DOJ Official Says Acquisitions of Non-Essential Patents Are Reviewed Under the Same Standard as Essential Patents

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1 FEBRUARY 11-15, 2013 THIS WEEK S CONTRIBUTING AUTHORS ARE SHYLAH R. ALFONSO AND KEVIN ZECK EDITED BY KOREN W. WONG-ERVIN PATENTS DOJ Official Says Acquisitions of Non-Essential Patents Are Reviewed Under the Same Standard as Essential Patents Speaking at a conference last week, Jeffrey Wilder, Assistant Chief of the Antitrust Division s Competition Policy Section, stated that, while it is important to consider standard-essential patents (SEPs) when reviewing the sale of a patent portfolio including the fact that those patents were made essential by the collective action of rivals in a standard-setting organization they should not, in his view, change an enforcer s review. As an enforcer, someone who looks at the two deals [one involving SEPs and one involving non-seps], analytically the way I would approach it would be identical, Wilder said. According to Wilder, any review of a portfolio sale that includes SEPs will have to factor in FRAND commitments, and whether the existence of standard-essential patents makes it easier for the agencies to prove market power. But if you set those aside, I don t think there should be any difference in how we review mergers, he said. Source: Ron Knox, U.S. Official: Essential Or Not, Patent Sales Should Get The Same Review, GCR (Feb. 11, 2013), available at USPTO Publishes Final Rules and Guidelines Governing First-Inventor-to-File On February 13, the USPTO published final rules of practice implementing the first-inventor-tofile provision of the Leahy-Smith American Invents Act (AIA), which takes effect on March 16, The USPTO also published final examination guidelines setting forth the agency s interpretation of how the first-inventor-to-file provision alters novelty and obviousness determinations for an invention claimed in a patent application. In particular, the agency s final -1-

2 examination guidelines discuss how the AIA s changes to the novelty provisions of law alter the scope of what is prior art to a claimed invention and how the new grace period operates. According to Acting Under Secretary of Commerce for Intellectual Property and Acting Director of the USPTO Teresa Stanek Rea, [m]igration to a first-inventor-to-file system will bring greater transparency, objectivity, predictability, and simplicity to patentability determinations and is another step towards harmonizing U.S. patent law with that of other industrialized countries. (USPTO Press Release at 1.) Prior to the passage of the AIA, the USPTO was the only national patent office using a first-to-invent system. The USPTO will provide more information on the first-inventor-to-file final rules and examination guidelines at a public training session to be held on Friday March 8, 2013 at the USPTO s headquarters in Alexandria, Virginia. The training session will be webcast. Details on webcast access will be available on the AIA micro-site at Sources: USPTO Press Release, available at Final Rule, available at Examination Guidelines, available at USPTO Holds First Software Partnership Roundtable to Discuss Ways to Enhance the Quality of Software Patents On February 12th, the USPTO held the first roundtable for its new Software Partnership, which was created last month to work with the software community to explore ways to enhance the quality of software-related patents. During the roundtable, members of the software community stated that the USPTO should scrutinize software patent applications more aggressively to ensure that it issues fewer broad and vague patents. The real problem is that software patents are too broad and claim software that solves the same problem, stated Stanford University Law Professor Mark Lemley. The use of functional language in software patents allows multiple patentees to file suit claiming that they invented video on demand or voice over Internet protocol technology since their patents claim the function and not the application they purportedly invented, Lemley said. According to Santa Clara University Professor Colleen Chien, approximately 82% of all defendants in patent troll cases are sued on the basis of software patents. Some stakeholders, such as Microsoft Deputy General Counsel Horacio Gutierrez, contended that the problem of vague software patents can be solved without changing the law or patent office regulations, but by having patent examiners look at such patents more carefully. The USPTO should focus on when a claim has multiple interpretations and reject those that do, stated Horacio. The process is already in place, but it has not been applied as rigorously as it should be. Others, such as Jon Potter, President of the Application Developers Alliance, contended that software should not be patented at all. Also last week, President Obama (responding to a question about software patents during a video chat) stated that additional legislation is needed to address software patents and non-practicing -2-

3 entities (NPEs). According to the President, NPEs are a classic example [of a problem that needs to be addressed]: They don t actually produce anything themselves. They re just trying to essentially leverage and hijack somebody else s idea and see if they can extort some money out of them. The President stated that the American Invents Act only went about halfway to where we need to go. What we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws, he said. Sources: Ryan Davis, USPTO Urged to Limit Vague Software Patents, Curb Trolls, Law360 (Feb. 12, 2013), available at (subscription required) Colleen Chien and Aashish Karkhanis, Software Patents & Functional Claiming, Presentation to PTO Software Partnership Roundtable (Feb. 13, 2013) at 5, available at Ryan Davis, Obama Blasts Patent Trolls, Says New IP Law Needed, Law360 (Feb. 15, 2013), available at PHARMACEUTICALS Valeant Settles Wellbutrin Class Action with Indirect Purchasers for $11.75M Last week, Valeant Pharmaceuticals International Inc. agreed to pay at least $11.75 million to settle a class action brought by health insurers and other indirect purchasers alleging that Valeant and GlaxoSmithKline (GSK) unlawfully delayed the availability of generic versions of Wellbutrin XL causing the plaintiffs to pay higher prices for Wellbutrin XL and its generic equivalents. Specifically, the plaintiffs alleged that Biovail and GSK filed sham patent infringement lawsuits against makers of generic versions of Wellbutrin XL and filed a sham citizen petition with the FDA in order to keep generic versions of the medicine off the market. Plaintiffs further alleged that the defendants settled their patent infringement lawsuits by entering into anticompetitive agreements that further delayed the arrival of generic Wellbutrin XL on the market. Under the settlement, which must be approved by the court, Valeant has agreed to pay the higher of (1) $11.75 million in cash plus the lesser of $500,000 or 50% of the actual costs of notifying the class members of the settlement or (2) 30% of the amount Valeant agreed to pay the direct purchasers in a separate, related action. Ten percent of the settlement will go to consumers and 90 percent to third-party payors. The proposed settlement class is defined as all persons or entities who purchased Wellbutrin or one of its generic equivalents from November 2005 through April Excluded from the class are flat co-payers who paid the same amount regardless of the retail purchase price. -3-

4 Sources: In re Wellbutrin XL Indirect Purchaser Antitrust Litig. (E.D. Pa.) (Memorandum and Settlement Agreement), available at Operative Complaint, available at Daniel Wilson, Valeant Pays $12M To Settle Wellbutrin Antitrust Claims, Law360 (Feb. 15, 2013), available at COPYRIGHTS European Group of Authors and Composers Submits EC Complaint Over New Spanish Royalty Decree Last week, the European Group of Societies of Authors and Composers, GESAC, submitted a complaint to the EC alleging that the new Spanish Royalty Decree on private copying infringes EU law. The new Royal Decree adopted by Spain in December 2011 abolished the private copying remuneration scheme and fixed the level of compensation for right holders to 5 million, less than 5% of the compensation previously established. GESAC contends that the amount of the compensation is clearly not complying with the fair compensation provided for in the Directive 2001/29/EC. Moreover, under the new regulation, payments are now paid by the State Budget, which means that the burden falls on all citizens instead of only those who make the actual private copying. Source: Company Statement: GESAC is lodging a complaint against Spanish law on private copying for not complying with EU law, MLex (Feb. 13, 2013), available at THE TECHNOLOGY SECTOR FTC Commissioner Wright Discusses Two-Sided and Multi- Sided Platforms Speaking at a conference last week, FTC Commissioner Joshua D. Wright stated that he believes guidance on antitrust enforcement of two-sided and multi-sided platforms would be useful, but he is unsure enforcers know enough to provide guidance. According to Wright, the economics are clear enough to provide some guidance. For example, he said, we know a one-sided SSNIP -4-

5 test won t work in a multi-sided market when attempting to get the full picture of market power. I don t think we need to wait for ten years of data to come in to know that is a misguided approach, he said. I do think there is an opportunity for guidance on a case-by-case basis, but in terms of very general proclamations or guidelines about what the agencies ought to be doing in platform cases, I don t think that s coming any time soon, Wright said. Source: Ron Knox, Wright: Guidance on two-sided markets may prove difficult, GCR (Feb. 11, 2013), available at UPCOMING PROGRAMS IP Fundamentals for Antitrust Attorneys February 22, 2013 In this first of a two-part series of joint programs hosted by the ABA Section of Antitrust Law and the ABA Section of Intellectual Property Law panelists will cover the fundamentals of intellectual property law for antitrust attorneys. Panelists will explore such matters as the basics of patent, copyright, and trademark law, including how you determine the bounds of a patent right, what is claim construction, what is functional language and why are software patents so controversial, what rights do copyrights and trademarks provide, and what is the difference between the ITC and federal court. Panelists will also discuss the implications for antitrust law, including reverse payments, sham litigation, and standard-setting. Pay-For-Delay on Both Sides of the Atlantic: A Comparison of US and EC Approaches to Pharmaceutical Patent Settlements February 26, 2013 Pharmaceutical patent settlements have been subject to scrutiny for more than a decade now by antitrust authorities. The FTC began challenging these settlements in the late 90 s, and the legality of these settlements under U.S. antitrust law following numerous court of appeals decisions is now teed up for Supreme Court review this Spring. The European Commission has brought significant resources to bear regarding settlements with its Sectoral Inquiry launched in 2008 and recent challenges in two matters. The following program will examine and compare the approaches to challenging pharmaceutical patent settlements on both sides of the Atlantic. -5-

6 The Fundamentals of Hot Topics in Antitrust-IP March 13, 2013 Panelists will explore the fundamentals of current hot topics at the intersection of antitrust and intellectual property law. Topics will include the new joint DOJ and USPTO Policy Statement on remedies for FRAND-encumbered standards-essential patents, reverse payments, patentassertion entities, and the FTC s recent consent decrees in Bosch and Google. Patent Injunctions for Standardized Technology: Update on Antitrust Debate March 20, 2013 The patent wars among tech companies, especially in the smartphone industry, has led to a debate about whether antitrust law should prohibit owners of standard-essential patents (SEPs) from seeking injunctions where those owners commit to license their SEPs on fair, reasonable and nondiscriminatory terms or FRAND terms. Should antitrust law impose a no injunction rule and, if so, on what basis? Are injunctions ever justified? International Licensing Issues April 23, :00-1:15 PM Eastern In this third program of a series of joint programs hosted by the Intellectual Property and International Committees, panelists will explore licensing issues in Brazil, Canada, the EU, and the U.S. Panelists from the FTC, the EC, and private practice, including a former enforcer from CADA, will provide an overview of existing law and discuss new developments such as the EC s current review of its Technology Transfer Block Exemption Regulation and Guidelines. The program will also include hypothetical questions aimed at providing a comparative analysis of the different jurisdictions

7 A special thanks to Debbie Bellinger and Ian Horkley for their weekly contributions to tidbits. -7-