Tag: patent law

Obama Chastises Rogue Trade Agency for iPhone Ban

On Saturday, the president vetoed a decision of the U.S. International Trade Commission for the first time in over 25 years. As a result, the United States will not be imposing an import ban on older iPhones despite the ITC’s finding that Apple infringed certain patents owned by Samsung. This action by the Obama administration is undoubtedly a good development, not just because you will still be able to get a free iPhone 4 when signing a 2-year contract, but because the veto simultaneously disciplines and discredits the ITC’s disruptive role in the U.S. patent system.

The president’s intervention corrects a bad decision by the ITC. The patents that Samsung accused Apple of infringing in the ITC investigation are standard technology required to run phones on a 3G wireless network. Owners of standard-essential patents must agree to license the technology on fair, reasonable, and non-discriminatory (FRAND) terms to anyone who asks. Samsung claimed at the ITC that Apple refused to pay any royalties at all, and Apple claimed that Samsung demanded an unreasonable royalty. The ITC sided with Samsung.

The ITC’s ruling has been controversial not because Samsung won the case, but because the ITC’s remedy—total exclusion of the infringing products from the U.S. market—is excessive.

If Samsung had brought its case in federal district court instead of the ITC, the judge would most likely have ordered Apple to pay the royalties it owed Samsung. An injunction against future sales would not be granted, because Samsung never had the right to keep Apple from using the technology in the first place, only to collect royalties.

As I wrote last month in anticipation of a potential presidential veto, this action by the president has a number of policy implications that go beyond the Apple–Samsung patent dispute. The Obama administration, leaders in Congress, and much of the tech industry have been converging lately on the idea that remedies for patent infringement at the ITC are too strict. The ITC should not be able to ban future sales in a situation where a district court would refuse to do the same thing. As it stands now, the ITC’s excessive remedies allow patent holders to wield more power than they should and exacerbate the ongoing struggle against patent trolls.

Korean press coverage of the issue has implied that the administration’s veto of Samsung’s patent victory against Apple amounts to “flagrant protectionism.” In a separate case, the ITC is set to decide later this week whether Samsung infringed patents owned by Apple. If the administration allows an import ban on Samsung products despite intervening to help Apple, many in Korea will surely cry foul.

A trade conflict would be a fitting consequence of mixing patent litigation with trade policy. It doesn’t make sense for President Obama to have the power to intervene in a patent case simply because he doesn’t approve of the outcome. Section 337 of the Tariff Act of 1930, the law that enables the ITC to litigate patents, was designed as a protectionist trade remedy. The president’s veto power is meant to ensure that the ITC’s decisions don’t impede U.S. foreign or economic policy. If the ITC were a legitimate patent court, its decision would not be subject to executive override. The ITC is simply the wrong place to litigate patents, standard-essential or otherwise.

You Can’t Patent Thoughts

Doctors and researchers regularly perform blood tests to determine the effectiveness of various drugs. The resulting correlations between the test results and patient health have recently become the subject of numerous “process” patents. That these patents have been upheld by the U.S. Court of Appeals for the Federal Circuit represents a dangerous expansion of traditional patent law.

This expansion threatens to stifle free markets and infringe on individual liberty. In Mayo v. Prometheus, the Court will address the important question of whether someone can patent the process of observing correlations between blood test results and patient health. The primary legal issue here is whether naturally occurring correlations are patentable as “process” patents simply because the methods used to administer prescription drugs and test blood may involve “transformations” of body chemistry.

On Friday, Cato filed an amicus brief, joined by the Reason Foundation and the Competitive Enterprise Institute, arguing that these patents are not “processes” as the term was originally understood in the Patent Act of 1952. We liken medical-diagnostic patents to other abstract-process patents—such as software and business-method patents—that have resulted in financial losses for firms and discouraged innovation, and argue that enforcing these patents “will only serve to further slow the economy, retard technological innovation, distort the free market, and place human health at risk.”

Moreover, upholding the patents at issue will impermissibly restrict public-domain activity because the final step in a medical-diagnostic patent is an entirely mental one that will be violated whenever a doctor performs a previously public-domain medical test after learning about the patented correlation. Our brief thus closes by arguing that the Court should also consider the profound First Amendment implications in allowing processes whose final step is entirely mental to be patented.* “The Court has repeatedly recognized that the First Amendment protects freedom of thought as well as freedom of speech.” Unlike copyrights, patents lack traditional free-speech safeguards (such as exceptions for “fair use”) and, therefore, the Court should reject medical-diagnostic patents as impermissibly restricting the freedom of thought.

Mayo v. Prometheus will be argued late this year or in early 2012.  Here again is Cato’s brief.


*Recall Judge Gladys Kessler of the D.C. federal district court, who found Obamacare’s individual mandate constitutional under the Commerce Clause because it regulates “mental activity.”  Combining this theory with the theory of patentability at issue here, federal courts could sustain lawsuits based on a defendant’s making the same “patented” decision (or non-decision) as a plaintiff.

Cato’s First Brief in a Patent Case — On Constitutional Grounds

Recognizing an opportunity to make quick and easy money, private attorneys have been suing companies under the False Marking Statute, 35 U.S.C. § 292.  This law allows any person to sue to enforce a federal criminal statute that prohibits anyone from labeling an unpatented product with a patent number or to advertise a product with a patent number that is not actually patented. 

The penalty for violating this law is $500 per offense, which has been interpreted to mean each and every product falsely marked.  For instance, if a business is charged with falsely marking 100,000 products, it could be liable for $50 million.  Private attorneys suing under this statute seek massive amounts in damages and then try to settle with the defendant for a fraction of that cost (still a large amount of money).  Companies often settle even if the case against them has little merit because they do not want to risk such a massive amount in damages.

The longtime toy manufacturer Wham-O, however, successfully defended such a lawsuit in court, provoking the plaintiffs’ lawyers to appeal to the Federal Circuit (the only appellate court below the Supreme Court that can hear patent cases).  Cato, along with my colleague, Walter Olson — who has studied these patent marking cases — filed an amicus brief supporting Wham-O on constitutional grounds.  We argue that the False Marking Statute fails to give the executive branch, through the attorney general, control over the enforcement actions brought at its behest.  By allowing any person to sue and then receive half of the damages, the law abrogates the executive power to enforce the law and places it in the exclusive hands of the private attorney. 

There is clear precedent for this argument:  In the 1988 case of Morrison v. Olson, the Supreme Court upheld the independent counsel statute because it gave the attorney general “sufficient control” over the counsel’s hiring, firing, and investigative scope.  Other courts have held that for a private person to prosecute what is called a “qui tam” action under the False Claims Act — essentially stepping into the shoes of the government — the government must maintain “sufficient control” over the litigation.  The False Marking Statute does not provide sufficient control, or any control, and therefore violates Article II’s “Take Care Clause,” the font of the executive branch’s enforcement duties.

Ultimately, the separation of powers, the foundation for the governmental structure created by the Framers, ensures that laws are enforced by someone accountable to the people, the Executive. The False Marking Statute divests the president of this authority, so the Federal Circuit should strike it down as violating the Constitution’s separation-of-powers structure.

The Federal Circuit will hear FLFMC, LCC v. Wham-O, Inc. this spring.