Thursday, March 2, 2017
The majority of states have now passed laws prohibiting bad faith assertions of patent infringement. The laws are heralded as a new tool to protect small businesses and consumers from harassment by so-called patent trolls. But state “anti-patent laws” are not a new phenomenon. In the late nineteenth century, many states passed regulations to prevent rampant fraud by patent peddlers who aggressively marketed fake or low value patents to unwitting farmers. However, courts initially held the laws were unconstitutional. Congress, courts reasoned, had power under Article I, Section 8, Clause 8 to “secure” patent rights. If states could tax patents or alter the terms on which patents were sold and enforced, this risked destroying a federal property right and nullifying an Article I power. In the early twentieth century, the U.S. Supreme Court finally held that states retained some authority to regulate, and to tax, patent transactions. But the Court made clear that states could never impose an “oppressive or unreasonable” burden on federal rights. The Federal Circuit has completely ignored this preemption law. But it has never been overruled and must be consulted today in assessing the constitutionality of states’ current efforts to combat patent trolls.
Friday, February 10, 2017
The Constitution tells us that patents can be given to “inventors,” and the Patent Act states that protection is available to “[w]hoever invents or discovers” an invention. These are not generally controversial propositions, but like so many legal regimes, technology is forcing these analog laws to deal with digital phenomena. The culprits here are artificial intelligence and software capable of inventing new technologies. Can patents be given to digital “inventors,” and if not, does any human have the right to patent such an invention?
Obvious comparisons can be drawn to whether non-humans can be “authors”—as required by the Constitution—for copyright purposes. For instance, can a digital composer of music be given copyright protection for its work? The academic consensus is that technology is not an author (for Constitutional purposes), but the agreement dissolves from there. Some have argued that programmers should be given ownership rights—a reasonable proposition—but this sentiment is far from universal.
With little guidance from copyright law, parties have looked elsewhere for ideas in the patent sphere. It has been posited that—if a non-human cannot be an inventor—current patent laws require the first person to “discover” the value of the non-human invention to be the inventor. This may be correct, but one must consider if that policy creates maximum incentives to further the progress of technology. Perhaps an amendment to the Patent Act is appropriate.
There are several potential avenues to address this issue. Ownership could be allocated to the programmer, the company owning the hardware, or to no one at all. Granting ownership to any party incentivizes creation of more inventing software and artificial intelligence. This benefit, however, comes at the price of granting 20-year patent monopolies at a relatively small marginal cost to the patentee (after software is accounted for). Does this encouragement to create and use of inventing software/computers come at too high of a cost to society?
Denying any patent protection enriches the public domain by including all non-human inventions—a social positive. That policy, however, potentially discourages the creation of inventing machines (as it decreases their market value) and incentives fraud before the Patent Office. Should a party identify a valuable invention created by a non-human, it might falsely claim that a human was the inventor to secure a patent. This would benefit dishonest firms at the expense of honest companies and society at large.
Lastly, there is an interesting potential distinction to be drawn between inventing algorithms or software (e.g., genetic algorithms) versus artificial intelligence. Non-human corporations continue to obtain greater rights under the Constitution (see Citizens United). Might artificial intelligence (e.g., something that could pass the Turing Test?) be recognized as an inventor at some point, while a “mere” algorithm or software might not? The question is probably premature, and as presented, is likely not sufficiently nuanced. However, the topic may eventually be raised.
At this time, no one has the answers to the above legal and policy questions, though I’m sure many commentators (myself included) will chime in. I invite readers to voice their opinion in the comments.
Friday, January 27, 2017
The Star Trek copyright lawsuit I previously wrote about settled last Friday. This was not a surprise. Defendant Axanar’s best bet was arguing that its fan film made fair use of the Star Trek works. The court, however, foreclosed that defense a few weeks ago. This post addresses a few points (out of many) from the opinion ruling against Axanar’s assertion of fair use. I’m not certain that the judge got the multi-factor analysis incorrect, but I do worry about how some aspects of the opinion will be applied in the future.
When assessing fair use, courts must review whether the work is commercial or not. For-profit use weighs against the defense. Axanar argued that its film was non-commercial because it would be freely downloadable. The court rebuffed, positing that “indirect commercial benefit” is sufficient to render a use commercial. While there is precedent supporting this proposition, the opinion expanded the idea of indirect commercial benefit a step too far.
The court held that defendants’ intent to create “other job opportunities” through the Axanar project rendered it commercial and thus, disfavored fair use. The problem is that almost any author, film producer, etc. hopes that their projects will be successful and create future job prospects. Accordingly, this consideration will disfavor fair use in almost all situations under the Axanar opinion.
To be fair, there was evidence that defendants attempted to leverage their project into new business opportunities, and that probably supports the “commercial” determination. This fact, however, was not elaborated on in the opinion, and that nuance is unlikely to be referenced in future citations to the case.
My second concern with the fair use analysis pertains to the court’s assessment of the “Amount and Substantiality of the Portion Used.” Under this factor, the more of the copyrighted work that is used (in both volume and importance), the less likely the defense is applicable. The court found that Axanar’s use of many details from the Star Trek universe (e.g., Vulcans, phasers, etc.) disfavored fair use. There was no discussion of whether Axanar used primary plots or characters from Star Trek.
This precedent again casts broad shadows. Under the opinion, stories that take place in a preexisting fictional world (e.g., fan works) will almost always be disfavored as a fair use (regardless of how much of the actual plot is used). Works of that type commonly use small details to stay consistent with the original universe, and thus, under the Axanar opinion, will usually be disfavored as a fair use. I doubt the court intended the “amount used” consideration to disfavor fair use for almost all works of this nature (including most fan productions). Again, while the court’s final conclusion may be correct, the precedent it established seems to be unnecessarily broad.
Friday, January 20, 2017
A copyright lawsuit against Star Trek fan film creator Axanar Productions is going to trial this month. CBS and Paramount alleged infringement after Axanar raised over $1 million to produce a freely downloadable Star Trek movie and a previously released teaser. The case raises a host of interesting issues, which I’ll look at over a couple of posts.
I found this case notable for how it fits into the expansion of copyright protections and the influence of repeat litigants. Copyright has evolved to protect increasingly granular elements of a story (i.e., protecting discrete things in a story, not the entire work). It was once questionable if an isolated character could be protected, but now copyright extends to means of transportation (Batmobile), monsters (Godzilla), and implements of mass murder (Freddy Krueger’s glove).
This is good for copyright holders. It is easier to prove infringement a copyrighted light saber than it is to show that someone copied the story of a farm boy who learned a mystical religion, got a light saber, found out his dad was Darth Vader, and so on. The Star Trek suit falls into the trend of increasingly granularity; CBS and Paramount assert protection of individual phrases (“beaming up”), made-up languages (Klingon), and fictional styles of architecture.
These allegations are not surprising, but they are interesting as part of a continuing trend of large-scale copyright holders attempting to protect small elements of a story. These parties will be repeat litigants, and they aim to craft beneficial precedent. It behooves them to allege granular protection, see if any assertions catch the court’s favor, and proceed with likely winners. Losing allegations are dropped or the case settled. Content owners thus secure caselaw supporting granular (easily infringed) copyright, without creating adverse precedent. This is smart business, but limits authors and filmmakers who must avoid these copyrights.
I’m also curious about the message sent by this case. Most fan fiction/films are either tacitly accepted by copyright holders or endorsed as advertising. This lawsuit will certainly chill the production of fan fiction and films—especially high-end works. Was Paramount so concerned about competition from fans that it was willing to lose the goodwill that Axanar could have generated? A million dollar fan film might have "competed" with Star Trek movies to some extent, but it almost certainly would have created significant buzz among fans. I wonder if other franchise-owners would have made the same decision. At this point, I doubt they’ll have to; I wouldn’t expect any fan to be willing to venture into “high-end” fan works anytime soon for fear of a lawsuit.
Monday, January 16, 2017
Professor Mike Schuster of Oklahoma State University, Spears School of Business, will be guest blogging at BLPB for the next 4 weeks. Prior to joining Oklahoma State's faculty, Professor Schuster was at attorney at Vinson & Elkins LLP in Houston, Texas. His research is primarily in the intellectual property space, which, as we all know, is quite important to businesses.
Professor Schuster's most recent academic article, "Invalidity Assertion Entities and Inter Partes Review: Rent Seeking as a Tool to Discourage Patent Trolls" is forthcoming in the Wake Forest Law Review and his SSRN page is available here.
Please join me in welcoming Professor Mike Schuster to BLPB.
Friday, October 21, 2016
Sadly, I am still in the midst of grading business associations and civil procedure midterms so I cannot finish my substantive post on Wells Fargo yet. WF is the gift that keeps on giving from a teaching perspective, though. Yesterday I showed students some of the litigation that has come out of the debacle to illustrate the difference between a direct and derivative suit (and to reinforce some civil procedure principles too).
Last night I took a break from grading to go to a Meetup called Ask a Start Up Lawyer. I hope to teach a 2-credit skills course on legal issues for startups, small businesses, and entrepreneurs next semester and I have found that going to these sessions and listening to actual entrepreneurs ask their questions helpful. Last night's meetup was partcularly enlightening because a number of international entrepreneurs here in Miami for a State Department initiative attended. While in the past some of these sessions have focused on funding options and entity selection, last night's "students" mainly wanted to learn about intellectual property and international protection. Many of them come from countries with no copyright law, for example. Others come from countries where owning shares is a rarity. Although my course will focus on domestic entities, given the South Florida market in which I teach, I may need to add some of these comparative components to my already ambitious draft syllabus covering tax, employment, entity selection, governance, IP, business torts, basic securities regulation, social entrepreneurship, and exit strategies.
If you have taught a course like this or have any ideas on materials to use, please comment below or send me a message at email@example.com.
Monday, February 22, 2016
Free Web Seminar: The Opportunities and Pitfalls of Cybersecurity and Data Privacy in Mergers and Acquisitions
One of my two former firms, King & Spalding, is hosting a free interactive web seminar on cybersecurity and M&A on February 25 at 12:30 p.m. Thought the web seminar might be of interest to some of our readers. The description is reproduced below.
An Interactive Web Seminar
The Opportunities and Pitfalls of Cybersecurity and Data Privacy in Mergers and Acquisitions
February 25, 2016
12:30 PM – 1:30 PM
Over the last several years, company after company has been rocked by cybersecurity incidents. Moreover, obligations relating to cybersecurity and data privacy are rapidly evolving, imposing on corporations a complex and challenging legal and regulatory environment. Cybersecurity and data privacy deficiencies, therefore, might pose potentially significant business, legal, and regulatory risks to an acquiring company. For this reason, cybersecurity and data privacy are becoming integral pre-transaction due diligence items.
This e-Learn will analyze the (1) special cybersecurity and data privacy dangers that come with corporate transactions; (2) strategies to mitigate those dangers; and (3) benefits of incorporating cybersecurity and data privacy into due diligence. The panel will zero in on these issues from the vantage point of practitioners in the deal trenches, and from the perspective of a former computer crime prosecutor and a former FBI agent who have dealt with a broad range of cyber risks to public and private corporations. This e-Learn is for managers and attorneys at all levels who are involved at any stage of the M&A process and at any stage of cyber literacy, from the beginner who is just starting to appreciate the complex nature of cyber risks to the expert who has addressed them for years. The discussion will leave you with a better understanding of this critical topic and concrete, practical suggestions to bring back to your M&A team.
Robert Leclerc, King & Spalding’s Corporate Practice Group and experienced deal counsel; Nick Oldham, King & Spalding, and Former Counsel for Cyber Investigations, DOJ's National Security Division; John Hauser, Ernst & Young, and former FBI Special Agent specializing in cyber investigations.