In publications, formal comments, and here at The Legal Pulse, Washington Legal Foundation has consistently questioned the wisdom and legality of requiring “plain packaging” for disfavored consumer products. We wrote in a December 2011 post that plain packaging laws like the one Australia formally adopted in 2012 will “boomerang . . . by creating a vigorous black market in cigarettes and forcing tobacco prices down as new and cheaper cigarettes enter the marketplace.”
Recent sales data and studies on the tobacco market in Australia show how that nation’s plain packaging law has, in fact, boomeranged as we predicted it would.
First, a late-2013 study by KPMG revealed that counterfeit tobacco sales in Australia had risen since the passage of the plain packaging law to almost 14% of the Australian market. Illicit sales not only deprive Australia of hundreds of millions in lost tax revenue, they also increase law enforcement costs in reaction to greater criminal black market activity. Australian press accounts demonstrate how the illicit sales are funding larger criminal enterprises, such as gangs. In addition, counterfeit sales have harmed Australia’s small retailers, as a study by an Australian market research firm has demonstrated.
Second, much to the shock of plain-packaging devotees, tobacco sales are increasing Down Under. Reports last month indicate that deliveries to tobacco retailers rose in 2013 for the first time in five years. This news should not be a surprise to anyone who understands basic economics and consumer behavior. Tobacco producers who are no longer able to differentiate their cigarettes from rivals through package branding and imaging, are forced to lower their prices to maintain or expand market share. Lower prices, of course, routinely lead to increased sales. Such a reaction is especially true when generic, lower-cost cigarette companies enter the market, as they have in Australia. WLF explained this effect in its 2010 comments to the Australian Parliament, emphasizing the success generic tobacco brands have had in the U.S.
Other nations such as Britain looking to sweep away trademark and speech rights with plain packaging laws should pay heed to these developments in Australia. Regulators who proceed in the face of such demonstrated economic hazards will be doing so more for ideological, rather than public health, reasons.
Also available at WLF’s Forbes.com contributor page
Featured Expert Column
Beth Z. Shaw, Brake Hughes Bellermann LLP
Earlier this year, the U.S. Court of Appeals for the Federal Circuit sat en banc to review software patents in CLS Bank Int’l v. Alice Corp. This was a decision that was supposed to clarify business method patents and software patents, the scope of 35 U.S.C. § 101, and what an “abstract idea” means in practice. Instead of clarity, however, the judges of the Federal Circuit issued seven different opinions (or reflections), with no consensus beyond the ultimate judgment, which was that the invention was patent ineligible. The split gave almost every judge an opportunity to provide his or her unique philosophical view on software patents. As the title of this commentator’s last post on CLS Bank reflected, Want Clarity on Software Patents?: Skip CLS Bank Int’l Opinion and Wait for Supreme Court Review. That wait is now over, as the Supreme Court agreed on December 6 to review the Federal Circuit’s “decision.”
Prior Supreme Court decisions in cases like Bilski v. Kappos and Mayo v. Prometheus provide clues as to how the Supreme Court might rule in this case. First, the Supreme Court is probably not going to create “a categorical rule denying patent protection for inventions in areas not contemplated by Congress,” such as software, business methods, or even diagnostic testing. Indeed, the Supreme Court in Bilski explicitly stated that a “business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting under § 101.” And the Court stated in Mayo that “too broad an interpretation” of exclusionary principals “could eviscerate patent law.” As a result, the Supreme Court will not even attempt to eliminate all types of method patents in one fell swoop. Continue reading
Patent litigation in the U.S.?
Cross-posted at WLF’s Forbes.com contributor page
What causes a feeding frenzy?
In the undersea world, the smell or sound of wounded prey can attract one shark after another, fueling the carnivores’ aggression. On dry land, analogous signs of weakness inspire patent litigators, especially where software-related technology companies are the quarry.
End-users of technology and small companies with scant resources have become popular targets of “patent trolls,” as have larger companies that readily settle for nuisance value. Fighting back successfully—as some recent court rulings show it can be done—can fend off the circling shiver of
sharks plaintiffs’ lawyers at least temporarily and perhaps permanently. But doing so is not for the faint of heart or shallow of pockets, a reality that policy makers must keep in mind as patent reform debates evolve.
“Settling Feeds Trolls.” Some companies have adopted the posture that consistently fighting back is the best shark repellant. Online software and hardware retailer Newegg has been admirably aggressive. It has even designed a t-shirt that reflects its patent litigation posture. Privately-held and represented in-house by well-spoken (and outspoken) chief legal officer Lee Cheng, Newegg has prevailed in court over patent trolls twice this year already.
Presented with a loss in the Eastern District of Texas to patent licensing company Soverain, Newegg didn’t join J.C. Penney, Victoria’s Secret, Zappos and others who settled. It instead appealed to the U.S. Court of Appeals for the Federal Circuit, which in May invalidated Soverain’s online “shopping cart” patent. Soverain then brought on highly-regarded, white-shoe appellate counsel and sought a rehearing. On September 4, the Federal Circuit sustained its holding. This January, the Federal Circuit unanimously, and without comment, affirmed Newegg and Overstock.com’s Eastern District of Texas trial court win over Alcatel-Lucent. That company had been asserting highly ambiguous patents acquired when Bell Labs went out of business. Zappos, Amazon, Sears, and other companies had previously paid over $10 million in licensing fees to Alcatel-Lucent on that patent. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
Last week, pharmaceutical products and services company Novo Nordisk petitioned the U.S. Court of Appeals for the Federal Circuit to rehear en banc a June 18 Federal Circuit panel ruling that invalidated a Novo patent (Novo Nordisk A/S v. Caraco Pharm. Labs; 2-1 with Judge Newman in dissent). Because the panel misapplied Patent Act § 103‘s standards for obviousness to Novo’s “combination drug,” the Federal Circuit should agree to rehear the case en banc and reverse the three-judge panel.
Background. In 1994, a Novo scientist conceived of an unorthodox way to improve a drug-based therapy for Type II diabetes. The scientist combined metformin, a compound that targets the liver’s sensitivity to insulin, with an insulin stimulator compound called repaglinide. The goal was to extend the amount of time that metformin worked in a patient’s body. The use of repaglinide was controversial for two reasons: 1) combinations of metformin and other insulin stimulators from a “genus” different from that of repaglinide (such as sulfonylurea) offered mixed results; and 2) research showed that repaglinide was eliminated from the body within one hour of use.
Hence, the synergy of the 1994 metformin-repaglinide combination was astonishing. The combination was eight times more effective than administering metformin alone. In other words, it led to an 800% increase in reducing diabetes patients’ fasting plasma glucose (FPG) over an eight-hour period. To this day, there is no scientific explanation for this synergistic effect. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
“The Roberts Court is pro-business.” The Roberts Court “comes to the defense of business.”
Stories peddling this angle seem to be a compulsory part of reporting at the conclusion of each Supreme Court term. The completion of the October 2012 term is no exception. King & Spalding’s Ashley Parrish took strong exception to this characterization of the Court during Washington Legal Foundation’s annual end-of-the-term briefing this past Tuesday. The entire program can be viewed here.
The “pro-business” bromide is a trite and woefully simplistic byproduct of the need to label things. One could argue that the term implies judicial bias, i.e. deciding cases based on the nature of the litigant rather than on the law. It can also be seen as ideological or political in nature. If, for instance, Justice Ginsberg happened to be the Chief Justice at a time when the Court’s rulings favored free enterprise, would we be seeing stories about how pro-business the “Ginsberg Court” is? Further, has anyone seen the justices who rule against business litigants described as “anti-business”?
As an institution which for 36 years has sought to advance legal principles which support the conduct of free enterprise, Washington Legal Foundation views “pro-business” Court as a compliment. We’re pleased that in the nine cases in which we filed during the October 2012 term, seven resulted in victories for “business” litigants. Our perspectives on the law, on the judiciary’s limited role, and on constitutional protections for business entities are prevailing. But WLF should not be alone in applauding this Court’s rulings against plaintiffs’ lawyers, activist groups, and federal regulators. Businesses employ Americans, Americans invest in businesses, and our free enterprise system gives people of all backgrounds a fighting chance to succeed.
So if a label must be imposed, did the Roberts Court earn its “pro-business” stripes this term? If one looks strictly at the numbers, generally it did.
By our count, in the 28 cases which directly affected free enterprise, free enterprise “won” 21 and “lost” 7. Continue reading
by G. Wilson (Rocky) Horde III and Hans Clausen, Thompson Hine LLP
Can land-use regulators exact cash from developers to pay for off-site environmental mitigation as a precondition to issuing building permits without triggering the just-compensation requirement of the Takings Clause? Today, the U.S. Supreme Court answered this question in Koontz v. St. Johns River Water Management District. In a 5-4 decision, the Court held that the government’s demand for property, including cash, from developers as a precondition for land-use permits must bear an essential nexus and a rough proportionality with the prospective burden imposed by the development. This holding expands the scope of the Takings Clause, restricts the power of regulators to require the satisfaction of preconditions before permits will issue, and provides important protections to developers.
The case was filed by Coy Koontz, who purchased a 14.9-acre lot in 1972 when no environmental laws prevented development. Florida later enacted numerous environmental statutes to protect wetlands. These laws placed all but 1.4 acres of Koontz’s lot within a protected zone and established a legal presumption that any land use within the zone would be harmful. In 1994, Koontz applied for development permits, seeking to develop only 3.7 acres of his more than 14-acre lot. The St. Johns River Water Management District (District) initially suggested a long list of environmental mitigation options to Koontz, which included reducing his proposed development to only 1 acre or expending his own money to improve 50 acres of wetlands outside his property under a variety of scenarios. Koontz agreed to dedicate the remainder of his land for conservation, but he refused to do anything more. Ultimately, the District denied Koontz’s application solely because he refused to pay for off-site mitigation. Koontz won in a Florida trial court and at the intermediate appellate level, but lost in the Florida Supreme Court. Continue reading
by Cory Clements, a 2013 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.
The act of patent trolls asserting patent rights without first proving them is parallel to the actions of the troll in the fairy tale Three Billy Goats Gruff. Like the troll asserting a right to control who may and may not pass over his bridge, so too the patent troll asserts control over those who may be using technologies covered by broad patents – the acquisition of which makes up their entire business. The troll neither invented the bridge nor the patent troll the patent. These “trolls” are in the business, as one Forbes contributor puts it, to “buy up patents, sometimes by the tens of thousands, then scour the marketplace for people who may be infringing these patents.”
A New York Times article illustrates an interesting aspect of how this trend of patent litigation began. Many critics of patent litigation argue that big corporations are to blame in initiating this type of litigation, and it’s not hard to see why. Apple has spent billions of dollars litigating patent suits initiated both by and against it. According to the article, Steve Jobs’ attitude was to patent every idea Apple employees came up with because even if they didn’t move forward with the idea, they would have a defensive tool.
This attitude might lead one to believe corporations like Apple are to blame for the influx of troll-initiated patent litigation. That is, until one learns of some of the first lawsuits against Apple. A few notable cases include a 2004 settlement with E-Data over Apple’s popular iTunes, after which E-Data initiated lawsuits against 14 other companies. Then there was the 2005 Hong-Kong based Pat-rights suit demanding 12 percent from all iTunes and iPod sales followed by a 2006 suit by Singapore-based Creative Technology resulting in a $100 million settlement. Continue reading
In our March 15 post Are Antitrust Agencies Nudging Standard Setting Bodies on Patent Licensing?, we discussed a journal article authored by two current and one former senior economists from U.S. and European antitrust agencies which called on patent standard-setting organizations (SSOs) to take a stronger stand against anti-competitive behavior. The economists’ hope was that SSOs could nip in the bud controversies over standard-essential patent holders seeking injunctions or what constitutes a reasonable (i.e. “RAND”) licensing fee.
Yesterday, the American Antitrust Institute (AAI) petitioned the Justice Department and the Federal Trade Commission (FTC) to escalate the nudge into a menacing carrot and stick combination. The petition urges the agencies to adopt joint enforcement guidelines that could act as a “safe harbor” for SSOs from antitrust liability. Why would SSOs need such a safe harbor? Because AAI feels that SSOs should be held responsible for the anti-competitive activity of their members if SSOs don’t have in place “important safeguards against monopoly power.”
The petition suggests that the DOJ/FTC guidelines should require SSOs to adopt as part of their agreements, which are binding on their standard setting members, the following patent policies:
- Disclosure of patents as well as anticipated and pending patent applications supported by “good faith reasonable inquiry”
- Breach of the foregoing disclosure obligation should result in a zero royalty license if an undisclosed patent is incorporated into the standard
- Ex Ante RAND licensing commitment
- Stipulation that participants whose patents are incorporated into the standard are prohibited from seeking injunctions and exclusion orders against willing licensees
- Licensing terms run with the patent
- Licensees should have cash-only licensing options on individual SEPs
- Efficient, cost-effective process to resolve disputes over RAND royalty and non-royalty rates.
As we noted in our March 15 post, SSOs have been reluctant to adopt more demanding policies to which standard-setting participants must adhere, though the United Nation’s International Telecommunications Union intimated last October that it might be open to such changes. A stick-wielding carrot such as a joint DOJ-FTC guidance would likely move SSOs like the ITU beyond mere contemplation.
by John Andren*
After much noise and debate over genetically-enhanced crops and agribusiness leading up to the arguments in Bowman v. Monsanto, the swiftness with which the Supreme Court delivered its concise, unanimous decision might have left some wondering what all the hype was about. And indeed, it turns out there wasn’t much beyond the noise. The Court didn’t lend much credence to Bowman’s “blame-the-bean” defense, and affirmed its own precedent and the patent exhaustion doctrine as it has been understood for years. Pretty much exactly what WLF and most experienced observers had expected of the case.
It is worth applauding the Court, however, for deciding the case solely on its legal merits instead of turning the case into a referendum on so-called GMOs and the companies which create them, as some activist legal groups had attempted to goad them into doing. Continue reading
Beth Z. Shaw, Brake Hughes Bellermann LLP
The U.S. Court of Appeals for the Federal Circuit on May 20 upheld the validity of two claims of a patent for activating gift and pre-paid phone cards, U.S. Patent No. 6,000,608 (“the ’608 patent”), in a divided panel opinion authored by Judge Dyk and joined by Judge Moore (Alexsam, Inc. v. IDT Corporation ). Judge Mayer dissented, writing that patent should be held invalid under 35 U.S.C. § 101. The plaintiff, Alexsam, Inc. (“Alexsam”) has filed suit against a wide array of merchants, seeking damages for infringement whenever a conventional or online retailer uses an existing banking network to process gift and pre-paid cards.
The ’608 patent is directed to a system for activating gift and pre-paid telephone cards at the time that they are purchased. In the past, retailers often installed dedicated “activation terminals” in their stores in order to activate such cards. The inventor on the ’608 patent decided that the activation process could be made more efficient if gift and pre-paid telephone cards could be activated using the point-of-sale terminals that are used for processing credit card transactions. Instead of activating a card by swiping it through a dedicated activation terminal, a store employee could simply swipe it through the terminal used for processing credit card transactions. Continue reading