Profit, Not Ideology, Motivates Cyberlockers that Facilitate Copyright Infringement

copyrightwarningInformation wants to be free” is a standard rejoinder to criticism of online entertainment piracy. Such a sentiment may motivate some copyright thieves, but profit, not ideology, drives the proprietors of “cyberlockers” whose business is trafficking pirated entertainment content. A recent study by the Digital Citizens Alliance (DCA)—”Behind the Cyberlocker Door“— has laid bare that reality. These websites generate profit margins that lawful businesses can only dream of, and they do so on the backs of countless workers in the music, movie, and television industries.

DCA analyzed data from the 15 top direct download cyberlockers and 15 top streaming cyberlockers. It found that 78% of the files on the direct download sites, and 84% on the streaming sites, were infringing content such as music, movies, and TV shows. Total annual revenue for the 30 businesses was $96.2 million, which averages out to $3.2 million a site. The average profit ratio of the direct download sites was 63.4%, with one site enjoying 88.5%. For the streaming cyberlockers, the average ratio was 87.6%, with the highest coming in at 96.3%.

Much like people who run the illicit cyberlockers, some of those who unlawfully access and share copyright-protected content may claim to be advancing an extreme public commons ideology or “sticking it to Big Entertainment,” but the volume of such piracy reflects a baser motivation. Pirated content consumers’ catchphrase shouldn’t be “information wants to be free;” it should be  “we want free information.” Continue reading

Consumer Product “Plain Packaging” Boomerangs in Australia

boomerangIn 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 contributor page

With CLS Bank Int’l, SCOTUS to Decide if Computers are “Machines”

bethShaw-0580editConvertedProfile-e1360002102239Featured 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

Court Rulings Show Abusive Patent Litigators Can Be Beaten (But Is It Worth The Cost?)

Patent litigation in the U.S.?

Patent litigation in the U.S.?

Cross-posted at WLF’s 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.

tshirtPresented 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’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

The Federal Circuit Should Rehear Novo Nordisk v. Caraco Ruling En Banc

federal circuitCross-posted at WLF’s 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

A Simplistic Compliment Endures: The Roberts Court As “Pro-Business”

supreme court

Cross-posted at WLF’s 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

Supreme Court Observations: Koontz v. St. Johns River Water Mngt. District

Horde_RockyClausen_HansGuest Commentary

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