Archive for the ‘Intellectual Property’ Category
posted by Andrew Blair-Stanek
IP folks don’t talk enough with tax-law folks, and vice versa. This has some unfortunate results. IP has become a leading tax-avoidance vehicle, without drawing sufficient notice from IP scholars and practitioners. And R&D tax incentives are rarely evaluated alongside patents, prizes, and research grants as effective ways to foster innovation.
An insightful article forthcoming in the Texas Law Review, by Daniel Hemel and Lisa Larrimore Ouellette, takes a big step in bridging this gap. They observe that all innovation incentives can be broken down along three dimensions: (1) who decides (government vs. the market), (2) when paid (ex ante vs. ex post), and (3) who pays (government vs. users). For example, patents are market-driven, with money delivered ex post, from users of the patented technology. By contrast, R&D tax incentives are market-driven, with money delivered ex ante, from the government.
These three dimensions lead to a 2 x 2 x 2 matrix, suggesting a total of eight types of innovation incentives. But only five are currently used: patents, prizes, research grants, R&D tax incentives, and patent boxes (which provide favorable tax rates on patent income). As a result, Hemel and Ouellette’s taxonomy suggests three new mechanisms to encourage innovation. Their taxonomy also teases out some exciting new insights on the relative merits of existing innovation incentives, including some previously overlooked benefits of R&D tax incentives.
June 18, 2013 at 4:15 pm Tags: Daniel Hemel, innovation, IRC 174, IRC 41, Lisa Larrimore Ouellette, r&d, taxes Posted in: Intellectual Property, Law Rev (Texas), Tax, Technology Print This Post No Comments
posted by Andrew Blair-Stanek
Intellectual property has become a major tax-avoidance vehicle for multinationals. Front-page articles in the New York Times and Wall Street Journal have detailed how IP-heavy companies like Apple, Google, and Big Pharma play games with their IP to avoid taxes on a massive scale. For example, Apple uses IP-based tax-avoidance strategies to reduce its effective tax rate to approximately 8%, well below the statutory 35% corporate tax rate (and well below most middle-class Americans’ tax rates).
Two characteristics of IP make it the ideal tax-avoidance vehicle. First, the uniqueness of every piece of IP makes its fair market value extremely hard to establish, allowing taxpayers to choose whatever valuations result in the least tax. Second, unlike workers or physical assets like factories or stores, IP can easily be moved to tax havens via mere paperwork.
But Starbucks is a bricks-and-mortar retailer dependent upon physical presence in high-tax countries. It wouldn’t seem to be in a position to use these IP-based tax tricks. Yet in an excellent, eye-opening paper, Edward Kleinbard (USC) delves into the strategies that Starbucks uses to substantially reduce its worldwide tax burden. Most interestingly, Starbucks puts IP like trademarks, proprietary roasting methods, operational expertise, and store trade dress into low-tax jurisdictions. Kleinbard cogently observes that the ability of a bricks-and-mortar retailer like Starbucks to play such games demonstrates how deep the flaws run in current U.S. and international tax policy.
posted by Gerard Magliocca
As someone who wrote about the problems posed by patent trolls (or opportunistic licensing) years ago, I was heartened by the Obama Administration’s recent set of proposals on that issue. I’m not sure when we decided to start calling patent trolls “patent asserting entities” (Were cave trolls offended?), as any firm that brings an infringement action could be so classified. Nevertheless, administrative remedies and the possibility of further legislation are welcome.
To a large extent, the Administration and Congress are dancing around the real problem–software patents. In my 2007 article, I said that the abolition of software patents would be the best way to deal with trolls. At the time, I thought that was a pipe dream. Maybe it still is, but my sense is that people are more leery of software patents now and are more open to considering a reform in that area. It’s worth waiting and seeing if the new proposals work, but I’m skeptical that they will succeed any more than the America Invents Act of 2011 did.
posted by Gerard Magliocca
One issue that arises periodically in intellectual property is the intersection of copyright and the right of publicity. Suppose I come up with a character or write all of the character’s dialogue. I own the copyright to that. An actor, though, becomes closely identified with the role and has a right of publicity to the use of his likeness. (Say, Daniel Radcliffe and Harry Potter.) If goods are sold bearing that actor’s image as the character, who gets the money? Most of the time a contract will answer this question, but sometimes that is not true. In that case, you can find some authority supporting the actor (the Bela Lugosi case in California, for instance), but not enough to answer the question clearly.
It strikes me that the rebooting of old TV shows or movies with younger actors should play an important role in that analysis. Ten years ago, I would have said that Leonard Nimoy was Spock. How could anyone else play that part? Well, now somebody else does, and people are OK with that. The same is true for other signature roles. Maybe that means that we really are thinking about William Shatner when we see “classic Kirk.” If, on the other hand, only one person has played a role in a high-profile way, it is harder to make that separability argument in favor of publicity rights.
posted by Danielle Citron
Francis Bacon stressed centuries ago that innovation is inevitably influenced by mental and social constraints. It is only by exposing and understanding these constraints, Bacon argued, that society can fully benefit from scientific innovation. But while historians and sociologists of science and technology have long appreciated how institutional norms shape the course, pace, and content of innovation, legal scholarship on patent law has all but ignored this insight. In this Article, I seek to complement traditional law and economic analyses of patent law by developing a sociological and historical approach that focuses in concrete detail on the ways in which scientific knowledge, and thus innovation, is made, maintained, and modified. Rather than focus on individuals and their cognitive abilities as the drivers of innovation, a sociological view of innovation emphasizes the central role of communities of practice in which individual inventors are embedded. Interactions across and within communities of practice influence the speed of innovation. Innovative delay often arises when vested community interests in particular research tools, approaches, and questions block the migration of tools and ideas across communities. Within each community, reliance on interpersonal relationships of trust and authority to determine which research programs and methodologies are legitimate and interesting can also lead to innovative delay. Similarly, periods of fast innovative activity often have sociological explanations. For example, a particular line of research long ignored may become a “hot” topic of research when backed by a high-status intellectual actor. This socio-historical approach is responsive to recent Supreme Court patent law jurisprudence, exemplified by KSR v. Teleflex, that directs courts to take a flexible approach to patentability by considering “the circumstances surrounding the origin of the invention.” Understanding why some scientific innovations take a long time to develop or be endorsed by the scientific community provides an opportunity to reshape patent law as a policy lever to mitigate such delays. Conversely, understanding why other types of innovation occur rapidly and spark swift follow-on innovation calls attention to circumstances in which broad patent rights may impose particularly high social costs. By teasing out social factors that influence the pace of innovation, I offer a framework for taking such considerations into account in the design and application of patent law. I also propose specific changes to patent law doctrine that flow from this framework.
posted by David Schwartz
Previously I posted on the issue of proxy patent litigation. Basically, mass patent aggregators (entities which own or control a large number of patents that they have acquired from elsewhere) litigate only a few of the patents in their portfolio against a large accused infringer. The litigated patents serve as proxies for the quality of their entire portfolio. If the aggregator is successful on the merits (or at least in preliminary rulings, such as defeating the accused infringer’s motions for summary judgment on invalidity and non-infringement), it strengthens their hand considerably in negotiations for a license for the entire portfolio. The proxy litigation is also only one part of a broader dynamic from the aggregator’s perspective: the aggregator’s success in court against one practicing entity not only puts it in a stronger bargaining position against that entity, it may also do so with the rest of industry as well (i.e., other firms may be willing to pay more for a portfolio license).
I now attempt to answer a question I posed in my previous post. Specifically, if the court understood the underlying dispute was litigation-by-proxy, would it (or could it) proceed any differently?
I think it is useful to consider this question through the prism of the classic project management triangle. According to theory, a project has three core attributes: speed, quality, and cost. There is tension among the three attributes, and consequently, one can never maximize more than two of them. For instance, if one wants a project of the highest quality in the fastest time, then it can’t be cheap. Alternatively, if one wants a project fast and cheap, then it can’t be of the highest quality.
Now let’s translate the project management triangle into the judicial process. Several core attributes of a case are speed of resolution, depth and thoroughness of the analysis, and accuracy or correctness of the decision. If the project management triangle is correct and applies to the courts, then all three of these can’t be maximized at once. While the court and litigants want speedy, thorough, and accurate justice, not all are possible in a case.
Now turn back to the proxy litigation by patent aggregators. I submit that the optimal level of speed, thoroughness, and accuracy may be different in proxy litigation than run-of-the-mill litigation. The depth and thoroughness of the opinions may be of less importance in proxy litigation because the adjudicated dispute is not the entire dispute between the parties. Accuracy may be more important since the results of the single dispute will be used to determine the value of a larger portfolio.
Thoughts on the analysis?
posted by David Schwartz
In the last decade or so, patent litigation in the United States has undergone enormous changes. Perhaps most profound is the rise in enforcement of patents held by people and entities who don’t make any products or otherwise participate in the marketplace. Some call these patent holders ‘non-practicing entities’ (NPEs), while others use the term ‘patent assertion entities’ (PAEs), and some pejoratively refer to some or all of these patent holders as ‘trolls.’ These outsiders come in many different flavors: individual inventors, universities, failed startups, and holding companies that own a patent or family of patents.
This post is about a particular type of outsider that is relatively new: the mass patent aggregator. The mass patent aggregator owns or controls a significant number of patents – hundreds or even thousands – which it acquired from different sources, including from companies that manufacture products. These mass aggregators often seek to license their portfolios to large practicing entities for significant amounts of money, sometimes using infringement litigation as the vehicle. Aggregators often focus their portfolios on certain industries such as consumer electronics.
Mass aggregator patent litigation and ordinary patent litigation appear to differ in one important aspect. Mass aggregators sue on a few patents in their portfolio, which serve as proxies for the quality of their entire portfolio. The parties use the court’s views of the litigated patents to determine how to value the full patent portfolio. By litigating only a small subset of their portfolio, the aggregator and potential licensee avoid the expense of litigating all of the patents. But the court adjudicates the dispute completely oblivious to the proxy aspect of the litigation. Instead, the court handles it like every other case – by analyzing the merits of the various claims and defenses.
If the court understood the underlying dispute was litigation-by-proxy, would it (or could it) proceed any differently? I will discuss my thoughts on this question in another blog post. For now, I have a question: does proxy litigation occur in other areas of law?
May 27, 2013 at 11:42 pm Tags: aggregator, Intellectual Property, non-practicing entity, npe, patent, patent litigation, proxy litigation Posted in: Courts, Intellectual Property Print This Post 6 Comments
posted by William McGeveran
In the hubbub surrounding this week’s acquisition of the blogging platform Tumblr by born-again internet hub Yahoo!, I thought one of the most interesting observations concerned the regulation of pornography. It led, by a winding path, to a topic near and dear to the Concurring Opinions gang: Section 230 of the Communications Decency Act, which generally immunizes online intermediaries from liability for the contents of user-generated content. (Just a few examples of many ConOp discussions of Section 230: this old post by Dan Solove and a January 2013 series of posts by Danielle Citron on Section 230 and revenge porn here, here, and here.)
Apparently Tumblr has a very large amount of NSFW material compared to other sites with user-generated content. By one estimate, over 11% of the site’s 200,000 most popular blogs are “adult.” By my math that’s well over 20,000 of the site’s power users.
Predictably, much of the ensuing discussion focused on the implications of all that smut for business and branding. But Peter Kafka explains on All Things D that the structure of Tumblr prevents advertisements for family-friendly brands from showing up next to pornographic content. His reassuring tone almost let you hear the “whew” from Yahoo! investors (as if harm to brands is the only relevant consideration about porn — which, for many tech journalists and entrepreneurs, it is).
There is another potential porn problem besides bad PR, and it is legal. Lux Alptraum, writing in Fast Company, addressed it. (The author is, according to her bio, “a writer, sex educator, and CEO of Fleshbot, the web’s foremost blog about sexuality and adult entertainment.”) She somewhat conflates two different issues — understandably, since they are related — but that’s part of what I think is interesting. A lot of that user-posted porn is violating copyright law, or regulations meant to protect minors from exploitation, or both. To what extent might Tumblr be on the hook for those violations?
posted by admin
by John Duffy, Peter Strauss and Michael Herz
Earlier this year, more than 100,000 citizens petitioned the White House to overturn a copyright rule issued by the Librarian of Congress that made unlocking a cell phone a crime. The White House responded by promising to seek legislation to overturn the Librarian’s rule. That was the most the President would or could do because “[t]he law gives the Librarian the authority,” and the Administration would “respect that process,” even though the Librarian acted contrary to the Administration’s views. See here. As the New York Times reported, “because the Library of Congress, and therefore the copyright office, are part of the legislative branch, the White House cannot simply overturn the current ruling.” See here.
There’s only one problem with all of this: The Department of Justice has been vigorously arguing precisely the contrary constitutional position in the federal courts. Read the rest of this post »
posted by David Schwartz
This post reflects my initial impressions of an important Federal Circuit development in patent law, which is my primary area of scholarly focus. On Friday, the Federal Circuit, sitting en banc, ruled on a controversial and divisive patent law issue, whether software inventions are patent eligible subject matter. Unfortunately, I find the decision in this case, CLS Bank v. Alice Corp., quite unsatisfying.
The court, sitting with 10 judges, issued 7 separate opinions spanning 135 pages. The court only agreed upon a very brief – 55 words – per curiam opinion affirming the district court ruling that the asserted patents were invalid. The per curiam opinion explained that the “method” and “computer readable media” claims were deemed not patent eligible by the Federal Circuit, while the court was equally divided on the status of the “system” claims. (Basically, there are several different ways that a software invention can be claimed in a patent, including as a process/method of performing steps; as software embedded upon a computer readable medium (i.e., a DVD); and as a system (i.e., software running on a machine/computer).) None of the remaining substantive opinions garnered more than 5 votes – thus, none are binding precedent. Although a majority of the Federal Circuit judges found the method and media claims invalid, a majority could not agree upon the reasoning. Below I will briefly provide a few preliminary observations about the opinions.
posted by Stanford Law Review
The Stanford Law Review Online has just published an Essay by Professor Clark D. Asay entitled Kirtsaeng and the First-Sale Doctrine’s Digital Problem. Professor Asay argues that:
[T]he history and purpose of the first-sale doctrine provide good reasons to abandon the licensee/owner dichotomy as well as the formalistic approach to interpreting the doctrine’s applicability to digital transfers. Doing so, furthermore, is unlikely to undermine markets for copyrighted works, but instead will help preserve the appropriate balance between the rights of copyright holders and consumers that first-sale rights have historically helped maintain.
The Kirtsaeng decision helped further cement the first-sale doctrine as an important limitation on the rights of copyright holders. But more cement is needed. Specifically, as the digitization of copyrighted works increases, first-sale rights face increasing peril as copyright holders subject consumers to click-through agreements that eviscerate first-sale rights in effect if not in theory. Furthermore, some courts have recently employed a formalistic ap-proach to the statutory text that renders first-sale rights simply inapplicable to digital transfers. If Kirtsaeng is to avoid becoming the first-sale doc-trine’s “swan song,” courts and Congress must respond to save it.
Read the full article, Kirtsaeng and the First-Sale Doctrine’s Digital Problem at the Stanford Law Review Online.
posted by Taunya Banks
As a follow up to my post last week asking about human dignity, unburied bones and ownership of human cells, here are two related issues that appeared in the Sunday news.
The first item from Sunday’s Baltimore Sun is the belated report of a Reuters story about the controversy over disposition of King Richard III’s newly discovered remains uncovered in a municipal parking lot by the University of Leicester. The long-lost remains of the King, who died in 1485, were exhumed, and the University was given permission to re-inter the remains in Leicester. But the King’s descendants objected claiming that they were not “consulted … over the exhumation and the license allowing the university to re-bury the King, and [that] this failure breached the European Convention on Human Rights.” They want the body buried in York.
The second item is an op-ed by two medical school academics, Jeffrey Rosenfeld and Christopher E. Mason, that appeared in Sunday’s Washington Post about Association for Molecular Pathology et al v. Myriad Genetics, et al, a case that will be argued in the Supreme Court on April 15th. This is important case that has been mentioned on this blog as recently as last February. SCOTUS even featured a symposium spurred by the controversy. At issue is whether, on some level, human genes are patentable. Rosenfeld and Mason oppose patenting DNA. On the other hand, much like the researchers discussing the HeLa cell, the respondents, Myriad Genetics, et al, argue that the issue is much narrower, namely whether the “human” aspect of the specific sequence of isolated human DNA is the result of the efforts of the respondent, and thus patentable. Read the rest of this post »
posted by Gerard Magliocca
I attended a terrific conference organized by Stanford Law School on Friday and Saturday about design patents. The main takeaway is that this doctrine is incoherent. Nobody is sure what design patents are supposed to do. Nobody knows how to judge designs under the standards developed for utility patents. When I wrote about design patents years ago, I had the same feeling, but was unsure because when you are unfamiliar with a topic, there is the possibility that you just don’t get it. When lots of smart people from different perspectives don’t get it, though, that’s probably the law’s fault.
Design patents suffer from a problem that plagues some areas of maritime law and other subjects. People stopped paying close attention to it a long time ago. Statutes enacted in the nineteenth century are out-of-date. The Supreme Court doesn’t grant cert. on new cases. And so on. The Apple-Samusung litigation turned the spotlight back onto design patents, and now people are wondering “What the heck is this?” Maybe that will lead to some action by Congress, but I’m not holding my breath.
posted by Deven Desai
3D printing and its related technology is general purpose technology that can train kids for the future. I saw an example of that yesterday when I was able to visit La Jolla Country Day School where sixth to eighth grade kids on spring break were learning basic 3D Modeling and Design. Last week they worked on How to Make Musical Electronics. In the 3D modeling program, Ann Worth, an MIT School of Architecture graduate, guided the youngsters as they manipulated files of their heads so that at the end of the program they could print them. I also watched a video of two girls who had been shown how to make an amplifier and oscillator for their iPhones. Brendan Bernhardt Gaffney, UCSD was their instructor. The kids talked about trial and error, vectors and faces, and circuit boards with energy and joy. How often does that happen? If Katie Rast and her co-visionaries at FabLab San Diego have their way, much more often.
Despite some nerds are cool ideas, we still hear that kids are turned off by math and science and that there is a lack of good Science Technology Engineering Math (STEM) education. New programs may change all that. By taking an old idea like shop and updating it, a FabLab (short for Fabrication Lab) offers the chance to make learning about programing, engineering, geometry, and the jot of creation. Kids are willing to engage with formulas; start, fail, and restart projects; and work rather hard at their projects, because there is fun and an outcome for them. The spring break program I visited is called Science Technology Engineering Arts and Math, or STEAM. The University of California, San Diego and FabLab SD worked together to offer the classes (which to me is a tech transfer moment that is quite important).
In the 3D modeling program, the kids started with a series of photos, which were uploaded to 123D (a suite of 3D modeling apps by Autodesk). That service knits the images together into a file that the kids then download. In many cases there are holes in the images. As they made models of their heads, they laughed at the holes in their heads. They then used a program called Blender to learn about filling the gaps. That meant some kids were telling me about vectors, others about textures, and all showed off as they pulled, stretched, and edited files to create the proper rendering of their heads. After that, they grabbed files for the bodies. A range of animal bodies will be virtually sliced up to make the new creature upon which the heads will attach. When asked what they might do next, these folks talked about how metals, glass, and other materials would be awesome so they could make really functional items. Some talked about being able to have a home printer that could make solar cells to power other printers. When told that these ideas were already being pursued, eyes popped out of their heads, and then grins covered their faces at thoughts of what’s next (and I think a little pride at predicting where the technology could go).
The skills learned in these programs will persist even as the machines and software are superseded. Who knows? If I had access to this sort of tech training combined with math and science education, I might have stuck with that path. Even if I didn’t, I’d have a greater ability to play with and understand the technology that surrounds us. In short, congratulations to La Jolla Country Day School, UCSD, FabLab SD, Ann Worth, Brendan Bernhardt Gaffney, and Katie Rast for pursuing ways to make STEM fun and for kids. The ideas here remind me of Julie Cohen’s work about play and its importance in her book, Configuring the Networked Self: Law, Code, and the Play of Everyday Practice. As Rast said on a panel at SxSW, computer labs were often seen as saviors for education especially in low income areas, but they often gathered dust. The key is to have maker spaces that work for the group’s context. A lab need not have the latest technology. If the technology is connected to people in meaningful ways, then the magic can happen. I agree. The magic of playing with technology, understanding what you can do with it, and seeing new possibilities will fire the desire to learn and create. As Neil Gershenfeld (a leader in the Maker and Fab movement) put it, this is a liberal, as in liberating, art. But don’t take my word for it. As one kid told me at lunch, adults’ brains are not as good at learning as kids’ brains, and kids like showing what they can do. Now that is education.
posted by Frank Pasquale
When and if money does come in, the universities will get 6 to 15 percent of the revenue, depending on how long they offer the course (and thus how long Coursera has to profit from it). The institutions will also get 20 percent of the gross profits, after accounting for costs and previous revenue paid. That means the company gets the vast majority of the cash flow.
It now looks as if Coursera’s model of siphoning education dollars may be challenged in California. In its race to put more courses online, the UC administration has apparently asked for the following in a provision of a proposed faculty contract with Coursera:
“I hereby irrevocably grant the University the absolute right and permission to use, store, host, publicly broadcast, publicly display, public[sic] perform, distribute, reproduce and digitize any Content that I upload, share or otherwise provide in connection with the Course or my use of the Platform, including the full and absolute right to use my name, voice, image or likeness (whether still, photograph or video) in connection therewith, and to edit, modify, translate or adapt any such Content.”
posted by Deven Desai
In the words of Portlandia, innovation is over. Or as another era of hipsters might say, innovation is dead anyway (Swingers). Take a look at the posturing of European Publishers Council and Google over the recent German bill to force search to pay for material longer than a snippet.
“As a result of today’s vote, ancillary copyright in its most damaging form has been stopped,” Google said in a statement. “However, the best outcome for Germany would be no new legislation because it threatens innovation, particularly for start-ups. It’s also not necessary because publishers and Internet companies can innovate together, just as Google has done in many other countries.”
Translation: Insert resistance is futile jokes as needed, but you will work with us and win! We all will win, because we innovate and belong to the Church of Innovation (located somewhere south of San Francisco and north of San Jose).
“With the right legal conditions and the technical tools provided by the Linked Content Coalition, it will be easy to access and use content legally,” the European Publishers Council said in a statement (PDF) on Friday. “This will mean that publishers will have the incentive to continue to populate the internet with high-quality, authoritative, diverse content and to support new, innovative business models for online content.”
Translation: We have no idea what is next. But please give us more time, protection, and money. We promise we will come up with something new.
Confession: Have I invoked innovation. Of course. It is seductive. It is too seductive. Pam Samuelson is a fan of Orwell’s Politics and the English Language, as is Neil Richards, and as am I. I must confess that I have sinned. I slipped away from Orwell’s mandate and went with the easy, meaningless word. I hate when that happens. I will try and stop.
Of course, what other word or words would say more is the next struggle. The German law says only a snippet is allowed. Right. What’s a snippet? Someone says innovate. I say, “Right. What’s innovate?” I hope to find out. If I am lucky, I may be like Bill Cosby’s Noah and come up with an answer no one else thought of. Hmm is that innovat… Khannn!!!!
Enjoy the clip
posted by Deven Desai
I know that Silicon Valley gets all the hoopla for the way knowledge and industry can thrive, but look a bit north and you will find that similar things happened in the wine industry. That industry just lost a leader. James Barrett was the head of Chateau Montelena when its Chardonnay beat French wines in a taste test that changed the wine industry. He died yesterday. (Stag’s Leap’s Cabernet Sauvignon won the red category). The story (embellished but fun) was told in the film Bottle Shock.
Barrett was an attorney (Loyola L.A., ’51) who became a winemaker. Reports say he fell in love with wine. He followed a dream. I would bet that his legal training helped with the business. Regardless, he and others in Napa changed the wine industry. Part of that success came from using science and research from U.C. Davis to guide the wine making process. The vineyard also employed Mike Grgich who went on to run a rather good vineyard on his own. As Barrett said about the success, “Not bad for some kids from the sticks.”
Technology, lawyers, and new approaches to a business that has made a huge amount of money and that happens to bring joy to those who imbibe wine. What’s not to love? I, for one, will raise a glass to Barrett and hope that other kids from the sticks are inspired to try and do likewise in whatever field they love.
posted by Margot Kaminski
The Supreme Court issued its decision today in Kirtsaeng v. Wiley, addressing whether the first sale doctrine, which prevents copyright owners from further controlling works after sale, applies to works legally manufactured abroad. First sale doctrine allows libraries and second hand bookstores to operate without fear of copyright consequences. Kirtsaeng was a student in the U.S. who made money off of reselling Wiley textbooks that had been published in Thailand. Wiley argued that the first sale doctrine as codified by Congress in 17 USC 109(a) does not apply to works manufactured and sold abroad. The Court disagreed.
This post summarizes the opinion, talks briefly about the conflict that exists between US law and language in our Free Trade Agreements, and then makes a few guesses of what will happen next.
Justice Breyer wrote the majority opinion (6-3), which to those following SCOTUS copyright cases says it all. The majority held that authorized works manufactured abroad are subject to the first sale doctrine, so Kirtsaeng did not infringe copyright by reselling the legally purchased works in the United States. In other words, when coupled with Quality King, Kirtsaeng determines that 17 USC s. 602(a)(1) creates an importation right as part of the distribution right of s. 106, which in turn is limited by first sale in s. 109(a); thus 602(a)(1) is limited by 109(a). (As I’ll discuss below, it is important that this is all statutory interpretation.)
Breyer trumpeted the importance of first sale, emphasizing the “practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial, and consumer activities.” In the absence of first sale doctrine, libraries, used book stores, museums, and retailers would all struggle to trace title for used books and other works originating abroad. As my colleague Christina Mulligan has noted, investigating the licensing history of a work can be costly.
Breyer also got a chance to reorient copyright doctrine from the rights holder to the consumer, remarking that “American law too has generally thought that competition, including freedom to resell, can work to the advantage of the consumer” (at 18). The opinion evinced little sympathy for publishers, explaining that there is “no basic principle of copyright law that suggests that publishers are especially entitled to… charge different prices for the same book in different geographic markets” (at 31).
In the broadest language of the opinion, Breyer explained that a “copyright law that can work in practice only if unenforced is not a sound copyright law. It is a law that would create uncertainty, would bring about selective enforcement, and if widely unenforced, would bred disrespect for copyright law itself” (at 24). This language can be applied to a whole host of current copyright policy, including the little-enforced criminal copyright standard created by the NET Act.
Conflict with Free Trade Agreements (FTAs):
The US Trade Representative (USTR) has bound us to a standard that is now in conflict with Supreme Court caselaw. My co-author Sean Flynn correctly pointed out this morning that Kirtsaeng conflicts with proposed language in the Trans-Pacific Partnership Agreement and language adopted in earlier Free Trade Agreements. In the U.S.-Jordan FTA, for example, Article 4(11) prohibits the “importation into each Party’s territory of copies of works and phonograms, even where such copies were made with the authorization of the author.” This directly conflicts with the Kirtsaeng-Quality King holding that importation is allowable when works were legally purchased abroad.
Similarly, both the Anti-Counterfeiting Trade Agreement (ACTA) and the TRIPS Agreement contain broad border measure provisions that are implicated by Kirtsaeng. Both agreements assume that countries will employ broad border measures in the name of copyright enforcement. Now those border measures must be limited to pirated goods only, not including legally manufactured goods that weren’t authorized for importation.
Each agreement contains “de minimis” provisions that limit border measures from applying to smaller importations. Under TRIPS, copyright-related border measures need not be applied to “small quantities of goods of a non-commercial nature contained in travellers’ personal luggage or sent in small consignments.” ACTA, by contrast, requires that border measures be applied to “goods of a commercial nature sent in small consignments.” This means that under TRIPS, border guards can search everything except for small consignments and personal luggage to determine if goods are infringing. Under ACTA, border guards were required to search through “small consignments” like the ones Kirtsaeng received, to determine if these consignments are “commercial” or “noncommercial” in nature.
Kirtsaeng suggests that these de minimis provisions are now far less significant because border measures should apply to less activity. ACTA’s requirement that border measures must apply even to “goods of a commercial nature sent in small consignments” must now be limited to goods that are copyright infringing, not goods that are unauthorized for importation.
What happens next:
What will happen after Kirtsaeng?
Kagan’s concurrence suggests one outcome: Congress could legislate around the Court’s opinion and re-establish a broader importation right not subject to first sale. But if done carelessly, new legislation will present exactly the same problems for secondary markets such as libraries and museums: the cost of determining whether a good has been legally imported would rise again, discouraging resale markets. As James Grimmelmann tweeted this morning: “If you want national market segmentation, prohibit unauthorized imports, but keep your fingers off resale of the items once they’re here.” I would add that if Congress creates a new prohibition against unauthorized imports, it should clarify that (1) downstream purchasers of legally manufactured but unauthorized imported goods will not be liable for copyright infringement and (2) the de minimis importation of goods manufactured abroad will still be allowed, under TRIPS Article 60.
Another likely outcome post-Kirtsaeng is that rights holders will continue to expand the trend of licensing copyrighted goods rather than selling them. Breyer makes it very clear that first sale applies to owners only. A “lessee of a copy will not receive “first sale” protection but one who owns a copy will receive “first sale” protection, provided, of course, that the copy was “lawfully made” and not pirated” (at 14). Many copyrighted goods are now licensed, not sold, thus working around Kirtsaeng. Amazon, for example, notoriously does not allow you to “purchase” territorially licensed books on the Kindle from other geographical territories.
Finally, there’s the question of what the practical outcome will be if Congress does not legislate. Joe Karaganis has done great work showing that piracy occurs in emerging economies when there is a “failure of affordable access to media in legal markets.” If publishers and other rights holders try to avoid the inevitable arbitrage by raising prices in emerging countries to match prices in the U.S., they may stimulate more piracy in those countries.
posted by Gerard Magliocca
In what will be my last post about 3D printing for a while, I want to make the claim that these devices will be an important tool for enhancing privacy. Why? For the simple reason that it lets people make things without other people or firms knowing what they have done. To the extent that people are deterred from buying things because people in the store will see or because a record will exist from a credit card or an online retailer, that will not be an issue if you have a 3D printer at home and buy raw materials that are basic. This could, of course, include drug paraphernalia or weapons, which are also part of the privacy bundle but raise questions of public safety.
OK, back to the history of the Bill of Rights tomorrow!
posted by Gerard Magliocca
One of the downsides of the growth of 3D printing is that it will give patent trolls something new to feast upon. If you think that one reason we get trolls is that the PTO does not understand a new technology and grants patents that should not be granted, then 3D printing is ripe for the plucking.
Let’s look at this from the perspective of software. (Hardware provides more legitimate opportunities for 3D printer patents.) At present, the 3D printing community operates on an open-source software premise. Some folks, though, will eventually go to the PTO seeking software patents. Almost all of these applications should be rejected. Very few 3D software files will be novel or nonobvious. Many of them will just be scans of actual objects. Others will be drawings that an ordinary person skilled in the art could do. Even if something is patentable, the patent should be quite narrow.
Will the patent examiners understand this? I’m kind of skeptical. And those patents are likely to cause trouble for years to come.