The Supreme Court on May 20, 2013, agreed to review a Federal Circuit decision that a patent licensee bears the burden of proof in its action for a declaratory judgment of noninfringement where the license remains in effect to preclude the defendant patentee’s infringement counterclaim.  Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, 5/20/2013.

The question presented in the petition for certiorari is as follows:

In Medlmmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

Recently, it has struck me that many business folks who “negotiate tons of IP license agreements,” fail to understand the difference between covenants, representations and warranties that are “standard” in many such agreements. Well, that is not too surprising. What is very surprising, however, is that many of their lawyers also fail to appreciate the differences as well!  Many think the terms are synonymous and thus use them interchangeably. They are not. So, for those of you tired of faking the funk, here is some (either fresh or refresher) “Contracts 101!”

A covenant  is a promise by a party by which it pledges that something is either done, will be done or shall not be done.

Example 1:  “Licensee shall pay Licensor a flat royalty based on 2.5% of Gross Revenues received from the sale of Licensed Products.”

Example 2: “Company A hereby covenants not to sue Company B under any patent listed in Exhibit A for infringement based upon any act by Company B of manufacture, use, sale, offer for sale or import that occurs after the Effective Date.”

Earlier this week word came from the Intellectual Property Exchange International Inc. (IPXI) that the U.S. Department of Justice Antitrust Division issued its Business Review Letter (BRL) upon the culmination of its eight-month review. The DOJ believes that the IP Exchange business model proposed by IPXI is capable of producing market efficiencies in the patent licensing arena and is likely to be pro-innovation. Although no permission is required of the DOJ before IPXI opens its exchange, having this review of the DOJ Antitrust Division complete has to make IPXI and Exchange participants much more at ease as the move closer toward their attempt to revolutionize IP licensing.

But who is IPXI and what are they trying to accomplish?

IPXI is the first financial exchange that facilitates non-exclusive licensing and trading of intellectual property rights with market-based pricing and standardized terms. At its core is what IPXI calls a “Unit License Right” or ULR. According to IPXI, “ULR contracts transform private licensing of technology into consumable and tradable products, allowing for improved market transparency, smooth technology transfers, and increased efficiencies.”  Indeed, Marshall Phelps, an IPXI Board Member who is widely known as a pioneer in the field of IP licensing, including implementing groundbreaking initiatives for both Microsoft and IBM, says: “the new model that IPXI offers is a major breakthrough in the way that IP will be licensed on a non-exclusive basis.”

In a recent article, I presented a taxonomy consisting of nineteen IP business models in the United States intellectual property marketplace.  Although, admittedly, the taxonomy presented was not perfect, it adequately described what I observed as the continuing rise of intermediary business models in the marketplace.  In that taxonomy, I included “IP middlemen” such as: Licensing Agents, IP Brokers, IP-Based M&A Advisors, IP Auction Houses, On-Line IP/Technology Exchanges, and University Technology Transfer Intermediaries.  Individual inventors and corporate IP owners are used to dealing with accountants, lawyers and investment advisors – all professionals who are governed by state and/or federal professional regulations, and/or national association guidelines.  Well, the question I pose is: What professional regulations govern the qualifications and conduct of all these IP middlemen?

The short answer to the above question is “none!”  After all, there is no IP brokerage or IP middlemen governing body.  Further, we should all realize that IP rights are not “securities” subject to state and federal (e.g., SEC) regulations.  Lastly, we all know that all states’ bar associations regulate attorney conduct regardless of whether the attorney is “practicing law.”  An informal survey I conducted, however, suggests the percentage of IP middlemen who are attorneys is less than 20%, with the remainder having business, financial and engineering backgrounds.  Has the USPTO stepped in?  No.  That is, individual inventors and corporate IP owners should not feel at ease because the invention promotion industry has been the focus of a USPTO anti-scam public awareness campaign.  This campaign, is simply not aimed at the numerous IP middlemen identified in my taxonomy.

On February 28, 2013, I spoke at the Association of University Technology Managers (AUTM) annual meeting in San Antonio, Texas. The topic of the panel I participated on was simple — Tech Transfer Needs You to Defend Bayh-Dole. My remarks appear below.

Continually there are calls from detractors who want to change the technology transfer system regardless of how wildly successful it has been.  See  Why Bipartisanship Matters and Statement of Senator Birch Bayh on 30th Anniversary of Bayh-Dole and University Licensing and Biotech IPRs Good for the Economy and Conversation with AUTM President Todd Scherer. What is more disturbing is that many want to change it back to the way it was before Bayh-Dole was enacted in 1980; back to a time when University technologies and innovations were so cumbersome to license that they simply were not licensed. See The Good Steward: Turning Federal R&D into Economic Growth and Exclusive Interview: Senator Birch Bayh. In fact, The Economist has written that Bayh-Dole is the most successful piece of domestic policy legislation in the United States since the end of World War II.

I provide this longer than intended introduction to my remarks at AUTM because I was speaking to a crowd of individuals who know the fact and they understand the truth. I say below that there is not a shred of evidence that supports the detractors, and 100% of the evidence supports those who favor Bayh-Dole and a continuation of University technology transfer that is based on ownership of patent rights. I don’t go through fact by fact what we in the industry all know to be true, which means that the inevitable head-in-the-sand detractors will want to pounce and claim that I am wrong. If you are inclined to disagree with me then read the links above, and read the many other articles we have published on Bayh-Dole. The evidence is overwhelmingly in support of a robust, property based, IPR technology transfer regime that was ushered in by the landmark Bayh-Dole legislation.

The month of February was busy. As I write this I’m on a Southwest Airlines flight back from the AUTM annual meeting in San Antonio, where I spoke yesterday on the Bayh-Dole panel. Look for more on that later today or over the weekend. John White and I have been earnestly going through the first-to-file rules and examination guidelines updating the PLI Patent Bar Review Course, and I spoke at the 7^th Annual Patent Law Institute in NY earlier in the month. As busy as February was, March will be even busier, but busy is good.

As far as interesting deals and industry news goes, this month easily one of the biggest, and perhaps strangest news items relates to a trademark infringement action brought by Tiffany Co. against Costco. The lawsuit relates to allegations that Costco was selling counterfeit Tiffany Diamonds in at least one of its stores. That has to be filed under the “what where they thinking” category. Good for Tiffany defending its trademarks. Also good for Costco stepping up to the plate to cease this activity right away, but Tiffany does deserve a public apology (as they ask for in the complaint) and for customers to be notified they purchased fake Tiffany Diamonds. Kudos to Tiffany for turning this potentially harmful event into a real PR positive; a real textbook case on how to defend trademarks and generate all kinds of good, positive, free press.

Now, what follows, are some of the other lawsuits, licensing deals and settlements that piqued our interest during the month but wouldn’t necessarily support an independent article. Still, these items are worth knowing about if you want to keep your finger on the pulse of the industry.

Editorial Note: What follows below was submitted by Professor Feldman pursuant to a request for comments published in the Federal Register. The deadline for receipt of written comments is Friday, January 25, 2013. 

In an efficiently functioning patent market, producers could quickly and inexpensively do the following: 1) identify which rights might be relevant to the product they wish to produce; 2) find the parties who control the interests in those rights; 3) determine the value of those rights in relation to the value off the product to be produced; and 3) secure a license with competitive terms. We are worlds away from such a system, but the Patent and Trademark Office’s proposed rules on disclosure of real-party-in-interest information would take an important step towards that vision, particularly the “broad definition” proposal. As always, promotion of an effective and efficient marketplace for innovation should be of paramount importance to regulatory agencies.

In the last five years, the patent market has undergone a change of seismic proportions. Patent rights are now regularly stripped from any underlying product and traded much like commodities in a largely unregulated market–the market for patent monetization. Prior to this time, the patent system had long operated with the comfort of knowing that more than 90% of patents would never bring any form of direct monetary return. I would refer to these as shadow rights, given that they have hovered on the periphery of the patent system, never fully actualized or fleshed out. We are now shifting to a system in which the opposite will be true–a drastic shift that is likely to have an extensive impact on innovation and the national economy. In our brave new world, large numbers of patents, that would not have garnered any direct return in the past, are being traded and monetized. Their presence in the market, particularly in the form of commoditized, tradable rights, enhances the uncertainty and game playing that may allow patent holders to obtain returns above the value of patent itself. See Robin Feldman, Intellectual Property Wrongs (describing amplification and shadow rights)(forthcoming).

The month of January started off quite busy, which in all likelihood was as the result of deals and announcements either held over or that simply couldn’t get done in the run up to closing out the year. There was a noticeable lull in news and announcements with respect to patent deals, settlements and litigation announcements, and then things picked up a bit toward the end of the month.

This month some of the highlights included (1) an exclusive option to license drugs targeting Parkinson’s disease; (2) potential patent problems on the horizon for Facebook; (3) additional settlements in the Forest Laboratory’s BYSTOLIC® patent litigation; (4) the inevitable news from Acacia Research; plus more.

For those specifically interested in the business of the pharmaceutical industry please also take a look at out monthly roundup of news written by Pharmalot founder Ed Silverman. See Pharma Law and Business: A Monthly Roundup for January 2013.

If you have patent news that you want us to know send us a message.

In October of 2007, Ron Laurie and I first presented our paper, entitled “A Survey of Established and Emerging IP Business Models,” at the 8th Annual Sedona Conference on Patent Litigation.  In that often-cited paper, we presented a new taxonomy comprised of seventeen IP business models in the marketplace.  Although, admittedly, the taxonomy we presented was not perfect, we did feel that it adequately described what we observed as the rise of intermediary business models in the IP marketplace.    So where are we now as we enter 2013?

The latest statistics show that the cumulative value of U.S. intellectual property is approximately $5.8 trillion (or 48.4% of GDP), and each year over half a million patent applications are filed, over a quarter million patents are issued, over 4000 patent infringement suits are filed and IP verdicts total over $4.6 billion with a median patent damage award of approximately $4 million.  Against this backdrop, I now present an updated taxonomy containing 19 IP-related business models.  The business models are in addition to the “traditional” operating companies and their “traditional” IP law firms.  Further, while not pretending to be all-inclusive, a directory of players implementing one or more of these 19 IP business models is available for download at the end of this post.

What are these models and who are the respective players implementing them?  These models and their players are generally referred to as “IP intermediaries” because they are neither the IP creators nor the IP “consumers” (e.g., licensees and purchasers).  These intermediaries, however, attempt to perform one or more services or offer one or more products that connect the IP creators and the IP consumers.

On December 20, 2012, I interviewed Paul Ryan. Not Congressman Paul Ryan, but rather the Paul Ryan that is the CEO of Acacia Research Corporation. See part 1 of my interview with Paul Ryan.

What you think of Ryan and Acacia is almost entirely dependent upon the side of the aisle on which you sit; namely whether you are an innovator or a practicing entity. Even more specifically, those who are innovators but don’t have a voice loud enough to be heard by practicing entities are likely to believe that Ryan and Acacia are the answer to their prayers. Those practicing companies that simply want to make a product and sell it without regard to the underlying patents that might be in place are likely to believe Ryan and Acacia are the poster children for everything wrong with the patent system.

My own opinion is this: independent inventors and small businesses that innovate get trampled. They are ignored by larger entities. Acacia Research is a publicly traded company and opens it books to the full extent required by the Securities and Exchange Commission. There is no mystery about their business model, and there is no doubt that when they partner with a patent owner that patent owner will have a voice that will be heard loud and clear by all those who might be infringing.

But you can decide for yourself. Without further ado, here is the culmination of the interview with Paul Ryan.

Paul Ryan is a more common name than you might think. In the world of politics when one speaks of “Paul Ryan” they are talking about the Republican Congressman from Wisconsin who was Mitt Romney’s running-mate and would-have-been Vice President. But in the intellectual property world, particularly the patent litigation world, the name “Paul Ryan” refers to the CEO of Acacia Research Corporation. It is the later Paul Ryan that went on the record with me to discuss Acacia, patent enforcement, how large companies who are infringers disregard innovative independent inventors and much more.

This two-part interview took place on December 20, 2012. With the holidays looming and various articles already in the pipeline for the end of the year and start of 2013 publication slid a bit.

Sometimes when I’m doing an interview I have a good feeling about it and know it will turn out very good in print. This was one of those times. I enjoyed my conversation with Ryan and think you will find it quite informative and interesting as well. Without further ado, here is my interview with Paul Ryan.

Non-practicing entities (NPEs) are once again thrust into the Section 337 spotlight by way of the “domestic industry” requirement.  Back in 2007, InterDigital LLC filed a complaint at the United States International Trade Commission (“the Commission”), with the intention of blocking Nokia’s import of mobile devices into the United States.  InterDigital alleged that Nokia’s mobile devices infringed its U.S. patents relating to power control and high-speed data transmission in 3G wireless technologies.   The Commission sided with Nokia and found no infringement.  However, Nokia’s favorable decision turned sour when it was reversed by the Court of Appeals for the Federal Circuit (“the Federal Circuit”).  Nokia responded by petitioning the Federal Circuit for an en banc rehearing of the case.  In its petition, Nokia focused specifically on the question of whether InterDigital’s patent licensing activities satisfied the “domestic industry” requirement.  Recently the Federal Circuit, sitting en banc, denied Nokia’s petition for rehearing.  The Federal Circuit decision is nevertheless interesting for its treatment of Section 337’s “domestic industry” requirement as it is applied to NPEs.

Under 19 U.S.C. §1337(a)(2), relief at the Commission is predicated on the existence or establishment of an industry in the United States “relating to the articles protected by the patent.”  This is commonly known as the “domestic industry” requirement.  In turn, section 1337(a)(3) provides that an industry is considered to exist if there is in the United States, “with respect to the articles protected by the patent,” significant investment in plant or equipment, significant employment of labor or capital, or “substantial investment in [the patent’s] exploitation, including engineering, research and development, or licensing” (emphasis added).