Opinion

Alison Frankel

FTC sides with Apple on essential patents, undercuts Motorola

Alison Frankel
Dec 6, 2012 23:43 UTC

Last month, when a majority of the commissioners on the Federal Trade Commission issued a statement warning about aggressive assertion of standard-essential patents in connection with the merger of two companies that make car air conditioners, Reuters took note. On its own, the FTC’s statement wasn’t particularly interesting. But the antitrust watchdog is reportedly looking into allegations that Google is abusing the portfolio of essential tech patents it acquired in its merger with Motorola. Perhaps the FTC’s statement in the auto air-conditioning case, Reuters said, was an indicator of where the commission stood on Google’s use of Motorola’s patents.

We now have some more substantive evidence of what the FTC thinks about those patents — and it doesn’t bode well for Google. This week the agency filed an amicus brief in cross-appeals by Apple and Motorola of Judge Richard Posner‘s pox-on-both-your-houses dismissal of their claims against one another last summer. (Posner sits on the 7th Circuit Court of Appeals but heard the case as a district judge in federal court in Chicago; Apple and Motorola’s cross-appeals of his ruling are before the Federal Circuit.) The brief claims to be in support of neither party, but in reality the FTC sided squarely with Apple, arguing that when Posner refused to grant Motorola an injunction based on Apple’s unlicensed use of standard-essential patents, the judge correctly applied the U.S. Supreme Court’s 2006 ruling in Ebay v. MercExchange.

More broadly, the agency asserted that injunctions should not be wielded as a threat in licensing negotiations by holders of standard-essential patents, which are supposed to encourage competition by promoting interoperability. In exchange for the industrywide adoption of their patents, the FTC said, companies like Motorola commit to licensing their patents on reasonable and non-discriminatory terms. “However, a royalty negotiation that occurs under the threat of an injunction may be heavily weighted in favor of the patentee in a way that is in tension with the RAND commitment,” the agency’s brief said. “High switching costs combined with the threat of an injunction could allow the patentee to obtain unreasonable licensing terms despite its RAND commitment because implementers are locked into practicing the standard.” That’s particularly true, the brief said in an argument that echoed Posner’s ruling, when the patent at issue covers just one component of a complex device. Using the leverage of an injunction in licensing talks “is the essence of hold-up,” the FTC argued.

The FTC’s brief is hardly the only encroachment on the dominion of Motorola’s standard-essential patents. As you probably remember, two different federal district judges have held that Motorola is obligated by the terms of its agreements with standard-setting bodies to license its IP to third parties (such as Apple and Motorola) on reasonable terms. U.S. District Judge James Robart of Seattle held a bench trial in November todetermine what such terms should be, rejecting Motorola’s attempts to reshape the case. (The company fared better at the end of Apple’s parallel case in federal court in Madison, Wisconsin, when U.S. District Judge Barbara Crabb decided on the eve of a bench trial that she wasn’t going to go to the trouble of finding a reasonable rate if Apple wouldn’t agree to abide by her ruling.) But the regulator’s firm stance is yet another indication that Motorola’s patents may not be as potent as Google thought when it acquired the company — particularly because the FTC is reportedly still deciding whether to bring an antitrust action against Motorola.

I should point out that the agency wasn’t the only amicus to file a brief at the Federal Circuit in the Apple and Motorola cross-appeals. Five other amici made appearances. All purported to support neither party, but only the brief from The Institute of Electrical and Electronics Engineers seems truly non-partisan and informational. Abrief by Cisco, Wal-Mart and several other big companies asks the Federal Circuit to clarify a standard for damages that reflects the value of any particular patent to an entire product; the argument seems to be a slap at Apple, which has accused other smart-device makers, including Motorola, of infringing its patents on nifty features. The Intellectual Property Law Association, on the other hand, argued in its amicus brief that the standard Posner applied in deciding that Apple hadn’t shown its potential damages would, if broadly adopted, make it impossible for patent holders to prove how much harm they suffered from infringement. That’s a pro-Apple argument.

Accusations of confidential witness chicanery backfire on defense lawyer

Alison Frankel
Dec 5, 2012 22:37 UTC

The securities class action firm Robbins Geller Rudman & Dowd keeps running into problems with confidential witnesses. I’ve previously told you about a case in federal court in Manhattan in which U.S. Senior District Judge Jed Rakoff held a seven-hour hearing to decide if the plaintiffs’ firm misrepresented its contacts with four former Lockheed Martin employees who disavowed the allegations Robbins Geller attributed to them in a securities fraud complaint against Lockheed. Rakoff hasn’t ruled but, at the end of the hearing in October, said that three of the former Lockheed employees that Robbins Geller cited as confidential witnesses weren’t credible when they denied speaking with the plaintiffs’ firm. The Manhattan judge is now pondering whetherhearsay evidence obtained from confidential witnesses is sufficient to push securities class actions past defense dismissal motions.

Robbins Geller, meanwhile, is dealing with confidential witness recantations — and ensuing defense accusations of misconduct — in at least two other securities class actions, one in federal court in Atlanta, the other in Birmingham, Alabama. But an angry order issued Tuesday by the judge in Alabama shows that the fallout from these disputes over confidential witnesses isn’t limited to the plaintiffs’ bar. U.S. District Judge Inge Johnson ordered Victor Hayslip of Burr & Forman – who represents individual defendants in Robbins Geller’s Alabama class action against Regions Financial — to send a letter to U.S. District Judge William Duffey in Atlanta, apologizing for Hayslip’s previous “inappropriate and unprofessional” letter alerting Duffey to accusations against Robbins Geller in the Alabama case.

The backstory on Johnson’s order is a bit complicated, but it shows how messy these confidential witness recantations can be. Duffey, the Atlanta judge, is presiding over Robbins Geller’s securities class fraud case against SunTrust Banks. The complaint in that case, like so many in securities class actions, relied on information from a former employee. Yet when the former SunTrust worker was contacted by defense counsel, he denied telling Robbins Geller’s investigator what was attributed to him and said he wasn’t even employed by the bank at the time of the events described in the complaint. Based on the recantation, Duffey ended updismissing the class action.

Seismic fallout from ruling on drug marketing and free speech?

Alison Frankel
Dec 4, 2012 23:33 UTC

On Tuesday, the Justice Department announced its record recovery of nearly $5 billion in False Claims Act settlements in 2012, exceeding the previous annual record by $1.7 billion. In the last four years, according to remarks by Acting Associate Attorney General Tony West, the Justice Department had netted $13.3 billion in false claims settlements, much of it from pharmaceutical companies accused of healthcare fraud.

But will a blockbuster ruling Monday by the 2nd Circuit Court of Appeals turn off the spigot of false claims billions from the pharma industry?

As you’ve probably heard, a divided three-judge panel of the 2nd Circuit vacated the conspiracy conviction of Alfred Caronia, a pharmaceutical sales representative who was involved in the off-label marketing of an FDA-approved narcolepsy drug called Xyrem. The Justice Department, which charged Caronia under the Federal Drug and Cosmetic Act, did not allege that he lied or misrepresented the truth when he told a physician about off-label (but related) uses for the drug, but merely that he conspired to introduce a misbranded pharmaceutical product into interstate commerce. Second Circuit Judges Denny Chin and Reena Raggi found that Caronia’s prosecution was a violation of his First Amendment right to free speech. And they went a step further: Citing the U.S. Supreme Court’s 2010 decision in Sorrell v. IMS Health, Chin and Raggi held that the FDCA cannot restrict off-label marketing, as long as it’s truthful.

In gene case, SCOTUS to confront Federal Circuit on patentability

Alison Frankel
Dec 3, 2012 22:50 UTC

One of the great judicial dialogues of the last few years has been the back-and-forth between the U.S. Supreme Court and the Federal Circuit Court of Appeals over what’s patentable. The roots of the debate predate the creation of the Federal Circuit in 1982, but valuable software and biotech patents have lent urgency to the issue — and divergent views by the Supreme Court and the Federal Circuit on patentability standards have led to a series of rulings in which the justices contradict the appeals court but the Federal Circuit refuses to take the hint and continues to go its own way. The conflict has created so much uncertainty that over the summer two petitions for en banc review, including one in a case remanded by the Supreme Court, begged the Federal Circuit to resolve its own internal split on how much deference to give the Supreme Court.

The Federal Circuit was at its most defiant last August, when Judges Alan Lourie and Kimberly Moore once again ruled that an isolated piece of human genetic code can be patented. The case, which involves Myriad’s patents on a gene mutation that denotes a tendency to develop breast and ovarian cancer, had been sent back to the appeals court by the Supreme Court for re-evaluation in light of the justices’ reminder in Mayo v. Prometheus Laboratories that naturally occurring phenomena are not patentable. But Lourie and Moore gave short shrift to the Supreme Court’s Mayo ruling. Lourie’s opinion for the majority and Moore’s concurrence basically repeated their previous findings on Myriad’s gene patents, with an extra paragraph or two about why Mayo isn’t applicable or is outweighed by the longstanding U.S. Patent and Trademark Office policy on granting patents on isolated g e nes. (Judge Curtis Bryson dissented with last summer’s Myriad decision, just as he did the first time the case was decided.) After the Federal Circuit’s decision, Daniel Ravicher of the Public Patent Foundation, who is co-counsel to the gene patent opponents, told me that the ruling was the latest shot in the ongoing patentability tennis match between the appeals court and the justices.

The Supreme Court has now grabbed the ball in what should be the last game of the match. On Friday, the court granted a petition for certiorari filed by Public Patent and the American Civil Liberties Union, which asked the justice to answer, directly and with clarity, whether human genes or isolated pieces of genetic code can be patented as the product of man-made invention or are unpatentable because they are found in nature. “Despite Myriad’s claim that the law applied by the(Federal) Circuit is settled, it is clear that the circuit created new legal standards in upholding these patents, while simultaneously rejecting those articulated in this court’s Section 101 (patentability) precedents,” the ACLU and Public Patent wrote in their response brief in support of cert.

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