Intellectual Property Law & Taxation: a new edition is coming!

A new edition of Intellectual Property Law & Taxation, by Nigel Eastaway, Richard Gallafent, Victor Dauppe and Jacquelyn Kimber is expected to be published on the last day of this month.  You can get the full details from the publisher's website here. This book, now emerging in its 8th edition, covers the UK's taxation system as it affects patents, designs, trade marks and copyrights.  While Europe's IP laws are increasingly harmonised, the tax regimes of the EU's 28 Member States are not, and offerings such as the 'patent box' give some jurisdictions an appeal that others lack.

This blogger was just a young lecturer when the first edition was published. While he can't see he was particularly enlightened by the subject matter, tax never having been one of his strongest topics, he loved the examples and case histories that brought the volume to life.  He wishes the new edition, which still has its original authors on board, the best of luck.

Chief Judge Rader’s Recent Comments on Patents and the Federal Circuit Bar Association

The Federal Circuit Bar Association (FCBA) recently released a copy of the remarks of Chief Judge Rader at the recent Eastern District of Texas Bench and Bar Conference.  The FCBA is the bar association for the U.S. Court of Appeals for the Federal Circuit, which hears patent appeals from the district courts in the U.S. along with appeals from the International Trade Commission and the U.S. Patent and Trademark Office.  Chief Judge Rader’s comments address criticisms against the U.S. patent system including the assertion of the tragedy of the anticommons as well as supposed litigation abuses by so-called patent trolls.  Chief Judge Rader notes that empirical evidence doesn’t support the tragedy of the anticommons theory and that the smart phone is a great example of, basically, how the anticommons does not exist.  I believe our fellow blogger Keith Mallinson supports Chief Judge Rader’s view; although I believe, if my memory serves me correctly, that some would argue there is an anticommons like effect in the genetic diagnostics field.  I also wonder about price.  Here are Chief Judge Rader’s comments about the anticommons theory:

As an illustration of the crisis of confidence in the benefits of Patent Law, I wished to just discuss one unsubstantiated charge against the merits of this system of Constitutional dimension.  Academics often charge the Patent system with creating a so-called “tragedy of the anti-commons.”  This academic canard suggests that a “thicket” of patents can actually inhibit innovation; that the administrative burdens of enforcing patents can multiply to frustrate the goal of the Act.  Thus, the law of innovation supposedly works against itself.  In an age of empirical research to verify every legal hypothesis, I would urge you and any policymaker to reject this academic supposition – whether it comes from a high court or any other source – until and unless it is verified by empirical data.   By the way, the only studies on this topic that I have seen could not verify this guess but generally confirmed the opposite – that patents spur innovation. 

May I offer a common sense rebuttal to this academic hypothesis?  [Hold up my smart phone]  This smart phone resides in the technological space most occupied by patents, perhaps in the history of patent law dating back to 1624.  With design patents as part of the equation, this device probably includes easily more than a thousand active patents.  If you count expired patents in this technology back to the advent of the computer age, this device would implicate tens of thousands of patents.  If ever the administrative burdens of a concentration of patents would inhibit innovation, this technology would be the place to observe that encumbrance.  Now you tell me: is this technology experiencing sluggish and encumbered innovation?   I doubt that I could keep track of the pace of innovation in this technology if I devoted my full time to the project.   

No doubt a study would show that the disclosure benefits of patents bring the entire world into the innovation circle that drives smart phone technology forward faster than any of us can fathom.    I am afraid the “tragedy of the anti-commons” has its own tragedy: it simply is academic nonsense.  The patent system does not inhibit invention.

Chief Judge Rader cites his experience working both in the judiciary and in Congress in cautioning the Congress to carefully enact reforms, if any, and to allow the judiciary to correct for any issues from litigation abuse.  Chief Judge Rader first points to the definitional problems concerning the “patent troll”:

Again in simple terms, litigation abuse is a court problem and courts have the best tools to supply the correction. 

Perhaps I could suggest a way that classification fails to address this problem.  Litigation abuse sometimes invites an equally abusive strategy of correction.  This misguided strategy attempts to define some patent-owning entities as the source of the problem.  Regardless of whether you call them NPEs or PAEs or “trolls” or whatever pejorative term suits your fancy, this definition strategy is itself an abuse.   

American law and ethics does not enforce or condition enforcement of basic laws and policy on the characteristics of a party.  American law treats big company and small company, foreign entity and domestic entity, different genders, races, and ethnicities ALIKE.  Our law does not make distinctions based on the characteristics of parties but on their actions proven in a court of law.  The definition of a “troll” will always be over-inclusive or under-inclusive to the detriment of justice.  Instead of finger-pointing and name-calling, the law needs to focus on blameworthy conduct.

Finally, Chief Judge Rader points to three potential avenues of help against so-called trolls.  First, the courts increased use of summary judgment to curb some claims.  Second, the award of attorney fees in exceptional cases—and he notes that the Federal Circuit is “on course” to make it easier for courts to find an exceptional case.  Finally, he points to litigation expense reform and model orders promulgated by the FCBA and the Federal Circuit Advisory Council.  The E-Discovery model order is available here.  The full text of Chief Judge Rader’s remarks are here. 

Since I mentioned the FCBA, I’ll give a “plug” for the FCBA and a panel I am moderating soon.  The FCBA offers a number of other activities, including webinars, conferences and interesting opportunities such as the International Series and the Global Fellows Series.  The FCBA also publishes a newsletter and a law review, The Federal Circuit Bar Journal.  Membership costs are relatively modest and all webinars offered by the organization are free for members.  I am pleased to work with the Diversity Committee of the FCBA and we are offering a webinar, in conjunction with the Law Clerks and Students Committee, concerning intellectual property career planning directed at law students and attorneys with 1-5 years of experience.  The webinar is free for students and members, and will be held this Wednesday (November 6) from noon to 1:30 pm (Pacific Standard Time).  The panelists are: Judge Paul Grewal, Magistrate Judge, U.S. District Court, Northern District of California; Jack Hobaugh, Counsel and Senior Director of Technology, Network Advertising Initiative, Washington D.C.; Paul Korniczky, Partner, Leydig, Voit & Meyer, Chicago, Illinois; Christy LaPierre, Associate, K&L Gates, San Francisco, California; Kim Tran, Associate, Perkins Coie, Palo Alto, California; and A. E. Williams, Retired Patent Examiner, U.S. Patent and Trademark Office. 

A spoonful of sugar helps the taxation go down ...

Earlier this summer, in  Trustees of the Mrs PL Travers Will Trust v HMRC [2013] UKFTT 436 (TC), 14 August 2013, a First-tier Tribunal in the UK found that whether copyright royalties payable to trustees were taxable as capital or income depended on an analysis of copyright ownership in the light of trust law principles. The Tribunal also considered what constituted accumulation of income, where royalties were being exploited.

Curiously, in reaching its decision the tribunal judges had to refer to a line of Scottish cases relating to mineral rights. This reflects the fact that there are not many cases on the tax and trust treatment of copyright. This decision is therefore likely to be a useful reference point for trustees who are holding copyright and for the executors of literary estates as well as their advisers.

Cultural note: the P. L. Travers in this case is not as well known as her famous literary creation, this being none other than Mary Poppins.

More tools: but are they right for the job?

"Businesses to get greater Intellectual Property support" is the title of today's media release from the UK government's Department for Business, Innovation and Skills. According to its text:

"The potential for businesses to succeed and grow received a big boost today with the launch of new support tools to help small firms identify, protect and grow their intellectual property (IP) assets. The Intellectual Property Office launched ‘IP for Business’ - a suite of five business tools which make sure firms can tap into up-to-date guidance to help manage their IP. It will also help firms get more relevant advice from their accountants and other business advisers.

The tools respond to the challenge of making sure businesses can generate value from ideas against a backdrop of poor understanding of IP rights and how they can exploit them. At the centre of the toolkit is IP Equip - a new, free interactive online training tool that helps businesses and their advisors to identify assets which may be protected by IP rights and think through the strategy for protecting them. ...

Roger Burt, President of the Chartered Institute of Patent Attorneys, said:

“Small businesses and their advisors, if they understand it at all, generally see IP as a low priority. To engage their interest, you have to talk to them about its business benefits, not about the intricacies of intellectual property, particularly patent law. This new material does just that. It is a valuable addition to the tools already available.”

President of the Institute of Trade Mark Attorneys Catherine Wolfe sees the new package as having a clear advantage over some of the existing materials:

“By focusing on the potential commercial value of IP assets these new tools make it clear to business people and their advisers that it pays to get expert help at an early stage. Having an effective IP strategy can be crucially important to business.”

Other products being launched today include

• IP Equip app which is available to download free from the Apple store iTunes and Android App store. This will give access to IP information on the go. 

• IP Basics which is a range of new guides for business owners, explaining how to maximise the potential of IP. 

• IP Health Check which allows business owners to assess their own business for free with a tailored report to identify and value their IP. 

• IP Master Class which is a popular accredited course which enables advisors to advance their knowledge".

While no-one can accuse the IPO of not trying, it would be good to know how effective these tools are: how far have they been test-driven and how widely applicable are they?  Readers' experiences and evaluations would be particular welcome -- especially if they influence a decision whether to seek, or to advance, investment funding.

Coming soon: "From IP to NP"

On 10 and 11 November 2013 this blogger will be attending a conference, "From IP to NP", organised by the AIPPI's Israel chapter.  The "NP" in this context stands for "net profit" and there is a strong international panel of speakers and contributors. The venue is the Dan Panorama Convention Center, Tel Aviv. David Kappos, Marshall Phelps and judges Randall R. Rader and Klaus Grabinski are among the participants.

Details of this conference, which will be concentrating on the business and commercial dimensions to IP exploitation, are available here.

I'd like to meet any readers of this blog who are attending the event: if you'll be there, do let me know by emailing me here.

When Successful Innovation and IP Go in a Different Direction from Increased Domestic Employment

Ever since the onset of the Great Recession, the primary concern of most governments has been to accelerate domestic growth in a way that will increase employment. For example, there is no more anticipated economic data point than the US unemployment rate, published on the first Friday of each month. For the general public, the success or failure of many governments is the extent to which they can generate jobs in a sustained and substantial way. The primacy of economic growth, and its by-product —increased employment — threaten to place public discussion about IP in an awkward position. The reason is that there may no clear connection between enhanced innovation and IP activity and improved employment data. Instead, the benefits of cutting-edge IP may well be redounding primarily to the benefit of the few who are able to capitalize on the commercial success of their innovations, with little or no benefit to the overall employment situation. To the extent that this is true, arguments in favour of public support of IP rest on uncertain policy grounds.

Take a country like Israel, which is seen as an example of the use of effective public moneys for innovative research and development. A primary vehicle for this funding is the so-called Office of the Chief Scientist (known as the OCS), which extends financial support for innovative activity by recipient companies, here. The problem is that OCS funding requires that the intangible “Knowledge” for which read IP, very broadly defined) that is generated from such funding may not be transferred out of the country until the grants have been repaid to the OCS from commercialization of the Knowledge, unless a waiver can be obtained. Underlying this prohibition is the view that OCS funding is, at the end of the day, first and foremost intended to enhance local employment, whereby the commercial success of the company, except to the extent that it contributes to local employment, is a secondary consideration. How strongly this underlying policy is viewed can be seen from the fact that, under the strict letter of the Encouragement of Industrial Research and Development Law, the transfer of Knowledge in an unauthorized fashion might theoretically attract criminal penalties (although this blogger is not aware of any instance in which the criminal sanction has actually been brought to bear).

Pushing against this clear nexus between the expenditure of public moneys, the creation of valuable IP/Knowledge, and increased domestic employment, as exemplified by OCS funding, is the exit ethos of the Israel start-up community. While it has become a bit hackneyed, the description of the country as “Start-Up Nation”, here, does capture the esteem in which is held a successful hi-tech exit (meaning that the company has been sold to a foreign purchaser or, less likely these days, has successfully floated its shares on a reputable stock exchange), replete with underlying IP and related innovative technology. However, from the point of view of government employment policy, a successful exit typically has, at best, only a modest effect on overall domestic employment. Even assuming that the company maintains an R&D facility in the country after the exit, the primary benefit of a successful exit are the millions, sometimes hundreds of millions of dollars, that go to the investors and founders. Thus, even if the likes of a Google maintains a local R&D facility as a result of the exit, the employment benefits redound to a select few, with the overall national employment situation being largely unaffected.

Israel is brought as an example because its circumstances so vividly underscore the proposition that the development of IP tends to go to the benefit of capital (read investors and founders) rather than labour. But it is hardly alone. Singapore is engaged in an impressive and aggressive push, supported by public funding, to strengthen the position of that island nation as a Global IP hub in Asia, here. As this blogger understands the initiative, underlying it is a concern for the overall employment position in the country. The experience in Israel should be a cautionary tale for Singapore.

Don’t get this blogger wrong: he is all in favour of IP, innovation and successful commercial exits based on them. To the extent that government funds can assist these developments, it is to be encouraged. However, there is palpable and increasing risk here. In an age where public budgets are increasingly scrutinized, a budget line for the support of innovation and R&D, where the benefit fails to redound to the public in the form of increased employment, carries with it a double risk. First, the decoupling of successful innovation and R&D from improved domestic employment threatens to decrease the amount of continued public funding of such activities. Even more ominously, this decoupling may threaten public support for robust IP protection, thereby throwing out the IP baby with the public funding bathwater in a way that this blogger would prefer not to contemplate.

Heresy Implemented? Overreaching Claims by Trademark Attorneys and the Reaction by Courts and Administrative Bodies.

Numerous commentators (including myself) have pointed to examples of how trademark practitioners may be essentially over-enforcing their marks—sometimes perhaps justifying the label of “trademark bullies” for their clients, see this blog post.  Recently, on Professor Oppedahl’spopular trademark listserv, a number of trademark attorneys noted how trademark attorneys at the United States Patent and Trademark Office are issuing more office action refusals based on “failure to function as a mark” (perhaps based on the fact that the purported mark is failing to operate as a mark in connection with the submitted specimen of use).  Notably, in the discussion, JohnWelch, the blogger at the excellent TTAB blog, references a recent article he authored that states that the Trademark Trial and Appeal Board and courts have recently increased “discussions of utilitarian functionality, aesthetic functionality, failure to function as a mark, inherent distinctiveness, acquired distinctiveness, and non-reputation based competitive advantage.”  According to Mr. Welch, the cause of such discussions may be aggressive lawyering by trademark lawyers—perhaps meaning that trademark attorneys are broadly claiming trademark protection and thus perhaps over-claiming by “pushing the envelope," and the Trademark Office and courts are responding to that practice.   I think Mr. Welch’s theory has merit.  It would seem that attorneys representing accused infringers against attorneys who may assert over-reaching trademark claims would raise those arguments to protect their clients’ interests.  Further, the more reported cases that address those issues, the more likely it may be that trademark attorneys at the Trademark Office may raise them in response to what they perceive as over-reaching.

I do wonder whether the Trademark Office is influenced by (and if not, should be influenced by) empirical evidence concerning how consumers actually perceive marks instead of completely relying on the judicial interpretation of consumer psychology (read the U.S. Supreme Court’s Qualitex and Wal-Mart decisions) that has pervaded U.S. trademark law, for example with the Spectrum of Distinctiveness inquiry.   (Of course, we do use surveys to test consumer reaction to a mark).  Could that be part of the reason that the Trademark Office is increasing its discussions of “aesthetic functionality, failure to function as a mark, inherent distinctiveness, acquired distinctiveness, and non-reputation based competitive advantage?”  Could it be that the Trademark Office is utilizing the doctrinal tools that it has to correct for problems with our traditional tests for trademark protection, including the Spectrum of Distinctiveness?  (probably not, but maybe it should be)  Ordinarily, a threshold issue for a court is whether the purported trademark owner has a mark that is functioning as a trademark—the question is whether the mark is distinctive.  In a 2009 article in the Arizona State Law Journal, Thomas R. Lee, Eric D. DeRosia, and Glen L. Christensen, address the merits of the Spectrum of Distinctiveness, in An Empirical and Consumer Psychology Analysis of Trademark Distinctiveness.  The authors state that:

The evaluation of consumer perception is hardly a matter of judicial competence. Instead, like many of the key issues in trademark law, questions of distinctiveness are matters that can and should be informed by the theoretical and empirical tools employed by those who undertake a careful, scholarly study of such issues. . . . Questions of distinctiveness, in particular, lend themselves to rigorous theoretical analysis using tools developed in the scholarly study of consumer psychology. Such questions are not merely theoretical; they lend themselves to empirical study using accepted methods of quantitative measurement.

That is the enterprise of this article. After first setting forth some additional background on the law's classification of word marks (in Part II), we consider the justifications offered in the scholarly literature for the law in this area (in Part III). Finding those justifications analytically unsatisfying and largely question-begging, we marshal theoretical tools from the field of consumer psychology (in Part IV) that provide important insights into the viability of the law's word mark taxonomy. Using these tools, we show that the law's longstanding assumptions about consumer perception of word marks are highly questionable. Specifically, we employ consumer psychology models of the way consumers perceive visual information to hypothesize that when identifying a product's source, consumers will rely primarily on non-linguistic visual cues (e.g., the location and size of the mark as displayed on a product package) rather than the mark's semantic meaning.

We then present a series of empirical studies of these assumptions (in Part V). Our empirical investigation seeks to measure word mark distinctiveness in the relevant context of trademark use. Using a series of stimuli representative of consumer packaged goods, we hold constant the various contextual indicators of meaning (such as prominence and placement of the word mark on the package) while varying the word marks that appear in the context of the package. This methodology allows us to measure the impact of the classification of a particular word mark--as generic, descriptive, suggestive, arbitrary, or fanciful--on trademark distinctiveness. Our study thus allows us to offer an empirical answer to the trademark distinctiveness question long determined by judicial intuition and precedent. Our empirical findings thoroughly undercut the word mark taxonomy that has long dictated the coverage of the Lanham Act. We demonstrate that descriptive marks are no less source-indicating than suggestive, arbitrary, and fanciful marks. We also show that it is the non-lexical cues of typical trademark use (e.g., the location and size of the mark) that cause consumers to find descriptive marks to be source-indicating.

Finally (in Part VI), we offer some observations about the implications of our findings for the law's treatment of word marks. Our principal conclusion is that the law's treatment of “merely descriptive” marks cannot be justified on the basis of its faulty premises of distinctiveness. The main implication of that conclusion is a proposal to jettison legal tests that are based on those premises. Thus, we advocate the abandonment of the Abercrombie dichotomy between “inherently distinctive” and “non-inherently distinctive” word marks, eliminating (at the threshold protectability stage) the longstanding categories of descriptive, suggestive, arbitrary, and fanciful trademarks. Under our approach, all non-generic word marks would be eligible for protection so long as they satisfy the “trademark use” requirement.  . . .

The approach we advocate is admittedly heretical, as it calls for a substantial overhaul of a system of classification that has long stood as an unquestioned fixture of trademark law. But if that fixture can be shown to be indefensible on theoretical and empirical grounds, it deserves to be questioned. Once “merely descriptive” words are seen as distinctive source-indicators when used in a typical “trademark use” context, they should not be foreclosed from protection on the basis of erroneous assumptions about consumer psychology.

Heretical indeed!  What do you think?