MEMORANDUM
To / IP Litigation
From / Taly Dvorkis
Our ref / TD/PERSONAL-DVORKIST LT:15387343.3
Date / 6 April 2016
Subject / 2016 Fordham Conference
On 31 March and 1 April 2016, Allen & Overy LLP’s IP lawyers participated in the 24th annual Fordham IP Conference in New York City. Allen & Overy sponsored the opening dinner, with partners Benjamin Bai (Shanghai), David Por (Paris) and Mark Ridgway (London) participating in panel discussions over the course of the two-day conference. Taly Dvorkis (London) reports on the key issues from a number of the sessions.
Patents: Outstanding Legal Issues & Challenges
Leading patent practitioners and government officials from across the globe participated in a panel discussion about the current state of patent law. Margot Fröhlinger, Principal Director of Patent Law and Multilateral Affairs of the EPO led the discussion on the outstanding issues with regards to the unitary patent. Of the issues yet to be resolved is the question of how Supplementary Protection Certificates (SPCs) will be handled. The EU Commission has announced that it will create a unitary SPC, however, doing so will take some time. Would such an SPC only apply to the member states participating in the unitary patent system? Who will fix the fees and who will collect the fees? What language regime will govern? These are questions yet to be resolved.
Another issue is how national rights will interplay with the unitary patent. Which countries will continue to allow double protection, both at the national level and unitary level? The Rt. Hon. Prof. Sir Robin Jacob remarked that the unitary patent system is a game yet to be played – we have a system of complex rules but we do not yet know how it will all work. Thankfully the system will undergo review after a number of years.
John Alty, Chief Executive and Comptroller General of the UK Intellectual Property Office, spoke about the formal working group looking at harmonisation of patent law, and stated that harmonisation is closer than it has ever been before. The group is looking at, among other things, harmonisation of the grace period patentees receive, the publication of applications, the treatment of conflicting applications and prior user rights.
The Honourable Kathleen M. O’Malley of the U.S. Court of Appeals for the Federal Circuit spoke about the growing issues and demands on the Federal Circuit, which was formed in 1982 precisely to address the issue of harmonisation of U.S. patent law. While during the early days of the Federal Circuit only one third of its docket consisted of patent cases, in recent years that number is as high as 60%. Judge O’Malley commented that a positive development in IP practice has been that large general practice firms are taking the place of smaller patent boutiques. This has led to improved litigation as seasoned litigators are better able to explain the science and technology to both judge and jury.
Remedies
The first afternoon discussion focussed on remedies in patent cases and the appropriateness of granting temporary and permanent injunctions. In the period following the United States Supreme Court’s decision of eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), in which the court held that an injunction should not be automatically issued based on a finding of infringement but also should not be denied simply because the patentee does not practice the invention, lower courts granted injunctions 53% of the time for software patents and 100% of the time for biotech patents. Tina Chappell, Associate General Counsel for Intel Corporation, discussed proportionality and how injunctions are not appropriate in cases where the patented feature is but one small aspect of a larger, more complicated product. An injunction would essentially give the patentee 100% of the profit, even though the feature covered by the patent is small and could instead be evaluated on a reasonable royalty basis. In determining a reasonable royalty, courts are correct not to take into account settlement agreements which are reached under the threat of litigation and full market exclusion.
Asia and the Political Landscape: A Roundtable Discussion
Shanghai-based partner Benjamin Bai participated in a roundtable discussion on patent law in Asia, along with Fordham University Law School Professor Mark Cohen and Weerawit Weeraworawit, former Deputy Secretary-General of the National Human Rights Commission in Bangkok, Thailand. China has been more aggressive in its application of IP rights, and the rhetoric surrounding the Trans-Pacific Partnership (TPP) has been very positive, despite China not being party to it. Benjamin Bai stressed that in light of the availability of bi-lateral negotiations open to China, the TPP is not necessary. The current political landscape in China is one of anti-corruption, which has had a positive effect on the court system. Judges decide cases without interference, and there is much discussion of the rule of law. The IP system is evolving, even if not as quickly as may have been expected.
IP and the Political Landscape: Europe
The discussion of how politics and intellectual property interplay in Europe focused on the upcoming Brexit vote and the impact a UK exit from the European Union would have on intellectual property law. Paris-based partner David Por commented that if the UK exits the EU there simply will not be a Unitary Patent Court any time soon. This is because a revision of the agreement would be needed, and besides the UK has thus far been very involved in the preparations for the UPC. James Nurton of Managing Intellectual Property commented on how the language regime of the UPC may change, and English may no longer be included.
With respect to trademark law, Professor Peter Ruess of the International School of Management in Frankfurt said that a Brexit would have a negative impact on the remaining members of the EU. The value of the European mark is that it covers many countries with one trademark, and that value will diminish in the eyes of potential users following Brexit. Dr. Mihály Ficsor, honorary President of the Hungarian Copyright Council, commented that a Brexit would negatively impact Eastern and Central European countries, each of which would consider whether to leave the EU next.
On copyright law, a question was posed as to whether there is value to having a centralized copyright office in the EU, not for registering copyrights but for handling administrative issues. Dr. Ficsor said that the new EU IP office covers some copyright issues and that it is too early to create uniform copyright law across the EU.
The discussion also focused on how IP law can, at times, be slow to adapt to a changing political landscape. David Por warned that if the IP system cannot evolveas needed, it would be forced to change by outsiders, such as enforcers of competition law.
Second Medical Use
The second day of the conference included a panel discussion on second medical use patents. Panellists observed that while respecting valid patents is important, enforcement of rights should not lead to blocking free indications and thus abusing the system. Stakeholders should ensure that the legal exclusivity for the protected indication is respected whilst the non-protected indications are open to competition.
Sir Robin Jacob commented that the inadequacies in the system make second medical use the biggest issue in patent law today. It is not self-evident that the first medical use is the only use deserving of protection. Oftentimes, side effects are good, and deserve protection. These side-effects might well be reported or published, thus serving as invalidating prior art for subsequent patents. However, no one would invest resources in researching the side effects due to the expense and lack of efficacy.
London-based partner Mark Ridgway commented that for these patents it is not only the second use we are concerned with protecting, but also the first, which can be undermined if subsequent users are not protected. In addition, it is not always the case that an anecdotal medical report saying another use for a drug may exist renders that use obvious and thus ineligible for patent protection.
While the panellists agreed that there remained work to be done in protecting these patents, they expressed general optimism that we are getting closer to a workable system.
FRAND/Standard Essential Patents
Professor Daryl Lim of the John Marshall Law School in Chicago moderated a discussion on Standard Essential Patents (SEPs), and how best to arrive at FRAND terms.
Professor Norman Siebrasse of the University of New Brunswick Law School gave an overview of how the value of the standard can be determined and what implications that has for determining the FRAND rate. It is generally accepted that a FRAND royalty should reflect only the value of the patented feature, and not the value of the standard itself. One approach to determining the value of the patented feature is to assess what the incremental value of the patented technology was over the best alternative, before the standard was adopted. However, this “ex-ante” approach does not always provide an adequate incentive to invent. It is preferable to allow the SEP holder to take into account some part of the value that arises from the network effects when the standard is adopted – after all, standards are adopted because there is greater value in more people using one system.
Dina Kallay, Director of Intellectual Property and Competition at Ericsson commented that, indeed, the Federal Circuit Court of Appeals has already rejected the ex-ante value approach in favour of looking at comparable licenses.
Daniel Hermele of Qualcomm spoke about the effects of the Institute of Electrical Engineers - Standards Association’s (IEEE-SA) patent policy on open, FRAND-based standardization. The purpose of a standard organization’s patent policy is not to provide infringers with a defence in litigation, but rather to create a FRAND licensing network.
Pharma, IP & Competition
Paris-based partner David Por spoke about the current developments in the EU in the interplay between pharma, IP and competition law. There have been several instances in recent years of competition authorities warning companies not to use (and abuse) their IP rights at the expense of competition concerns.
Most recently the UK Competition and Markets Authority fined GSK £37.6 million for its “pay-for-delay” deals to keep generic copies of its drug Seroxat off the market. The logic underpinning the “pay-for-delay” cases might be in contradiction with the solution recommended by Advocate-General Melchior Wathelet in the decade-long dispute between Genentech Inc. and Hoechst GmbH. In this case, the Advocate-General recommended the Court to rule that Article 101 does not preclude payment of royalties on a patent licensing agreement after the patents have been held invalid and/or not infringed. According to the Advocate-General, in such a situation, the counterpart to the licensee’s payment is the legal certainty and guarantee against litigation that he receives.
In the 2014 Italian Pfizer/Pharmacia case, Pfizer was fined €10.6 million for seeking to delay entry of generic suppliers by implementing a “complex strategy” to “artificially” extend its patent rights, hence committing an abuse of a dominant position in breach of Article 102. What Pfizer had done, however, was simply to apply for a divisional application of the original patent and request an SPC and relevant paediatric extensions in Italy on the basis of that divisional, all actions that are appropriate under patent law.
Another relevant example was that in the 2014 French Nespresso case, Nestle SA was accused of abusing its dominant market position by changing the design of its machine and capsules so as to extend the term of the IP protection of capsules. Nestle agreed to a series of measures put forth by the French Competition Authority designed to make it easier for rival companies to produce capsules compatible with Nespresso-branded coffee makers.
These cases illustrate the inherent conflict between competition law and intellectual property – intellectual property concerns the right to exclude others from operating in the same space, which itself is inherently anticompetitive. Patentees need to be aware of this conflict and balance both their IP and competition concerns in making business decisions.
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