1 during period of patent protection, price competition among therapeutic substitutes is rare 2.2.3.1.1.1.1 Danzon 2009 2.2.3.1.1.2 instead, compete on brand and therapeutic nuances 2.2.3.1.1.3 in relatively undifferentiated markets, newcomers without clear quality advantages often employ "market penetration" pricing strategy 2.2.3.1.1.3.1 initially somewhat below dominant player(s) 2.2.3.1.1.3.2 then gradually rise 2.2.3.1.1.3.3 Reekie 1978, Chen 2012 2.2.3.1.1.4 by contrast, newcomers with clear quality advantage often employ "skimming" 2.2.3.1.1.4.1 initially somewhat higher than dominant players 2.2.3.1.1.4.2 then gradually decline 2.2.3.1.1.4.2.1 in effect, a form of temporal price discrimination 2.2.3.1.1.4.3 Dean 1969, Reekie 1978 2.2.3.1.2 market division among pioneer and generics 2.2.3.1.2.1 after expiration of patent, generics enter; competition among them soon drives prices down 2.2.3.1.2.1.1 Berndt 2010 2.2.3.1.2.2 but price of originator drug commonly declines only modestly -- or even rises -- as a form of market segmentation 2.2.3.1.2.2.1 Frank and Salkever 1997 2.2.3.1.2.2.2 Danzon 2009 2.2.3.2 software 2.2.3.2.1 effect depends heavily on the nature and power of the firm that introduces the alternative technology 2.3 Guidelines 2.3.1 Combine technology, law, and marketing to estimate the total costs and benefits of each potential way of inventing around the protected technology of the incumbent 2.3.2 If selected early enough, this path can often be much less expensive than the others 2.3.3 Credible threat to pursue this strategy can drastically reduce license fees 2.3.3.1 i.e., a powerful BATNA in negotiation ------------------------------------------------------------- 3 3. Get Permission ------------------------------------------------------------- 3.1 Benefits 3.1.1 Short Time to Market 3.1.1.1 Windsurfing 3.1.2 Eliminate Risk of IP Infringement 3.1.2.1 YouTube 3.2 Costs 3.2.1 Potential Antitrust Liability 3.2.2 Reduced Bargaining Power 3.2.3 High Costs from Royalty Stacking 3.2.3.1 academic debate concerning its frequency 3.2.4 Transaction Costs 3.2.4.1 Rhapsody 3.2.4.2 Google Book Search 3.2.4.3 Choruss 3.2.4.3.1 See Free Riding (2011) 3.2.4.4 Mitigating Mechanisms 3.2.4.4.1 Patent Pools 3.2.4.4.2 Collecting Societies 3.2.4.4.2.1 Copyright Clearance Center 3.2.4.4.3 Extended Collective Licensing 3.3 Guidelines 3.3.1 The potential advantages to this strategy mirror the potential advances to IP holders of licensing 3.3.2 in circumstances in which licensing is advantageous for the holder, it's potentially beneficial to licensees 3.3.3 maximizing those advantages requires careful use of the negotiation tactics exemplified by the CK exercise ------------------------------------------------------------- 4 4. Detente ------------------------------------------------------------- 4.1 Benefits 4.1.1 Mutual Assured Destruction deters costly litigation 4.1.1.1 Ford and General Motors 4.1.1.1.1 Ford, then GM, amass large patent portfolios, but don't assert them 4.1.1.1.2 Wegner & Maebius, "Patent Flooding" (2002) 4.1.1.2 Electronics 4.1.1.2.1 Bessen & Hunt, An Empirical Look at Software Patents (2004) 4.1.1.3 RPX 4.1.1.3.1 defensive patent aggregator 4.1.1.3.1.1 service it offers to participants: insurance against patent litigation 4.1.1.3.1.2 cf. "protection" offered by Mafia 4.1.1.3.2 the counterpart to NPEs 4.1.1.3.3 problems 4.1.1.3.3.1 they can only offer incomplete insurance 4.1.1.3.3.1.1 at best, a reduction in the probability of being successfully sued for patent infringement 4.1.1.3.3.2 free-rider problem 4.1.1.3.3.2.1 competitors of their customers benefit from the protection that RPX offers to their customers 4.1.1.3.3.2.2 reduces the competitors' willingness to sign up 4.1.1.3.3.2.3 knowing this, the first wave of customers are reluctant to sign up 4.1.1.3.3.3 potentially vulnerable to antitrust suit 4.1.1.3.3.3.1 Cascades Computer Innovation complaint 4.1.1.3.4 ambiguous signals from the market 4.1.1.3.4.1 went public in May 2011 4.1.1.3.4.2 stock price fluctuates 4.1.1.4 number of patents, not content or quality, is the decisive variable 4.1.1.4.1 cf. Texas Instruments 4.1.1.4.1.1 "For TI to know what's in its patent portfolio, we think, is just a mind-boggling budget-busting exercise to try to figure out with any degree of accuracy at all" 4.1.1.4.1.2 Statement of Fred Telecky, Senior VP and General Patent Counsel, TI 4.1.1.4.1.2.1 Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy: Joint Hearings Before the Fed. Trade Comm’n & Dep’t of Justice 743 (Feb. 28, 2002) 4.1.2 Cross Licensing Ensures Access to Technology 4.1.2.1 Canon 4.1.2.2 Semiconductor Industry 4.1.2.2.1 Hall and Ziedonis (2001): "Instead of being driven by a desire to win strong legal rights to a standalone technological prize, these firms appear to be engaged in 'patent portfolio races' aimed at reducing concerns about being held up by external patent owners and at negotiating access to external technologies on more favorable terms" 4.2 Hazards 4.2.1 Wasteful 4.2.1.1 from the standpoint of the firm, wasteful 4.2.1.1.1 cf. advertising to stabilize market share 4.2.1.2 from the standpoint of social welfare, pure waste 4.2.2 Byproduct: untethered stockpiles of patents 4.3 Guideline 4.3.1 This approach is almost as bad as litigation 4.3.2 In a highly litigious industry, it may be the only way of securing room to operate, but it is wasteful for all concerned -- and incidentally will feed the trolls ------------------------------------------------------------- 5 5. Rapid Dissemination ------------------------------------------------------------- 5.1 Strategy 5.1.1 deploy putatively infringing technology fast enough to provoke either favorable judicial ruling or license 5.1.2 Hope that by the time a dispute ripens, the system will either be too valuable to IP holders to suppress or will be culturally embedded 5.2 Case Studies 5.2.1 Success 5.2.1.1 Sony in VCRs 5.2.1.1.1 the Betamax case 5.2.1.1.2 impact 5.2.1.2 Image Search Engines 5.2.1.2.1 Arriba Soft 5.2.1.2.2 Perfect 10 5.2.1.3 Google 5.2.1.3.1 Adwords litigation 5.2.2 Failure 5.2.2.1 Napster 5.2.2.1.1 Bertelsmann 5.2.2.1.1.1 Bertelsmann invests $85 in Napster in hopes of converting it to lawful service 5.2.2.1.1.2 Bertelsmann loses the investment when licensing fails 5.2.2.1.1.3 Napster shut down through suit for secondary liability 5.2.2.1.1.3.1 no damages, because Napster had no resources 5.2.2.1.1.3.2 Napster files for bankruptcy in 2001 5.2.2.1.1.4 record companies & music publishers bring tertiary liability suit against Bertelsmann 5.2.2.1.1.4.1 factors tilting toward settlement 5.2.2.1.1.4.1.1 enormous potential liability, because of statutory damages 5.2.2.1.1.4.1.2 risks of litigating in the US 5.2.2.1.1.4.1.3 May 2006, Judge Patel rejects B's motion for summary judgment 5.2.2.1.1.4.1.3.1 Basis: plaintiffs can try to prove facts that would establish liability for "inducement" under Grokster 5.2.2.1.1.4.2 settlements 5.2.2.1.1.4.2.1 September 2006, Bertelsmann settles with UMG for $60M 5.2.2.1.1.4.2.1.1 part of sale by Bertelsmann of its music publishing arm 5.2.2.1.1.4.2.2 April 2007, Bertelsmann settles with Warner Music for $110M 5.2.2.1.1.4.2.3 May 2007 Bertelsmann settles with EMI for undisclosed amount 5.2.2.1.1.4.2.3.1 as a result, Bertelsmann posts a first-quarter loss of 70M Euros 5.2.2.1.1.4.2.4 August 2007, Bertelsmann agrees to pay publishers $130M 5.2.2.1.1.4.2.4.1 $32M allocated to litigation expenses 5.2.2.2 Google Book Search 5.3 Guidelines 5.3.1 1. This approach is only available to large-scale enterprises 5.3.1.1 either are already large when considering this option 5.3.1.2 or have realistic prospects of becoming large very fast 5.3.2 2. Very high risk 5.3.2.1 if you lose the predictable infringement suit and/or the copyright owners refuse to license, the result is likely to be catastrophic 5.3.3 3. Potentially huge gains 5.3.3.1 success, conjoined with network externalities, can create high barriers to entry ------------------------------------------------------------- 6 5. Donate ------------------------------------------------------------- 6.1 Nonstrategic 6.1.1 Commons-based peer production 6.1.1.1 Wikipedia 6.1.1.1.1 see Benkler, Coase's Penguin 6.1.1.2 NASA Mars Clickworkers 6.1.1.3 Slashdot 6.1.2 Universities 6.1.2.1 Scholarship 6.1.2.1.1 Open-access publishing 6.1.2.1.1.1 e.g., Harvard University 6.1.2.2 Nonenforcement of Patents 6.1.2.2.1 substitute for experimental-use exception 6.1.3 Philanthropic responses to global health crisis 6.1.3.1 Context: Health Crisis in Developing World 6.1.3.1.1 Increasing Global Life Expectancy 6.1.3.1.2 Disparities 6.1.3.1.2.1 Indices 6.1.3.1.2.1.1 DALY 6.1.3.1.2.1.1.1 Disability Adjusted Life Years (DALYs) is an index, developed by the WHO, to measure the losses caused by a particular disease both through premature deaths and through disabilities 6.1.3.1.2.1.1.1.1 Full definition 6.1.3.1.2.1.1.1.1.1 One DALY “can be thought of as one lost year of ‘healthy’ life”, and the burden of disease “as a measurement of the gap between the current health of a population and an ideal situation in which everyone in the population lives into old age in full health.” World Health Organization, The World Health Report at 137 (2003) 6.1.3.1.2.1.1.1.2 Examples 6.1.3.1.2.1.1.1.2.1 Diarrhea: 0.1 6.1.3.1.2.1.1.1.2.2 Erectile Dysfunction: 0.2 6.1.3.1.2.1.1.1.2.3 Blindness: 0.6 6.1.3.1.2.1.2 HALE 6.1.3.1.2.1.2.1 “Healthy Life Expectancy” is an index, developed by the World Health Organization, to estimate life expectancy at birth, adjusted (downward) for time spent in ill health 6.1.3.1.2.1.2.1.1 “It is most easily understood as the equivalent number of years in full health that a newborn can expect to live based on current rates of ill-health and mortality…. The measurement of time spent in poor health is based on combining condition-specific estimates from the Global Burden of Disease study with estimates of the prevalence of different health states by age and sex derived from the MCSS [Multi-Country Survey Study], and weighted using health state valuations.” World Health Report 2004, 9 6.1.3.1.3 Causes 6.1.3.1.3.1 War 6.1.3.1.3.2 Starvation 6.1.3.1.3.3 Injuries 6.1.3.1.3.4 Noncommunicable Diseases 6.1.3.1.3.5 *Communicable Diseases 6.1.3.1.3.5.1 Incidence 6.1.3.1.3.5.2 Burdens 6.1.3.1.3.5.3 The Diseases 6.1.3.1.4 Solutions 6.1.3.1.4.1 How it Was Solved in USA 6.1.3.1.4.1.1 1. Public health initiatives 6.1.3.1.4.1.1.1 water and sanitation systems 6.1.3.1.4.1.1.2 food supply 6.1.3.1.4.1.1.3 hygiene 6.1.3.1.4.1.2 2. Vaccines 6.1.3.1.4.1.3 3. Medicines 6.1.3.1.4.1.3.1 general purpose antibiotics 6.1.3.1.4.1.3.2 specialized microbiols 6.1.3.1.4.1.4 Net effects 6.1.3.1.4.2 Similar Initiatives in Developing Countries 6.1.3.1.4.2.1 1. Dramatic Advances in Public Health 6.1.3.1.4.2.2 2. All major existing vaccines now widely distributed in DCs 6.1.3.1.4.2.3 3. Off-patent medicines for global diseases available increasingly in DCs 6.1.3.1.5 The Drug Problem 6.1.3.1.5.1 1. Incentives 6.1.3.1.5.1.1 Poor vaccine for TB 6.1.3.1.5.1.2 No vaccines for most of the other diseases 6.1.3.1.5.1.3 Poor medicines for all developing country diseases 6.1.3.1.5.1.4 Why? 6.1.3.1.5.2 2. Access 6.1.3.1.5.2.1 Prices of existing drugs place them beyond the reach of most residents of DCs 6.1.3.1.5.2.2 Examples 6.1.3.1.5.2.2.1 ARTs 6.1.3.1.5.2.2.2 DR-TB Drugs 6.1.3.1.5.2.2.3 Antibiotics 6.1.3.2 Donations by Pharmaceutical Companies 6.1.3.2.1 Incentives 6.1.3.2.1.1 public pressure 6.1.3.2.1.1.1 e.g., Yadav 17 6.1.3.2.1.1.1.1 Pharmaceutical companies face tremendous pressure of meeting societal expectations about affordable drugs to all segments of the population in return for being able to pursue profits in developed countries. Failure to respond to issues pertaining to access to medicines can quickly lead to reputational harm (Vachani and Smith 2004). Differential pricing allows pharmaceutical companies to signal that their pricing policies are socially responsible and consistent with their obligations to society and not merely geared towards maximizing their profit. New initiatives such as the Access to Medicine Index monitor highlight the efforts of pharmaceutical companies to increase access to medicines in developing countries. The ATM Index defines equitable pricing as a mechanism that is intended to lower financial barriers to pharmaceutical access. Equitable pricing and affordability are key aspects of how pharmaceutical companies are rated on this index. Differential pricing would lead to better ranking on indicators such as this which measure a pharmaceutical company’s fulfillment of its societal obligations 6.1.3.2.1.2 Access to Medicine Index 6.1.3.2.1.2.1 2012 Rankings 6.1.3.2.1.2.1.1 Summary 6.1.3.2.1.2.1.2 Link 6.1.3.2.1.3 pressure from some investors 6.1.3.2.1.3.1 The full press release can be viewed at: http://www.henderson.com/content/sri/publications/reports/psgpublichealthcrisis_pr.pdf 6.1.3.2.2 Examples 6.1.3.2.2.1 Novartis 6.1.3.2.2.1.1 Novartis Institute for Tropical Diseases 6.1.3.2.2.1.1.1 collaboration with Singapore 6.1.3.2.2.1.1.2 see Herrling, "Taking Aim" (2005) 6.1.3.2.2.2 Merck Ashley Stevens, TTO at BU indicates that Merck has just announced no royalty licenses to Notavirus vaccine in developing countries *chec 6.1.3.2.2.2.1 Outterson Disease-Specific, p. 13 6.1.3.2.2.2.2 Bill and Melinda Gates Foundation Press Release, Cervical Cancer Vaccine Project (2006) available at http://www.path.org/files/RH_cc_vacc_proj_fs_update.pdf (accessed 16 August 2007). 6.1.3.2.2.2.3 Merck Press Release, Merck To Donate Three Million Doses of Gardasil, Its Cervical Cancer Vaccine, to Support Vaccination Programs in Lowest Income Nations, (Sept. 26, 2007). 6.1.3.2.2.2.3.1 Outterson: Three million doses will vaccinate 1 million women, a very small percentage of the need. 6.1.3.2.2.3 GSK Rick Keenan at BU Conference focus on HIV TB malaria 100 scientists in Tres Cantos facility plans to expand, invite other scientists to join Adrew Witty, Big Pharma as Calyst for Change" (speech at Harvard 2009) *check for transcript patent pools: offer to license all GSK patents to any company with bona fide research proposal; development and  manufacture anywhere; for sale in LDCs for 16 neglected diseases (those mentioned in PRV system) lots of outstanding issues: IP rights to improvements; PRVs; so far, only Anylam has joined 6.1.3.2.2.3.1 announcement, 2/13/2009 6.1.3.2.2.4 post-2000 tiered pricing for ARVs 6.1.3.2.2.4.1 Sources 6.1.3.2.2.4.1.1 see Sachs Differential Pricing memo.doc 6.1.3.2.2.4.1.2 see Hellerstein 2010, first section 6.1.3.2.2.4.1.3 see Yadav 25ff 6.1.3.2.2.4.2 Gilead 6.1.3.2.2.4.3 Merck 6.1.3.2.3 Potential Approaches 6.1.3.2.3.1 a. Modest price reduction below optimum confers large health benefits 6.1.3.2.3.1.1 based On Sachs, "Differential Pricing and Access to Medicine" (2013) 6.1.3.2.3.2 b. zero-royalty licenses to generics to distribute drugs through community health networks 6.1.3.2.4 Advantages 6.1.3.2.4.1 Increases access at little or no cost to the public 6.1.3.2.4.2 Firms may prefer this to selling at lower prices: 6.1.3.2.4.2.1 to avoid backlash in primary markets as a result of price comparisons 6.1.3.2.4.2.1.1 strategy to avoid reduced IP protection in long run 6.1.3.2.4.2.2 provides good public relations 6.1.3.2.5 Disadvantages 6.1.3.2.5.1 Unreliable, relying on altruistic motives, political pressure, strategic & public relations considerations 6.1.3.2.6 Developed country governments could increase incentives for such gifts with tax breaks 6.1.3.3 University-Leveraged Pricing Requirements 6.1.3.3.1 General Idea 6.1.3.3.1.1 Universities, when licensing upstream R&D products to downstream private developers, should include provisions in licensing agreement that will facilitate access for developing countries (or some subset of countries) of any "end-product drugs" developed by firm (or some subset of end-product treatments) 6.1.3.3.2 Background 6.1.3.3.2.1 Like government, university research plays large (generally upstream) role in pharma R&D; 6.1.3.3.2.2 Unlike government, universities face fewer "capture" problems and, further, have historic public sector mission/values (Benkler) 6.1.3.3.2.3 Example: 6.1.3.3.2.3.1 Yale's agreement with BMS to permit generic versions of AIDS drug stavudine in South Africa (Yale had patent rights to drug itself) 6.1.3.3.2.4 Some technology-transfer officers of major universities have expressed interest in generalizing the Yale example 6.1.3.3.3 Proposal 6.1.3.3.3.1 Three factors push for a general "agreement to negotiate" clause: 6.1.3.3.3.1.1 1. University revenues from licensing not so significant that some decrease from lower licence fees should be a major concern, but significant enough that universities will be wary of turning away potential licensees altogether 6.1.3.3.3.1.1.1 therefore terms of potential license cannot be so onerous as to deter agreements from being signed 6.1.3.3.3.1.2 2. Difficult to predict at time of license negotiations which upstream products will generate relevant end-products 6.1.3.3.3.1.3 3. "Boilerplate" or standardized agreements preferable, both to reduce transaction costs and enhance universities' bargaining position ("this is our standard agreement") 6.1.3.3.3.2 Standard Clause: 6.1.3.3.3.2.1 1. "If at any point during the license term, a project by licensee, employing the licensed technology, generates a product or process that has significant potential health benefits in developing countries, then 1) licensee agrees to notify the licensor and 2) thereupon to bargain in good faith with licensor to 3) identify and implement a strategy for ensuring that those potential health benefits are realized." 6.1.3.3.3.2.2 2. Where the product or process is a new medicine, licensee could satisfy this obligation either (a) by agreeing to distribute the medicine in developing countries at a price equal to the marginal cost of producing it or (b) by providing one or more generic manufacturer(s) royalty-free licenses over technology sufficient in scope to enable such manufacturer(s) to manufacture and then distribute the medicine in developing countries. 6.1.3.3.3.2.3 3. Any such arrangement would include provisions to ensure that the ability of the licensee to market its products or processes in other countries at prices of its choosing would not be significantly impaired. 6.1.3.3.3.3 Failure to bargain in good faith would have three negative consequences: 6.1.3.3.3.3.1 Modern contract doctrine takes such duties seriously and their abrogation would likely constitute a breach of the license, preventing licensee from further use of the patented university technology 6.1.3.3.3.3.2 It would expose the firm to highly negative publicity 6.1.3.3.3.3.3 It would endanger the firm's ability to obtain technology from any university in the future 6.1.3.3.3.4 other options: 6.1.3.3.3.4.1 PRV for firms with many deals with HU 6.1.3.3.3.4.1.1 if you develop drug for developing countries, we'll give you a better deal on some other product 6.1.3.3.3.4.1.2 Staph 6.1.3.3.3.4.2 research agenda within the university 6.1.3.3.3.4.2.1 Isaac: new program investing $10M to accelerate development of drugs that address contagious diseases 6.1.3.3.3.4.2.2 *may be best for drugs that address truly neglected diseases 6.1.3.3.3.5 *NIH could increase pressure on universities through standard conditions in grants 6.1.3.3.3.5.1 mild form: grant-specific 6.1.3.3.3.5.2 more powerful form: blanket obligation arising out of receipt of federal funds 6.1.3.3.3.5.3 cf. Open Access Policy 6.1.3.3.3.5.4 milder form would be to collaborate in the development of a "best practices" manual for TTOs 6.1.3.3.3.5.5 perhaps this whole topic should be shifted to Chapter 8 6.1.3.3.4 Status 6.1.3.3.4.1 UAEM site 6.1.3.3.4.1.1 Berkeley 6.1.3.3.4.2 PLOS Editorial 6.1.3.3.5 Advantages 6.1.3.3.5.1 politically feasible 6.1.3.3.5.1.1 short-circuits the notoriously difficult legislative process 6.1.3.3.5.1.2 and some universities seem genuinely committed to the idea 6.1.3.3.5.1.2.1 but see recent letter to WHO by (AUTM) Association of University Technology Managers 6.1.3.3.5.2 Does not require modifying any treaty such as TRIPS 6.1.3.3.6 Disadvantages 6.1.3.3.6.1 Scope: treatments developed with university-licensed tools, processes or products are likely to amount to only a small sub-set of all relevant treatments 6.1.3.3.6.2 Time: being forward-looking, the agreements would do nothing to ameliorate the current barriers 6.1.4 Humanitarian Tech Transfer 6.1.4.1 e.g., Global Access in Action 6.2 Strategic 6.2.1 a. Reduce Hold-up Risk 6.2.1.1 Merck 6.2.2 b. Encourage Complementors 6.2.2.1 Merck 6.2.3 c. Signal Quality of Ideas 6.2.4 d. Stimulate Demand for Other Products or Services 6.2.4.1 Independent Musicians 6.2.4.1.1 examples 6.2.4.1.1.1 e.g., Brazil (Lemos) 6.2.4.1.1.2 e.g., Amanda Palmer 6.2.4.1.1.3 Wechsler on Free Revealing 6.2.4.1.2 widespread distribution of recordings fuels demand for complements: 6.2.4.1.2.1 concerts 6.2.4.1.2.2 merchandise 6.2.4.1.3 social welfare cost: distortion of kinds of music generated 6.2.4.1.3.1 see Fisher, Promises to Keep (2004) 6.2.4.2 Open Source Software 6.2.4.2.1 individual programmers 6.2.4.2.1.1 see Lerner 6.2.4.2.2 IBM 6.2.4.2.2.1 see Benkler, Coase; Sharing Nicely 6.2.4.2.3 Sun 6.2.4.2.3.1 Palfrey, Swords & Shields 6.2.4.2.3.2 for integrated firms, open-source at one level may increase proprietary value at other levels 6.2.4.2.3.2.1 e.g., donate IP to create, unilaterally, a platform that then works to your advantage 6.2.5 e. accelerate obsolescence of your product; fuel demand for next wave 6.2.5.1 Fashion 6.2.5.1.1 Examples of Copying 6.2.5.1.2 Variety of Legal Regimes 6.2.5.1.2.1 USA 6.2.5.1.2.1.1 Minimal copyright, trademark, or design patent protection 6.2.5.1.2.2 Europe 6.2.5.1.2.2.1 EU 6.2.5.1.2.2.1.1 25 years of protection for registered designs; 3 years for unregistered 6.2.5.1.2.2.2 France & Italy 6.2.5.1.2.2.2.1 Strong protection for both registered and unregistered designs 6.2.5.1.3 When should designers donate IP? 6.2.6 f. maintain presence in rapidly changing market 6.2.6.1 Viacom/South Park ------------------------------------------------------------- 7 4. Collaborate ------------------------------------------------------------- 7.1 a. With Competitors 7.1.1 Tacit 7.1.1.1 Depression Drugs 7.1.1.2 University Research 7.1.1.3 Sampling in Hip-Hop 7.1.2 Express 7.1.2.1 Patent Pools 7.1.2.1.1 especially useful in overcoming "patent thickets" 7.1.2.1.1.1 disagreement concerning the seriousness of the patent-thicket problem 7.1.2.1.1.1.1 serious 7.1.2.1.1.1.1.1 Eisenberg, Rai 7.1.2.1.1.1.2 not serious 7.1.2.1.1.1.2.1 Kieff 2001; Adelman 2005; Lei et al 2009 7.1.2.1.1.2 may be mitigated by patent pools for complementary patents 7.1.2.1.1.2.1 Bittlingmayer (1988) 7.1.2.1.1.2.2 Gilbert/Shapiro (1997) 7.1.2.1.1.2.3 Shapiro (2001) 7.1.2.1.1.2.4 offsetting danger that pools may facilitate anticompetitive behavior, particularly with respect to substitute patents 7.1.2.1.1.2.4.1 Kaplow (1984) 7.1.2.1.1.2.4.2 Barton (1996) 7.1.2.1.1.2.4.3 Carlson (1999) 7.1.2.1.1.2.5 possible sorting mechanism: requirement of independent licensing option would corrode (bad) substitute pools, without adversely affecting (good) complementary pools 7.1.2.1.1.2.5.1 Lerner/Tirole (2002) 7.1.2.1.1.2.5.2 cf. Lerner/Tirole/Strojwas (2003) 7.1.2.1.1.2.5.3 to minimize risk of antitrust liability, one should probably permit independent licensing 7.1.2.2 Standard-Setting Organizations 7.1.2.2.1 Potential Advantages of SSOs to Participants 7.1.2.2.1.1 1. increases value of the products produced by all firms in the market 7.1.2.2.1.1.1 Sources of increased value 7.1.2.2.1.1.1.1 1. network externalities 7.1.2.2.1.1.1.1.1 e.g., AM radio 7.1.2.2.1.1.1.1.2 e.g., interoperability of mobile phone systems radically expands direct network effects associated with each system 7.1.2.2.1.1.1.1.3 adherents to a standard can share benefits of indirect network effects 7.1.2.2.1.1.1.1.3.1 standardization of VCR format enables all manufacturers to share indirect network effects of increased production of movies 7.1.2.2.1.1.1.2 2. increase in functionality: safety and reliability 7.1.2.2.1.1.1.2.1 pool knowledge concerning and control over attractive features 7.1.2.2.1.1.1.3 3. economies of scale in manufacture of components can reduce production costs for all participants 7.1.2.2.1.1.2 Benefits are maximized by anticipatory standard setting 7.1.2.2.1.1.2.1 agree on a common technology prior to the introduction of any products 7.1.2.2.1.1.2.2 contrast Betamax v. VHS 7.1.2.2.1.1.3 Magnitude of increased value 7.1.2.2.1.1.3.1 EU Commission Staff estimates that 1% increase in number of standards used in a country correlates with ~1% increase in GDP 7.1.2.2.1.2 2. Potential IP licensing revenue 7.1.2.2.1.2.1 the more closely the standard aligns with a firm's IP, the higher the revenues 7.1.2.2.1.2.2 e.g., 4G LTE standard 7.1.2.2.1.2.2.1 Qualcomm owns ~12.5% of SEPs for 4G LTE standard; receives in licensing revenue ~3.2% of price of every 4G LTE phone sold in the world 7.1.2.2.1.2.2.1.1 source: Trefis, "Nokia" (2013) 7.1.2.2.1.2.2.2 Nokia owns an even larger share 7.1.2.2.1.2.3 from a social-welfare standpoint, this is neutral 7.1.2.2.1.2.3.1 transfer payment; no impact on aggregate welfare 7.1.2.2.1.3 3. Increase Barriers to Entry 7.1.2.2.1.3.1 block competition from a new technology 7.1.2.2.1.3.1.1 e.g., manufacturers of steel electrical conduits combine to form under standard forbidding use of plastic conduits 7.1.2.2.1.3.1.2 e.g., noodles 7.1.2.2.1.4 4. Opportunities for Rent Seeking 7.1.2.2.1.4.1 each participating firms wants disproportionate share of the social benefit of the standard 7.1.2.2.1.4.1.1 illustration 7.1.2.2.1.4.1.2 problematic from standpoint of social welfare 7.1.2.2.1.4.1.2.1 a. waste of resources resulting from struggle over shares 7.1.2.2.1.4.1.2.2 b. potential sacrifice of safety and efficiency benefits of the standard 7.1.2.2.2 Law Governing SSOs 7.1.2.2.2.1 SSOs are permitted 7.1.2.2.2.1.1 exception to antitrust prohibitions 7.1.2.2.2.2 But 7.1.2.2.2.2.1 1. They must have a legitimate objective 7.1.2.2.2.2.1.1 General guideline: If suppression of competition is the only plausible rationale for the standard, AT violation 7.1.2.2.2.2.1.1.1 Allied Tube & Conduit Corp. v. Indian Head, Inc. ( US Supreme Court, 1988) 7.1.2.2.2.2.1.2 However, if there are type #1 benefits, then standard setting is not an AT violation 7.1.2.2.2.2.2 2. They must abide abide by procedural requirements designed to reduce abuse 7.1.2.2.2.2.2.1 ANSI Requirements 7.1.2.2.2.2.2.1.1 Openness 7.1.2.2.2.2.2.1.2 Balance/Lack of Dominance 7.1.2.2.2.2.2.1.3 Public Notice 7.1.2.2.2.2.2.1.4 Consideration of Views 7.1.2.2.2.2.2.1.5 Consensus Voting 7.1.2.2.2.2.2.1.6 Appeals Process 7.1.2.2.2.2.2.1.7 Written Procedures 7.1.2.2.2.2.2.1.8 IP Policy 7.1.2.2.2.2.2.1.8.1 both US and EU treat these policies as contracts: binding on SSO members 7.1.2.2.2.2.2.1.8.1.1 Broadcom v. Qualcomm (CA3 2007) 7.1.2.2.2.2.3 3. Ability of Participating Firms to Use their IP rights is curtailed 7.1.2.2.2.2.3.1 Legal Source of Obligation 7.1.2.2.2.2.3.1.1 Implied license 7.1.2.2.2.2.3.1.2 Patent Misuse 7.1.2.2.2.2.3.1.3 Equitable Estoppel 7.1.2.2.2.2.3.1.4 Abuse of Dominant Position (EU) 7.1.2.2.2.2.3.1.5 Duty of Good Faith (EU) 7.1.2.2.2.2.3.1.6 Treaty of Rome 7.1.2.2.2.2.3.1.6.1 unfair competition and antitrust 7.1.2.2.2.2.3.2 Duty to Disclose 7.1.2.2.2.2.3.2.1 Each firm must reveal patents -- or pending applications -- that might be necessary to implement the standard 7.1.2.2.2.2.3.2.2 failure to do so may render patents unenforceable against SSO members 7.1.2.2.2.2.3.2.2.1 e.g., In re Dell (1996) 7.1.2.2.2.2.3.2.2.2 Stambler v. Diebold (CAFC 1989) 7.1.2.2.2.2.3.2.2.3 Mitsubishi v. Wang (CA3 1997) 7.1.2.2.2.2.3.3 Duty to License 7.1.2.2.2.2.3.3.1 Option #1: Announce in advance refusal to abide by constraints 7.1.2.2.2.2.3.3.2 Option #2: FRAND Licensing 7.1.2.2.2.2.3.3.2.1 Mechanisms for Interpretation 7.1.2.2.2.2.3.3.2.1.1 Judicial Opinions 7.1.2.2.2.2.3.3.2.1.2 Orders by Competition Authorities 7.1.2.2.2.2.3.3.2.1.2.1 FTC 7.1.2.2.2.2.3.3.2.1.2.2 EC 7.1.2.2.2.2.3.3.2.1.3 Acceptance of Settlements by Competition Authorities 7.1.2.2.2.2.3.3.2.1.4 Public Statements by Officials 7.1.2.2.2.2.3.3.2.1.5 Growing use of "voluntary" commitments to define "FRAND" 7.1.2.2.2.2.3.3.2.1.5.1 e.g., FRAND "Clarification" Letters by Apple, Microsoft, Google, February 7-8, 2012 7.1.2.2.2.2.3.3.2.1.5.1.1 FRAND Coverage 7.1.2.2.2.2.3.3.2.1.5.1.2 FRAND Obligations 7.1.2.2.2.2.3.3.2.2 "Fair" 7.1.2.2.2.2.3.3.2.2.1 license terms would not be considered anticompetitive if imposed by a dominant firm in a market without a standard 7.1.2.2.2.2.3.3.2.2.2 "unfair" license terms include: 7.1.2.2.2.2.3.3.2.2.2.1 bundling 7.1.2.2.2.2.3.3.2.2.2.1.1 to get the attractive license, licensee must license an unattractive product or process 7.1.2.2.2.2.3.3.2.2.2.2 free grantbacks 7.1.2.2.2.2.3.3.2.2.2.2.1 license agrees to grant to licensor licensee's patents for free 7.1.2.2.2.2.3.3.2.2.2.3 mandatory exclusivity 7.1.2.2.2.2.3.3.2.2.2.3.1 licensee agrees not to license from licensor's competitors 7.1.2.2.2.2.3.3.2.2.2.4 agreement not to challenge patents 7.1.2.2.2.2.3.3.2.2.2.4.1 Motorola Mobility (EC April 2014) 7.1.2.2.2.2.3.3.2.3 "Reasonable" 7.1.2.2.2.2.3.3.2.3.1 general guidelines 7.1.2.2.2.2.3.3.2.3.1.1 license fee should approximate the amount that patentee could have collected in the absence of a standard 7.1.2.2.2.2.3.3.2.3.1.2 license fees not so high as to render the industry uncompetitive 7.1.2.2.2.2.3.3.2.3.1.3 applied more strictly in EU than US 7.1.2.2.2.2.3.3.2.3.2 Microsoft v. Motorola (W.D. Wash. 2013) 7.1.2.2.2.2.3.3.2.3.2.1 reasonable rates determined through application of Georgia-Pacific factors 7.1.2.2.2.2.3.3.2.3.2.2 modified by: 7.1.2.2.2.2.3.3.2.3.2.2.1 a. sensitivity to public benefits of standards through increased production and price competition 7.1.2.2.2.2.3.3.2.3.2.2.2 b. need to avoid royalty stacking 7.1.2.2.2.2.3.3.2.3.2.2.2.1 each licensor enters into licensing negotiations as if it were bilateral 7.1.2.2.2.2.3.3.2.3.2.2.2.2 net result: higher aggregate licenses than would emerge if all patents were held by a single entity 7.1.2.2.2.2.3.3.2.3.2.2.2.3 in extreme cases, higher aggregate license fee than licensee can afford 7.1.2.2.2.2.3.3.2.3.2.2.3 c. principle that the license fee should be commensurate with the value the technology in question contributes to the standard and to the product 7.1.2.2.2.2.3.3.2.3.2.3 applied: 7.1.2.2.2.2.3.3.2.3.2.3.1 Motorola asked for $4B p.a. 7.1.2.2.2.2.3.3.2.3.2.3.2 at trial, Motorola reduced demand to $400M 7.1.2.2.2.2.3.3.2.3.2.3.3 Motorola awarded $1.8M p.a. 7.1.2.2.2.2.3.3.2.4 "Nondiscriminatory" 7.1.2.2.2.2.3.3.2.4.1 same terms offered to all firms in the industry and to all potential entrants 7.1.2.2.2.2.3.3.2.4.2 OK to vary terms with credit-worthiness, volume 7.1.2.2.2.2.3.3.2.5 Limits on injunctive relief 7.1.2.2.2.2.3.3.2.5.1 Motorola (Google) v. Apple 7.1.2.2.2.2.3.3.2.5.1.1 July 2013, FTC Order accepts settlement 7.1.2.2.2.2.3.3.2.5.1.1.1 Google will not seek injunctions 7.1.2.2.2.2.3.3.2.5.1.1.2 anywhere in the world 7.1.2.2.2.2.3.3.2.5.1.1.3 for 10 years 7.1.2.2.2.2.3.3.2.5.1.1.4 for use of SEPs related to any standard set by a an SSO 7.1.2.2.2.2.3.3.2.5.1.1.5 against potential licensees who commit to specified licensing framework 7.1.2.2.2.2.3.3.2.5.1.1.5.1 good-faith negotiation for 6 months 7.1.2.2.2.2.3.3.2.5.1.1.5.2 arbitration by AAA, JAMS, or WIPO 7.1.2.2.2.2.3.3.2.5.1.2 April 2014, EC accepts settlement 7.1.2.2.2.2.3.3.2.5.1.2.1 If patentee has committed to FRAND licensing of a SEP and a manufacturer has committed to enter into a license on reasonable terms, patentee may not seek an injunction against use of the patented technology 7.1.2.2.2.2.3.3.2.5.1.2.1.1 Motorola Mobility holds patents on technologies essential to GPRS standard (part of GSM) 7.1.2.2.2.2.3.3.2.5.1.2.1.2 Apple had agreed to take a license and to abide by determination of reasonable license fees by a German court 7.1.2.2.2.2.3.3.2.5.2 Samsung v. Apple 7.1.2.2.2.2.3.3.2.5.2.1 In 2011, Samsung initiated lawsuit against Apple, seeking injunctions in several EU countries for violation of Samsung's SEPs related to 3G UMTS standard 7.1.2.2.2.2.3.3.2.5.2.2 December 2012, EC informs Samsung that it considers the initiative an abuse of dominant position 7.1.2.2.2.2.3.3.2.5.2.3 October 2013, Samsung proposes settlement 7.1.2.2.2.2.3.3.2.5.2.4 April 2014, EC accepts -- and renders binding under EU antitrust rules -- Samsung's commitments to: 7.1.2.2.2.2.3.3.2.5.2.4.1 not seek injunctions 7.1.2.2.2.2.3.3.2.5.2.4.2 in EEA 7.1.2.2.2.2.3.3.2.5.2.4.3 for 5 years 7.1.2.2.2.2.3.3.2.5.2.4.4 for use of SEPs related to mobile-device standards 7.1.2.2.2.2.3.3.2.5.2.4.5 against potential licensees who commit to a specified licensing framework 7.1.2.2.2.2.3.3.2.5.2.4.5.1 12-month good-faith negotiation period 7.1.2.2.2.2.3.3.2.5.2.4.5.2 if negotiations fair, FRAND terms will be determined by a court or mutually agreed arbitrator (with ICC) 7.1.2.2.2.2.3.3.2.5.3 No consensus yet on whether patentee may seek an injunction in the absence of such a commitment 7.1.2.3 Reverse-Payment Settlements 7.1.3 Opportunities 7.1.3.1 (1) Reduce price competition and thus increase profits 7.1.3.2 (2) Share technology and thus reduce costs 7.1.3.3 (3) Capitalize on network externalities 7.1.4 Hazards 7.1.4.1 Antitrust Liability 7.1.4.2 Finding of "misuse" will render copyright or patent unenforceable 7.1.5 Guidelines 7.1.5.1 Engagement in a collaborative standard-setting process in often imperative 7.1.5.1.1 unilateral standard-setting usually isn't feasible 7.1.5.1.2 if you stay out, your competitor may come in with its own IP to drive through the standard-setting process, thus reducing or perhaps eviscerating your IP value 7.1.5.1.2.1 either through robust licensing 7.1.5.1.2.2 or by obtaining a large exit premium 7.1.5.1.2.2.1 such as Motorola Mobility achieved through its Google sale 7.1.5.1.3 the risks associated with collaborative standard-setting, although complex, can be managed successfully 7.1.5.2 But avoidance of liability requires close attention to antitrust constraints 7.1.5.2.1 disclosure obligations 7.1.5.2.2 licensing obligations 7.1.5.2.3 Strategy 7.1.5.2.3.1 Since most standards will be utilized both in the US and Europe, the legal advice sought must reflect the differing legal doctrines of these jurisdictions 7.1.5.2.3.1.1 assume greater scrutiny in Europe 7.1.5.2.3.2 government standard-setting may be easier to execute outside the US, in countries such as Australia, Japan and Mexico 7.1.5.2.3.2.1 the latter are more top-down than the US, where satisfying all disparate interests (direct and indirect) may be more difficult to achieve 7.1.5.3 Process 7.1.5.3.1 Both senior executives and lawyers need to be involved as a team from the outset, working together at all stages of the standard setting process. 7.1.5.3.2 Plan carefully: develop a strategic matrix that analyzes the full IP portfolio, charted across the relevant SSOs and what IP in your portfolio provides the most coverage if the standard is adopted conversely 7.1.5.3.3 commit to stay with the process through its completion 7.1.5.3.4 Patent pools are worth exploring before and during the standard-setting process 7.1.5.3.4.1 both for the potential upside licensing revenues and the relatively low level of antitrust scrutiny this will raise (particularly in the US) 7.1.5.3.5 Source: Stuart Brotman 7.2 b. With Developers of Complements 7.2.1 Open APIs 7.2.2 Apple's App Store 7.2.2.1 Apple will require "sandboxing" of all apps as of March 2012 7.2.3 Guideline 7.2.3.1 use contracts and technology to create an environment in which complements for your product and service are as numerous, readily available, and inexpensive as possible 7.3 c. With Customers 7.3.1 Grant-back licenses 7.3.1.1 a condition of a patent license: licensee grants to licensor a license on any improvement patents 7.3.1.2 varieties 7.3.1.2.1 agreement to assign 7.3.1.2.2 exclusive 7.3.1.2.3 nonexclusive 7.3.1.3 Benefits 7.3.1.3.1 avoid being beholden to a licensee who improves your technology 7.3.1.3.2 increase dominance of a field of technology 7.3.1.3.2.1 GE 7.3.1.4 Hazards 7.3.1.4.1 be careful not to run afoul of antitrust or competition law 7.3.1.4.1.1 not per se unlawful under antitrust laws, but may constitute AT violations or patent misuse under the "rule of reason" 7.3.1.4.1.2 nonexclusive GB licenses, limited to duration of the underlying patent, generally upheld in both US and EU 7.3.2 "User Innovation" 7.3.2.1 Sell customers “toolkits” 7.3.2.1.1 Enable them more easily to modify the products they purchase 7.3.2.1.2 See Nikolaus Franke & Frank Piller, Value Creation by Toolkits for User Innovation and Design: The Case of the Watch Market, 21 J. Prod. Innovation Mgmt. 401, 412–13 (2004). 7.3.2.2 "Idea Competitions" 7.3.2.2.1 Frank T. Piller & Dominik Walcher, Tookits for Idea Competitions: A Novel Method to Integrate Users in New Product Development, 36 R&D Mgmt. 307, 307 (2006) 7.3.2.3 "Collective Consumer Commitment Method" 7.3.2.3.1 Susumu Ogawa & Frank T. Piller, Reducing the Risks of New Product Development, 47 MIT Sloan Mgmt. Rev. 65, 66 (2006) 7.3.2.4 "Collaborative Customer Co-Design" 7.3.2.4.1 Overcoming Mass Confusion: Collaborative Customer Co-Design in Online Communities, 10 J. Computer-Mediated Comm. 3, 4 (2005); Christoph Berger et al., Co-Designing Modes of Cooperation at the Customer Interface: Learning from Exploratory Research, 2 Eur. Mgmt. Rev. 70 (2005); Per Kristensson et al., Harnessing the Creative Potential Among Users, 21 J. Product Innovation Mgmt 4, 11–13 (2004) 7.3.2.5 Sources 7.3.2.5.1 von Hippel 7.3.2.5.2 Fisher, "The Implications for Law of User Innovation" ------------------------------------------------------------- 8 3. License ------------------------------------------------------------- 8.1 Opportunities 8.1.1 Increase Capacity 8.1.1.1 University Technology Transfer Offices 8.1.1.1.1 insert AUTM data 8.1.1.2 Jerome Lemelson 8.1.1.2.1 Independent Inventor 8.1.1.2.1.1 received aprx. 600 patents on a wide variety of inventions 8.1.1.2.2 earns huge income by licensing to manufacturing companies 8.1.2 Increase Demand 8.1.2.1 Monsanto 8.1.2.1.1 Technological innovations 8.1.2.1.1.1 "Roundup" 8.1.2.1.1.1.1 M develops powerful herbicide, based primarily on glyphosate (a salt) that is nontoxic to animals but kills most green plants until dissolved by rainwater 8.1.2.1.1.1.1.1 exception: pigweed 8.1.2.1.1.1.2 benefit: sharply reduce costs of weed control 8.1.2.1.1.1.3 disadvantage: requires careful timing in order to avoid killing the crops themselves 8.1.2.1.1.1.4 patented in many countries 8.1.2.1.1.1.4.1 patent expired in 2000 8.1.2.1.1.2 "Roundup-ready" seeds 8.1.2.1.1.2.1 through genetic engineering, M is able to identify a gene that makes plants resistant to roundup, to incorporate that gene in soybeans, and to produce seeds containing the modification 8.1.2.1.1.2.2 patented in many countries 8.1.2.1.1.2.2.1 duration: 1994-2014 8.1.2.1.1.3 "Roundup-ready 2" 8.1.2.1.1.3.1 contains same gene, but inserted in different place in the genome 8.1.2.1.1.3.2 slightly altered "genetic cassette" 8.1.2.1.1.3.3 M claims modestly more efficacious than RR1 8.1.2.1.1.3.3.1 7% increase in yields 8.1.2.1.1.3.4 competitors claim no more efficacious 8.1.2.1.1.3.5 patented in many countries 8.1.2.1.1.3.5.1 duration: 2000-2020 8.1.2.1.2 Licenses to develop and sell seeds containing RR1 technology 8.1.2.1.2.1 licenses granted on reasonable terms to 200-300 seed companies 8.1.2.1.2.2 benefit #1: rapid deployment of the technology 8.1.2.1.2.2.1 91% of soybeans in USA are genetically modified 8.1.2.1.2.2.2 of that number, 92% contain RR1 gene 8.1.2.1.2.2.3 acceptance is accelerating in Latin America and Asia 8.1.2.1.2.3 benefit #2: technological lock-in facilitates "evergreening" 8.1.2.1.2.3.1 M wishes to maintain revenue stream past 2014 -- and to increase license fees (by 40%) 8.1.2.1.2.3.2 licensees reluctant to pay the premium 8.1.2.1.2.3.3 M pressures RR1 licenses to switch to RR2 technology 8.1.2.1.2.3.3.1 allegedly by threatening (in 2008) to terminate RR1 licenses in 2012 (before RR1 patent has expired) 8.1.2.1.2.3.3.1.1 if M waited until RR1 patent expired, then licensees, faced with this demand, could refuse and continue to produce seeds containing RR1 gene without a license 8.1.2.1.2.3.3.1.2 but if they refuse in 2012, they will be unable to operate for 2 years 8.1.2.1.2.3.3.2 through discounts and other incentives 8.1.2.1.2.3.4 hazard: may run afoul Antitrust law 8.1.2.1.2.3.4.1 currently private antitrust suit by Dupont against M 8.1.2.1.2.3.4.2 US Justice Department is investigating 8.1.2.1.2.3.5 factual dispute concerning extent to which M exercised this power 8.1.2.1.3 Licenses to combine RR1 technology with other other modified genes 8.1.2.1.3.1 licenses granted to Dupont (Pioneer Hi-bred), Bayer, Syngenta, Dow AgroSciences, and BASF to combine RR gene with other modified genes to produce seeds with multiple advantages 8.1.2.1.3.2 benefit to M: strategic position enables M to extract some of the value of the competitors' innovations 8.1.2.1.3.2.1 illustration 8.1.2.1.3.2.2 hazard: may run afoul Antitrust law 8.1.2.1.4 Sources 8.1.2.1.4.1 Parloff, Monsanto's Seeds of Discord (2010) 8.1.2.1.4.2 Palfrey, Swords & Shields (2011) 8.1.2.2 Qualcomm 8.1.2.2.1 Palfrey, Swords & Shields 8.1.3 Discourage "inventing around" 8.1.4 Reinforce IP rights 8.1.5 Pure Profit Center 8.1.5.1 Film Industry 8.1.5.1.1 Series of licenses in successive markets 8.1.5.1.2 License depiction of fictional characters on consumer goods 8.1.5.2 Texas Instruments 8.1.5.2.1 beginning in mid-1980s, TI escaped bankruptcy by entering into nonexclusive licenses to its neglected patent portfolio 8.1.5.2.2 supplemented with new patents 8.1.5.2.2.1 1986-1995, filed 3537 applications 8.1.5.2.2.2 double the rate of the previous decade 8.1.5.2.2.2.1 Chien 8.1.5.2.3 total revenues more than $4b 8.1.5.3 GE 8.1.5.4 Fees 8.1.5.4.1 Data on Licensing Revenues 8.1.5.4.1.1 Palfrey, Swords & Shields 2011 8.1.5.4.2 Variation: Option and Evaluation Agreement 8.1.5.4.2.1 potential licensee gets short-term exclusive right to assess the technology and, if satisfactory, negotiate a license 8.1.5.4.2.2 consideration: either modest fee or duty to transfer test results to putative licensor 8.2 Hazards 8.2.1 Undermine Monopoly Rents 8.2.1.1 licensees keep a portion of the potential profits 8.2.1.2 government(s) keep a share, because licensing transactions are often taxed 8.2.1.2.1 can be reduced by locating IP Holding company in a low-tax jurisdiction 8.2.1.2.1.1 crucial that the holding company actually operate in that country 8.2.1.2.1.2 Christopher Bull 8.2.2 Divergence of Interests of Licensor and Licensee 8.2.2.1 result: in dissipation of the value of the IP 8.2.2.2 especially serious in context of TM licenses 8.2.2.2.1 Calvin Klein 8.2.3 Risk of antitrust liability 8.3 Guidelines 8.3.1 Circumstances in which licensing may be optimal 8.3.1.1 1. pioneer lacks capacity to satisfy potential demand 8.3.1.1.1 under those circumstances, licensing will increase total industry profit 8.3.1.1.2 license payments will make this profit-maximizing for the pioneer 8.3.1.1.2.1 McGee (1966) 8.3.1.2 2. licensing will enhance demand for a new product 8.3.1.2.1 simple version: by exposing more consumers to the product faster 8.3.1.2.2 especially important consideration when there are strong network externalities 8.3.1.2.2.1 Windsurfer 8.3.1.2.2.1.1 Hoyle Schweitzer licensed the pioneering technology broadly 8.3.1.2.2.1.1.1 Ten Cate 8.3.1.2.2.1.1.2 Dufour/Tabur/Bic Sport 8.3.1.2.2.1.1.3 F2 8.3.1.2.2.1.1.4 Mistral 8.3.1.2.3 more complex version: may enable innovator to commit credibly to pursuit of quality 8.3.1.2.3.1 by creating a situation in which pioneer and licensees compete on quality 8.3.1.2.3.2 "Second Sourcing" in Semiconductors 8.3.1.2.3.2.1 Shepard 1987 8.3.1.3 3. licensing rivals may discourage them from engaging in further research and thus preserve the pioneer's dominant position 8.3.1.3.1 Synthetic Rubber and Oil 8.3.1.3.1.1 In 1940s, Standard Oil and Farben cross licensed pioneering patents and then licensed them broadly to competitors 8.3.1.3.1.2 Galini 1984 8.3.1.3.2 hazard: antitrust liability 8.3.1.4 4. pioneer's IP rights are shaky 8.3.1.4.1 licensing on reasonable terms may discourage licensees from challenging the IP rights 8.3.1.4.2 one of the "secondary factors" used to determine non obviousness in patent law is whether others have been willing to license the technology at issue 8.3.1.4.3 Windsurfer 8.3.1.4.3.1 Hoyle Schweitzer licensed the pioneering technology broadly -- and cheaply 8.3.1.4.3.2 eventually, however, he lost challenges to the patent 8.3.1.4.3.2.1 England 8.3.1.4.3.2.2 Canada 8.3.1.4.3.2.3 USA 8.3.2 Circumstances in which licensing may not be optimal 8.3.2.1 preference for exclusivity wrt "drastic innovations" 8.3.2.1.1 Katz & Shapiro 8.3.2.1.2 but cf. Monsanto 8.3.2.2 divergence between interests of licensor and licensee are unmanageable 8.3.3 Licensing requires avoiding or controlling the divergences of interests between licensor and licensee, which can be achieved in 3 ways: 8.3.3.1 (1) People 8.3.3.1.1 (a) Careful selection of licensees 8.3.3.1.1.1 family members 8.3.3.1.1.2 friends 8.3.3.1.2 (b) Cultivate Relationship of Trust 8.3.3.1.2.1 customs are highly culture-specific 8.3.3.2 (2) Align Incentives 8.3.3.2.1 structure the relationship so that when licensee gains, licensor gains; when licensor loses, licensee loses 8.3.3.3 (3) Control behavior of both parties through license terms 8.3.3.3.1 the more complex the relationship, the more difficult and unreliable is this strategy ------------------------------------------------------------- 9 2. Sell ------------------------------------------------------------- 9.1 The Market for IP 9.1.1 Impediments to Sales 9.1.1.1 Unique assets 9.1.1.2 Value of assets is highly context specific 9.1.1.3 Probabilistic Assets 9.1.1.3.1 validity is often uncertain 9.1.1.3.2 scope of the right is often unclear 9.1.1.4 Portfolio Effects 9.1.1.4.1 value of a given patent depends heavily on what other patents it is paired with 9.1.1.5 Due diligence is difficult and expensive 9.1.1.6 Arrow's Paradox 9.1.2 Lubricants 9.1.2.1 Live Auctions 9.1.2.1.1 Ocean Tomo 9.1.2.1.1.1 open IP auctions, 2006-2009 9.1.2.1.1.1.1 low volume 9.1.2.1.1.1.2 low percentage of portfolios bought 9.1.2.1.1.1.3 afflicted by low quality of patents contributed 9.1.2.1.1.2 acquired in 2009 by British Brokerage: ICAP 9.1.2.2 Online Platforms 9.1.2.2.1 Tynax 9.1.2.2.2 Yet2.com 9.1.2.3 Brokers 9.1.2.3.1 iPotential (now defunct) 9.1.2.3.2 Epicenter 9.1.2.3.3 Thinkfire 9.1.2.4 NPEs 9.1.2.4.1 contested terminology and scope 9.1.2.4.1.1 NPE: nonpracticing entity 9.1.2.4.1.2 PAE: patent assertion entity 9.1.2.4.1.3 patent troll 9.1.2.4.2 examples 9.1.2.4.2.1 Intellectual Ventures 9.1.2.4.2.1.1 acquired over 30,000 patents 9.1.2.4.2.1.2 recently filed several major patent-infringement suits 9.1.2.4.2.2 Round Rock Research 9.1.2.4.2.2.1 John Desmarais 9.1.2.4.2.2.2 provocative logo 9.1.2.4.2.2.3 may function as a "privateer" for select patent holders 9.1.2.4.2.3 Acacia Research 9.1.2.4.2.3.1 measured by stock price, highly successful 9.1.2.4.2.3.2 10x since 2009 9.1.2.4.2.4 NTP Inc. 9.1.2.4.2.5 Paice LLC 9.1.2.4.3 characteristics 9.1.2.4.3.1 sources of their patents 9.1.2.4.3.1.1 assignments from technology developers 9.1.2.4.3.1.2 fire sales from failed companies or product lines 9.1.2.4.3.1.3 leftovers of arms race 9.1.2.4.3.2 typical characteristics of their portfolios 9.1.2.4.3.2.1 relatively small numbers of patents 9.1.2.4.3.2.1.1 exception: IV 9.1.2.4.3.2.2 relatively high quality patents 9.1.2.4.3.2.3 secret or semi-secret 9.1.2.4.3.2.3.1 "submarine" strategy 9.1.2.4.3.3 sources of revenue 9.1.2.4.3.3.1 licenses 9.1.2.4.3.3.2 litigation settlements 9.1.2.4.3.4 lawyers 9.1.2.4.3.4.1 contingency fees 9.1.2.4.3.4.1.1 pioneered by Gerald Hosier 9.1.2.4.3.4.1.2 now commonly mimicked by attorneys for NPEs 9.1.2.4.3.4.1.2.1 Niro Scavone 9.1.2.4.3.4.1.2.2 Fish & Richardson 9.1.2.4.3.4.1.2.3 Cooley Godward 9.1.2.4.4 patent law is increasingly tilted against NPEs 9.1.2.4.4.1 eBay decision 9.1.2.4.4.2 Vermont statute permitting targets of unsuccessful suits to sue plaintiffs for fees 9.1.2.4.4.3 2011 AIA 9.1.2.4.4.3.1 No more blunderbuss patent-infringement suits 9.1.2.4.4.4 Obama executive order (2013) 9.1.2.4.4.4.1 urge PTO to adopt various reforms to discourage trolls 9.1.2.4.4.4.2 increased scrutiny of expansive or ambiguous claims 9.1.2.4.4.4.3 increased scrutiny of software patents 9.1.2.4.4.4.3.1 MS expresses concern 9.2 Tactics to Facilitate Sales 9.2.1 "Block to Fence" 9.2.2 Threat of Broad Licensing 9.2.3 "Skin in the Game" 9.3 Guideline 9.3.1 Sale makes sense iff the difference between (a) the value of the IP in your hands and (b) its value in B's hands exceeds (c) transaction costs 9.3.1.1 (a) in considering the value of the IP in your hands, include all the other offensive options -- including licensing 9.3.1.2 (b) potential value in other hands may be rising as NPEs flourish 9.3.1.3 (c) transaction costs are high but are slowly declining 9.3.1.3.1 brokers may be more promising than open markets ------------------------------------------------------------- 10 1. Exercise Market Power ------------------------------------------------------------- 10.1 Potential Sources of Market Power 10.1.1 a. Legal Exclusivity 10.1.1.1 Patents 10.1.1.1.1 rights to prevent others from making, using, selling, or importing novel products or processes 10.1.1.1.2 nonobvious applications 10.1.1.1.2.1 business methods 10.1.1.1.2.1.1 alternative potential basis of invalidity: indefiniteness 10.1.1.1.2.1.1.1 Ex parte Adelman (BPAI 2012) 10.1.1.1.3 legal doctrines 10.1.1.2 Copyrights 10.1.1.2.1 exclusive rights to reproduce, modify, distribute, and perform works of authorship 10.1.1.2.1.1 Literary Works 10.1.1.2.1.2 Music 10.1.1.2.1.2.1 Compositions 10.1.1.2.1.2.2 Sound recordings 10.1.1.2.1.3 Audiovisual Works 10.1.1.2.1.4 Dramatic Works 10.1.1.2.1.5 Choreography 10.1.1.2.1.6 Fictional Characters 10.1.1.2.1.7 Useful Articles 10.1.1.2.1.8 Architecture 10.1.1.2.2 nonobvious applications: 10.1.1.2.2.1 product labels 10.1.1.2.2.1.1 shampoos 10.1.1.2.2.1.2 watches 10.1.1.2.2.2 databases 10.1.1.2.2.3 software 10.1.1.2.3 legal doctrines 10.1.1.3 Trademarks 10.1.1.3.1 exclusive rights to make commercial use of words and symbols that identify the goods and services provided by particular companies 10.1.1.3.2 nonobvious applications 10.1.1.3.2.1 enable zones of exclusivity for products through the doctrine of "trade dress" 10.1.1.3.3 legal doctrines 10.1.1.4 Trade secrets 10.1.1.4.1 rights to prevent others from acquiring and then using processes or device used in the operation of a business 10.1.1.4.2 applications 10.1.1.4.2.1 information pertaining to contents of or manufacture of a product 10.1.1.4.2.2 process of treating or preserving materials 10.1.1.4.2.3 information relating to business operations 10.1.1.4.2.4 customer lists 10.1.1.4.2.5 computer programs 10.1.1.4.2.6 single or ephemeral events 10.1.1.4.2.7 negative information 10.1.1.4.3 legal doctrines 10.1.1.5 Choosing a form of protection 10.1.1.5.1 often more than one form of protection will be available 10.1.1.5.2 they have advantages and disadvantages that are often subtle 10.1.1.5.2.1 e.g., narrow SSO protection under copyright for software, prompting many software firms to shift to patents 10.1.1.5.3 choice of form of protection may affect design of product 10.1.1.5.3.1 e.g., nonfunctionality requirement in ™ law 10.1.1.5.3.1.1 Ferrari 10.1.1.5.3.1.2 Yoga 10.1.2 b. Effective Enforcement 10.1.2.1 Remedies 10.1.2.1.1 Damages 10.1.2.1.2 Enhanced Damages 10.1.2.1.2.1 willfulness 10.1.2.1.2.2 statutory damages 10.1.2.1.3 Injunctions 10.1.2.1.4 Pursue Facilitators 10.1.2.1.4.1 Secondary Liability 10.1.2.1.4.2 Tertiary Liability 10.1.2.1.5 Border Controls 10.1.2.2 Recent Responses to Filesharing 10.1.2.2.1 France 10.1.2.2.1.1 Graduated Response 10.1.2.2.1.1.1 TMG monitors Internet traffic for copyright owners, seeks to detect illegal downloading; alerts Hodapi 10.1.2.2.1.1.2 First offense: email warning letter 10.1.2.2.1.1.3 Second offense: another email warning + registered letter 10.1.2.2.1.1.4 Third offense: Hodapi may refer to prosecutors 10.1.2.2.1.1.4.1 Potential penalty: fine of 1500 Euros + suspension of Internet access for one month 10.1.2.2.1.2 Usage (as of December 2011) 10.1.2.2.1.2.1 system initiated January 1, 2010 10.1.2.2.1.2.2 822,014 first warning letters 10.1.2.2.1.2.3 68,343 second warning letters 10.1.2.2.1.2.4 165 under investigation for final phase 10.1.2.2.1.3 Effect 10.1.2.2.1.3.1 Danaher et al. (2012) report that iTunes sales in France are 22.5% higher in France since institution of Hodapi than in control-group European countries 10.1.2.2.1.3.1.1 trends 10.1.2.2.1.4 Alternative: Francois Hollande 10.1.2.2.1.4.1 eliminate Hodapi 10.1.2.2.1.4.2 replace with tax on ISPs, equipment manufacturers, Internet users 10.1.2.2.1.4.3 revenues to be distributed to copyright owners 10.1.2.2.2 USA 10.1.2.2.2.1 Secondary Liability Suits 10.1.2.2.2.1.1 Naspster 10.1.2.2.2.1.2 Aimster 10.1.2.2.2.1.3 Grokster 10.1.2.2.2.1.4 Limewire 10.1.2.2.2.2 RIAA suits against file-sharers 10.1.2.2.2.3 SOPA 10.1.2.2.2.3.1 Principal features 10.1.2.2.2.3.1.1 Cutoff access to "pirate" sites 10.1.2.2.2.3.1.1.1 AG can seek court order for injunctive relief against "foreign infringing sites" 10.1.2.2.2.3.1.1.1.1 ISPs must take reasonable measures, within 5 days, to block access to the site for its US subscribers 10.1.2.2.2.3.1.1.1.1.1 prevent the domain name of the site from resolving to the IP address of the site 10.1.2.2.2.3.1.1.1.2 Search engines must take reasonable measures within 5 days to cease providing links to the site 10.1.2.2.2.3.1.1.1.3 Internet advertising services and payment facilitators within 5 days must cease doing business with the site 10.1.2.2.2.3.1.1.2 Copyright owners can notify payment facilitators and advertising services that they are providing services to foreign or domestic sites that are "directed to the theft of U.S. property" 10.1.2.2.2.3.1.1.2.1 procedure for notification by copyright owners, counter-notification by accused sites 10.1.2.2.2.3.1.1.2.1.1 intentional material misrepresentation in such notices or counter notices will give rise to liability in damages 10.1.2.2.2.3.1.1.2.2 in absence of counter notice, payment and ad services must cutoff access within 5 days 10.1.2.2.2.3.1.1.2.3 if site files a counter notice, copyright owner may seek court order 10.1.2.2.2.3.1.2 Increased criminal penalties for unauthorized streaming 10.1.2.2.2.3.2 Objections 10.1.2.2.2.3.2.1 DNS filtering system would be ineffective 10.1.2.2.2.3.2.1.1 easily evaded 10.1.2.2.2.3.2.2 Bad side effects 10.1.2.2.2.3.2.2.1 undermine universality of domain names 10.1.2.2.2.3.2.2.2 impede use of DNS data for other purposes 10.1.2.2.2.3.2.2.2.1 detect security threats 10.1.2.2.2.3.2.2.2.2 improve network performance 10.1.2.2.2.3.2.2.3 would block access to much non infringing material 10.1.2.2.2.3.2.2.3.1 e.g., opponents assert that one blog (containing infringing material) on a website could trigger system 10.1.2.2.2.3.2.3 Unnecessary 10.1.2.2.2.3.3 Narrative 10.1.2.2.2.3.3.1 Series of initiatives and bills culminate in October 2011 SOPA draft 10.1.2.2.2.3.3.2 Increasingly intense criticism 10.1.2.2.2.3.3.3 Dec. 12, 2011 Revision 10.1.2.2.2.3.3.3.1 set of pirate sites limited to foreign sites that are designed or operated with the intent to promote copyright infringement 10.1.2.2.2.3.3.4 January 18, 2012 protest by Wikipedia, Google, Yahoo, etc. 10.1.2.2.2.3.3.5 House and Senate committees abandon current drafts, promise to reconsider the issue 10.1.2.2.2.4 Trends 10.1.2.2.2.4.1 P2P activity for music is gradually declining 10.1.2.2.2.4.1.1 NPD Report 10.1.2.2.2.4.1.1.1 2007, 16% of US population 10.1.2.2.2.4.1.1.2 2010, 9% of US population 10.1.2.2.2.4.2 increased use of local exchanges 10.1.2.2.2.4.3 increased reliance on streaming, some unlawful 10.1.2.2.2.4.3.1 these sites emerge and subside quickly 10.1.2.2.2.4.4 increased use of locker services 10.1.2.2.3 Spain 10.1.2.2.3.1 Sinde Law 10.1.2.2.3.1.1 ISPs must block access to websites that copyright owners identify as pirates 10.1.2.2.3.1.1.1 both websites hosted domestically 10.1.2.2.3.1.1.2 and foreign websites 10.1.2.2.3.1.2 Procedure 10.1.2.2.3.1.2.1 copyright owner files complaint with Ministry of Culture 10.1.2.2.3.1.2.2 MOC requests ISPs to block 10.1.2.2.3.1.2.3 prior to blockage, website must be notified 10.1.2.2.3.1.2.3.1 it can prevent blockage by removing the infringing material 10.1.2.2.3.1.3 effective, March 1, 2012 10.1.2.2.3.2 Hackivistas protest 10.1.2.2.3.2.1 Eme Navarro has recorded a song, designated all rights reserved 10.1.2.2.3.2.2 hundreds of websites have posted copies of the song, available for download 10.1.2.2.3.2.3 Navarro has submitted list to MOC, which must process them in order of receipt 10.1.2.2.3.2.4 in effect, distributed denial of service attack 10.1.3 c. Absence of Substitutes 10.2 Ways of Exercising Market Power 10.2.1 a. Standard Pricing 10.2.1.1 Opportunities 10.2.1.1.1 Monopoly Profits 10.2.1.1.2 DJ Ortho 10.2.1.2 Hazards 10.2.1.2.1 Forfeit potential benefits of joint promotion of the market 10.2.1.2.1.1 Proctor & Gamble 10.2.1.2.2 Forfeit potential benefits of large scale 10.2.1.2.2.1 e.g., network externalities 10.2.1.2.3 Profits may attract competitors, who then successfully execute defensive strategies 1 or 2 10.2.1.2.3.1 net effect: market power evaporates 10.2.1.2.3.2 at a minimum, will have to share profits with new entrant 10.2.1.2.4 Litigation may be necessary, and has many drawbacks 10.2.1.2.4.1 Expensive 10.2.1.2.4.1.1 patent litigation is the most costly 10.2.1.2.4.1.1.1 commonly $3M - $5M per side 10.2.1.2.4.1.2 complex copyright and trademark suits can be almost as expensive 10.2.1.2.4.2 IP holder who litigates often recovers less than its costs 10.2.1.2.4.2.1 Bessen & Meurer 137: filing a patent suit causes plaintiff and defendant firms to lose 1-3% of their combined asset value 10.2.1.2.4.3 Litigation success may be insufficient to prevent copying 10.2.1.2.4.3.1 Software 10.2.1.2.4.3.2 Recording Industry 10.2.1.3 Case Studies 10.2.1.3.1 Ferrari 10.2.1.3.2 U.S. Pharmaceutical Industry 10.2.1.3.3 Reverse-payment settlements 10.2.1.3.4 Diagnostic Testing 10.2.1.4 Guidelines 10.2.1.4.1 Before pursuing this strategy: 10.2.1.4.1.1 1. Look for opportunities to increase the size of the potential market through collaborations with: 10.2.1.4.1.1.1 a. competitors 10.2.1.4.1.1.2 b. customers 10.2.1.4.1.1.3 c. developers of complements 10.2.1.4.1.1.4 d. suppliers 10.2.1.4.1.2 2. Estimate the risks that rivals will employ one of the defensive strategies, and look for ways to discourage them from employing strategies most damaging to you. 10.2.1.4.1.2.1 e.g., anticipate and discourage "inventing around" 10.2.2 b. Differential Pricing 10.2.2.1 Background 10.2.2.1.1 History 10.2.2.1.1.1 For millennia, goods were exchanged primarily through individualized and usually face-to-face transactions. 10.2.2.1.1.1.1 Prices, the outcome of haggling, varied widely 10.2.2.1.1.2 emergence of commodities markets reduced differential pricing 10.2.2.1.1.2.1 local, then national, then international 10.2.2.1.1.2.2 goods become standardized 10.2.2.1.1.2.3 prices stabilize 10.2.2.1.1.2.3.1 reinforced by law: doctrines that cast doubt on the validity of contracts for prices much higher or lower than the market price 10.2.2.1.1.3 Exceptions 10.2.2.1.1.3.1 firms with market power and ability to prevent arbitrage charge different consumers different prices for standardized goods or services 10.2.2.1.1.3.2 Transportation industry 10.2.2.1.1.3.2.1 16th-century Danish Sound Tolls 10.2.2.1.1.3.2.2 canals in China, England, and France 10.2.2.1.1.3.2.3 railroads in England and the United States during 19th c. 10.2.2.1.1.3.2.4 see Andrew Odlyzko 10.2.2.1.2 Theory 10.2.2.1.2.1 Price Discrimination defined 10.2.2.1.2.1.1 charging different consumers different prices for access to the same good or service 10.2.2.1.2.1.2 charging different consumers different prices for different versions of a good or service when the variation cannot be explained by differences in the costs of the versions 10.2.2.1.2.2 Requirements 10.2.2.1.2.2.1 1. market power 10.2.2.1.2.2.1.1 Klein 2011 10.2.2.1.2.2.2 2. restrictions on arbitrage 10.2.2.1.2.2.3 3. heterogeneity among buyers 10.2.2.1.2.2.4 4. ability to differentiate those buyers 10.2.2.1.3 Types 10.2.2.1.3.1 1st degree 10.2.2.1.3.1.1 charge each buyer what he or she is able and willing to spend for a good or service 10.2.2.1.3.1.2 Examples 10.2.2.1.3.1.2.1 US Private colleges 10.2.2.1.3.1.2.1.1 high tuitions; need-specific financial aid 10.2.2.1.3.1.2.2 "clickstream"-based differential pricing 10.2.2.1.3.2 2nd degree 10.2.2.1.3.2.1 the seller does not know how much different potential buyers are able and willing to pay, but induces them to reveal their resources or preferences 10.2.2.1.3.2.2 Examples 10.2.2.1.3.2.2.1 volume discounts 10.2.2.1.3.2.2.2 "versioning" 10.2.2.1.3.2.2.2.1 business-class airline tickets 10.2.2.1.3.2.2.2.1.1 Alderighi 2011 10.2.2.1.3.2.2.2.2 engine sizes 10.2.2.1.3.2.2.2.2.1 Thomassen 2010 10.2.2.1.3.2.2.2.3 laser printers of different speeds 10.2.2.1.3.2.2.2.3.1 IBM Laser Printer E (1990) 10.2.2.1.3.2.2.3 temporal PD 10.2.2.1.3.2.2.3.1 Golf 10.2.2.1.3.2.2.3.1.1 weekend vs. weekday green fees 10.2.2.1.3.2.2.3.1.2 contrast "peak-load pricing" as an alternative explanation for differential pricing 10.2.2.1.3.2.2.3.1.2.1 Limehouse 2011 10.2.2.1.3.2.2.4 Groupon 10.2.2.1.3.2.2.4.1 Edelman 2011 10.2.2.1.3.2.2.4.2 Termes 2011 10.2.2.1.3.2.2.5 bundling 10.2.2.1.3.3 3rd degree 10.2.2.1.3.3.1 seller separates buyers into classes corresponding roughly to their ability and willingness to pay 10.2.2.1.3.3.2 Examples 10.2.2.1.3.3.2.1 student discounts 10.2.2.1.3.3.2.2 senior discounts 10.2.2.1.3.3.2.3 customer classes in electrical utility pricing 10.2.2.1.3.3.2.3.1 residential 10.2.2.1.3.3.2.3.2 industrial 10.2.2.1.3.3.2.3.3 commercial 10.2.2.1.3.3.2.3.3.1 see Eckel 2011 10.2.2.1.3.3.2.4 Swiss rental housing market 10.2.2.1.3.3.2.4.1 higher prices for non Swiss in Zurich and Geneva 10.2.2.1.3.3.2.4.2 Baranzini 2011 10.2.2.1.3.3.2.5 geographic PD 10.2.2.1.3.3.2.5.1 "zone" pricing of gasoline 10.2.2.1.3.3.2.5.1.1 Barrionuevo, Wall St. J. (3/20/2000) 10.2.2.1.3.3.2.5.1.2 borderline case: partly 3rd degree, partly second degree 10.2.2.1.3.3.2.5.1.2.1 depends on the mobility of customers, likelihood of responding to price differences by traveling further 10.2.2.1.3.3.2.5.2 retail grocery trade in Australia 10.2.2.1.3.3.2.6 comparison websites 10.2.2.1.3.3.2.6.1 sellers charge lower prices to users of such sites than to nonusers 10.2.2.1.3.3.2.6.2 Moraga 2011 10.2.2.2 The Roles of IP Law 10.2.2.2.1 Potential source of market power 10.2.2.2.2 Rules that affect the set of techniques IP holders might employ to differentiate buyers 10.2.2.2.2.1 derivative works 10.2.2.2.2.1.1 art on tiles 10.2.2.2.2.1.1.1 Mirage Editions 10.2.2.2.2.1.1.2 Lee 10.2.2.2.2.2 public lending rights 10.2.2.2.2.2.1 may one charge libraries more than ordinary purchasers? 10.2.2.2.2.2.2 in EU, yes; in most of the world, no 10.2.2.2.2.3 contracts/preemption 10.2.2.2.2.3.1 Pro-CD v. Zeidenberg 10.2.2.2.2.4 patent misuse/antitrust 10.2.2.2.2.4.1 patent misuse doctrine as applied to licenses 10.2.2.2.2.4.1.1 see Kaplow 1982 10.2.2.2.2.4.2 tying arrangements 10.2.2.2.3 Rules that affect the ability of IP holders to restrict arbitrage 10.2.2.2.3.1 first-sale doctrine 10.2.2.2.3.1.1 doctrine permits arbitrage which corrodes price discrimination 10.2.2.2.3.1.2 US doctrine: section 109 privileges sales of copies iff: 10.2.2.2.3.1.2.1 (a) the copy was lawfully produced with authorization of the copyright owner; 10.2.2.2.3.1.2.2 (b) that particular copy was transferred under the copyright owner's authority; 10.2.2.2.3.1.2.3 (c) the defendant qualifies as the lawful owner of that copy; and 10.2.2.2.3.1.2.3.1 often contested in the context of software: sellers try to structure relations with buyers to grant them only "licenses" to copies of the programs 10.2.2.2.3.1.2.3.2 Microsoft v. Harmony Computers, 846 F.Supp. 208 (EDNY 1994) 10.2.2.2.3.1.2.3.3 Adobe v. One Stop Micro, 84 F. Supp. 2d 1086 (ND Cal. 2000) 10.2.2.2.3.1.2.3.3.1 defendant purchased "educational copies" of plaintiff's software on the open market, removed education stickers, reshrunk the wrapper, and resold 10.2.2.2.3.1.2.3.3.2 Held: first-sale doctrine does not apply if defendant received only a "license to use the software" 10.2.2.2.3.1.2.3.4 Autodesk (CA9 2010) 10.2.2.2.3.1.2.3.4.1 expands the ability of software sellers through labeling to prevent buyers from becoming owners of their copies 10.2.2.2.3.1.2.3.4.2 "We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions" 10.2.2.2.3.1.2.3.4.2.1 Applied: "Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk's written consent, and the software could not be transferred outside the Western Hemisphere. The SLA also imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Furthermore, the SLA provided for termination of the license upon the licensee's unauthorized copying or failure to comply with other license restrictions. Thus, because Autodesk reserved title to Release 14 copies and imposed significant transfer and use restrictions, we conclude that its customers are licensees of their copies of Release 14 rather than owners. 10.2.2.2.3.1.2.4 (d) defendant thereupon simply distributed that particular copy 10.2.2.2.3.2 exhaustion 10.2.2.2.3.2.1 copyright 10.2.2.2.3.2.1.1 "Round-trip" parallel importation 10.2.2.2.3.2.1.1.1 Quality King (1998) 10.2.2.2.3.2.1.1.1.1 copyright owner may not prevent importation of products embodying copyright -- if those products are produced domestically 10.2.2.2.3.2.1.1.1.2 602(a) is limited by 109(a) 10.2.2.2.3.2.1.1.2 Congress considers overturning the result in DMCA, but declines to do so 10.2.2.2.3.2.1.2 "One-way" parallel importation 10.2.2.2.3.2.1.2.1 Omega v. Costco (2010) 10.2.2.2.3.2.1.2.1.1 In 2008, CA9 holds that Quality King only applies to cases where "the claims involve domestically made copies of U.S.-copyrighted works" 10.2.2.2.3.2.1.2.1.1.1 copyright owner may prevent resales in the US of products produced abroad 10.2.2.2.3.2.1.2.1.1.2 unless the copyright owner has already authorized their sale in the US 10.2.2.2.3.2.1.2.1.2 affirmed by an equally divided Supreme Court (December 2010) 10.2.2.2.3.2.1.2.2 followed in Microsoft v. Big Boy (SDFla. 2008) 10.2.2.2.3.2.1.2.3 John Wiley (2013) 10.2.2.2.3.2.1.2.3.1 CA2 2011: 2/1 panel decision; follow Omega 10.2.2.2.3.2.1.2.3.2 Supreme Court reverses: copyright owners may not block one-way parallel importation 10.2.2.2.3.2.1.2.4 draft of TPPA, Section 4.2 (February 2011) 10.2.2.2.3.2.1.2.4.1 Each Party shall provide to authors, performers, and producers of phonograms the right to authorize or prohibit the importation into that Party’s territory of copies of the work, performance, or phonogram made without authorization, or made outside that Party’s territory with the authorization of the author, performer, or producer of the phonogram 10.2.2.2.3.2.1.2.4.2 With respect to copies of works and phonograms that have been placed on the market by the relevant right holder, the obligations described in Article [4.2] apply only to books, journals, sheet music, sound recordings, computer programs, and audio and visual works (i.e., categories of products in which the value of the copyrighted material represents substantially all of the value of the product). Notwithstanding the foregoing, each Party may provide the protection described in Article [4.2] to a broader range of goods. 10.2.2.2.3.2.2 trademark 10.2.2.2.3.2.2.1 "Grey-market goods" defined: 10.2.2.2.3.2.2.1.1 Bordeau (CAFC 2006): products produced by or with the consent of the US TM holder, but not authorized for sale in US 10.2.2.2.3.2.2.2 USA system 10.2.2.2.3.2.2.2.1 Importation is lawful if US and foreign TM holders have common interest or control (parent, subsidiary, or same) and goods bearing the TM are the same 10.2.2.2.3.2.2.2.1.1 Kmart (US 1988) upholds Customs Service regulations, construing 526, that refuse to ban the importation of foreign-made goods in cases of common control 10.2.2.2.3.2.2.2.1.2 Variations 10.2.2.2.3.2.2.2.1.2.1 Foreign firm (FF) makes and sells goods in France; sets up US subsidiary F-US); FF has foreign TM; F-US has US TM on identical mark; T buys goods abroad and imports to US: OK 10.2.2.2.3.2.2.2.1.2.2 US firm U sets up foreign subsidiary (U-France) to manufacture goods; U-France ships goods to US for sale here; U-France also sells goods in France; T buys goods in France and sells in US: OK 10.2.2.2.3.2.2.2.1.2.3 US firm U sets up a plant in France to manufacture goods; plant ships goods to US for sale here; also sells goods in France; T buys goods in France and sells in US: OK 10.2.2.2.3.2.2.2.2 Importation is unlawful if the two firms, though affiliated, lack common interest or control 10.2.2.2.3.2.2.2.2.1 Classic example: F-France sells to US firm U right to register Mark and to sell FF’s goods in US; T buys goods in France and imports to US. Not OK 10.2.2.2.3.2.2.2.2.2 Variation: US Firm authorizes foreign Firm F to sell goods bearing the mark abroad, requires F to agree not to sell in US; T buys goods in France and sells in US. Not OK 10.2.2.2.3.2.2.2.2.2.1 Until 1988, Customs Service permitted importation under these conditions, 10.2.2.2.3.2.2.2.2.2.2 But SCt in K Mart struck this interpretation down 10.2.2.2.3.2.2.2.3 Importation is unlawful even if the US and foreign TM owners have common interest or control if US and foreign goods bearing identical marks differ materially in substance 10.2.2.2.3.2.2.2.3.1 Theory: generates consumer confusion because consumers will not know which set of characteristics to associate with the product 10.2.2.2.3.2.2.2.3.2 Under 1526, material difference standard applies only to goods manufactured abroad – K Mart 10.2.2.2.3.2.2.2.3.3 Under 1337, material difference standard applies both to goods manufactured in US and sold overseas, and to goods manufactured overseas (Bordeau) 10.2.2.2.3.2.2.2.3.4 Not necessary that D’s product be inferior, just different䩴ꄒߐĀŀ腜 10.2.2.2.3.2.2.2.3.5 wide range of views concerning how big the difference must be 10.2.2.2.3.2.2.2.3.5.1 Martin Herend Imports (CA5 1997) -- slight difference sufficient 10.2.2.2.3.2.2.2.3.5.2 Bordeau Bros. (CAFC 2006) GLK 996: Low threshold; only necessary that consumers would consider the features significant when deciding whether to buy 10.2.2.2.3.2.2.2.3.5.2.1 Different lighting systems, safety features, wagon hitches, instruction manuals on US and European tractors easily fit the bill 10.2.2.2.3.2.2.2.3.5.3 Nestle, 982 F.2d 639: different amounts of ingredients in chocolate 10.2.2.2.3.2.2.2.3.5.4 Original Appalachian, 816 F.2d 68 (CA2 1987): Cabbage Patch dolls sold in Spain have “adoption papers” in Spanish㲨겤ߐĀ齐ਕ 10.2.2.2.3.2.2.2.3.5.5 Kia: differences in warranties sufficient 10.2.2.2.3.2.2.2.3.6 Procedure: Kia Motors (2009): 10.2.2.2.3.2.2.2.3.6.1 “Therefore, courts have adopted a simpler, two-part test to determine if likelihood of confusion exists in a gray market goods context: (1) were the goods not intended to be sold in the United States; and (2) are they materially different from the goods typically sold in the United States? Once a plaintiff establishes a material difference, the burden shifts to the accused infringer to establish by a preponderance of evidence that the difference is not the kind that consumers, on average, would likely consider in purchasing a product. 10.2.2.2.3.2.2.2.3.7 P loses the benefit of the doctrine if it sells some goods within US with the same characteristics of the goods whose importation it’s challengingᲨ괗ߐĀ郰༩ 10.2.2.2.3.2.2.2.3.7.1 Bordeau Bros. (CAFC 2006) 10.2.2.2.3.2.2.3 Systems used by regional TM regimes 10.2.2.2.3.2.3 patent 10.2.2.2.3.2.3.1 Traditional Rules: broad scope for exhaustion 10.2.2.2.3.2.3.1.1 Domestic 10.2.2.2.3.2.3.1.1.1 Principle: authorized sale of a patented product to consumers carries with it right to use and resell that product 10.2.2.2.3.2.3.1.1.2 Cases 10.2.2.2.3.2.3.1.1.2.1 Adams v. Burke (US 1873) 10.2.2.2.3.2.3.1.1.2.1.1 patent on improved coffin lids 10.2.2.2.3.2.3.1.1.2.1.2 patentee limits geographic area in which assignee may sell coffins 10.2.2.2.3.2.3.1.1.2.1.3 held: No permissible limits on use of lawfully purchased products 10.2.2.2.3.2.3.1.1.2.2 General Talking Pictures (US 1938) 10.2.2.2.3.2.3.1.1.2.2.1 patentee of amplifiers used in projectors granted license to ATC, but only to make and sell projectors to homes, not theatres 10.2.2.2.3.2.3.1.1.2.2.2 held: patentee could prevail in infringement suit against D, who had notice of the restriction but bought amplifiers for use in theatres 10.2.2.2.3.2.3.1.1.2.3 Univis (US 1942) 10.2.2.2.3.2.3.1.1.2.3.1 price-fixing scheme -- in which patentee on bifocals sought to set prices charged by (a) manufacturer, (b) wholesalers, and (c) retailers -- held unlawful 10.2.2.2.3.2.3.1.1.2.3.2 General principle: “[T]he authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold. . . . Sale of a lens blank by the patentee or by his licensee is thus in itself both a complete transfer of ownership of the blank, which is within the protection of the patent law, and a license to practice the final stage of the patent procedure.” 10.2.2.2.3.2.3.1.1.2.3.2.1 “The reward [Univis] was demanded and received is for the article and the invention which it embodies . . . . He has thus parted with his right to assert the patent monopoly with respect to it and is no longer free to control the price at which it may be sold either in its unfinished or finished form.” 10.2.2.2.3.2.3.1.1.2.3.2.2 "double-dipping" rationale 10.2.2.2.3.2.3.1.2 International 10.2.2.2.3.2.3.1.2.1 exhaustion applies to sales of goods overseas unless patentee forbids reimportation when products are first sold 10.2.2.2.3.2.3.1.2.1.1 Curtiss Aeroplane, 266 F. 71 (CA2 1920) 10.2.2.2.3.2.3.2 1986-2008: Contraction 10.2.2.2.3.2.3.2.1 Domestic 10.2.2.2.3.2.3.2.1.1 exhaustion can be overridden by contract or notice 10.2.2.2.3.2.3.2.1.1.1 Mallinkrodt (CAFC 1992) 10.2.2.2.3.2.3.2.1.1.1.1 "single use" notice on medical device 10.2.2.2.3.2.3.2.1.1.1.2 held: patentee has infringement claim against firm that refurbishes the devices in violation of the notice 10.2.2.2.3.2.3.2.1.1.1.3 Univis distinguished on the ground that this restriction did not violate antitrust laws or other public policies 10.2.2.2.3.2.3.2.1.1.2 R Braun Med. (CAFC 1997) 10.2.2.2.3.2.3.2.1.1.2.1 conditional sales do not result in exhaustion of patentee's right to control uses of the product 10.2.2.2.3.2.3.2.2 International 10.2.2.2.3.2.3.2.2.1 Jazz Photo (CAFC 2002) 10.2.2.2.3.2.3.2.2.1.1 appears to adopt national exhaustion & reject international exhaustion 10.2.2.2.3.2.3.2.2.1.2 but ruling may be limited to products used and repaired prior to reimportation 10.2.2.2.3.2.3.2.2.2 Fuji Photo (CAFC 2005) 10.2.2.2.3.2.3.2.2.2.1 more clearly reject international exhaustion principle 10.2.2.2.3.2.3.2.2.2.2 rationale: foreign sales cannot be "authorized" under a U.S. patent 10.2.2.2.3.2.3.2.2.2.2.1 because that would imply extraterritorial application of U.S. patents 10.2.2.2.3.2.3.3 2008-present: Expansion 10.2.2.2.3.2.3.3.1 Quanta 10.2.2.2.3.2.3.3.1.1 Facts 10.2.2.2.3.2.3.3.1.1.1 LGE held both product patents on chips and process patents on making them 10.2.2.2.3.2.3.3.1.1.2 LGE granted Intel a license to make chips -- with a restriction: 10.2.2.2.3.2.3.3.1.1.2.1 purchasers of chips may not combine them with non-Intel parts 10.2.2.2.3.2.3.3.1.1.3 Quanta bought chips from Intel and combined with non-Intel parts 10.2.2.2.3.2.3.3.1.2 CAFC: 10.2.2.2.3.2.3.3.1.2.1 Exhaustion not applicable to process patents 10.2.2.2.3.2.3.3.1.2.2 Conditional sales; no exhaustion 10.2.2.2.3.2.3.3.1.3 Holding 10.2.2.2.3.2.3.3.1.3.1 Exhaustion is applicable to process patents 10.2.2.2.3.2.3.3.1.3.2 An authorized sale of a patented item terminates all patent rights to that item 10.2.2.2.3.2.3.3.1.3.3 use restrictions therefore invalid against purchasers 10.2.2.2.3.2.3.3.1.4 Issues left open: 10.2.2.2.3.2.3.3.1.4.1 application to sales overseas? 10.2.2.2.3.2.3.3.1.4.2 contract remedies still available? 10.2.2.2.3.2.3.3.1.4.2.1 potential limitations: 10.2.2.2.3.2.3.3.1.4.2.1.1 privity problems 10.2.2.2.3.2.3.3.1.4.2.1.2 preemption 10.2.2.2.3.2.3.3.1.4.2.1.3 more limited remedies 10.2.2.2.3.2.3.3.1.4.2.2 potential advantages: 10.2.2.2.3.2.3.3.1.4.2.2.1 fine tune using "public policy" limitations 10.2.2.2.3.2.3.3.1.4.3 can downstream behavior by purchasers retroactively render initial sales "unauthorized"? 10.2.2.2.3.2.3.3.1.4.3.1 see Hungar memo 10.2.2.2.3.2.3.3.1.4.4 may patentee restrict licensee's freedom to sell products embodying product or process patents (as opposed to restricting post-sale uses)? 10.2.2.2.3.2.3.3.1.4.4.1 answer appears yes 10.2.2.2.3.2.3.3.1.4.4.2 can expect many restrictive licenses in the future to take this form 10.2.2.2.3.2.3.3.2 Aftermath of Quanta 10.2.2.2.3.2.3.3.2.1 Broadcom v. Qualcomm (filed 2008) 10.2.2.2.3.2.3.3.2.1.1 Qualcomm licenses chipset makers -- with a restriction: 10.2.2.2.3.2.3.3.2.1.1.1 chipsets may only be incorporated into handsets by handset manufacturers who pay Qualcomm a royalty 10.2.2.2.3.2.3.3.2.1.2 Broadcom asserts patent misuse; exhaustion 10.2.2.2.3.2.3.3.2.1.3 settled -- as part of comprehensive settlement -- in 2009 10.2.2.2.3.2.3.3.2.2 Transcore (CAFC 2009) 10.2.2.2.3.2.3.3.2.2.1 unconditional covenant not to sue is the functional equivalent of unconditional license 10.2.2.2.3.2.3.3.2.2.2 surprisingly expansive interpretation of "estoppel" doctrine to enlarge the set of patents covered by a prior settlement/covenant 10.2.2.2.3.2.3.3.2.2.2.1 unclear whether this will affect treatment of the two forms of permission in bankruptcy 10.2.2.2.3.2.3.3.2.3 Static Control (EDKy 2009) 10.2.2.2.3.2.3.3.2.3.1 Quanta impliedly overruled Mallinckrodt 10.2.2.2.3.2.3.3.2.3.2 single-use restrictions no longer enforceable 10.2.2.2.3.2.3.3.2.4 LGE v. Hitachi (NDCa 2009) 10.2.2.2.3.2.3.3.2.4.1 unconditional foreign sale of a product licensed under a United States patent exhausts the patent holder's rights 10.2.2.2.3.2.3.3.2.4.2 repudiate Jazz Photo as inconsistent with logic of Quanta 10.2.2.2.3.2.3.3.2.4.3 Issues left open: 10.2.2.2.3.2.3.3.2.4.3.1 May the resultant impediment to geographic price discrimination be avoided through restrictions on the licensee's right to sell? 10.2.2.2.3.2.3.3.2.4.3.2 May the impediment be avoided by dividing patent holding companies geographically? 10.2.2.2.3.3 encryption circumvention 10.2.2.2.3.3.1 History 10.2.2.2.3.3.1.1 Encryption Examples 10.2.2.2.3.3.1.1.1 CSS for DVDs 10.2.2.2.3.3.1.1.2 SDMI for Music 10.2.2.2.3.3.1.1.3 RealNetworks "Copy" Switch 10.2.2.2.3.3.1.2 IITF "White Paper" 10.2.2.2.3.3.1.2.1 Congress refuses to adopt the recommendation 10.2.2.2.3.3.1.3 1996 WIPO Copyright Treaty 10.2.2.2.3.3.1.3.1 "Contracting parties shall provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by authors in connection with the exercise of their rights under this Treaty or the Berne Convention and that restricts acts, in respect of their works, which are not authorized by the authors concerned or permitted by law." 10.2.2.2.3.3.1.4 WIPO Perfomances and Phonograms Treaty (1996/2002), art. 18 10.2.2.2.3.3.2 Statutes 10.2.2.2.3.3.2.1 In USA, DMCA 10.2.2.2.3.3.2.1.1 17 USC 1201 10.2.2.2.3.3.2.1.1.1 "Access controls" 10.2.2.2.3.3.2.1.1.1.1 1201(a)(1)(A): "No person shall circumvent a technological measure that effectively controls access" to a copyrighted work. 10.2.2.2.3.3.2.1.1.1.2 1201(a)(2): "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that:" 10.2.2.2.3.3.2.1.1.1.2.1 "(A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title" or 10.2.2.2.3.3.2.1.1.1.2.2 "(B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work protected under this title; or" 10.2.2.2.3.3.2.1.1.1.2.2.1 Cf. Sony standard for contributory infringement 10.2.2.2.3.3.2.1.1.1.2.3 "(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing a technological measure that effectively controls access to a work protected under this title" 10.2.2.2.3.3.2.1.1.1.2.3.1 Cf. Grokster theory of inducement 10.2.2.2.3.3.2.1.1.2 "Copy controls" 10.2.2.2.3.3.2.1.1.2.1 No prohibition on circumvention 10.2.2.2.3.3.2.1.1.2.2 1201(b)(1) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that:" 10.2.2.2.3.3.2.1.1.2.2.1 "(A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof;" 10.2.2.2.3.3.2.1.1.2.2.2 "(B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof; or" 10.2.2.2.3.3.2.1.1.2.2.3 "(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof" 10.2.2.2.3.3.2.1.1.3 Definitions 10.2.2.2.3.3.2.1.1.3.1 "Circumvent" 10.2.2.2.3.3.2.1.1.3.1.1 to "circumvent a technological measure" means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner 10.2.2.2.3.3.2.1.1.3.2 "Effectively controls" 10.2.2.2.3.3.2.1.1.3.2.1 a technological measure "effectively controls access to a work" if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work 10.2.2.2.3.3.2.1.1.4 Exceptions 10.2.2.2.3.3.2.1.1.4.1 Libraries may circumvent in order to decide whether to buy 10.2.2.2.3.3.2.1.1.4.2 Police may circumvent to conduct an investigation 10.2.2.2.3.3.2.1.1.4.3 1201(f): Reverse Engineering for Interoperability 10.2.2.2.3.3.2.1.1.4.3.1 (1) Notwithstanding the provisions of subsection (a)(1)(A), a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure that effectively controls access to a particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to the person engaging in the circumvention, to the extent any such acts of identification and analysis do not constitute infringement under this title 10.2.2.2.3.3.2.1.1.4.3.2 (4) For purposes of this subsection, the term "interoperability" means the ability of computer programs to exchange information, and of such programs mutually to use the information which has been exchanged 10.2.2.2.3.3.2.1.1.4.4 1201(g) Encryption research 10.2.2.2.3.3.2.1.1.4.4.1 (A) the term "encryption research" means activities necessary to identify and analyze flaws and vulnerabilities of encryption technologies applied to copyrighted works, if these activities are conducted to advance the state of knowledge in the field of encryption technology or to assist in the development of encryption products; 10.2.2.2.3.3.2.1.1.4.5 1201(h) Protecting Minors from Pornography 10.2.2.2.3.3.2.1.1.4.5.1 "In applying subsection (a) to a component or part, the court may consider the necessity for its intended and actual incorporation in a technology, product, service, or device, which ... has the sole purpose to prevent the access of minors to material on the Internet." 10.2.2.2.3.3.2.1.1.4.6 Special Exemptions created by Copyright Office -- applicable only to circumvention of access controls 10.2.2.2.3.3.2.1.1.4.6.1 Statutory basis: 1201(a)(1)(B-E) 10.2.2.2.3.3.2.1.1.4.6.1.1 B 10.2.2.2.3.3.2.1.1.4.6.1.1.1 (B) The prohibition contained in subparagraph (A) shall not apply to persons who are users of a copyrighted work which is in a particular class of works, if such persons are, or are likely to be in the succeeding 3-year period, adversely affected by virtue of such prohibition in their ability to make noninfringing uses of that particular class of works under this title, as determined under subparagraph (C). 10.2.2.2.3.3.2.1.1.4.6.1.2 C 10.2.2.2.3.3.2.1.1.4.6.1.2.1 (C) During the 2-year period described in subparagraph (A), and during each succeeding 3-year period, the Librarian of Congress, upon the recommendation of the Register of Copyrights, who shall consult with the Assistant Secretary for Communications and Information of the Department of Commerce and report and comment on his or her views in making such recommendation, shall make the determination in a rulemaking proceeding on the record for purposes of subparagraph (B) of whether persons who are users of a copyrighted work are, or are likely to be in the succeeding 3-year period, adversely affected by the prohibition under subparagraph (A) in their ability to make noninfringing uses under this title of a particular class of copyrighted works. In conducting such rulemaking, the Librarian shall examine - ▪ (i) the availability for use of copyrighted works; ▪ (ii) the availability for use of works for nonprofit archival, preservation, and educational purposes; ▪ (iii) the impact that the prohibition on the circumvention of technological measures applied to copyrighted works has on criticism, comment, news reporting, teaching, scholarship, or research; ▪ (iv) the effect of circumvention of technological measures on the market for or value of copyrighted works; and ▪ (v) such other factors as the Librarian considers appropriate. 10.2.2.2.3.3.2.1.1.4.6.1.3 D 10.2.2.2.3.3.2.1.1.4.6.1.3.1 (D) The Librarian shall publish any class of copyrighted works for which the Librarian has determined, pursuant to the rulemaking conducted under subparagraph (C), that noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the prohibition contained in subparagraph (A) shall not apply to such users with respect to such class of works for the ensuing 3-year period. 10.2.2.2.3.3.2.1.1.4.6.2 2006 Ruling 10.2.2.2.3.3.2.1.1.4.6.2.1 1. Audiovisual works included in the educational library of a college or university’s film or media studies department, when circumvention is accomplished for the purpose of making compilations of portions of those works for educational use in the classroom by media studies or film professors. 10.2.2.2.3.3.2.1.1.4.6.2.2 2. Computer programs and video games distributed in formats that have become obsolete and that require the original media or hardware as a condition of access, when circumvention is accomplished for the purpose of preservation or archival reproduction of published digital works by a library or archive. A format shall be considered obsolete if the machine or system necessary to render perceptible a work stored in that format is no longer manufactured or is no longer reasonably available in the commercial marketplace. 10.2.2.2.3.3.2.1.1.4.6.2.3 3. Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace 10.2.2.2.3.3.2.1.1.4.6.2.4 4. Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format. 10.2.2.2.3.3.2.1.1.4.6.2.5 5. Computer programs in the form of firmware that enable wireless telephone handsets to connect to a wireless telephone communication network, when circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network. 10.2.2.2.3.3.2.1.1.4.6.2.6 6. Sound recordings, and audiovisual works associated with those sound recordings, distributed in compact disc format and protected by technological protection measures that control access to lawfully purchased works and create or exploit security flaws or vulnerabilities that compromise the security of personal computers, when circumvention is accomplished solely for the purpose of good faith testing, investigating, or correcting such security flaws or vulnerabilities. 10.2.2.2.3.3.2.1.1.4.6.3 2010 Ruling 10.2.2.2.3.3.2.1.1.4.6.3.1 The Librarian of Congress has announced the classes of works subject to the exemption from the prohibition against circumvention of technological measures that control access to copyrighted works. Persons making noninfringing uses of the following six classes of works will not be subject to the prohibition against circumventing access controls (17 U.S.C. § 1201(a)(1)) until the conclusion of the next rulemaking. 10.2.2.2.3.3.2.1.1.4.6.3.2 Educational uses of movies 10.2.2.2.3.3.2.1.1.4.6.3.2.1 (1) Motion pictures on DVDs that are lawfully made and acquired and that are protected by the Content Scrambling System when circumvention is accomplished solely in order to accomplish the incorporation of short portions of motion pictures into new works for the purpose of criticism or comment, and where the person engaging in circumvention believes and has reasonable grounds for believing that circumvention is necessary to fulfill the purpose of the use in the following instances: (i)  Educational uses by college and university professors and by college and university film and media studies students;
(ii) Documentary filmmaking;
(iii) Noncommercial videos. 10.2.2.2.3.3.2.1.1.4.6.3.3 Cell phone apps 10.2.2.2.3.3.2.1.1.4.6.3.3.1 (2) Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset. 10.2.2.2.3.3.2.1.1.4.6.3.4 Cell phone network access 10.2.2.2.3.3.2.1.1.4.6.3.4.1 (3) Computer programs, in the form of firmware or software, that enable used wireless telephone handsets to connect to a wireless telecommunications network, when circumvention is initiated by the owner of the copy of the computer program solely in order to connect to a wireless telecommunications network and access to the network is authorized by the operator of the network. 10.2.2.2.3.3.2.1.1.4.6.3.5 Security testing of video games 10.2.2.2.3.3.2.1.1.4.6.3.5.1 (4) Video games accessible on personal computers and protected by technological protection measures that control access to lawfully obtained works, when circumvention is accomplished solely for the purpose of good faith testing for, investigating, or correcting security flaws or vulnerabilities, if: (i)  The information derived from the security testing is used primarily to promote the security of the owner or operator of a computer, computer system, or computer network; and
(ii) The information derived from the security testing is used or maintained in a manner that does not facilitate copyright infringement or a violation of applicable law. 10.2.2.2.3.3.2.1.1.4.6.3.6 Obsolete dongles 10.2.2.2.3.3.2.1.1.4.6.3.6.1 (5) Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete.  A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace; and 10.2.2.2.3.3.2.1.1.4.6.3.7 Handicap access to ebooks 10.2.2.2.3.3.2.1.1.4.6.3.7.1 (6) Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format. 10.2.2.2.3.3.2.1.2 17 USC 1202 10.2.2.2.3.3.2.1.2.1 No person shall, without the authority of the copyright owner or the law -- (1) intentionally remove or alter any copyright management information, (2) distribute or import for distribution copyright management information knowing that the copyright management information has been removed or altered without authority of the copyright owner or the law, or (3) distribute, import for distribution, or publicly perform works, copies of works, or phonorecords, knowing that copyright management information has been removed or altered without authority of the copyright owner or the law, knowing, or ... having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement of any right under this title. 10.2.2.2.3.3.2.1.3 Remedies 10.2.2.2.3.3.2.1.3.1 Civil (1203) 10.2.2.2.3.3.2.1.3.1.1 Equitable 10.2.2.2.3.3.2.1.3.1.2 Damages 10.2.2.2.3.3.2.1.3.1.2.1 Actual Damages 10.2.2.2.3.3.2.1.3.1.2.1.1 "The court shall award to the complaining party the actual damages suffered by the party as a result of the violation, and any profits of the violator that are attributable to the violation and are not taken into account in computing the actual damages, if the complaining party elects such damages at any time before final judgment is entered." 10.2.2.2.3.3.2.1.3.1.2.2 Statutory Damages 10.2.2.2.3.3.2.1.3.1.2.2.1 "(A) At any time before final judgment is entered, a complaining party may elect to recover an award of statutory damages for each violation of section 1201 in the sum of not less than $200 or more than $2,500 per act of circumvention, device, product, component, offer, or performance of service, as the court considers just.       (B) At any time before final judgment is entered, a complaining party may elect to recover an award of statutory damages for each violation of section 1202 in the sum of not less than $2,500 or more than $25,000." 10.2.2.2.3.3.2.1.3.2 Criminal (1204) 10.2.2.2.3.3.2.1.3.2.1 "(a) In general. Any person who violates section 1201 or 1202 willfully and for purposes of commercial advantage or private financial gain--    (1) shall be fined not more than $500,000 or imprisoned for not more than 5 years, or both, for the first offense; and    (2) shall be fined not more than $ 1,000,000 or imprisoned for not more than 10 years, or both, for any subsequent offense." 10.2.2.2.3.3.2.2 In Europe, EU Copyright Directive (2001), articles 6, 8 10.2.2.2.3.3.2.2.1 member states must provide penalties for circumvention of effective TPMs, as well as for trafficking in circumvention devices and services 10.2.2.2.3.3.2.2.2 Mandatory "public policy" exceptions 10.2.2.2.3.3.2.2.3 Optional "private copying" exceptions 10.2.2.2.3.3.2.2.4 slow and uneven implementation 10.2.2.2.3.3.2.2.5 e.g., France (2006): 10.2.2.2.3.3.2.2.5.1 schedule of penalties 10.2.2.2.3.3.2.2.5.1.1 EUR 750 fine for circumventing DRM 10.2.2.2.3.3.2.2.5.1.2 EUR 3750 fine for creating a means to circumvent DRM 10.2.2.2.3.3.2.2.5.1.3 EUR 30,000 fine and 6 months in prison for publishing a means to circumvent DRM 10.2.2.2.3.3.2.2.5.1.4 EUR 300,000 fine and 3 years in prison for publishing software "obviously intended" to provide the public unauthorized access to copyrighted works 10.2.2.2.3.3.2.2.5.2 reduced penalties for file-sharing 10.2.2.2.3.3.2.2.5.2.1 7/27/2006: Constitutional Council declares unconstitutional impairment of the property rights of copyright owners 10.2.2.2.3.3.2.2.5.3 mandatory interoperability 10.2.2.2.3.3.2.2.5.3.1 administrative agency will adopt rules forcing Apple to: 10.2.2.2.3.3.2.2.5.3.1.1 1. modify AAC code to allow its files to be played on other players 10.2.2.2.3.3.2.2.5.3.1.2 2. modify ipods sold in France to enable them to play DRMd files from other suppliers (e.g., VirginMega) 10.2.2.2.3.3.2.2.5.3.2 7/27/2006: Constitutional Council requires indemnification of Apple 10.2.2.2.3.3.3 Judicial Enforcement 10.2.2.2.3.3.3.1 Streambox (WD WA 2000) 10.2.2.2.3.3.3.1.1 Held: Streambox "VCR," that avoids copy-protection switch in RealNetworks system, violates 1201(b) 10.2.2.2.3.3.3.1.2 Sony defense not available under DMCA 10.2.2.2.3.3.3.2 Corley 10.2.2.2.3.3.3.3 Felten 10.2.2.2.3.3.3.3.1 Felten strips prototype SDMI watermarks out of music without degrading quality; plans to publish results 10.2.2.2.3.3.3.3.2 RIAA suggests publication "could subject you and your research team to actions under the DMCA" 10.2.2.2.3.3.3.3.3 Felten seeks declaratory judgment that a DMCA action would violate 1st amendment 10.2.2.2.3.3.3.3.4 RIAA retreats 10.2.2.2.3.3.3.3.5 Case dismissed as moot 10.2.2.2.3.3.3.4 Elcomsoft (2002) 10.2.2.2.3.3.3.4.1 Adobe eBook Reader contains copy-protection system 10.2.2.2.3.3.3.4.2 2001 Elcomsoft distributes software, designed by Dimitri Sklyarov, that defeats the system 10.2.2.2.3.3.3.4.3 Both Sklyarov and Elcomsoft are prosecuted 10.2.2.2.3.3.3.4.4 Charges against Sklyarov dropped in return for cooperation 10.2.2.2.3.3.3.4.5 Elcomsoft acquitted because of inadequate proof of criminal intent 10.2.2.2.3.3.3.5 IMS (SDNY 2004) 10.2.2.2.3.3.3.6 Lexmark, 387 F.3d 522 (CA6 2004) 10.2.2.2.3.3.3.6.1 Facts 10.2.2.2.3.3.3.6.1.1 Lexmark uses a TPM to prevent unauthorized printer cartridges from communicating with its printers 10.2.2.2.3.3.3.6.1.2 Static Controls manufacturer a chip that, when installed in unauthorized cartridges, bypassed the TPM 10.2.2.2.3.3.3.6.2 Holding 10.2.2.2.3.3.3.6.2.1 Because the TPM did not prevent reading or copying the computer program at issue, the TPM did not constitute an "access control," and therefore the DMCA was inapplicable 10.2.2.2.3.3.3.7 Chamberlain, 381 F.3d 1178 (CAFC 2004) 10.2.2.2.3.3.3.7.1 Facts 10.2.2.2.3.3.3.7.1.1 Chamberlain used a "rolling code" to control access to the software that operated its remote garage door opener 10.2.2.2.3.3.3.7.1.2 Skylink's generic garage-door opener imitated the rolling code 10.2.2.2.3.3.3.7.2 Holding 10.2.2.2.3.3.3.7.2.1 To establish a violation of the DMCA, it must be shown that the TPM being circumvented bears some "reasonable relationship to the protections that the Copyright Act otherwise affords." 10.2.2.2.3.3.3.7.2.2 Because the purchasers of Champerlain's opener were entitled to access the code that operated the opener, this requirement was not satisfied 10.2.2.2.3.3.3.8 STK, 421 F.3d 1307 (CAFC 2005) 10.2.2.2.3.3.3.8.1 Holding 10.2.2.2.3.3.3.8.1.1 Reiterate "reasonable relationship" requirement of Chamberlain 10.2.2.2.3.3.3.9 Blizzard, 422 F.3d 630 (CA8 2005) 10.2.2.2.3.3.3.9.1 Facts 10.2.2.2.3.3.3.9.1.1 The CDs containing Blizzard's video games also contained software that enabled purchasers to gain access to a network, operated by Blizzard, on which they could interact with other players 10.2.2.2.3.3.3.9.1.2 Defendant reversed engineered the software in order to enable purchasers of CDs to gain access to defendant's alternative network 10.2.2.2.3.3.3.9.1.3 the circumvention system also enabled the possessors of pirated games to gain access to the alternative network 10.2.2.2.3.3.3.9.2 Holding 10.2.2.2.3.3.3.9.2.1 "To successfully prove the interoperability defense under § 1201(f), Appellants must show:Შ괗ߐĀ균᥌ 10.2.2.2.3.3.3.9.2.1.1 (1) they lawfully obtained the right to use a copy of a computer program; 10.2.2.2.3.3.3.9.2.1.2 (2) the information gathered as a result of the reverse engineering was not previously readily available to the person engaging in the circumvention; 10.2.2.2.3.3.3.9.2.1.3 (3) the sole purpose of the reverse engineering was to identify and analyze those elements of the program that were necessary to achieve interoperability of an independently created computer program with other programs; and 10.2.2.2.3.3.3.9.2.1.4 (4) the alleged circumvention did not constitute infringement. 10.2.2.2.3.3.3.9.2.2 Because the circumvention in this instance enabled "unauthorized copies of the Blizzard games [to be] freely played on bnetd.org servers," requirement (4) was not satisfied 10.2.2.2.3.3.3.10 RealNetworks, 641 F. Supp. 2d 913 (N.D. Cal. 2009) 10.2.2.3 Opportunities 10.2.2.3.1 Increased Profit 10.2.2.4 Hazards 10.2.2.4.1 Administrative Costs 10.2.2.4.2 May offend consumer sensibilities 10.2.2.4.2.1 evidence from anecdotes, surveys, and experiments 10.2.2.4.2.2 feelings are very strong; consumers frequently have intense reactions; but point in different directions 10.2.2.4.2.3 rules of thumb 10.2.2.4.2.3.1 unpopularity of "charging what the market will bear": "gouging" 10.2.2.4.2.3.1.1 e.g., Coke temperature strategy (1999) 10.2.2.4.2.3.1.2 e.g., rental cars in wake of 9/11 10.2.2.4.2.3.1.2.1 Al Franken 10.2.2.4.2.3.1.3 e.g., survey of buyers and sellers of bulk electricity 10.2.2.4.2.3.1.3.1 Dickson & Kalapurakal (1994) 10.2.2.4.2.3.1.3.2 “[a] price increase under conditions of increased demand was perceived to be significantly less fair than one caused by a shortage in supply…. This is noteworthy because these conditions have traditionally been regarded as normatively equivalent, representing price increases that ration off relatively excess demand.” 10.2.2.4.2.3.2 consumers like transparency, dislike hidden pricing strategies 10.2.2.4.2.3.2.1 e.g., reactions to Amazon.com "dynamic pricing" for Men in Black 10.2.2.4.2.3.2.2 "sneaky" 10.2.2.4.2.3.3 consumers accept 3rd-degree PD if they think the categories are fair 10.2.2.4.2.3.3.1 Invidious Criteria 10.2.2.4.2.3.3.1.1 see Dabu 2005 10.2.2.4.2.3.4 Conflicting responses to "versioning" 10.2.2.4.2.3.4.1 Deliberately reducing the quality of a good in order to make it available cheaply to poorer customers without undermining the demand by the more wealthy for a full-featured version is commonly denounced, in Emile Dupuit’s words – as “cruel and mean.” 10.2.2.4.2.3.4.1.1 e.g., IBM LaserPrinter Series E 10.2.2.4.2.3.4.2 consumers like choices 10.2.2.4.2.3.4.2.1 suggests acceptability of "versioning" 10.2.2.4.2.3.5 framing matters 10.2.2.4.2.3.5.1 "discount" or "surcharge" 10.2.2.4.2.3.5.1.1 e.g., financial aid in US colleges 10.2.2.4.2.3.5.1.1.1 Harvard 10.2.2.4.2.3.5.1.1.1.1 “Our goal in admissions and financial aid is clear: We want to bring the best people to Harvard, regardless of their ability to pay — and we do. About 70 percent of our students receive some form of aid, with over 60 percent receiving need–based scholarships.” 10.2.2.4.2.3.5.1.1.2 Yale 10.2.2.4.2.3.5.1.1.2.1 “We believe that a Yale education should not be limited to only those who can afford the full cost of attendance. By committing to an admissions policy that does not consider a student’s ability to pay, and by meeting the full financial need of all admitted students (with no loans required), we ensure that Yale is accessible to the most talented students from around the world, regardless of their family’s income.” 10.2.2.4.2.3.5.1.1.3 Swarthmore 10.2.2.4.2.3.5.1.1.3.1 “In order to make a Swarthmore education available to qualified students, we expect to award in excess of $29 million for scholarships for the coming year. About 54 percent of our student body receives scholarship assistance through Swarthmore on the basis of demonstrated financial need, and a total of 70 percent of our students will share more than $36 million in scholarships, loans, and work opportunities during the 2011-2012 academic year. (Although our aid awards are loan-free, some families borrow to pay their shares.) Although we believe that the primary responsibility for financing education lies with students and their parents or guardians, we stand ready to help fill in the gap when family resources do not meet our costs. Swarthmore's strong financial aid program demonstrates our commitment that all capable students have access to the College.” 10.2.2.4.2.3.5.1.2 Kahneman et al 286 10.2.2.4.2.3.5.2 Coke's attempt: price varies with the utility of the product 10.2.2.4.2.3.5.2.1 Doug Ivester: "In a final summer championship game when people meet in a stadium to enjoy themselves, the utility of a chilled Coca-Cola is very high. So it is fair it should be more expensive. The machine will simply make this process automatic." 10.2.2.4.2.3.5.3 reference transactions 10.2.2.4.2.3.5.3.1 Spiekerman 10.2.2.5 Case Studies 10.2.2.5.1 Cultural Products 10.2.2.5.1.1 Books 10.2.2.5.1.1.1 domestic geographic PD impeded by first-sale doctrine 10.2.2.5.1.1.1.1 Bobbs-Merrill 10.2.2.5.1.1.2 international geographic PD 10.2.2.5.1.1.2.1 Cabolis et al. (2005) 10.2.2.5.1.1.2.2 John Wiley (2013) 10.2.2.5.1.1.3 hardcover vs. paperback 10.2.2.5.1.1.3.1 combine versioning and intertemporal PD 10.2.2.5.1.1.3.1.1 Clerides (2002) 10.2.2.5.1.2 Movies 10.2.2.5.1.2.1 windowing system 10.2.2.5.1.2.2 region coding 10.2.2.5.1.2.2.1 DVDs 10.2.2.5.1.2.2.2 Blu-Ray "Regional Playback Control" 10.2.2.5.1.2.2.2.1 this system gives studios the option of whether to "lock" their DVDs -- or to release them region-free 10.2.2.5.1.2.2.2.2 list of films in each category available on Blu-Ray Region Code Database List 10.2.2.5.1.2.2.2.3 but multi-region players, though uncommon, are available 10.2.2.5.1.3 Music 10.2.2.5.1.3.1 international geographic PD 10.2.2.5.1.3.1.1 see CBS v. Scorpio (ED Pa. 1983) 10.2.2.5.1.4 Fashion 10.2.2.5.1.4.1 "bridge lines" 10.2.2.5.2 Drugs 10.2.2.5.2.1 domestic 10.2.2.5.2.1.1 factors that make PD possible 10.2.2.5.2.1.1.1 large variations among marginal evaluations by different groups of patients 10.2.2.5.2.1.1.2 variations in bargaining power among payers 10.2.2.5.2.1.1.2.1 power of government as a payer to insist upon a lower price 10.2.2.5.2.1.1.3 market power enjoyed by holders of patents on branded drugs 10.2.2.5.2.1.1.4 legal and practical impediments to arbitrage 10.2.2.5.2.1.1.5 see Berndt 2010 10.2.2.5.2.1.2 ironically, the amount of domestic PD is small 10.2.2.5.2.1.2.1 potentially huge impact: 2% of US GDP 10.2.2.5.2.2 international 10.2.2.5.2.2.1 AIDS drugs (Latin America) 10.2.2.5.2.2.2 vaccines 10.2.2.5.2.2.2.1 developed countries: 12% of doses; 82% of revenues 10.2.2.5.2.2.2.2 developing countries: 88% of doses; 18% of revenues 10.2.2.5.2.2.2.2.1 National Academy of Sciences, pp. 108-109 10.2.2.5.2.2.3 EU 10.2.2.5.3 Software 10.2.2.5.3.1 Adobe 10.2.2.5.3.2 AutoCAD 10.2.2.5.4 Medical devices 10.2.2.5.5 Decorated Products 10.2.2.5.5.1 watches 10.2.2.5.5.2 perfume 10.2.2.5.5.2.1 Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477 (9th Cir. 1994) 10.2.2.5.6 Machines/supplies 10.2.2.5.6.1 patented canning machines and cans 10.2.2.5.6.2 Xerox machines and paper 10.2.2.5.7 "Pay what you like" 10.2.2.5.7.1 e.g., RadioHead 10.2.2.5.7.2 e.g., Yoga to the People 10.2.2.5.7.3 see Isaac 2010 10.2.2.5.8 Omega 10.2.2.5.9 Kirtsaeng 10.2.2.6 Guidelines 10.2.2.6.1 1. Threshold question: Are all 4 of the preconditions for PD present or obtainable? 10.2.2.6.2 2. Survey the array of existing PD schemes for possible models 10.2.2.6.2.1 for other examples, see Fisher, Differential Pricing of Information 10.2.2.6.3 3. Assess merits of possible PD schemes by comparing: 10.2.2.6.3.1 a. potential gains through market segmentation 10.2.2.6.3.1.1 the more precise is one's ability to match price to each consumer's willingness and ability to pay, the larger the gains 10.2.2.6.3.1.2 IT is rapidly increasing opportunities for 1st-degree PD 10.2.2.6.3.2 b. costs of creating and administering the apparatus for differentiation 10.2.2.6.3.3 c. losses through arbitrage 10.2.2.6.3.4 d. losses caused by consumers' anger or resistance 10.2.2.6.3.4.1 to mitigate those losses, "frame" your PD mechanism very carefully 10.3 Costs of Exercising Market Power 10.3.1 Changes in competition 10.3.1.1 Nissan 10.3.1.2 Proctor & Gamble 10.3.2 Increase rivals' incentives to innovate 10.3.2.1 Standard Oil 10.3.3 Neglect markets for complements 10.3.3.1 Apple