"Where money issues meet IP rights". This weblog looks at financial issues for intellectual property rights: securitisation and collateral, IP valuation for acquisition and balance sheet purposes, tax and R&D breaks, film and product finance, calculating quantum of damages--anything that happens where IP meets money.
The LA Times recently published an article titled, “Microsoft will Give the U.S. Military Access to ‘All the Technology We Create.” The article discusses Microsoft’s recent announcement as well as the tension in some U.S. technology companies concerning working with the U.S. military. For example, some Google employees have expressed displeasure with Google’s decision to work with the U.S. military. The article notes that:
The Defense Department has established the Defense Innovation Unit, which is intended to provide capital — without taking an ownership stake — to companies that want to work on prototype projects that help address problems faced by the U.S. military.
The Defense Innovation Unit’s website is here. The Defense Innovation Unit focuses on five areas: artificial intelligence, autonomous systems, human systems, information technology and space. Their team includes: “about 75 military and civilian personnel. Prior to joining DIU, we’ve launched and sold companies backed by tier-1 VCs; led teams at the Joint Staff, the Office of the Secretary of Defense, and the White House; served with our military around the world; and helped build some of Silicon Valley's most iconic companies.” Notably, the program is built around speed—a contractor will know if they have a “pilot” agreement within 30 days with a quick follow-through for a more involved contract. The 2017 Annual Report states the mission of the Defense Innovation Unit:
The U.S. Department of Defense (DoD) established Defense Innovation Unit Experimental (DIUx) to accelerate commercial innovation to the warfighter in order to meet the changing demands of today’s strategic and technological environments. The Department’s 2018 National Defense Strategy (NDS) boldly acknowledges that our nation’s military-technical advantage is eroding as our competitors and adversaries have the same access to the global technology marketplace driving innovation. Without significant changes to DoD’s acquisition culture and processes, the U.S. military will continue to lose its long-held technological superiority.
Military-technical competition is dramatically different from past decades when key technologies were developed in government labs, often exclusively for military use. A technology first-mover up until the end of the Cold War, DoD must now adopt a fast follower posture to keep pace with commercial refresh cycles. The commercial sector leads the way in many cutting-edge areas from artificial intelligence to autonomous systems to space, the convergence of which generates the prospect of dramatic changes to the character of warfare. The implications of global access to advanced commercial technology are visible in today’s conflicts and the loss of exclusivity means the likelihood of technological surprise is far higher.
It is DIUx’s mission to lead DoD’s break with past paradigms of military-technical advantage to become fast adapters -- as opposed to sole developers -- of technology, integrating the advanced commercial capabilities necessary for strategic advantage. In this hyper-competitive environment, DoD needs to prioritize speed of delivery, rapid and modular upgrades, and quick operational adaptation on the battlefield. Success in this new era of military-technical competition no longer goes to those who seek the most exquisite systems, but rather to those who move fast and think creatively.
Headquartered in Mountain View, CA, with offices in Central Texas (Austin); Boston, MA; and in the Pentagon. . . .
On intellectual property, the Frequently Asked Questions page states:
How is intellectual property treated and protected?
Prior to the start of a project, it is important that a company identify rights in pre-existing data. In general, companies retain ownership of IP assets created during the effort. DoD is usually licensed certain rights to use these assets in accordance with the agreed OT (i.e., pilot contract) terms and conditions. These rights control, inter alia, how DoD can use, disclose, or reproduce company-owned proprietary information.
What are the different ways IP is licensed under an OT agreement (i.e., pilot contract)?
Unlimited Rights. These give DoD the ability to use, disclose, reproduce, prepare derivative works, distribute copies, and perform publicly, in any manner and for any purpose, and to have or permit others to do so (absent any separate security classification or export control restriction). We usually don't need this and do not anticipate awarding any OT agreements (i.e., pilot contracts) with unlimited rights.
Government Purpose Rights. These give DoD the ability to use, modify, reproduce, release, perform, display, or disclose data only within the Government (including competitive re-procurement). However, DoD cannot release the data for any commercial purpose.
Limited Rights. DoD may use the company’s data, other than computer software, within DoD but not release the data outside of DoD except in limited circumstances. DoD may not use the data for manufacturing additional quantities of the item. Data may not be released without company permission/associated nondisclosure agreement.
Restricted Rights. These apply to noncommercial computer software only. DoD may only run the software on one computer at a time, and may make only the minimum copies needed for backup. The software may not be released outside of DoD except with company permission/associated nondisclosure agreement.
USPTO Director Iancu recently gave a speech in Texas concerning the debate involving innovation and patent enforcement by so-called "patent trolls" in the United States. Notably, he lauds risk takers and innovators, and states that the patent troll narrative is designed to stifle innovation by essentially creating fear about participating in innovation. He wants to focus on the positive stories of innovation. He doesn’t appear to take the position that patent trolls (or patent assertion entities) do not abuse the patent system; just that we should focus on the positive by keeping in mind how far we’ve come from an innovation perspective. He gets pretty close though. Here’s a relevant portion of his speech:
Anyone could invent in America and everyone was incentivized by our constitutional patent system to do so. And incentivized they were. And invent they did. And the results have been remarkable.
Our constitutional patent system has given rise to a spark of ingenuity and development the magnitude of which humanity has never before known. Electricity and the telephone; the automobile and the airplane; recombinant DNA and DNA synthesis; the microprocessor, genetics and cancer treatments. And so much more. And all of it done with American patents.
Edison, Bell, and the Wright Brothers; Boyer and Cohen and Caruthers; Ted Hoff and Frances Arnold. These are inventors whose work we should celebrate. And theirs are the stories we should tell. Not scary monster stories.
Repeatedly telling “patent troll” stories is indeed odd, especially when they’re being told to the people who have been responsible for the greatest advances in human history.
The narrative must change. And, at least as far as the USPTO is concerned, it has now changed.
We are now focusing on the brilliance of inventors, the excitement of invention, and the incredible benefits they bring to all Americans and to the world.
Take, for example, Bob Metcalfe, currently a professor of innovation and Murchison Fellow of Free Enterprise at the University of Texas in Austin.
By the age of 10, Bob knew he wanted to become an electrical engineer and attend MIT. He did. And followed that up with a master’s and Ph.D. from Harvard. In 1972, Bob began working at Xerox’s Palo Alto Research Center, where he met electrical and radio engineer D.R. Boggs.
With Boggs, Bob invented what came to be known as the Ethernet, the local area networking (LAN) technology that turns PCs into communication tools by linking them together. Today, more than a billion Ethernet-based devices are shipped every year. And then, in 1979, at the height of his career, Bob took a huge risk and left the comfort of Xerox and founded 3Com Corporation.
An inventor on many U.S. patents, Bob was awarded the National Medal of Technology by President George W. Bush in 2003 for his leadership in the invention, standardization, and commercialization of Ethernet. And in 2007, he was inducted into the National Inventors Hall of Fame.
Bob told us recently: “Rapid execution and patents are probably the two major defense mechanisms against the vicious status quo, which is out to crush you.”
Innovation and IP protection have indeed always been America’s mechanisms for progress in the face of the “vicious status quo.”
Take as another example Susann Keohane, IBM Global Research Leader for the Aging Initiative, another Texas-based inventor. Her inventions combine cognitive technology, the Internet of Things, and other emerging technologies to improve quality of life for people with disabilities and the aging population.
Susann is an IBM Master Inventor who holds 114 U.S. patents. And, importantly, she told me she is working on more!
This is the American patent system. These are the heroes who have taken risks to make something new and to change the world. Theirs are the stories that must drive our patent policies.
Because in this country, we want people to take risks. Like Susann and Bob, we want folks to leave their comfort zones and step into the forests of discovery and innovation. We want folks to step out of their lanes and try big, bold, new things. And scaring them with ugly monster stories does precisely the opposite; it drives towards policies that inhibit innovation.
Remarkably, in what I believe amounts to Orwellian “doublespeak," those who’ve been advancing the patent troll narrative argue that they do so because they are actually pro-innovation. That by their highlighting, relentlessly, the dangers in the patent system, they actually encourage innovation. Right!
After hearing about the Big Bad Wolf eating Little Red Riding Hood and her Grandma, would kids be more eager to go into the woods and more eager to take risks? Come on! What encourages more innovation? Susann Keohane, Bob Metcalfe, Thomas Edison, the Wright Brothers, Frances Arnold—or scary monster stories?
What encourages more folks to take risks and become entrepreneurs and inventors? Is it stories highlighting the success of risk-taking and the personal and public gratification of invention, or is it stories highlighting green monsters under bridges and the faults in the patent system?
Look, people are free to express any point of view, and they can certainly advocate for weakening our patent system. But they should be up front about it. Those who spend their time and money relentlessly preaching the dangers of monsters lurking under the innovation ecosystem, and who work exclusively to identify only faults in the system, are unconvincing when they argue that they are doing so for purposes of increasing innovation.
Certainly, innovation and entrepreneurship are risky. And certainly every system has faults, and we must be vigilant about identifying and eliminating abuses when they arise. I am personally committed to doing so. But for any system to be successful, it cannot focus exclusively on its faults. Successful systems must focus on their goals, successes, and aspirations.
Focusing exclusively on selected, known problems has damaging consequences.
The Washington Post Editorial Board recently published an opinion piece, titled “The U.S. must take action to stop Chinese industrial espionage,” which strongly condemns China’s alleged theft of trade secrets. The Editorial Board pointed to the recent indictment concerning DRAM trade secrets allegedly stolen from Micron, a U.S. based company. The piece notes that a worker from Micron joined a state-supported Chinese company along with other employees--carrying with them trade secrets. The editorial ends with the statement that, “In the end, China will only respond to compulsion.” This is a powerful indictment of China from one of the leading newspapers in the United States. The editorial can be found, here.
The question is what are the next steps to exercise “compulsion." This situation is somewhat different than the Chinese government requiring the disclosure of trade secrets for essentially market access to China. Indeed, even for non-state owned Chinese companies, my understanding is that the Chinese government is involved in technology development even in early stages and exercises a veto power over the direction of technology development. Recently, the Chinese government announced a ban on all new computer games in China. As I've mentioned in a prior post, this could be a case of rogue Chinese employees attempting to become wealthy who may not be acting with express approval of the Chinese government; although perhaps with tacit approval of the government or willful blindness of the government. Of course, this ultimately is to the great benefit of China. However, what is our response? That is the very difficult question the editorial does not address. We all know there is an issue.
Moreover, the problem with trade secrets is that once they are disclosed it is very hard if not impossible to put them back in the box. Once we've lost it; its likely lost irrevocably. And, I don't think putting a few people in prison is going to provide much general deterrence to similar behavior. Will we start seizing assets--does it matter from whom? That seems unlikely to be smart--our interests are so intertwined now. As I've mentioned before, will we attempt to ban all Chinese citizens from working or studying in the United States? Is that in the best interest of our country? That may not stop the bleeding of information through cybertheft. More tariffs? Does that work?
The USPTO has discarded the broadest reasonable interpretation standard. This may lead to fewer patents held to be invalid during IPR, PGR, and CBM proceedings. The announcement states:
The United States Patent and Trademark Office (USPTO) has published a final rule changing the claim construction standard applied during inter partes review (IPR), post-grant review (PGR), and the transitional program for covered business method patents (CBM) proceedings before the Patent Trial and Appeal Board (PTAB).
The final rule replaces the “broadest reasonable interpretation” standard with the federal court claim construction standard that is used to construe a claim in a civil action under 35 U.S.C. § 282(b). This is the same claim construction standard articulated in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc), and its progeny. Additionally, under the final rule, when construing a claim term in an IPR, PGR, or CBM, the PTAB will take into consideration any prior claim construction determination that has been made in a civil action, or a proceeding before the International Trade Commission (ITC), if that prior claim construction is timely made of record in that IPR, PGR, or CBM.
. . . As noted in the rule package, the change will lead, among other things, to greater consistency and harmonization with the federal courts and the ITC and lead to greater certainty and predictability in the patent system. . . . Several comments questioned the proposed “retroactive” application of the rule. In response to these comments, the final rule will not be retroactively applied and instead will apply only to IPR, PGR, and CBM petitions filed on or after the effective date of the final rule, which is November 13, 2018.
The United States Trade Representative has released a summary of some of the highlights concerning IP and the new “NAFTA” between the United States, Canada and Mexico. The USMC agreement (United States Marine Corps or What We Say -- I'm making a joke.) summary states, in part:
UNITED STATES–MEXICO–CANADA TRADE FACT SHEET Modernizing NAFTA into a 21st Century Trade Agreement
The United States, Mexico, and Canada have reached an agreement to modernize the 24-year-old NAFTA into a 21st century, high-standard agreement. The new United States-Mexico-Canada Agreement (USMCA) will support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America.
The United States, Mexico, and Canada have reached an agreement on a modernized, high-standard Intellectual Property (IP) chapter that provides strong and effective protection and enforcement of IP rights critical to driving innovation, creating economic growth, and supporting American jobs.
Key Highlights: Protections for United States Innovators and Creators
The new IP Chapter will:
Include 10 years of data protection for biologic drugs and a robust scope of products eligible for protection.
Require full national treatment for copyright and related rights so United States creators are not deprived of the same protections that domestic creators receive in a foreign market.
Continue to provide strong patent protection for innovators by enshrining patentability standards and patent office best practices to ensure that United States innovators, including small- and medium-sized businesses, are able to protect their inventions with patents.
Include strong protection for pharmaceutical and agricultural innovators.
Require a minimum copyright term of life of the author plus 70 years, and for those works with a copyright term that is not based on the life of a person, a minimum of 75 years after first authorized publication.
Require strong standards against the circumvention of technological protection measures that often protect works such as digital music, movies, and books.
Establish appropriate copyright safe harbors to provide protection for IP and predictability for legitimate enterprises that do not directly benefit from the infringement, consistent with United States law.
Provide important procedural safeguards for recognition of new geographical indications (GIs), including strong standards for protection against issuances of GIs that would prevent United States producers from using common names, as well as establish a mechanism for consultation between the Parties on future GIs pursuant to international agreements.
Enhance provisions for protecting trademarks, including well-known marks, to help companies that have invested effort and resources into establishing goodwill for their brands.
Key Achievement: Most Comprehensive Enforcement Provisions of Any Trade Agreement
For the first time, a trade agreement will require allof the following:
Ex officio authority for law enforcement officials to stop suspected counterfeit or pirated goods at every phase of entering, exiting, and transiting through the territory of any Party.
Express recognition that IP enforcement procedures must be available for the digital environment for trademark and copyright or related rights infringement.
Meaningful criminal procedures and penalties for unauthorized camcording of movies, which is a significant source of pirated movies online.
Civil and criminal penalties for satellite and cable signal theft.
Broad protection against trade secret theft, including against state-owned enterprises.
Key Achievement: Strongest Standards of Protection for Trade Secrets of Any Prior FTA
In particular, the Chapter has the most robust protection for trade secrets of any prior United States trade agreement. It includes all of the following protections against misappropriation of trade secrets, including by state-owned enterprises: civil procedures and remedies, criminal procedures and penalties, prohibitions against impeding licensing of trade secrets, judicial procedures to prevent disclosure of trade secrets during the litigation process, and penalties for government officials for the unauthorized disclosure of trade secrets.
The new Digital Trade chapter contains the strongest disciplines on digital trade of any international agreement, providing a firm foundation for the expansion of trade and investment in the innovative products and services where the United States has a competitive advantage.
Key Highlights of the Digital Trade Chapter
The new Digital Trade chapter will:
Prohibit customs duties and other discriminatory measures from being applied to digital products distributed electronically (e-books, videos, music, software, games, etc.).
Ensure that data can be transferred cross-border, and that limits on where data can be stored and processed are minimized, thereby enhancing and protecting the global digital ecosystem.
Ensure that suppliers are not restricted in their use of electronic authentication or electronic signatures, thereby facilitating digital transactions.
Guarantee that enforceable consumer protections, including for privacy and unsolicited communications, apply to the digital marketplace.
Limit governments’ ability to require disclosure of proprietary computer source code and algorithms, to better protect the competitiveness of digital suppliers.
Promote collaboration in tackling cybersecurity challenges while seeking to promote industry best practices to keep networks and services secure.
Promote open access to government-generated public data, to enhance innovative use in commercial applications and services.
Limit the civil liability of Internet platforms for third-party content that such platforms host or process, outside of the realm of intellectual property enforcement, thereby enhancing the economic viability of these engines of growth that depend on user interaction and user content.
The legal services market in the United States contracted since the Great Recession. However, there have been reports of a rebound. CBRE, a commercial real estate firm, has released a report concerning legal services and real estate in the United States. Part of the report concerns rethinking how square footage in law firms can be used more efficiently, including increasing collaboration space. Another part of the report examines legal services employment—attorney employment--across the United States.
The top five major legal services employment markets are 1) New York City; 2) Los Angeles; 3) Miami; 4) Chicago; and 5) Washington DC. San Francisco is ninth. The report states that there has not been much growth in most of the top ten major legal services employment markets except for Los Angeles (experiencing low double digit growth between 2015 and 2017) and San Francisco. The report states that this is likely due to the growth in the media and tech industries. In the highest growth markets category, Austin and Atlanta were the leaders in attorney growth. Austin added more than 10%. Austin is well-known for its tech industry. According to the report, the cities of Austin, Atlanta and Kansas City added 10% or more growth in attorney positions since 2015. The report also discusses the cities with largest decline in law degrees awarded.