It is one again time to take a moment to look back on the year that was, reflecting on the biggest, most impactful moments of 2016. For us that means looking backward at the most impactful events in the world of intellectual property.
This year we received such a good response from our panel of experts that we decided to break this column into two parts. In this first installment we focused on the biggest moments relating to patents during 2016. In the second installment we will focus on the biggest moments relating to copyrights, trade secrets and trade.
The major events our panel of experts focused on were passage of the Defend Trade Secrets Act of 2016, the demise of the TPP and ousting of Register of Copyrights Maria Pallante.
I will circle back with my own thoughts on 2016, but for now… without further ado… I present these reflections on 2016 from a diverse and distinguished panel of industry insiders.
1. Passage of the Defend Trade Secrets Act of 2016
On May 11th, 2016 the Defend Trade Secrets Act of 2016 (DTSA) was signed into law by President Obama. Perhaps the most influential intellectual property law enacted since the 2011 America Invents Act, the DTSA provided a federal private right of action for trade secret misappropriation.
According to the Commission on the Theft of American Intellectual Property, the theft of trade secrets costs the US economy more than $300 billion a year, comparable to annual US exports to Asia.
The DTSA provides trade secret owners with the ability to choose between federal and state court forums for trade secret misappropriation, and it also provides them with the ability to obtain an ex parte seizure order when more traditional injunctive relief may not be sufficient.
In addition to allowing innovators to more effectively protect their trade secrets, the DTSA is noteworthy for being an example of bipartisanship in a Congress that struggled to get anything done – even measures that would clearly improve the US economy.
2. Defeat of the Trans-Pacific Partnership
One of the hot-button issues of this past year’s Presidential election was trade, and nowhere was the debate more contentious than arguments about the Trans-Pacific Partnership (TPP). The TPP, signed in February 2016 by 12 member nations—including Australia, Vietnam, and Canada—is one of the world’s biggest multinational trade deals, covering 40 percent of the world economy. The trade pact’s strong intellectual property protections are particularly noteworthy.
The TPP is the first trade agreement to specifically consider the digital economy and its impact on a global scale. It includes commitments to combat counterfeiting, piracy and other infringement, including trade secret theft. In addition, it creates obligations to facilitate legitimate digital trade, including creative content; and includes provisions to promote development of, and access to, innovative and generic medicines.
US-based IP companies largely united behind the agreement, citing the benefits of increased IP protections, as well as the access it provides to the Asia-Pacific market. Yet, one area that served as a hang-up for influential members of Congress and the pharmaceutical industries involved the biologics data exclusivity language. In its current state, the deal provides up to eight years of exclusivity to biologic drugs, or five years of exclusivity plus up to three more years under a regulatory framework. Senator Orrin Hatch (R-UT), Chairman of the Senate Finance Committee, objected to this provision, and with the support of US pharmaceutical companies, demanded the administration support the US-standard of 12 years of data protection for biologics.
President-elect Trump has stated that he will withdraw the US from the TPP, but he has also said he might renegotiate the TPP to secure a better deal. Such an improvement for President-elect Trump would likely include provisions against currency manipulation and improved treatment for tobacco and biologics, among other things. Any renegotiation would be arduous as the current TPP outcome is a complicated chessboard representing the compromising of many parties’ equities; moving one piece will disrupt other pieces. At best, any renegotiation of the TPP will likely take years, and at that point, it is unclear whether our TPP partners would cooperate. What is clear is that for now, non-biologic US intellectual property interests will have to take a back-seat to the broader politics of trade.
3. Second Circuit Stems Tide of Expanding Fair Use Cases
The Second Circuit issued a ruling this year that seemed to stem the tide of cases expanding fair use. Specifically, in TCA Television Corp v McCollum, the court reversed an earlier ruling and held that using the entirety of the Abbot and Costello sketch Whose on First in a play was not transformative and therefore not fair use.
The District Court had ruled that the use by the writers of the Broadway play was “so transformative as to establish defendants’ fair use defense as a matter of law”. What makes the case so significant is that the Second Circuit had been the preeminent circuit for expanding the “transformative use” test for determining fair use. Though this panel of the Court specifically argues that it is not reversing its interpretation of fair use in cases like Cariou v. Prince, it does acknowledge the criticisms leveled at it by the Seventh Circuit in Kienitz v. Sconnie Nation LLC, as well as copyright authority David Nimmer. It also appears to indeed “walk back” some of the expansive language that has been emanating from the Second Circuit. Hopefully, the decision represents reconsideration by the Second Circuit of some of its thinking and the reintroduction of some “common sense” about the limits of transformative use.
Among the many interesting IP-related developments in 2016, one matter that has potentially significant long-term ramifications is the enactment of the Defend Trade Secrets Act of 2016 (DTSA).
On May 12, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). DTSA provides a new civil federal court civil remedy for acts of trade secret misappropriation occurring on or after the enactment date. DTSA should bolster the American economy by (1) providing more robust protection for trade secret holders, (2) promoting a more effective competitive process, and (3) reducing the social costs associated with the trade secret system.
First, prior to DTSA’s passage, trade secrets were the only major type of intellectual property (IP) that was not backed by U.S. federal civil remedies to compensate owners for theft. Notably, American businesses face hundreds of billions of dollars in losses per year due to trade secret misappropriation, and the problem is worsening, as cybertheft (particularly from China) continues to grow in scale. In a 2014 Heritage Foundation Legal Memorandum, I explained that an appropriately crafted federal trade secret law would help American victims recover damages for theft of their trade secrets, make it easier to stop thieves before they leave the country, and thereby strengthen the American economy, without undermining federalism. DTSA meets those requirements.
Second, as I explained in a 2016 Heritage Foundation Commentary, DTSA also enhances competition by rendering property rights more secure. The competitive process suffers when firms find that their property rights are insecure, because absent strong property rights protection, company-specific incentives to enter into mutually beneficial market transactions are reduced. In particular, weak protection for IP rights reduces incentives to innovate, and creates risks for companies entering into business deals that involve IP – a particularly serious problem, given the increasing importance of IP in the information economy. The situation is particularly acute with respect to trade secrets, because once a secret has been revealed, the added value it creates by virtue of its secrecy is destroyed. In other words, the wealth-creating potential of markets is reduced when property rights, and in particular IP and trade secret protections, are less secure.
Third, as I also pointed out in my 2016 Heritage Commentary, DTSA reduces the social costs associated with the trade secret system. This further reduces the efficiency of (and welfare benefits achievable through) markets in which trade secrets play an important role. In his seminal article The Welfare Costs of Tariffs, Monopolies, and Theft, the eminent economist Gordon Tullock explained that the welfare consequences of the income transfers stemming from theft include thieves’ resources devoted to theft, private property owners’ resources devoted to avoiding theft, and public police resources devoted to combatting theft. DTSA diminishes incentives (at least on the margin) to engage in trade secret theft by raising the cost and likelihood of civil sanctions, thereby reducing resources dedicated to such theft. DTSA also somewhat lowers the magnitude of the burden on companies as they combat trade secret theft (measured by the costs of duplicative and unsuccessful litigation in multiple state jurisdictions, and inefficient intra-company restrictions on trade secret use and dissemination, prompted by the current difficulty in obtaining redress from thieves). Relatedly, by somewhat diminishing the volume of theft, DTSA should reduce the public criminal law resources devoted to tracking down trade secret miscreants.
Let us hope that in 2017 and future years, DTSA begins to realize its potential as an effective means for increasing the protection – and thus raising the value – of American trade secrets.
For most of 2016, it appeared that the biggest and most impactful events of the year in the copyright universe were going to be the numerous studies conducted, roundtables held and reports issued by the U.S. Copyright Office. It’s difficult to recall a year when the Office has been busier. The Copyright Office solicited input on such important copyright policy issues such as: the DMCA’s notice and takedown process, the anti-circumvention provisions of Section 1201, mandatory deposit, personably identifiable information (PII), and software-enabled consumer products. And in the latter half of 2016, some of these studies matured into reports.
This year was also highlighted by the case that the Supreme Court opted not to take — the Authors Guild’s suit against Google. By denying cert in the case, the Court passed up a golden opportunity to define the application and scope of fair use in the digital age and to provide needed guidance to the copyright owner and user communities and online platforms.
In Congress, we also saw two small claims bills introduced, the Copyright Alternative in Small-Claims Enforcement (CASE) Act of 2016, H.R. 5757, by Reps. Hakeem Jeffries and Tom Marino; and more recently, the Fairness for American Small Creators Act, H.R. 6496, by Reps. Judy Chu and Lamar Smith. The need for a small claims system was also highlighted in the first policy proposal (on Reform of the U.S. Copyright Office) of the House Judiciary Committee’s copyright review that was announced by Chairman Goodlatte and Ranking Member Conyers in early December. This policy proposal is important because it represents the next step in the years-long House Judiciary Committee’s copyright review and a promising step toward the eventual enactment of some copyright reforms.
This past year has also been extremely busy for the Copyright Alliance team in general. In addition to addressing and supporting the many policy and copyright-related initiatives that called for our attention and support, we launched a new website that is designed to serve as a “one-stop-shop” where anyone – individual creators, small and large businesses, users, libraries, students, copyright lawyers, government officials, Copyright Alliance members and members of the public – can come to find the information about copyright they’re searching for.
In a normal year, any of these events standing alone would be enough to highlight the year in copyright. But these events pale in comparison to the news that came down on October 21 that Register Maria Pallante was being removed by the new Librarian of Congress, Dr. Carla Hayden (who had been in her position for a mere five weeks when she removed Register Pallante from her role). Never before has a Register of Copyrights been removed from his or her post by a Librarian. Register Pallante was strongly supported by copyright owners of all type and size as well as by the Office’s Committees of Jurisdiction, the House and Senate Judiciary Committees. So not surprisingly, her abrupt removal rocked the copyright community and was met with widespread objections and outrage. It remains to be seen how the Librarian’s actions will affect the future relationship between the Library and the Copyright Office.
In late December, we did get a peek into the future relationship between the Librarian and the House and Senate Judiciary Committees, and it wasn’t pretty. In the aforementioned policy proposal from Chairman Goodlatte and Ranking Member Conyers, they explicitly stated that “the next Register and all that follow should be subject to a nomination and consent process.” In contravention of this announcement, the Librarian decided to move forward on December 23 with a survey monkey to solicit input from the public on the attributes of the next Register. As the Librarian continues to move forward with her plans to select the next Register of Copyrights, the stage has been set for these and many other important copyright issues to be played out in 2017.