Blockchain & Business: Improving Your Companies’ Future

By Pablo N. Garcia Rodriguez

As a second post on this blog series regarding Blockchain, Stein IP introduces “Blockchain & Business: Improving Your Companies’ Future.”

Considering the power of Blockchain, it is not surprising that it can also be applied to business. In fact, companies such as Walmart and FedEx implement Blockchain technology as a way to manage their supply chains since it makes possible tracking a product from its origin[1] and controlling assets’ conditions instantly. There are a lot of applications for this technology in the business field, such as smart contracts and transactions recording which can be achieved thanks to Blockchain being a distributed ledger. But what is a distributed ledger and why is everyone talking about it?

A distributed ledger is a decentralized, synchronized and shared database where information is recorded.

  • Decentralized: Data doesn’t rely on a central point of control, it is stored within a network of nodes. Due to lack of a single authority[2], is a more secure place to record transactions and valuable information to the company.
  • Shared: Every member on the network has access to the recorded information, unless there is a permission prohibiting it. This helps the organization save time and money as everything is uploaded just once.  
  • Synchronized:The information is shared simultaneously among all the network’s participants.

Permissions

Because Blockchain is a shared ledger, organization members might be concerned about people from their network having the possibility of modifying information that is important for the company, causing security problems such as data leaks. This leads us to another concept: permissions. If the business network’s operator chooses to set permissions, he or she will have the ability to restrain members’ participation and access to information. This means that participants get a selective visibility into the ledger which protects the organizations’ relevant data from malicious attacks.

Smart Contracts

Contracts are commonly used in business transactions, and Blockchain is no stranger to this area. Although traditional contracts and smart contracts have the same objective, which is to get parties to reach an agreement, there are many differences that make smart contracts more suitable for the business world in the future. Below, a graph shows how smart contracts work.

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Graph from “What Are Smart Contracts? A Beginner’S Guide To Smart Contracts”. Blockgeeks, 2018, https://blockgeeks.com/guides/smart-contracts/

Consensus is an important part of smart contracts’ functionality because conditions are settled and accepted by the parties. The next step is that requirements are met to validate the contract which executes automatically with no third party intervention.

According to a PwC’s[3] 2018 survey of 600 executives, 84% say their organizations have at least some involvement with Blockchain technology. Also, there are some existing predictions that express that by 2030 10% to 20% of global economic infrastructure will be running on blockchain-based systems. This means that companies are getting into this technology because of its benefits since costs are reduced, there is more transparency and a better control in what transactions concern, and besides is easier to trace the origin and conditions of assets and information. Blockchain is certainly improving business and that is why everyone is talking about it.

 


References:

[1] “5 Companies Using Blockchain To Drive Their Supply Chain”. Youtube, 2018, https://www.youtube.com/watch?v=5BGia46oBGA.

[2] “What Is Decentralization? » Basics Explained | Lisk Academy”. Lisk, 2018, https://lisk.io/academy/blockchain-basics/benefits-of-blockchain/what-is-decentralization.

[3] PricewaterhouseCoopers is the biggest Professional Services’ company in the world headquartered in London, United Kingdom.

Sources:

 

Per se legal? The Eleventh Circuit Rejects FTC’s “Unlikely to Prevail” Antitrust Challenge to “Reverse Payment” Patent Settlements

By Meera El-Farhan

In F.T.C. v. Watson Pharmaceuticals, Inc., 677 F.3d 1298 (11th Cir. 2012) the U.S. Court of Appeals for the Eleventh Circuit rejected the Federal Trade Commission’s (“FTC”) antitrust challenge to “reverse payment” patent settlements. Under the terms of the “reverse payment” (or “pay-for-delay”) agreement, the patent owner of AndroGel, Solvay Pharmaceuticals, Inc. (“Solvay”), agreed to make over $20 million annual payments to the generic challengers Watson Pharmaceuticals, Inc., Par Pharmaceuticals, Inc., and Paddock Laboratories, Inc. In return, the generic challengers agreed to stay out of the market until 2015, unless another generic version was to enter the market before then.

 

The FTC brought suit against all parties to the agreement. The FTC challenged the “pay-for-delay” settlement on the basis of unfair restraint of trade (the settlement allegedly being an “unlawful agreement not to compete,” in violation of section 5(a) of the Federal Trade Commission Act[1] (“FTCA”)). The FTC argued that such monopolies allow both generic and patent holding pharmaceuticals to make more profits at the expense of consumer welfare (increasing drug costs by an estimated amount of $3.5 billion per year). On appeal, the FTC argued, among other things, that Solvay’s ‘894 patent [2] was “unlikely to prevail.” According to the FTC, because the patent was unlikely to bar Watson and Par, and Paddock’s generic drug from entering the market the settlement was an unlawful restraint on competition.

The Eleventh Circuit rejected the “more likely than not” standard contended for by FTC. The court held the “unlikely to prevail” standard to be insufficient to state a claim; thus, a patent did not thereby exceed its “exclusionary potential.” The court adhered to the test set-forth by its precedent: “absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.”[3]

Although critics of the court’s decision argue such a test makes reverse payments “per se lawful” due to resulting difficulty in challenging reverse payment agreements, the Eleventh Circuit proffered convincing arguments for rejecting the FTC’s challenge. Among other things, the court argued FTC’s “predict-the-likely-outcome-that-never-came” approach would not only impose a retrospective burden on parties and courts (even if the burden of proof fell on the plaintiff), but also, such a test would not align with the strong public policy favoring settlements.

The court noted that parties settle patent litigations to “cap the cost” of litigation and avoid the “all or nothing” outcomes from courts. Settlements are one option for parties who “might not want to play the odds for the same reason that one likely to survive a game of Russian roulette might not want to take a turn.” The Eleventh Circuit further explained that the costly and tedious process of developing new drugs should also be supported by strong public policy favoring settlements over costly litigation. The court, with reference to the maxim “More Money, More Problems,” sided with pharmaceutical companies’ incentive to recoup costs of research and development. The court proffered additional reasons such as the exclusive appellate jurisdiction of the U.S. Court of Appeals for the Federal Circuit over patent cases and the court’s lack of expertise to rule on the patent.

The heart of resolving such cases, as noted by the Eleventh Court, is in striking the balance between antitrust law interests (promoting competition) and intellectual property law interests (allowing temporary monopolies to provide innovators with incentives to create). Antitrust laws aim to protect consumers from artificially high prices, maximize efficiency of the market, and also promote improvement of products through competition. On the other hand, granting patents ensures parties have the incentive to innovate in the first place. Although one can easily recognize the tensions between antitrust law and intellectual property law, one must also recognize the common goal: promoting innovation for a better future.

However, there is no consensus over resolving this tension yet. In the Sixth Circuit and the District of Columbia Circuit, reverse payment agreements are per se unlawful under the Sherman Act.[4] However, the Second Circuit, like the Eleventh Circuit, refused to assess the ex post validity of the patent at trial, but instead the court held that the question is whether “the exclusionary effects of the agreement exceed the scope of the patent’s protection.”[5] In devising a test that can better serve both interests, per se rules are unlikely to accommodate such a goal. However, with a growing circuit split among federal courts, in addition to a silent United States Supreme Court (as it passed the opportunity to articulate a unifying a standard at this point in time), the FTC will have many more opportunities to argue for, perhaps better, multi-factored tests.


[1] 15 U.S.C. §45(a)(1) (2006).

[2] U.S. Patent No. 6,503,894 (filed Aug. 30, 2000) (issued Jan. 7, 2003).

[3] F.T.C. v. Watson Pharmaceuticals, Inc., 677 F.3d 1298, 1312 (11th Cir. 2012)

[4] See In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003); see also Andrx Pharmaceuticals, Inc. v. Biovail Corp. Int’l, 256 F.3d 799 (D.C. Cir. 2001)

[5] In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 213 (2d Cir. 2006)

eBay Reseller of OEM Software Denied First Sale Defense

By Zi Wang

In Adobe Sys. v. Hoops Enter. LLC (N.D. Cal. 2012), the court rejected the first sale defense asserted by an eBay reseller of original equipment manufacturer (OEM) copies of software, drawing a distinction between licenses and sales of copyrighted works.

Adobe sued the defendants for copyright infringement, alleging that the defendants sold OEM copies of Adobe software through the use of eBay and other websites.  The defendants countersued Adobe for a declaratory judgment of copyright misuse.  In particular, the defendants contended that Adobe’s assertion of copyright protection contravened the first sale doctrine, as codified in 17 U.S.C. § 109.  The defendants also asserted the first sale doctrine as an affirmative defense.

The defendants obtained OEM copies of Adobe software that had been unbundled from the hardware with which they were originally packaged, such as Dell and Hewlett-Packard computers.  The defendants then re-bundled the software with items such as a piece of photo paper, a blank DVD, or a media card reader without Adobe’s authorization, and resold it online.

Adobe stated that it distributes its copyrighted software pursuant to licensing agreements that restrict the use, location of distribution, transfer and sometimes who is qualified to obtain the product, and does not transfer title to the software at any time.  Under Adobe’s licensing agreements applicable to OEM copies, these copies may not be unbundled and sold separately or re-bundled with products not approved by Adobe.

The defendants proffered evidence of Adobe’s licensing agreements with Dell and Hewlett-Packard.  The court included details of the Dell agreement in its opinion as an example.  The agreement contains following provisions and restrictions:

Dell is granted a license.

Dell is required to obtain a similar agreement with any third-parties prior to authorizing or sublicensing the software to them.

Adobe retains ownership of intellectual property rights in the software and places substantial restrictions on Dell’s use of the software.

Dell is prohibited from promulgating the software through specified means and requires that the software be bundled with specified Dell hardware.

Dell is obliged to take steps to prevent resellers from selling the software separately from this hardware.

Dell is required to include Adobe’s end-user license agreement with the hardware in such a way that the user can read it before accessing the software media and must include Adobe’s “copyright and proprietary notices.”

The court followed the Ninth Circuit’s holding in Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010) that the first sale affirmative defense is unavailable to those who are only licensed to use their copies of copyrighted works.  The court also adopted a three-prong test set out in Vernor:  A software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.

Accordingly, the court found that the first sale doctrine does not apply to the Adobe OEM software at issue because Adobe licenses, rather than sells, its OEM software.

Take-Away Points:  Copyright owners are well advised to utilize carefully drafted licensing agreements and maintain sufficient control over the copyrighted works in order to maximize their rights under copyright law.  End-users of software products that come with computer hardware should be put on notice that they cannot assume that they “own” their copies of such software and their rights vis-à-vis these copies may be curtailed by licensing agreements between software vendors and hardware manufacturers.

Federal Circuit Finds Assigned “Inventions and Discoveries” Extends to Continuation Applications

In MHL Tek, LLC v. Nissan Motor Co., 99 USPQ2d 1681 (Fed. Cir. 2011), MHL Tek, LLC (“MHL”), the controversy surrounds the ownership of U.S. Patent Nos. 5,663,496 (“the ′496 patent”), 5,741,966 (“the ′966 patent”), and U.S. Patent No. 5,731,516 (“the ′516 patent”), all of which relate to a tire pressure monitoring system (“TPMS”) and have the same inventors.  Two of the patents, the ‘496 and ‘966 patents, are divisionals of the same parent application (the “Parent Application), while the third patent, the ‘516 patent, has a separate specification from the ‘496 or ‘966 patents or to the Parent Application.

The Parent Application was filed on August 3, 1993, while the ‘496 and ‘966 patents were both filed on June 6, 1995, and the ‘516 patent was filed on May 2, 1996.  On August 5, 1993, two days after the Parent Application was filed, the inventors executed an assignment to Animatronics, Inc. (“Animatronics”), assigning all rights to “the inventions and discoveries” in the Parent Application. Continue reading Federal Circuit Finds Assigned “Inventions and Discoveries” Extends to Continuation Applications

Federal Circuit Clarified Intersection of Patent Misuse and Antitrust

En Banc Court Finds Block Licensing Of Essential and Non-Essential Patents Does No Provide Patent Misuse Defense

In Princo Corp. v. Int’l Trade Comm’n, 2010 U.S. App. LEXIS 18101 (Fed. Cir. August 30, 2010) (en banc), Sony and Philips own patents related to CD-R/RW technology as defined in a standard, the Orange Book standard.  In arriving at this standard, there were competing methods of encoding position information on the disc: The Philips approach, which is outlined in the “Raaymakers patents,” and the Sony approach, which is outlined in the “Lagadec patent.”  Eventually, both Sony and Philips decided on using the Philips approach for the Orange Book standard since the Sony approach was difficult to implement and prone to error.  In order to provide a convenient mechanism for licensing the necessary patents to conform to the Orange Book standard, Philips managed block license packages.   The block license packages included both the Raaymakers patents and the Lagadec patent. Continue reading Federal Circuit Clarified Intersection of Patent Misuse and Antitrust

Federal Circuit finds Covenant Not to Sue Divests Court of Jurisdiction Where Basis of Declaratory Judgment Was Invalidity

In Dow Jones & Company, Inc. and Dow Jones Reuters Business Interactive, LLC v. Ablaise LTD. and General Inventions Institute A, Inc., Docket No. 09-1524 (Fed. Cir. May 28, 2010), Ablaise LTD. (Ablaise) owns U.S. Patent No. 6,961,737 (the ‘737 patent) and No. 6,295,530 (the ‘530 patent).  Both patents claim methods for a Web server to send individualized content and formatting instructions in the form of Web pages that are generated on the fly in response to user preference information encoded in the user’s HTTP request for the specific Web page.

In 2006, Ablaise accused Dow Jones & Company,  Inc. (Dow) of infringing its ‘737 and ‘530 patents and simultaneously offering Dow a licensing agreement.  Dow refused, and sued saying both patents were invalid and not infringed.  Abliase counterclaimed for infringement on both patents.  The district court rejected Abliase’s motion to dismiss Dow Jones’ invalidity claim against the ‘530 patent and found the ‘737 patent as invalid due to obviousness in view of U.S. Patent No. 5,675,507 (“Bobo”) and the general knowledge in the field.

On appeal, the Federal Circuit first addressed whether a supposed covenant offered by Abliase, in which Abliase agreed not to sue Dow for infringement of the ‘530 patent, was sufficient to divest the district of subject matter jurisdiction over the declaratory judgment of invalidity.  The District Court noted that since Super Sack Manufacturing Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1060 *(Fed. Cir. 1995), a covenant not to sue for patent infringement divests the trial court of subject matter jurisdiction over claims that the patent is invalid, because the covenant eliminates any case or controversy between the parties. Intellectual Prop. Dev., Inc. v. TCI Cablevision of Calif., Inc., 248 F.3d 1333, 1342.

The District Court found the rule in Super Sack Manufacturing Corp. to be inapplicable for “sound prudential reasons,” and for “reasons of the efficient utilization of the litigation resources of both bench and bar.” Dow Jones & Co., Inc. v. Ablaise Ltd., 583 F. Supp. 2d 41, 44 (D.D.C. 2008).  The district court held that the two patents were close enough to be part of the same “case or controversy” under 28 U.S.C. 1367.  However, the Court of Appeals held that the district courts holding was contrary to jurisprudence, which remained valid after MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).  Thus, the covenant therefore extinguished any current or future case or controversy between the parties, and divested the district court of subject matter jurisdiction. Thus, the summary judgment for invalidity as to the ‘530 patent was reversed.

The second issue was whether the district court correctly granted Dow’s motion for summary judgment of invalidity on the ‘737 patent on the grounds that the asserted claims were obvious under 35 U.S.C 103.

In finding that ‘737 patent was obvious, the District Court rejected two of Abliase’s main arguments: that the combination of the HTML align image tag and the Bobo reference did not provide the same content in different formats; and that the there was a level of market skepticism with regards to the incorporation of the Bobo and HTML tags.

The District Court found that the ‘737 patent, which involved a modification incorporating location changing HTML tags into the Bobo prior art reference would have been straightforward and obvious to anyone of ordinary skill.  Any person of ordinary skill would have been aware that HTML tags affect content location on a Web page.  The Federal Circuit affirmed.  Specifically, the Federal Circuit noted that Ablaise admitted that “an artisan of ordinary skill would have been aware that HTML tags affect content location on a Web page” and that the incorporation of such into the Bobo reference  would have been straightforward.  Further, there was evidence of market need to include personalization features such that there was evidence of a reason to make the combination.

With regards to the second argument, the Federal Circuit also affirmed the District Court as none of the evidence that Ablaise provided addressed actual skepticism by outside parties concerning the invention of dynamically generated personalized web pages.  Thus, the secondary indicia of nonobviousness relied upon by Ablaise did not overcome the evidence of obviousness relied upon by the District Court in finding the ‘737 patent obvious.

Supreme Court Finds NFL Not Single Entity for Purposes of Antitrust Analysis of IP Licensing

In American Needle Inc., v. National Football League et al., 2010 U.S. LEXIS 4166, 94 U.S.P.Q.2D 1673 (2010), the appellee American Needle Inc. (Needle) sued defendants including the National Football League (NFL), the NFLP, and Reebok for violations of §1 and 2 of the Sherman Act.  Between 1963 and 2000, the NFLP granted nonexclusive licenses to various vendors including Needle.  In 2000, the teams authorized the NFLP to grant exclusive licenses.  The NFLP granted a 10 year exclusive license to Reebok, and declined to renew Needle’s nonexclusive license.

The district court and the court of appeals believed the main issue in the case was “whether with regard to the facet of their operations respecting exploitation of intellectual property rights, the NFL and its 32 teams are, in the jargon of antitrust law, acting as a single entity.” American Needle Inc. v. New Orleans LA. Saints, 496 F. Supp. 2d 941, 943 (2007).  Both the district court and the court of appeals held that “in the facet of their operations they have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose.” Id.

The Supreme Court believed that the key issue was much narrower.  The main issue here was whether the alleged “contract, combination… or conspiracy” is concerted action that joined together separate economic actors pursuing separate economic interests such that the agreement deprives the marketplace of independent centers of decision-making. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 at 773 (1984).

The NFL teams do not possess unitary decision-making quality.  Each team is a substantial, independently owned, and independently managed business.  Teams compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel. Brown v. Pro Football Inc., 518 U.S. 231, 249.

When each NFL team licenses its intellectual property, it is not pursuing the common interest of the whole league but is instead pursuing interests of each corporation itself. Copperweld, 467 U.S. at 770.  A firm making hats, the Saints and the Colts, for example, are two potentially competing suppliers of valuable trademarks.  As such, the NFL does not constitute a single entity for purposes of antitrust laws.

While not a single entity, when restraints on competition are essential if the product is to be available at all, the per se rules of illegality are inapplicable, and instead the restraint must be judged according to the flexible Rule of Reason. NCAA, 468 U.S., at 109. n. 39.  The NFL is such an organization.  Football teams need to cooperate to survive and are thus not trapped by antitrust law.  The special characteristics of this industry may provide a justification for many kinds of agreements. Brown v. Pro Football, Inc., 518 U.S. 231 at 252 (Stevens, J., dissenting).  The Supreme Court said that the fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions.

Finally, NFLP’s licensing decisions are made by 32 potential competitors, and each of them actually owns its share of the jointly managed assets. United States v. Sealy, Inc., 388 U.S. at 352-354.  Thirty-two teams operating independently through the NFLP are not like the components of a single firm that act to maximize the firm’s profits.  At the same time, this need for concerted action was noted as being “an interest that may well justify a variety of collective decisions by the teams” that might weigh favorably in the rule of reason analysis.  However, the Supreme Court declined to definitively state that the specific arrangement was clearly an antitrust violation, and instead remanded to the lower courts to perform a proper rule of reason analysis.