Friday, 2 October 2015

Innovation in Latin America: the tunnel may still be there, but the light is still burning

The following report was provided by Felix Rozanski, based in Buenos Aires, who is the Coordinator at the Study Center CEDIQUIFA and Secretary of ASDIN (Intellectual Rights Association).
The Sixth Annual Latin America Seminar on “The Value of Intellectual Property for Innovation and Health” was recently held at Cayetano Heredia University in Lima, Peru. A varied group of public officials, judges and experts from throughout Latin America gathered to discuss the promotion of innovation, particularly from the perspective of the legal tools offered by patents and other rights available under the intellectual property regime. The process of awareness about the value of innovation and intellectual property can be said to have started in Latin America with the conclusion of the negotiations over the establishment of the World Trade Organization and TRIPs Agreement in 1995, this despite the fact that portions of these arrangements were (and to some extent still are) strongly resisted by many emerging economies. The bilateral trade agreements concluded with the United States after TRIPs, the educational campaign implemented by WIPO, the support provided by the lines of credit made available by the World Bank and the Inter-American Development Bank, as well as lessons learnt from the success of such countries as Israel, South Korea and Singapore, have been key contributory factors.

It is encouraging to note that a number of Latin American governments are giving explicit recognition to the crucial importance of innovation for increasing competitiveness and promoting growth at the national level. Therefore, although the proportion of investments directed to promoting innovation is still relatively low, the trajectory is positive and at an increasingly higher rate. Thus, it is currently estimated that investment in innovation in the region as a whole is 0.68% of the growth domestic product (GDP) (versus between 2% to 4% in more developed innovative economies). Only Brazil has reached a level of investment of more than 1% of GDP (albeit before its current economic crisis). In particular, the pharmaceutical sector continues being a major actor in private R&D investment. For example, in Chile, R&D in pharma and biotech is at the top of private investment in innovation (14.38%), followed by software (9.86%).

Still, Latin America continues to wrestle with the problem of how to attract private investment for R&D activities in the region. It is officially estimated that two-thirds of investments in innovation are made by the public sector, while informal estimates suggest that private investment is only about 20% of the total R&D. Regarding how innovation is promoted, each country in the region continues to set its own policies. For example, Peru has approved new tax incentives for R&D investments, effective as of January 1, 2016. Argentina also developed a scheme of providing tax benefits to promote biotech projects, but the law was not implemented. In Chile, research by the public agency CORFO has revealed that R&D-subsidized projects tend to cease as soon as the subsidies come to an end. In Ecuador, an innovative government scheme to hire retired senior experienced researchers to train and help design projects is facing strong headwinds in the face of plummeting international oil prices.

At the intra-country level, there is little coordination among the relevant national agencies in designing and implementing innovation promotion policies, and often such agencies work at cross purposes. There is even less collaboration among countries in the region; mistakes made in one country may be simply repeated in another. An independent Observer monitoring the processes of innovation in the region may be helpful. Such a proposal was made during the Seminar to the Peruvian representative of the Pacific Alliance Free Trade Agreement, comprising Colombia, Chile, Mexico and Peru. Indeed, the Pacific Alliance may be a good opportunity for more extensive collaborations, but to bring it to fruition both the academic and private sectors will need to be more actively engaged. At the enterprise level, only a few firms with activities across Latin America are involved in innovation. On the whole, private companies in the region still must still work on how to develop an innovation culture. Designing realistic long-term innovation strategies is necessary as is better training of staff to support such efforts. As mentioned, finance for innovation projects continues being scarce and while there are many startups in the region, few can be described as engaged in technology. Still, the forecast is that more Latin American companies will be investing in R&D in the future. 
As for IP, the biggest challenges are fragmentation at both the intra-national and transnational levels within the region as well inconsistent treatment of IP rights. For instance, regarding incremental inventions, such as new uses, there are substantial differences in the way that Mexico and Brazil deal with them, on the one hand, as compared with Argentina on the other, which provides thin patent protection for pharmaceutical and biotech inventions. Moreover, studies point to the fact that IP rights and the advantages that they offer for innovation and development are still poorly appreciated by public and private researchers in the region. 
At the most basic level, empirical data indicate that better IP effective protection means more foreign direct investment, which is essential for the region, even more so when growth is slowing. In this vein, the myth that patents work against access to medicines is strongly entrenched. In addition, confusion reigns between the process of patent grant and health-marketing authorization. The result is that there are far too few patents being issued. It is estimated that Latin America registers annually a total of 1,400 national patents. In contrast, a country such as South Korea, with less than 10% of the total Latin American population, registers more than 20 times the number of patents. Against this backdrop, the promotional and educational efforts made by the various national IP agencies should be expanded.

A particularly interesting panel at the Seminar dealt with compulsory licenses. The panel discussed the regime currently applied in Ecuador, where 33 applications for compulsory licenses of pharmaceutical products have been filed, out of which eight have been withdrawn by the applicants, five refer to patents that have ready already expired, ten have already been granted by the Patent Office, while the rest are in the grant process. In contrast, in other Latin American countries, such as Peru and Colombia, applications for compulsory licenses have been far less successful due to the failure by the applicants to provide sufficient supporting the request. Moreover, the regulatory regime for the compulsory licenses in place in Ecuador (Instruction 10-04 issued by IEPI, the I.P. Agency) is not consistent with international and national legislation, with the result that the granting of compulsory licenses under this provision has the perverse effect of de facto abrogating rights in pharmaceutical patents. In doing so, the end result is to send a negative message to foreign investors as to their property rights in Ecuador.

As for the protection of test data, the regulations in force in those Latin American countries that do accept test data protection for the registration of pharmaceuticals by the health authorities restrict such protection to new molecules. Here again, there is a contradiction between government efforts to promote innovation while, at the same time, not providing data protection for incremental innovations, which may well make more sense for developing countries than the invention of an entirely new molecule. In this regard, it is noted that Argentina and Brazil do not grant any type of test data protection for pharmaceuticals.

Overall, the principal take-away from this year’s seminar is that there is much work to do in the region to meet the challenge of attracting more private R&DS investments for innovation.

Monday, 14 September 2015

Electronic Frontier Foundation Successful in DMCA Take-Down Ninth Circuit Case But Issues Remain

The U.S. Court of Appeals for the Ninth Circuit (with jurisdiction over federal appeals in California and several other western states) issued an opinion in Lenz v. Universal Music Corporation.  The Ninth Circuit held that before submitting a Digital Millennium Copyright Act take-down notice a content holder must determine that a use was not a fair use.  The Lenz case involved a take-down notice based on a portion of a Prince song playing during a posted video of Ms. Lenz's children playing.   The Electronic Frontier Foundation, that represented Ms. Lenz with Keker and Van Nest, noted that the decision is particularly important given the upcoming Presidential election and the amount of critical content that may be subject to efforts to censure.  However, the Ninth Circuit also stated that:

To be clear, if a copyright holder ignores or neglects our unequivocal holding that it must consider fair use before sending a takedown notification, it is liable for damages under § 512(f). If, however, a copyright holder forms a subjective good faith belief the allegedly infringing material does not constitute fair use, we are in no position to dispute the copyright holder’s belief even if we would have reached the opposite conclusion. A copyright holder who pays lip service to the consideration of fair use by claiming it formed a good faith belief when there is evidence to the contrary is still subject to § 512(f) liability. . . .

In order to comply with the strictures of § 512(c)(3)(A)(v), a copyright holder’s consideration of fair use need not be searching or intensive. We follow Rossi’s guidance that formation of a subjective good faith belief does not require investigation of the allegedly infringing content. See 391 F.3d at 1003, 1005. We are mindful of the pressing crush of voluminous infringing content that copyright holders face in a digital age. But that does not excuse a failure to comply with the procedures outlined by Congress.

The Ninth Circuit went on to later hold that “willful blindness doctrine may be used to determine whether a copyright holder “knowingly materially misrepresent[ed]” that it held a “good faith belief” the offending activity was not a fair use.”  Notably, the Ninth Circuit briefly touched on the usage of software to discover potentially infringing content, but expressly declined to address the important issue:

We note, without passing judgment, that the implementation of computer algorithms appears to be a valid and good faith middle ground for processing a plethora of content while still meeting the DMCA’s requirements to somehow consider fair use. Cf. Hotfile, 2013 WL 6336286, at *47 (“The Court . . . is unaware of any decision to date that actually addressed the need for human review, and the statute does not specify how belief of infringement may be formed or what knowledge may be chargeable to the notifying entity.”). For example, consideration of fair use may be sufficient if copyright holders utilize computer programs that automatically identify for takedown notifications content where: “(1) the video track matches the video track of a copyrighted work submitted by a content owner; (2) the audio track matches the audio track of that same copyrighted work; and (3) nearly the entirety . . . is comprised of a single copyrighted work.” . . . Copyright holders could then employ individuals like Johnson to review the minimal remaining content a computer program does not cull. . . . During oral argument Universal explained that service providers now use screening algorithms. However, we need not definitively decide the issue here because Universal did not proffer any evidence that—at the time it sent the takedown notification to Lenz—it used a computer program to identify potentially infringing content.

The value of copyrights (and trademarks) rely upon cost-effective enforcement for sure.  And, the issue of automated processing of analysis of trademark and copyright infringement is an important one.  Notably, the U.S. does not have an analogous statutory take-down procedure for trademarks as well.  However, websites are known to follow the basic procedures of the Digital Millennium Copyright Act when trademark owners allege trademark infringement based on third party posting of content on a website.  Trademark owners would be wise to consider whether to follow the Lenz case before issuing a trademark take-down notice. 

Saturday, 12 September 2015

The U.S. Presidential Race and Pharmaceutical Pricing (and More)

The U.S. Presidential Race is pressing ahead.  I’ve written a bit about Donald Trump and the value of his name, here.  Trump has continued to receive a mixed response to his ideas about immigration and has come under increased fire from his party.  Notably, (mostly) conservative commentator Charles Krauthammer recently confounded conservative talk-show host Bill O’Reilly of Fox News by making the case that Trump’s “rounding people up for deportation and possible reimportation” was not only illegal, but morally wrong (and prohibitively expensive).  Krauthammer pointed to the heart-breaking Elian Gonzalez episode.

The number two democratic candidate, Senator Bernie Sanders has introduced a bill in Congress designed to lower the cost of pharmaceuticals (press release).  The fact sheet is here.  While the bill apparently allows the negotiation of drug prices under the Medicare Part D prescription drug program, it also allows prescription drug importation from Canada.  Notably, “The bill also directs the United States Trade Representative to reject provisions in the negotiation of any trade agreement that would raise drug prices in the U.S., extend periods of patent exclusivity, or remove flexibilities in U.S. law regarding drug pricing.”  Additionally, the bill:

would prohibit anti-competitive arrangements between brand and generic drug makers where the brand name drug manufacturers pays the generic manufacturer to delay bringing their generic alternative to market. According to the FTC, these anticompetitive deals cost consumers and taxpayers at least $3.5 billion in higher drug costs every year. In FY 2012, the FTC found that there were 40 potential pay-for-delay deals involving 31 branded products with combined U.S. sales of $8.3 billion.

Finally, the bill also would terminate any market exclusivity if fraud is demonstrated, which would include “off-label promotion, kickbacks, anti-monopoly practices, and Medicare fraud.”  Interestingly, the bill further requires:

pharmaceutical companies to publicly report information that affects drug pricing, including the total costs incurred for research and development and clinical trials, as well as the portion of drug development expenses offset by tax credits or paid by federal grants.

The legislation also requires drug companies to report not only the price information charged to federal payers, but also requires companies to submit prices, profits, and sale information in other countries in which those products are sold.

The additional information will likely set the stage for more criticism about the current systemMore information about the subsidization of federal research through the Bayh-Dole Act for prescription drugs, particularly biologics, will be interesting.  The bill in its entirety can be found, here.

Tuesday, 8 September 2015

Lex Machina's Copyright Litigation Report

Following up on its Trademark Litigation Report, IP data analytics firm Lex Machina has recently released its Copyright Litigation Report (“Report”).  The Report reviews and gleans insight from copyright litigations filed in the U.S. Federal District Courts in the last five years.  The Report divides its analysis between “ordinary copyright” litigation as distinguished from “file sharing” litigation.  Notably, in 2014, there were 2138 “ordinary copyright” litigation cases filed and 2127 “file sharing” litigation cases.  Interestingly, the file sharing cases have spiked in the first half of 2015 to 1700.  The Report defines “[f]ile sharing cases . . . as copyright cases involving claims of infringement for BitTorrent/P2P file sharing brought against John Doe(s), anonymous defendants, their IP addresses, or Internet Service Providers (ISP).”  The top three federal districts for copyright filings include: the Central District of California, first; the Southern District of New York, second; and the Northern District of California, third.  The two districts in California dominate the filings with almost 2,500 since 2011 in the Central District of California (Los Angeles) and 400 since 2011 in the Northern District of California (San Francisco/San Jose/Palo Alto).  The Southern District of New York had 1,061 cases filed since 2011.  The Report notes that:

Textile pattern litigation has risen greatly: looking at four leading plaintiffs in the space (Star Fabrics, Unicolors, L.A. Printex, and United Fabrics Int’l.) case filings have increased: from 67 in 2011 and 62 in 2012, to 87 in 2013, and 106 in 2014 (with 95 cases filed through June 30, 2015). Since 2009, these four parties have filed 546 cases. These companies are represented by the Doniger Burroughs law firm, causing that firm to be the top copyright plaintiffs firm as discussed below.

The Report further notes that:

Top plaintiffs include companies in the music (Broadcast Music, Sony/ATV Songs, Songs of Universal, UMG Records, EMI, and more), software (Microsoft), fashion (Coach), and textile  patterns (Star Fabrics) industries.

Top Defendants include retailers (Ross Stores, TJX (TJ Maxx), Amazon, Burlington Coat Factory, Rainbow USA, J.C. Penny, Sears, Forever 21, Wal-mart, and Nordstroms), music labels (Universal Music, Sony Music Entertainment, UMG Recordings), and publishing / education (Pearson Education and John Wiley and Sons).

The Report also states that fair use is “usually” resolved by summary judgment and includes other interesting findings such as, “About three quarters (72.9%) of those who successfully contest ownership / validity do so at summary judgment.”  In discussing file sharing, the Report states that many file sharing cases are brought by “erotic website owner” Malibu Media—around 4,322 cases.  On a very controversial issue—statutory damages in copyright cases, the Report notes that, “The District of Oregon, despite seeing 8 cases, awarded a median of less than $1,000 in statutory damages for consent/defaults, significantly less than the other busy districts. The Southern District of Indiana has the highest such median award ($51,800, 11 cases).”  The Report contains a wealth of interesting information and is available, here.  Enjoy!

Friday, 4 September 2015

Intellectual Ventures: out of sight, out of mind, and maybe that is a good thing for the company

This blogger has begun to wonder whether the onset of late middle age carries with it a bit of clairvoyance. On several occasions over the past several months, he has recalled a person or entity, with whom he has had no contact or information for an extended period of time, only to be reconnected very soon thereafter. And so it was, once again yesterday evening. The object of his thoughts was Intellectual Ventures (IV). It seemed to him that the goings-on of IV were barely in the headlines (or even buried in an inside hard-copy page or on-line sub-link). “What is happening with the company?”, he thought, as he dozed off for the evening.

Lo and behold, he woke up to a brief item that appeared on, under the caption, “Capital One wins again against Intellectual Ventures patents”. And so it was reported:

“The increasingly aggressive litigation strategy of Intellectual Ventures, one of the world's biggest patent owners, took another hit on Wednesday as a U.S. court canceled two of its patents in a dispute with Capital One Financial Corp.

U.S. District Judge Paul Grimm in Greenbelt, Maryland, agreed with Capital One's attorneys from Latham & Watkins that the two patents related to business data processing were merely abstract ideas and could not be patented. He overturned the findings of a special master, who had previously recommended that the patents be found valid.”
Let’s try to put this into context. IV is well known for its strategy of purchasing tens of thousands of patents, partnering with various entities to obtain access to further patents, and maintaining an R&D staff whose goal is to generate further patents. In doing so, IV became the owners of the one of the largest portfolios of patents in the world. The primary aim in accumulating these points was to enter into licensing arrangements. At the outset, the company maintained a public position that litigation was not a preferred means of exploiting its patents. IV was either reviled or admired, depending upon whom you asked, in seeking to monetize knowledge in this manner. What was unconvertible was that IP was the subject of extensive media coverage.

And then—certain developments took hold. Outside observers began to question whether IV’s licensing model made business sense; perhaps as a hedge, the company has increasingly “ventured” into exploring how its patent knowledge can be used as basis for product development and creating new companies; the company announced substantial lay-offs about a year ago while in parallel establishing a network of approximately 25,000 independent inventors who submit proposals based on their idea with the goal that IV will monetize these ideas and pay the inventor a royalty, and the company has become more active in litigating its patents (as seen from yesterday’s report, not always successfully). Thus IV has seemingly become an object of less immediate media interest while it takes steps to become a slightly more conventional IP-based company.

The compelling question is whether all of this portends a brighter future or rather a grab-bag of measures adopted when the company’s original business model failed to pan out as intended. Ask Edward Jung, IV’s chief technology officer and co-founder stated, “We have built an engine that can solve big problems.” As such, the company is simply proceeding with its long-term plans. Under this view, whether or not the next phases of the company’s activities are as compelling, media-wise, would seem to be irrelevant. In the absence of any dramatic IV-based headlines in the near future, this blogger will likely call on his imagined powers of clairvoyance to revisit the issue.