My new FSF Perspectives piece, Let Them Eat Cake and Watch Netflix, was published today. This piece explores a tension in Susan Crawford’s recent Wired commentary on Pew’s 2013 Broadband Report.

I excerpt from the piece below. You can (and, I daresay, should!) read the whole thing here.

In her piece, after noting the persistence of the digital divide, Crawford turns to her critique of both Pew’s and the FCC’s definition of “high-speed internet” – 4 Mbps down/1 Mbps up – and the inclusion of mobile Internet access in these measurements. She argues that this definition … is too slow. What if you wanted to watch two HD quality videos at once over a single connection? […]

But the digital divide isn’t about people today not being able to watch movies on Netflix. And it’s definitely not about people today not being able to use future service that may or may not require the sort of infrastructure Crawford wants the government to build. […] It’s about the (very real) concern that, as civic and democratic institutions increasingly migrate online, those without basic Internet access or knowledge will be locked out of a vital civic and democratic forum. […]

None of [applications central to concerns about the digital divide] require bandwidth sufficient to stream high-quality video. Indeed, none of them should require such capacity. Another very real concern related to the digital divide is that various groups with disabilities – the deaf and blind, for instance – are already unable to avail themselves of these online forums because they rely too much on sophisticated multimedia formats to provide basic information. […]

I would suggest that a better target for Crawford’s efforts – if she is really concerned about lessening the digital divide (and I do fully believe that her convictions are well meaning and sincere) – would be to advocate for government institutions and other civic and democratic forums to develop online applications that do not require high-speed broadband connections. […]

In a world where consumers perceive a non-zero marginal cost for incremental bandwidth consumption – perhaps, as an example, a world with consumer bandwidth caps – there would be consumer demand for lower-bandwidth versions of websites and other Internet services. Rather than ratcheting bandwidth requirements consistently up – increasing the size of the digital divide – the self-interested decisions of consumers on the fortunate side of that divide could actually help shrink that divide. […]

The tragic thing (though, to economists, not surprising) about demands that the Internet economy disobey laws of supply and demand, that Internet providers offer consumers a service unconstrained by scarcity, is that such demands create the Internet-equivalent of bread lines. They are, in fact, the wedge that widens the digital divide.

Filed under: federal communications commission, law and economics, markets, net neutrality, regulation, telecommunications Tagged: bandwidth caps, Crawford, digital divide, FCC, net neutrality

With thanks to Geoff and everyone else, it’s great to join the cast here at TOTM. Geoff gave a nice introduction, so I won’t use this first post to further that purpose – especially when I have substance to discuss. The only prefatory words I’ll offer are that my work lies at the intersection of law and technology, with a focus on telecommunications and the regulation of technology. Most of my posts here will likely relate to those subjects. But I may occasionally use this forum to write briefly on topics further afield of my research agenda (and to which I therefore cannot dedicate more than blog-post-length musings to develop).

Read the full piece here.

Summary

This article assesses the FCC’s current policies and rules regarding transaction reviews, concluding that the Commission’s current spectrum transfer review process harms consumer welfare. In particular, the FCC’s spectrum screen as currently structured, its standard of review for spectrum transfers, its use of conditions, as well as the scope of its transaction reviews exceed legal limits, impede efficient markets for spectrum, and deter welfare-increasing transactions and investment.

First we explain the FCC’s current policies and decisions regarding transaction reviews and assess their appropriateness with respect to the Commission’s authorizing legislation, regulations and case law. With respect to the scope of its transaction reviews and its use of conditions in particular, we find that the FCC’s practices exceed their permissible limits.

Next we address the economics of the FCC’s policies and decisions, explaining and assessing the animating economic logic behind the FCC’s actions. We demonstrate that the FCC’s current spectrum screen and transaction review standards rest on the premise that spectrum concentration in markets inherently leads to anticompetitive behavior. Further, we explain the flaws in this premise.

In demonstrating and assessing the basis of the FCC’s transaction reviews, we discuss the particulars of the FCC’s spectrum screen in detail, focusing on its use of concentration metrics and claims that its full analysis (beyond the initial screen) investigates competitive conditions more broadly. As we discuss, the Commission uses HHIs and spectrum concentration measures improperly as de facto triggers for per se illegality, rather than triggers for further investigation. Further, none of the full analyses described by the Commission investigates an aspect of competition other than market or spectrum concentration; instead, they simply restate in more detail the structural analysis implied by the HHI test and spectrum screen.

Addressing the economics underlying the FCC’s actions, we demonstrate that both economic theory and evidence indicate that the presence of more competitors in telecommunications markets does not necessarily result in lower prices and better service for consumers. Particularly in industries (like wireless) that are characterized by rapid technological change, non-horizontal competitive constraints and shifting consumer demand, the threat of entry and the need for repeated contracts with input providers with market power operate to constrain strategic behavior, even in heavily concentrated markets.

The welfare effects of spectrum concentration are at worst ambiguous, and, as we demonstrate, as the market has grown more concentrated, investment, coverage and product diversity have increased while prices for consumers have decreased. These results are consistent with a more robust model of firm behavior in the industry that takes account of entry threats and technological change.

Next we undertake a detailed critique of the FCC staff’s analysis of the AT&T/T-Mobile merger, demonstrating that it exhibits the same flaws as the agency’s more cursory transaction reviews.

We conclude with a discussion of the policy implications and suggestions for reform.

 

The Center for the Protection of Intellectual Property is hosting a teleforum panel on end-user lawsuits in patent law on Thursday, August 29, at Noon (EST). Here’s the announcement with the program information:

End-User Lawsuits in Patent Litigation: A Bug or a Feature of Patent Law?
A Teleforum Panel
(Free and Open to the Public)

Thursday, August 29, 2013
Noon – 1pm (EST)

In the patent policy debates today, one issue that has proven a flash point of controversy is patent infringement lawsuits against consumers and retailers, such as coffee shops, JC Penney, and others.  These are now called “end-user lawsuits,” and various bills in Congress, including the Goodlatte Discussion Draft released last May, would mandate a “stay” of such lawsuits in favor of suing upstream manufacturers.  The federal judiciary currently vests stay decisions within the discretionary authority of trial judges, who have long controlled and directed complex litigation in their courtrooms.  While anecdotes of cease-and-desist letters against “mom-and-pop stores” abound in public commentary, there has been no discussion of the systemic effects of the proposed mandatory stay provisions.  Are end-user lawsuits a recent phenomenon or are they a longstanding feature of the patent system?  Why has approval of a motion to stay litigation rested within the discretionary authority of a trial judge?  Are there are any unintended consequences of adopting a mandatory stay rule for end-user lawsuits?  This teleforum panel brings together scholars and representatives from the innovation industries to discuss the history, function and policy implications of end-user lawsuits within patent litigation.

This is a live, in-person panel presentation in which the panelists and audience members participate via a conference bridge.  It is free and open to the public (audience members simply call the 800 number below).  Audience members will be able to ask questions of the panelists in an interactive Q&A format.  The teleforum panel also will be recorded and posted as a podcast.

PANELISTS:

Christopher Beauchamp, Assistant Professor of Law, Brooklyn Law School
David Berten, Founder and Partner, Global IP Law Group
John Scott, Vice President of Litigation, Qualcomm Inc.

Moderator: Adam Mossoff, Professor of Law and Co-Director of Academic Programs of the Center for the Protection of Intellectual Property, George Mason University School of Law

PROGRAM INFORMATION:

Thursday, August 29, 2013
Noon – 1pm (Eastern Standard Time)

CONFERENCE BRIDGE INFORMATION:

Telephone Number: (800) 832-0736
Access Code: 1346613

 

Filed under: intellectual property, litigation, patent Tagged: coffee shop, end user lawsuit, Goodlatte Discussion Draft, patent assertion entity, patent litigation, patent reform, patent troll, wifi

[Cross Posted to the Center for the Protection of Intellectual Property]

In its recent decision in Douglas Dynamics v. Buyers Products Co. (Fed. Cir., May 21, 2013), the Federal Circuit was forced to reverse a district court’s abuse of its discretion because the trial judge injected an anti-patent bias into the legal test for determining whether a patent-owner should receive a permanent injunction against an infringer. As highlighted in a blog posting, the Federal Circuit explained that district courts should not read the eBay four-factor test such that it eviscerates “the public’s general interest in the judicial protection of property rights in inventive technology” (to quote from the Douglas Dynamics opinion).

A scant two months later, the Federal Circuit again reversed another district court’s denial of an injunction and again had to explain why the equitable test for issuing injunctions should not be applied in a way that undermines the property rights secured in patented innovation.  In Aria Diagnostics, Inc. v. Sequenom, Inc. (Fed. Cir., Aug. 9, 2013), the Federal Circuit reversed a district court’s denial of the patent-owner’s request for a preliminary injunction, holding that the district court improperly balanced the multi-factor test governing issuance of preliminary injunctions. 

In Chief Judge Randall Rader’s opinion for a unanimous panel in Aria Diagnostics, the Federal Circuit criticized the district court’s denial of Sequenom’s request for a preliminary injunction against Aria Diagnostics.  In this case, Sequenom countersued Aria Diagnostics following Aria Diagnostics declaratory judgment lawsuit against it, alleging that Aria Diagnostics infringes its patented diagnostic test for identifying trisomy disorders (U.S. Patent No. 6,258,540).  Trisomy disorders are genetic disorders that can result in a range of complications during and after pregnancy—from death of a fetus to down syndrome in a newborn.  The evidence submitted to the district court established that Sequenom’s patented tests eliminated the need for risky amniocenteses and “presented fewer risks and a more dependable rate of abnormality detection.”

Following its countersuit for patent infringement, Sequenom requested a preliminary injunction and the district court denied its request.  In the proceedings below, as the Federal Circuit explained, the district court rejected Sequenom’s request for a preliminary injunction because it simple assumed that Sequenom would not suffer irreparable injury given that it would easily profit from its radically innovative test.  On the basis of this assumption, the district court concluded that “the erosion to Sequenom’s price and its loss of market share were not irreparable.”

The Federal Circuit pointedly identified the implicit anti-patent bias in the district court’s rarefied reasoning from such misguided and unproven assumptions:

While the facts may show that damages would be reparable, this assumption is not sufficient. In the face of that kind of universal assumption, patents would lose their character as an exclusive right as articulated by the Constitution and become at best a judicially imposed and monitored compulsory license. (original emphases)

In short, district courts should not read the multi-factor tests for injunctions so as to eviscerate the constitutional fact that a patent is a property right, and thus de facto convert a patent into merely a regulatory entitlement to a compulsory license. Property rights secure more than just a “reasonable” rate of profit as determined by either a court or a regulatory agency. As pointed out in Aria Diagnostics, the case law on injunctions have well established that “price erosion, loss of goodwill, damage to reputation, and loss of business opportunities are all valid grounds for finding irreparable harm,” which can and should justify an injunction (after these harms are appropriately balanced against the harms to the alleged infringer) to secure a property right in innovative technology.

The Federal Circuit further criticized the district court because, while finding that a preliminary injunction might put Aria Diagnostics out of business as a justification to deny Sequenom’s request for the injunction, the “district court made no findings on the harm that would accrue to Sequenom’s R&D and investment in the technology, undermining work and money spent developing, validating, and commercializing any covered product.”  The Federal Circuit emphasized that the balance of hardships in the legal test for issuing an injunction requires courts to not only assess harm to alleged infringers, but also to assess the harms to the patent-owner, such as “price erosion, loss of goodwill, damage to reputation, and loss of business opportunities.” 

In short, the district court failed to weigh the relevant harms to both the patent-owner and the alleged infringer, and instead the district court relied solely on the harm to the alleged infringer (Aria Diagnostics) as balanced against its pure conjecture of massive profits for Sequenom in some undetermined future. Thus, the district court denied Sequenom’s request for a preliminary injunction. But this was an entirely inappropriate application of the equitable inquiry required in issuing or denying a preliminary injunction.  In effect, the district court placed a large thumb on the judicial scale in favor of the alleged infringer in its equitable analysis—a violation of the fundamental principles of equity. For this reason, the Federal Circuit reversed and remanded the case back to the district court for it to make the appropriate fact findings under the appropriate application of the multi-factor test for issuing a preliminary injunction.

The significance of Aria Diagnostics is that the Federal Circuit continues to push back against the ongoing misinterpretation of the equitable tests for issuance of injunctions in patent infringement cases, whether by academics, federal officials or district courts.  In doing so, the court is providing some much-needed guidance to district courts in what facts they should consider in assessing the relevant harms to each party in issuing or denying an injunction.

 

Filed under: intellectual property, litigation, patent Tagged: aria diagnostics, EBay, equity, injunction, preliminary injunction, rader, sequenom, trisomy

[Cross posted at The Center for the Protection of Intellectual Property]

In a prior blog posting, I reported how reports of a so-called “patent litigation explosion” today are just wrong.  As I detailed in another blog posting, the percentage of patent lawsuits today are not only consistent with historical patent litigation rates in the nineteenth century, there is actually less litigation today than during some decades in the early nineteenth century. Between 1840 and 1849, for instance, patent litigation rates were 3.6% — more than twice the patent litigation rate today.

(As an aside, we have to hold constant for issued patents in computing litigation percentage rates because more patents are issued now per year than twice the total population of New York City (NYC) in 1820 — 253,315 patents issued in 2012 compared to 123,706 residents in NYC in 1820.  Yet before someone says that this just means we have too many patents today, as Judge Posner blithely asserts without any empirical evidence, one must also recognize that the NYC population in 2013 is 8.3 million, which is far beyond merely double its 1820 population — NYC’s population has grown by a factor of 67!  A simple comparison to population growth, especially taking into account the explosive growth in the innovation industries in the past several decades, could as easily justify the claim that we haven’t got enough patents issuing today.)

Unfortunately, the mythical claims about a “patent litigation explosion” have shifted in recent months (perhaps because the original assertion was untenable).  Now the assertion is that there has been an “explosion” in lawsuits brought by patent licensing companies.  I’ll note for the record here that patent licensing companies are often referred to today by the undefined and nonobjective rhetorical epithet of “patent troll.”  In a recent study of patent licensing companies that exposes many of the unsound and unproven claims about these much-maligned companies – such as that patents owned by these companies are of lower quality than those owned by manufacturing entities – Stephen Moore first explained that the “troll” slur is used today by academics, commentators and the public alike “without a universally accepted definition.” So, let’s dispense with nonobjective rhetoric and simply identify these companies factually by their business models: patent licensing.

As with all discriminatory slurs, it’s unsurprising that this new claim about an alleged “explosion” in so-called “patent troll” lawsuits is unproven rubbish.  Similar to the myth about patent litigation generally, this is just another example of overwrought and empirically unsound rhetoric being used to push a policy agenda in Congress and regulatory agencies. (Six bills have been on the Hill so far this year, and FTC Chairwoman Edith Ramirez has announced that the FTC intends to begin a formal § 6(b) investigation of patent licensing companies).

How do we know that patent licensing companies are not the sole driver of any increases in patent litigation?  Contrary to the much-hyped claim today that patent licensing companies are the primary cause of most patent lawsuits in district courts in 2012, other serious and more careful reviews of the litigation data have shown that the primary culprit is not patent licensing companies, but rather the America Invents Act of 2011(“AIA”). The AIA created numerous new administrative proceedings for invalidating patents at the Patent & Trademark Office, which created additional incentives to file lawsuits in certain contexts.  Moreover, the AIA expressly prohibited joinder of multiple defendants in single lawsuits.  Both of these significant changes to the patent system has produced the entirely logical and expected result of more lawsuits being filed after the AIA’s statutory provisions went into effect in 2011 and 2012. In basic statistics terms, the effect of these statutory provisions in any study of patent litigation rates that does not take them into account is referred to as a “confounding variable.”

Even more important, when the data used in one of the most-referenced studies asserting a patent litigation explosion by patent licensing companies was tested by a highly respected scholar who specializes in statistical and empirical analyses of the patent system, he reported that he found no statistically significant results. (See Dave Schwartz’s testimony at the DOJ-FTC Workshop (Dec. 10, 2012), starting at approximately 1:58 at this video. Transcript available here.)  At least the scholars of this disputed study made their data available for confirmation, according to basic scientific norms. Other prominently cited studies on patent licensing companies have relied on secret data from companies like RPX, Patent Freedom, and other firms who have a very large dog in the litigation and policy fight, and thus this data has all of the trappings of being unreliable and biased (see here and here)

The important role that the AIA is playing in increasing patent lawsuits by patent licensing companies is ironic if only because the people misreporting the patent litigation data are the same people who were big proponents of the AIA (some of them even attended the AIA’s signing ceremony with President Obama in September 2011).  Among non-patent scholars, this is called trying to have your cake and eat it, too.  Usually such efforts fail, especially when children always try to get away with this logical fallacy.  It shows the depths to which the patent policy debates have sunk that the press, Congress, the President and many others don’t seem to care about this one bit and instead are pushing ahead and repeating – and even drafting legislation based upon – bad “statistics” with serious methodological problems and compiled from secret, unreliable data.

With Congress rushing headlong to enact legislation that discriminates against patent licensing companies, it’s time to step back and start asking serious questions before the legal system that makes possible the innovation industries is changed and we discover too late that it’s for the worse.  It’s time to set aside rhetoric and made-up “statistics” based on secret data and to ask whether there really is a systemic problem.  It’s also time to start asking serious questions about why these myths were created in the first place, what does the raw data actually say, who is providing the data and funding these “troll” studies, and who is pushing this rhetoric into the public policy debates to the point that it has become a deafening roar that makes impossible all reasonable and sensible discussion.

[NOTE: minor grammatical and style changes were made after the initial posting]

Filed under: antitrust, federal trade commission, intellectual property, litigation, patent Tagged: ftc, non practicing entity, patent assertion entity, patent litigation, patent litigation explosion, patent troll, section 6(b)

Over at the blog for the Center for the Protection of Intellectual Property, Richard Epstein has posted a lengthy essay that critiques the Obama Administration’s decision this past August 3 to veto the exclusion order issued by the International Trade Commission (ITC) in the Samsung v. Apple dispute filed there (ITC Investigation No. 794).  In his essay, The Dangerous Adventurism of the United States Trade Representative: Lifting the Ban against Apple Products Unnecessarily Opens a Can of Worms in Patent Law, Epstein rightly identifies how the 3-page letter issued to the ITC creates tremendous institutional and legal troubles in the name an unverified theory about “patent holdup” invoked in the name of an equally overgeneralized and vague belief in the “public interest.”

Here’s a taste:

The choice in question here thus boils down to whether the low rate of voluntary failure justifies the introduction of an expensive and error-filled judicial process that gives all parties the incentive to posture before a public agency that has more business than it can possibly handle. It is on this matter critical to remember that all standards issues are not the same as this particularly nasty, high-stake dispute between two behemoths whose vital interests make this a highly atypical standard-setting dispute. Yet at no point in the Trade Representative’s report is there any mention of how this mega-dispute might be an outlier. Indeed, without so much as a single reference to its own limited institutional role, the decision uses a short three-page document to set out a dogmatic position on issues on which there is, as I have argued elsewhere, good reason to be suspicious of the overwrought claims of the White House on a point that is, to say the least, fraught with political intrigue

Ironically, there was, moreover a way to write this opinion that could have narrowed the dispute and exposed for public deliberation a point that does require serious consideration. The thoughtful dissenting opinion of Commissioner Pinkert pointed the way. Commissioner Pinkert contended that the key factor weighing against granting Samsung an exclusion order is that Samsung in its FRAND negotiations demanded from Apple rights to use certain non standard-essential patents as part of the overall deal. In this view, the introduction of nonprice terms on nonstandard patterns represents an abuse of the FRAND standard. Assume for the moment that this contention is indeed correct, and the magnitude of the problem is cut a hundred or a thousand fold. This particular objection is easy to police and companies will know that they cannot introduce collateral matters into their negotiations over standards, at which point the massive and pointless overkill of the Trade Representative’s order is largely eliminated. No longer do we have to treat as gospel truth the highly dubious assertions about the behavior of key parties to standard-setting disputes.

But is Pinkert correct? On the one side, it is possible to invoke a monopoly leverage theory similar to that used in some tie-in cases to block this extension. But those theories are themselves tricky to apply, and the counter argument could well be that the addition of new terms expands the bargaining space and thus increases the likelihood of an agreement. To answer that question to my mind requires some close attention to the actual and customary dynamics of these negotiations, which could easily vary across different standards. I would want to reserve judgment on a question this complex, and I think that the Trade Representative would have done everyone a great service if he had addressed the hard question. But what we have instead is a grand political overgeneralization that reflects a simple-minded and erroneous view of current practices.

You can read the essay at CPIP’s blog here, or you can download a PDF of the white paper version here (please feel free to distribute digitally or in hardcopy).

 

Filed under: administrative, intellectual property, international trade, litigation, patent, politics Tagged: Apple, exclusion order, international trade commission, International Trade Commission, Obama Administration, patent holdup, policy, Policy Statement, public interest, Richard Epstein, Samsung, united states trade representative, veto

I’d like to thank Geoff and Thom for organizing this symposium and creating a forum for an open and frank exchange of ideas about the FTC’s unfair methods of competition authority under Section 5.  In offering my own views in a concrete proposed Policy Statement and speech earlier this summer, I hoped to encourage just such a discussion about how the Commission can define its authority to prosecute unfair methods of competition in a way that both strengthens the agency’s ability to target anticompetitive conduct and provides much needed guidance to the business community.  During the course of this symposium, I have enjoyed reading the many thoughtful posts providing feedback on my specific proposal, as well as offering other views on how guidance and limits can be imposed on the Commission’s unfair methods of competition authority.  Through this marketplace of ideas, I believe the Commission can develop a consensus position and finally accomplish the long overdue task of articulating its views on the application of the agency’s signature competition statute.  As this symposium comes to a close, I’d like to make a couple quick observations and respond to a few specific comments about my proposal.

Read the full piece here. 

Regulating the Regulators: Guidance for the FTC’s Section 5 Unfair Methods of Competition Authority

August 1, 2013

Truthonthemarket.com

We’ve had a great day considering the possibility, and potential contours, of guidelines for implementing the FTC’s “unfair methods of competition” (UMC) authority.  Many thanks to our invited participants and to TOTM readers who took the time to follow today’s posts.  There’s lots of great stuff here, so be sure to read anything you missed.  And please continue to comment on posts.  A great thing about a blog symposium is that the discussion need not end immediately.  We hope to continue the conversation over the next few days.

I’m tempted to make some observations about general themes, points of (near) consensus, open questions, etc., but I won’t do that because we’re not quite finished.  We’re expecting to receive an additional post or two tomorrow, and to hear a response from Commissioner Josh Wright.  We hope you’ll join us tomorrow for final posts and Commissioner Wright’s response.

Here are links to the posts so far:

• David Balto, Law Offices of David Balto:  Some Quick Observations on the Drive for UMC Policy Guidelines and Economic Evidence and Section 5
• Terry Calvani & Angela Diveley, Freshfields:  Injury to Competition and Efficiencies in Section 5 Claims
• James Cooper, GMU Law & Economics Center:  The Limits of Section 5’s Scope Beyond the Sherman Act and A Sensible Limit to the FTC’s Section 5 Authority
• Dan Crane, Michigan Law:  Section 5 and Principles of Self-Restraint
• Gus Hurwitz, Nebraska Law:  The Application of Chevron to Section 5 and A Policy Statement Is Not Enough
• Thom Lambert, Missouri Law:  Guidelines for the FTC’s UMC Authority: What’s Clear and What’s Not?
• Marina Lao, Seton Hall Law:  The FTC’s Unfair Methods of Competition Authority
• Geoffrey Manne, Lewis & Clark Law/ICLE:  The Importance of Sensible Guidance for UMC Enforcement
• Joe Sims, Jones Day:  First Principles of Section 5 Authority
• Tim Wu, Columbia Law:  Section 5 Guidelines Would Make the FTC Stronger and Better

Filed under: announcements, antitrust, federal trade commission, section 5 Tagged: Competition law, Efficiencies, Federal Trade Commission, ftc, Harm to Competition, UMC