FTC Commissioner Ohlhausen Recommends Cautious Treatment of Bosch and Google SEP Decisions

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1 WRITTEN BY BRADLEY T. TENNIS AND KOREN W. WONG-ERVIN MARCH 18-22, 2013 PATENTS FTC Commissioner Ohlhausen Recommends Cautious Treatment of Bosch and Google SEP Decisions Last week, speaking at a symposium in China, FTC Commissioner Ohlhausen discussed the FTC s recent decisions in Robert Bosch GmbH and In re Matter of Motorola Mobility LLC and Google Inc., recommending that any agency or party interested in relying on these decisions proceed with caution and consider all of the Commissioner statements that were issued in connection with those decisions. (Speech at 19.) According to Commissioner Ohlhausen, who spoke in her own personal capacity, in both Bosch and Google, the FTC placed significant restrictions on the ability of holders of standard-essential patents to seek injunctions... with very little, if any, evidence that the patent holder agreed to waive this right when it participated in the standard-setting process. (Id.) Commissioner Ohlhausen noted that she issued dissenting statements in both decisions on the grounds that, among other things, the decisions lacked transparency, failed to provide adequate guidance, created conflicts between the FTC and other U.S. governmental institutions, and risk sending a message to our foreign counterparties that the U.S. does not place a very high value on intellectual property rights. (Id. at ) In particular, I raised concerns about the FTC enforcing Section 5 without providing sufficient information about the relationship between that statutory provision and the antitrust laws, including the Sherman and Clayton Acts. Without such information, it is unclear what the terms unfair method of competition means or how the Commission will use its enforcement discretion under Section

2 With respect to conflicts, Commissioner Ohlhausen noted that one of the effects of those decisions was to create conflict between the FTC and other U.S. government institutions, namely the ITC, courts, and the DOJ. (Id. at 18.) According to Commissioner Ohlhausen, the FTC should exhibit a certain amount of regulatory humility and recognize that [it] may not be the best-positioned governmental entity to act in a particular area if other government institutions have the authority and expertise to address the relevant issues. (Id.) Source: Commissioner Ohlhausen Speech, The Never-ending yet Vital Pursuit of Greater Cooperation, Convergence, and Transparency, available at Regional Court of Düsseldorf Refers SEP Dispute Between Huawei and ZTE to EC s Court of Justice On March 21, the Düsseldorf Regional Court referred a patent dispute between Huawei and ZTE to the EU s Court of Justice for guidance concerning the availability of injunctive relief to holders of FRAND-encumbered standard-essential patents (SEPs) that prevail in patent infringement suits. Specifically, the court requested answers to the following questions, among others: (1) does a FRAND-encumbered SEP owner abuse his dominant market position if he seeks injunctive relief from a court against a patent infringer that is willing to negotiate a license; and (2) what constitutes a willing licensee (e.g., is an oral declaration in broad and general terms sufficient or must the infringer enter into negotiations, such as for example, communicating terms and conditions under which he is prepared to conclude a license agreement)? The dispute between Huawei and ZTE is the first SEP case to have gone to trial in Düsseldorf after the EC issued a Statement of Objections to Samsung over its pursuit of injunctions on FRANDencumbered SEPs. Source: German Court: Reference for a preliminary ruling [SEPs, antitrust, Huawei, ZTE], MLex (March 22, 2013), available at (subscription required). USPTO Publishes Final Rules and Guidelines Governing First-Inventor-to-File Last week, the USPTO published final rules and guidelines governing the first-inventor-to file provisions of the Leahy-Smith American Invents Act (AIA). The final rules revise the rules of practice in title 37 of the Code of Federal Regulations for consistency with, and to address the examination issues raised by, the changes in section 3 of the AIA. Section 3 of the AIA amends the patent laws to: (1) convert the U.S. patent system from a first to invent system to a first inventor to file system; (2) treat U.S. patents and U.S. patent application publications as prior art as of their earliest effective filing date, regardless of whether the earliest effective filing date is based upon an application filed in the United States or in another country; (3) eliminate the -2-

3 requirement that a prior public use or sale be in this country to be a prior art activity; and (4) treat commonly owned or joint research agreement patents and patent application publications as being by the same inventive entity for purposes of 35 U.S.C. 102, as well as 35 U.S.C The final rules and guidelines: (1) add definitions provided in the AIA to the rules of practice; (2) provide a more flexible approach for submission of an affidavit or declaration with evidence of a prior public disclosure; (3) provide for the situation in which a U.S. patent or U.S. patent application publication has a prior art effect as of the filing date of a foreign priority application by requiring that the certified copy of the foreign application or an interim copy of the foreign application be filed within the later of four months from the actual filing date of the application filed under 35 U.S.C. 111(a) or sixteen months from the filing date of the prior foreign application; (4) eliminate the provisions directed to statutory invention registrations; and (5) adopt additional requirements for nonprovisional applications filed on or after March 16, 2013 that claim priority to or the benefit of the filing date of an earlier application that was filed prior to March 16, USPTO Press Release, USPTO Publishes Final Rules and Guidelines Governing First- Inventor-to-File, available at USPTO Final Rule, Changes to Implement the First Inventor to File Provisions of the Leahy-Smith American Invents Act, available at PHARMACEUTICALS Eleventh Circuit Unseals Solvay s Financial Analysis for the FTC to Use in the AndroGel Reverse-Payments Case On March 21, the Eleventh Circuit affirmed the district court s grant of the FTC s motion to unseal a financial analysis created by Solvay Pharmaceuticals that contains revenue and profit projections for the AndroGel product line along with recommendations for how to settle the patent infringement suit between Solvay and its competitors. The document, entitled the Project Tulip Financial Analysis, was sealed in 2010 in response to a motion brought by Solvay contending that the document contained sensitive information that could be harmful to Solvay s business interest. In 2012, the FTC moved to unseal the document so that it and its amici may discuss it openly in the Supreme Court during oral arguments in FTC v. Actavis (AndroGel). Oral arguments in AndroGel are scheduled for March 25, FTC v. Abbvie Prods. LLC (11th Cir.) (Opinion), available at -3-

4 Jonathan Randles, 11th Circ. AndroGel Decision Bolsters FTC Pay-For-Delay Case, Law360 (Mar. 21, 2013), available at (subscription required). COPYRIGHTS Supreme Court Holds That the First Sale Doctrine Applies to Copies of Copyrighted Work Lawfully Made Abroad On March 19, in Kirtsaeng v. John Wiley & Sons, Inc., the U.S. Supreme Court held that the first sale doctrine applies to copies of a copyrighted work lawfully made abroad. The suit was brought by publishing company, John Wiley & Sons, against Kirtsaeng, a man who resold foreign editions of Wiley s books on ebay. The Second Circuit held that the first sale doctrine, which allows the owner of a copy lawfully made under this title to sell or otherwise dispose of the copy without the copyright owner s permission, applies only to copies manufactured in the United States. The Supreme Court disagreed, holding that the first sale doctrine is not geographically limited. The Court based its argument on statutory construction, historical and contemporary statutory context, and public policy. According to the Court, [t]he language of 109(a) read literally favors Kirtsaeng s nongeographic interpretation, namely, that lawfully made under this title means in accordance with or in compliance with the Copyright Act. The language 109(a) says nothing about geography. The word under can mean [i]n accordance with. And a nongeographical interpretation provides each word of the five-word phrase with a distinct purpose. The first two words of the phrase, lawfully made suggest an effort to distinguish those copies that were made lawfully from those that were not, and the last three words, under this title, set forth the standard of lawful[ness]. Thus, the nongeographical reading is simple (combatting piracy), and it makes word-by-word linguistic sense. (Opinion at 8-9.) In contrast, reasoned the Court, the geographical interpretation bristles with linguistic differences. It gives the word lawfully little, if any, linguistic work to do, and imports geography into a statutory provision that says nothing explicitly about it. (Id. at 9.) Moreover, associations of libraries, used-book dealers, technology companies, consumer-goods retailers, and museums pointed to various ways in which a geographical interpretation would fail to further basic constitutional copyright objectives, in particular promoting the Progress of Science and useful Arts. (U.S. Const., Art. I, 8, cl. 8.) For example, the American Library Association contended that library collections contain at least 200 million books published abroad. How, the American Library Association asks, are the libraries to obtain permission to -4-

5 distribute these millions of books? How can they find, say, the copyright owner of a foreign book, perhaps written a decade ago?... Are the libraries to stop circulating or distributing or displaying the millions of books in their collections that were printed abroad? (Opinion at 20.) Similarly, technology companies contended that automobiles, microwaves, calculators, mobile phones, tablets, and personal computers contain copyrightable software programs or packaging. Many of these items are sold abroad with the American copyright holder s permission and then sold and imported (with that permission) to the United States. A geographical interpretation would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software. (Id. at 23.) The Court concluded that the practical problems that [Kirtsaeng] and his amici have described are too serious, too extensive, and too likely to come about for us to dismiss them as insignificant particularly in light of the ever-growing importance of foreign trade in America. (Id. at 24.) Kirtsaeng v. John Wiley & Sons, Inc. (Opinion), available at So ns_no_11697_2013_bl_72102_us_mar_19_201. Scott Flaherty, High Court Ruling May Curb Int l Sales of Copyrighted Work, Law360 (March 19, 2013), available at (subscription required). Court Holds that News Aggregator s Use of Copyrighted Material is Not Protected Under the Fair Use Doctrine On March 21, a New York federal court held that a news aggregator s use of excerpts from copyrighted articles constituted copyright infringement, and did not constitute fair use. The case was brought by the Associated Press (AP) against Meltwater, which uses a computer program to scrape news articles on the web and, among other things, provides excerpts of those stories in reports it sends each weekday to its subscribers. The excerpts amounted to between 4.5 and 61% of the copyrighted articles and included the lead from every AP story. Meltwater asserted that its excerpting of AP news stories is a fair use. Even though Meltwater s service is a closed system for subscribers only, Meltwater equated itself with Internet search engines, arguing that search engines transform the work they take from Internet news sites by using that content for a new purpose, namely as an integral part of an information-location tool. The court rejected Meltwater s arguments, concluding that the fair use defense did not apply. The court concluded, among other things, that neither the purpose nor use of the Meltwater News Reports, nor its excerpts from the Registered Articles in the News Reports, is transformative. Meltwater uses its computer programs to automatically capture and republish designated segments of text from news articles, without adding any commentary or insight. (Opinion at ) Furthermore, Meltwater copies AP content in order to make money directly from the undiluted use of the copyrighted material; this is the central feature of its business -5-

6 model and not an incidental consequence of the use to which it puts the copyrighted material. (Id. at 33.) (Id. at 34.) Investigating and writing about newsworthy events occurring around the globe is an expensive undertaking and enforcement of the copyright laws permit AP to earn the revenue that underwrites that work. Permitting Meltwater to take the fruit of AP s labor for its own profit, without compensating AP, injures AP s ability to perform this essential function.... Moreover, permitting Meltwater to avoid paying license fees gives it an unwarranted advantage over its competitors who do pay licensing fees. The court also rejected Meltwater s contention that it functions as a search engine that directs users to a source of information online. Instead, the court found that Meltwater News is an expensive subscription service that markets itself as a news clipping service, not as a publicly available tool to improve access to content across the Internet. (Id. at 36.) Instead of driving subscribers to third-party websites, Meltwater News acts as a substitute for news sites operated or licensed by AP. (Id. at 38.) Assoc. Press v. Meltwater U.S. Holdings (S.D.N.Y.) (Opinion), available at Ryan Davis, News Aggregators Should Brace For More Copyright Suits, Law360 (March 22, 2013), available at (subscription required). THE IT SECTOR Google s Competitors Continue To Press Search-Bias Case Before EC On March 21, eleven of Google s competitors, including Foundem, Expedia, and TripAdvisor, sent a letter to EC Competition Commissioner Joaquín Almunia urging the agency to issue formal charges against Google in its investigation of Google s alleged search manipulation practices. Google s rivals contend that Google systematically promotes its own services while systematically demoting or excluding its competitors services. According to the letter, Google must be even-handed. It must hold all services, including its own, to exactly the same standards, using exactly the same crawling, indexing, ranking, display, and penalty algorithms. (Ltr. at 2.) The Commission declined to comment on the letter. Letter, available at -6-

7 Melissa Lipman, Google Rivals Urge EU To Push Ahead With Antitrust Case, Law360 (Mar. 21, 2013), available at (subscription required). EC to Investigate Apple s Distribution Contracts with Mobile Providers for the Sale of iphones and ipads On March 22, the EC publicly confirmed that it is investigating complaints from European wireless carriers that Apple Inc. s distribution contracts for the sale of iphones and ipads are anticompetitive. Wireless carriers in Europe purportedly complained to the EC that contracts with smaller wireless carriers are particularly strict and make it difficult for them to devote a fair share of their marketing budget to selling competing devices. EC Spokesman Antoine Colombani told reporters that the Commission has not opened a formal investigation, but is looking at the information submitted and actively monitoring developments in this market. Colombani noted that the EC views the smartphone market as fairly competitive, citing the success of Samsung s Galaxy phones and Google Inc. s Android operating system. The market for smartphones and tablets are very dynamic, innovative and fast growing, Colombani said. Source: Bill Donahue, Apple iphone Contracts with EU Carriers Under Scrutiny, Law360 (March 22, 2013), available at (subscription required). International Licensing Issues April 23, 2013 Noon-1:15 PM Eastern UPCOMING PROGRAMS In this third program of a series of joint programs hosted by the Intellectual Property and International Committees, panelists will explore licensing issues in Brazil, Canada, the EU, and the U.S. Panelists from the FTC, the EC, and private practice, including a former enforcer from CADA, will provide an overview of existing law and discuss new developments such as the EC s current review of its Technology Transfer Block Exemption Regulation and Guidelines. The program will also include hypothetical questions aimed at providing a comparative analysis of the different jurisdictions. To register and receive dial-in information, please visit Identifying Antitrust Issues in IP Matters May 22, 2013 Noon-1:15 PM Eastern -7-

8 In this second of a two-part series of joint programs hosted by the ABA Section of Antitrust Law and the ABA Section of Intellectual Property Law, panelists from the government, in-house, and private practice will discuss how to identify possible antitrust issues in intellectual property matters. Topics will include acquisitions, enforcement, and standard setting. To attend via teleconference, please register at A special thanks to Debbie Bellinger and Jaime Owens for their weekly contributions to tidbits. -8-