Tuesday, February 20, 2018

Data on the first year of the Defend Trade Secrets Act

In preparing for the Evil Twin Debate on the DTSA, David Levine (Elon) and Chris Seaman (Washington & Lee) were kind enough to share a draft of their empirical study of cases arising under the first year of the Defend Trade Secrets Act. Now that the article is forthcoming in Wake Forest Law Review and on SSRN, it only makes sense to share their latest draft. Here is the abstract:
This article represents the first comprehensive empirical study of the Defend Trade Secrets Act (“DTSA”), the law enacted by Congress in 2016 that created a federal civil cause of action for trade secret misappropriation. The DTSA represents the most significant expansion of federal involvement in intellectual property law in at least 30 years. In this study, we examine publicly-available docket information and pleadings to assess how private litigants have been utilizing the DTSA. Based upon an original dataset of nearly 500 newly-filed DTSA cases in federal court, we analyze whether the law is beginning to meet its sponsors’ stated goals of creating more robust and efficient litigation vehicles for trade secret misappropriation victims, thereby helping protect valuable American intellectual property assets.
We find that, similar to state trade secrets law, the paradigm misappropriation scenario under the DTSA involves a former employee who absconds with alleged trade secrets to a competitor. Other results, however, raise questions about the new law’s ability to effectively address modern cyberespionage threats, particularly from foreign actors, as well as the purpose (or lack thereof) of trade secret law more broadly. We conclude by discussing our data’s implications for trade secret law and litigation, as well as commenting on the DTSA’s potential impact on the broader issues of cybersecurity and information flow within our innovation ecosystem.
I found this to be an interesting, thorough, and insightful article. I think that the takeaways from the data will differ based on one's views of the DTSA. I suspect my view of the data is different from the view that Levine & Seaman have. Regardless, having the data to work with is immensely useful.

That said, there's still work to be done. The next step for anyone studying this area will be the next layer - looking at the most difficult concerns. For example, one of the most concerning aspect were  seizures; it would be helpful to know a) how often they are sought, b) how often they are granted, and c) what the circumstances were that led to granting. This article gives a good template for how to proceed with followup projects, and I am hopeful that Levine & Seaman keep it going!

Wednesday, February 14, 2018

Hall & Helmers on the European Patent Convention's Impact on Patent Filings and Foreign Direct Investment

The Impact of International Patent Systems: Evidence from Accession to the European Patent Convention, which Michael Risch posted about yesterday, caught my eye as well. As Michael explained, economists Bronwyn Hall and Christian Helmers examined the impact on patent filings and foreign direct investment (FDI) for fourteen countries that joined the European Patent Convention (EPC) between 2000 and 2008. (The countries are Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Iceland, Lithuania, Latvia, Norway, Poland, Romania, Slovenia, Slovakia, and Turkey.)

They find only a small change in patenting by a country's domestic entities. Foreign entities, however, rapidly switched to filing at the EPO, causing their filings in national offices to drop by over 90%. This figure nicely illustrates the effect:


There was not a similar change to FDI: "Despite the clear impact on patent filings, using firm-level data on FDI, we find only very weak evidence that non-residents changed their investment in accession countries following accession to the EPC."

Hall and Helmers argue that these results show "the differential effect of accession to a regional patent system on residents and non-residents of the mostly smaller, less developed accession countries in our sample. Non-residents certainly benefit from the expansion of the regional patent system given their strong reaction, but the net effect on residents is a lot less clear." In other words, joining the EPO creates costs for these countries (because there are more foreign patents, with the resulting deadweight loss) without a strong corresponding gain in domestic innovation or FDI.

In his post yesterday, Michael said it wasn't clear to him why we would have expected stronger IP rights to increase FDI, but this has been one of the main arguments for why developing countries might benefit from joining patent treaties such as TRIPS. For just a few of many articles laying out these arguments—and noting the weak evidence base behind them—see the seminal works by Edith Penrose in 1951 and 1973 or the 1998 Duke symposium articles by Carlos Braga & Carsten Fink and by Keith Maskus.

Studying the impact of changes in patent law through cross-country studies is incredibly difficult (as I have previously explained), but I thought this was a nice empirical design with appropriately nuanced conclusions, and it is certainly worth a download for anyone interested in the impact of the internationalization of the patent system.

Tuesday, February 13, 2018

How Does Country Consolidation Affect Patenting?

Just a short entry today about an interesting new NBER paper by Bronwyn Hall (Berkeley Economics) and Christian Helmers (Santa Clara Business) (behind a paywall, sorry, though most academics can download for free). The question is what happened to patenting activity when the ability to consolidate patenting in a single super-entity comes into play. Hall and Helmers consider this question in the context of the European Patent Convention, which allowed inventors to file with a single entity (the EPO) that granted patents good in any one of several member countries.

Here's the abstract of what they found:
We analyze the impact of accession to the regional patent system established by the European Patent Convention (EPC) on 14 countries that acceded between 2000 and 2008. We look at changes in patenting behavior by domestic and foreign applicants at the national patent offices and the European Patent Office (EPO). Our findings suggest a strong change in patent filing behavior among foreigners seeking patent protection in the accession states, substituting EPO patents for domestic patents immediately. However, there is little evidence that accession increased FDI by patenting foreign companies in accession countries. Moreover, there is no discernible reaction among domestic entities in terms of domestic filings, although we do find some evidence that applicants in accession states increased their propensity to file patents with the EPO post-accession. Inventor-level information suggests that the underlying inventions originate in the accession states.
Let's unpack this a little bit. First, for those who were in EPC countries, they continued to file in their home countries and the EPO at the same rate. It's unclear why - perhaps they wanted the extra chance at protection, or perhaps it was for vanity.

Second, in EPC countries, the rate of invention (measured by patent filings) went up, but only a small amount. But because the rates were pretty low, even a small change was a real change.

Third, foreign patent filing shifted to the EPO almost wholesale. Whereas EPC filers chose both, foreign filers seemed to appreciate the ability to get one patent to cover all countries. The implication I take from this is that EPC filers had some strong reason for that national coverage rather than some worry about overlapping protection if one patent were invalidated.

Finally, the foreign filings did not lead to much increased foreign direct investment. In other words, the EPC appears to have allowed for cost savings for foreigners, cost increases for locals (by their choice, mind you), and not much else. From the discussion in the article, one takeaway from this is that strengthening of IP rights did not necessarily increase foreign investment. It's not clear to me why we would have expected this. While strengthening IP in the way that the EPC did should make it cheaper to obtain protection, it is unclear why companies would move R&D that they already have underway to take advantage of it. After all, they are already happy with the R&D they have; the continued national filings of EPC firms imply this. The cost efficiencies alone should be enough (note also that a single source may be cheaper IP, but it may not be stronger - it may be easier to invalidate a single patent in multiple countries than multiple patents in multiple countries).

That said, if formation of the EPC were grounded on claims that, if only it were easier to get broad protection, everyone would start doing more R&D in, say, Portugal, then those claims were misguided.

Thursday, February 8, 2018

Kevin Soter on Causation in Reverse Payment Antitrust Claims

Readers of this blog are likely familiar with the Supreme Court's 2013 FTC v. Actavis decision, which concluded that certain "reverse payment" pharmaceutical patent litigation settlements could violate the antitrust laws and that "it is normally not necessary to litigate patent validity to answer the antitrust question." Actavis had plenty of academic input before it was decided and has continued to spark vigorous scholarly debates, such as an article by Edlin, Hemphill, Hovenkamp & Shapiro, a response by Harris, Murphy, Willig & Wright, and a reply from the original group.

But until I read Kevin Soter's forthcoming Stanford Law Review Note, Causation in Reverse Payment Antitrust Claims, I wasn't aware of the developing circuit split over reverse-payment antitrust suits brought by private individuals rather than the government.

Unlike the government, private individuals must establish "antitrust standing," including the need to show causation of injury-in-fact, which limits enforcement to groups like drug purchasers, consumer groups, or insurers that might actually be harmed by the settlement. Under the approach to causation adopted by the Fifth and Third Circuits, "plaintiffs must prove precisely how, absent the illegal settlement agreement, generic entry would have happened earlier," which can require litigation of patent invalidity or noninfringement. Other courts—including the California Supreme Court, three district courts, and perhaps the Second Circuit—use the same inference as in Actavis, "reasoning that a plaintiff who has shown an antitrust violation based on a reverse payment settlement agreement has necessarily shown an agreement to delay generic entry beyond the otherwise expected date of generic entry."

Soter sides with the latter approach, arguing that the causation inquiry for private plaintiffs is no different from the inquiry over anticompetitive effects at issue in Actavis, for which litigation of patent validity is unnecessary. And he notes that a burden-shifting approach could address lingering concerns by allowing defendants to rebut the inference of causation.

The best part of teaching at Stanford is having extraordinarily talented students who can produce works like this, and I thought it was worth highlighting for anyone who has been following the pharmaceutical patent litigation antitrust debates.

Tuesday, February 6, 2018

Can You Copyright a Pose?

An interesting case caught my eye this week, and piqued my interest enough to explore further. In Folkens v. Wyland Worldwide the Ninth Circuit considered whether Wyland's depiction of crossing dolphins copied from Folkens's original. Below is a reproduction from the complaint, but it doesn't really do them justice. Better versions of Folkens (pen and ink) and Wyland (color) highlight the similarities and differences.


Folkens v. Wyland
Folkens (left) v. Wyland (right)

The differences between these two are relatively clear: coloring, "lighting," background, and so forth. But there are undeniable similarities, and the primary similarity is the dolphin "pose," which is strikingly similar. It is this similarity (and the Ninth Circuit's treatment of it) that I'd like to explore. Nothing in this analysis, however, should be taken to mean that I think Folkens should necessarily win here. My concern is only with how the court got there, as I discuss below.

Friday, February 2, 2018

Beebe & Hemphill: Superstrong Trademarks Should Receive Less Protection

I have taught the multifactor test for trademark infringement four times now (using the 9th Cir. Sleekcraft test), and each time, some student has questioned which way the "strength of the mark" factor should cut. As a matter of current doctrine, stronger marks receive a broader scope of protection. But smart Stanford Law students who are not yet indoctrinated with longstanding trademark practices ask: in practice, isn't there less likely to be confusion with a strong mark?

In their new article, The Scope of Strong Marks: Should Trademark Law Protect the Strong More than the Weak?, Barton Beebe and Scott Hemphill expand on this intuition: "We argue that as a mark achieves very high levels of strength, the relation between strength and confusion turns negative. The very strength of such a superstrong mark operates to ensure that consumers will not mistake other marks for it. Thus, the scope of protection for such marks ought to be narrower compared to merely strong marks."

The doctrinal relationship between trademark strength and protection was not always as clear as it is today. For example, Beebe and Hemphill point to a 1988 decision by Judge Rich of the Federal Circuit: "The fame of a mark cuts both ways with respect to likelihood of confusion. The better known it is, the more readily the public becomes aware of even a small difference." This more nuanced approach to consumer confusion also finds support in many foreign trademark cases.

To be sure, Beebe and Hemphill are really making an empirical claim about consumer perceptions, and the evidence base is quite limited (though they cite some related studies at notes 102-03). But as they note, the current doctrine relies "on a jumble of untested empirical assertions," and their argument makes a good deal of intuitive sense. At the very least, this article should spur trademark scholars, practitioners, and judges to reexamine their understanding of the relationship between strength and protection. And the next time one of my students asks about this, I'm glad I'll be able to send Beebe and Hemphill's work their way.

Tuesday, January 30, 2018

Saying Goodbye to Chief Wahoo?

A couple years ago, my youngest son was “drafted” onto the Indians Little League team. It was cringeworthy. The name was bad enough (and I’m thankful my alma mater had the good sense to abandon it nearly 50 years ago), but right there on the hat was Chief Wahoo. Needless to say, among the many baseball caps we have in our family, that one hasn’t seen the light of day since the season ended.

Yesterday, the Cleveland team and Major League Baseball announced that they are retiring the logo from uniforms in a year (they had already removed it from in and around the stadium apparently). It’s unclear why it cannot be done sooner, but I’ll give them the benefit of the doubt that manufacturing for next season is already underway and cannot be changed. Good riddance.

Buried in this news is an interesting IP theory and policy tidbit worth discussion. The team is not abandoning the logo altogether. To maintain trademark rights, it will continue to sell Chief Wahoo merchandise in the Cleveland area. That’s right, trademark law is forcing the team to keep selling merchandise with an offensive logo that it claims to no longer be using.

As I discuss below, this is an area where I expect folks will be torn.

Tuesday, January 23, 2018

Evidence of Peer Group Influence on Patent Examiners

Michael Frakes and Melissa Wasserman have gotten a lot of mileage out of their micro data set on patent examiner behavior over time. Prior work includes examination of grant incentives, agency funding, time availability, and user fees.

Their latest paper tackles peer group influence - that is, the effect that both peers at the same level and supervisory examiners have on grant rates. The draft is on SSRN and the abstract is here:
Using application-level data from the Patent Office from 2001 to 2012, merged with personnel data on patent examiners, we explore the extent to which the key decision of examiners — whether to allow a patent — is shaped by the granting styles of her surrounding peers. Taking a number of methodological approaches to dealing with the common obstacles facing peer-effects investigations, we document strong evidence of peer influence. For instance, in the face of a one standard-deviation increase in the grant rate of her peer group, an examiner in her first two years at the Patent Office will experience a 0.15 standard-deviation increase in her own grant rate. Moreover, we document a number of markers suggesting that such influences arise, at least in part, through knowledge spillovers among examiners, as distinct from peer-pressure mechanisms. We even find evidence that some amount of these spillovers may reflect knowledge flows regarding specific pieces of prior art that bear on the patentability of the applications in question, as opposed to just knowledge flows regarding general examination styles. Finally, we find evidence suggesting that the magnitude of these peer examiner influences are just as strong, or stronger, than the influence of the examination styles of supervisors.
I'll admit that I was skeptical upon reading the abstract. After all, I would expect that grant rates would rise and fall together in any given art unit, based on either technology or the trends of the day. Indeed, the effect is not so large as to rule some other influences.

But by the end, I was convinced. Here are a couple of the findings that were most persuasive (in addition to the fact that I think they specified fixed effects nicely):
  1. The effect is more present during the early years, and tends to get "locked in" with experience
  2. The effect is more present with peers than with supervisory examiners
  3. The effect is more present for examiners who do not telecommute - this, to me, was the best robustness check
  4. Examiners who do not telecommute tended to behave similarly in obviousness (v. novelty) and also to cite the same prior art (that was not cited as frequently by those to telecommute)
This paper's framing is interesting. I read it, of course, because it is a patent paper, but Frakes & Wasserman open with a more generalized pitch that this is about employment peer effects. I suppose it is about both, really, and it is worth taking a look at if you are interested in either area.

Monday, January 22, 2018

What happened in patent law in the past year?

Last Thursday I gave a 25-min recap patent law update to judges and practitioners at the Northern District Practice Program Patent Law Symposium, and I thought blog readers might be interested in my recap of highlights from the past year:

Patent Case Filings and Procedure: Venue, PTAB, and Stays

Lex Machina reports that there were 4057 cases filed in 2017, down 10% from the 4529 in 2016. The biggest procedural change was to venue. As I have explained, in its May 2017 decision in TC Heartland, the Supreme Court held that for purposes of the patent venue statute, a corporation only "resides" in its state of incorporation. The Federal Circuit has since held that this was a change in law, so the venue defense was not "available" under FRCP 12(g)(2), allowing district courts in pending cases to consider venue arguments that were not previously raised by defendants. And the Federal Circuit has offered guidance on the other possibility for proper venue—"where the defendant has committed acts of infringement and has a regular and established place of business"—saying that this requires (1) a fixed, physical presence that (2) is regular and established (not transient) and that (3) is a place of the defendant (not merely of an employee).

TC Heartland is likely responsible for the decline in cases filed in E.D. Tex. and the uptick in districts like D. Del. and N.D. Cal., though in neither of the latter have filings reached pre-2015 levels:

Saturday, January 20, 2018

Crowdsourced Bibliography on IP and Distributive Justice

Professor Estelle Derclaye recently sparked a terrific email thread among IP professors about articles tackling IP from a distributive justice perspective. Here is a lightly edited list of the suggested works, roughly in chronological order, with links (open access, where possible) and, for somewhat arbitrarily selected works, short quotations or descriptions. If you have additions or corrections, feel free to email me or add them to the comments.

Tuesday, January 16, 2018

A New Trade Secrets Survey of In-House Counsel

It feels like all trade secrets all the time these days, but the hits keep coming. I've got some patent scholarship queued up, but this new survey caught my eye. David Almeling and Darin Snyder have provided some quality empirical analysis of trade secret cases in the past. Their two articles (written with others) cover both state and federal courts, and provided solid empirical support for the proposition that most trade secret cases involve ex-employees rather than strangers.

They have now extended this work with a new study (co-authored with Carolyn Appel) that surveys in-house counsel about trade secret usage.  The study is here, though it is behind the Law360 paywall, which is unfortunate. It is available on Lexis, I believe, or through a free preview.

The authors surveyed 81 in-house counsel from a variety of industries; however, they acknowledge that their sample is self-selected, which means that those who care most about trade secrets may have answered. They did overyield (another 27 people were not such in-house counsel), which lends some support for the idea that answers were not simply driven by those who cared the most. On the other hand, most respondents worked for large, multi-state companies, which makes one wonder why more in-house counsel for smaller companies did not participate and whether their answers would be any different.

In my prior post on the DTSA and in the Evil Twin debate, I ask why there is a sudden push for the DTSA. This survey gives us some answers about the political economy - 75% of respondents said that trade secrets had grown more at risk in the last ten years, and 50% said they were at much more risk. This fear may or may not be well grounded, but if this is the perception, it will certainly drive policy. Relatedly, respondents reported that patent law changes were not driving use of trade secrets -- only 30% reported using trade secrets instead of patenting. Most, I suspect, want more of both.

A whopping 70% reported that their company had been a victim of trade secret misappropriation. Of those, employees or ex-employees were the perceived culprits 90% of the time, confirming (again) that most misappropriation is not stranger misappropriation.

The most surprising finding of the survey, in my view, was a question about whether the DTSA should preempt the UTSA. Non-preemption allows both to stand, which can not only create conflict, but also allows plaintiffs to choose the most favorable law. In my discussions with people after the debate, some thought non-preemption was the part of the DTSA that most showed a desire to expand trade secret's reach.

So, the surprising result was a nearly even three-way split between supporting preemption, opposing preemption, and not caring one way or the other. While academics seem to think that lack of preemption is a big deal, this self-selected group of in-house counsel seem to not care one way or the other. This finding could actually drive policy choices in the future.

I'll conclude with that brief recap - while the article is short, there is more to see, about the types of secrets, the role in innovation, and the cost of misappropriation. I will end on this note, however: the costs borne by most companies from misappropriation were investigation and litigation. This is to be expected, as everyone investigates and litigation costs are high. But the other costs of misappropriation were spread out among price erosion, loss of sales, increased costs of protection (my own personal theory), and even none. I think this shows two things. First, when messaging in this area is not consistent, it may be that companies are perceiving the problem in their own ways. Second, it may be that enforcement efforts wind up dwarfing the actual harm of misappropriation in some cases.

Monday, January 15, 2018

Is the Defending Trade Secret Act Defensible? The Movie

As noted a couple weeks ago, Orly Lobel (San Diego) and I debated the DTSA at the AALS Conference. As promised, I'm posting video of that conference here.


Wednesday, January 10, 2018

The Powerful Effects of Copyright Reversion

A common type of client I've seen in practice is the founder who sold IP (or company) to another, only to see the creation buried for one reason or another. The client usually wanted the rights back, so as to see the work grow. We invariably had to give the bad news: there was little to do but negotiate for a return (which we sometimes achieved). [Practice tip: build reversion rights into the sales contracts, though the buyer often chokes on such language].

Of course, we explored copyright reversion, which allows for reversion after 35 years for post 1978 works. But in the software area, 3 years might as well be forever. Few software products last 35 years (is Linux a work made for hire? Uh oh).

Paul Heald (Illinois) has done some really useful work in this area. His prior work shows the U-shape curve of books available on Amazon. Recent books are available, and books in the public domain (before the 1920s) are available, but books in copyright but not recent are not available, even those published as few as 20 years ago.

One theme of this work is obviously that copyright terms should be shorter, and that may well be true. But one of my initial takes was that the publishers are to blame - they are sitting on books that authors may well want to publish. Reversion rights are a way to handle this - authors can take over those books and get them published if they want.

In a new article, Paul Heald again looks at this market in a draft article called Copyright Reversion to Authors (and the Rosetta Effect): An Empirical Study of Reappearing Books (located here on SSRN). Here is the abstract:
Copyright keeps out-of-print books unavailable to the public, and commentators speculate that statutes transferring rights back to authors would provide incentives for the republication of books from unexploited back catalogs. This study compares the availability of books whose copyrights are eligible for statutory reversion under US law with books whose copyrights are still exercised by the original publisher. It finds that 17 USC § 203, which permits reversion to authors in year 35 after publication, and 17 USC § 304, which permits reversion 56 years after publication, significantly increase in-print status for important classes of books. Several reasons are offered as to why the § 203 effect seems stronger. The 2002 decision in Random House v. Rosetta Books, which worked a one-time de facto reversion of ebook rights to authors, has an even greater effect on in-print status than the statutory schemes.
Heald gathers three different data sets: bestselling authors, bestselling books, general population of reviewed books. He looks at whether they were available, who published them (big publisher v. independent), and where (paper or ebook). In the rest of the post, I'll briefly discuss the findings and some thoughts.

Thursday, January 4, 2018

Extraterritorial Reach Of The Defend Trade Secrets Act: How Far Did Congress Go?


In the aftermath of the Defend Trade Secrets Act (DTSA), a little discussed, but potentially quite significant, issue is whether civil trade secret plaintiffs can now use federal trade secret law to reach misappropriation that occurs in other countries pursuant to DTSA Section 1837. See 18 U.S.C. § 1837.  This post is a follow-up to my prior post on presentations at last spring's conference "The New Era of Trade Secret Law: The DTSA and other Developments", hosted by the IP Institute at Mitchell/Hamline School of Law. Professor Rochelle Dreyfuss spoke at the conference about her work-in-progress with Professor Linda Silberman, discussed herein.

Tuesday, January 2, 2018

Defending the DTSA

I'm excited to be a participant in the annual Evil Twin debate, coming this Friday in San Diego in connection with the AALS conference. The debate is sponsored by the University of Richmond Law School and will take place at 4:30 at the Thomas Jefferson Law School.

The topic this year is: "Is the Defend Trade Secrets Act Defensible?" I'm taking the "yes" side. My Evil Twin is Orly Lobel, the Don Weckstein Professor of Labor and Employment Law at the University of San Diego Law School.

As a prelude to give her a head start, I thought I would share a recent essay by Professor Lobel: The DTSA and the New Secrecy Ecology, available on SSRN. The abstract is here
The Defend Trade Secrets Act (“DTSA”), which passed in May 2016, amends the Economic Espionage Act (“EEA”), a 1996 federal statute that criminalizes trade secret misappropriation. The EEA has been amended several times in the past five years to increase penalties for violations and expand the available causes of action, the definition of a trade secret, and the types behaviors that are deemed illegal. The creation of a federal civil cause of action is a further expansion of the secrecy ecology, and the DTSA includes several provisions that broaden the reach of trade secrets and their protection. This article raises questions about the expansive trajectory of trade secret law and its relationship to entrepreneurship, information flow, and job mobility. Lobel argues that an ecosystem that supports innovation must balance secrecy with a culture of openness and exchanges of knowledge. This symposium article is based on Professor Orly Lobel’s keynote presentation at the March 10, 2017 symposium entitles “Implementing and Interpreting the Defend Trade Secrets Act of 2016,” hosted by the University of Missouri School of Law’s Center for Intellectual Property and Entrepreneurship and the School’s Inaugural Issue of the Business, Entrepreneurship & Tax Law Review.
The essay lays out a good background of the DTSA and points to some of its key drawbacks. It's a useful read for anyone looking for a relatively balanced synopsis of concerns about the DTSA some experience with it.