Tuesday, 16 September 2014

Patent Box Regimes Globally - OECD/G20 respond

The UK's patent box regime  under which companies can get significant tax reductions for income deriving from patented products has been criticized by several countries, notably Germany (see here), as resulting in unfair competition for foreign investment. This blog noted back in July that the EU commission was looking into the issue.

Germany's Finance Minister lecturing his audience
about the evils of the patent box
The OECD in conjunction with the G20 group of major economies has now published a detailed report (available for download here) on countering harmful tax practices more effectively. It includes a number of pages devoted to the patent box regime and seems to approve generally the UK practice, which differs from other countries with similar regimes. One issue that appears to be controversial is the extent to which outsourced research and development activities can later qualify for tax relief, and both the UK and Spain entered reservations on this section of the report. The report emphasizes that marketing-related IP assets such as trademarks should not qualify for the tax benefits, which would appear to impact on schemes in some countries.

It's probably not surprising that the report is at least generally supportive of favourable tax treatment of intellectual property given that a number of countries have introduced such regimes over the years (although Ireland abandoned their tax break, as reported here). The report's main recommendation is that there needs to be a clear link between the revenues and the IP right. This will probably complicate calculations in the future, but the authors noted that taxpayers may chose this in order to exploit the opportunity to benefit from an optional tax benefit. Indeed by harmonising the reporting requirements among different jurisdictions may lead to an overall reduction in complexity.

German chancellor Angela Merkel's
X-ray eyes 
And Germany's response? Well, the news magazine Spiegel reported over the weekend that the German finance ministry was considering introducing a patent box benefit in Germany and the German Industry Group BDI welcomed this move on Monday.

Monday, 15 September 2014

Competition law and SEPs: a new book

Competition Law and Standard Essential Patents. A Transatlantic Perspective, a new title from Wolters Kluwer and written by Urska Petrovcic, has just come into this blogger's line of vision.  He hasn't yet seen it, but suspects that it may be of interest to readers of this weblog: if anyone has a copy and would like to write a short review for us, please get in touch.

According to the information provided by the publishers,
"This book, through an intensive focus on case law in the United States and the European Union, clarifies the scope of competition law in addressing SEP [ie standard essential patent] owners’ opportunistic conduct, and offers the first comprehensive analysis of the antitrust liability an SEP owner might face in each jurisdiction. The presentation thoroughly explains among others these following relevant topics and issues:

* processes through which standards are adopted and implemented by market participants;

* principal antitrust concerns that might arise in the standardization context;

* elements that competition authorities and courts should take into account in evaluating SEP owners’ market power; the role of “fair, reasonable and non-discriminatory” (FRAND) commitments;

* applicability of competition law to a SEP owner’s deceptive practices during the standardization process;

* applicability of competition law to strategic licensing by SEP owners;

* gaps competition law faces when addressing a SEP owner’s opportunistic practices".
This blogger is uncomfortable with the use of the term "opportunistic conduct", which not only gives the appearance of pre-judging the business practices of patent owners -- which can only be adjudged to be opportunistic within the context of the specific factual parameters of the technology within which FRAND licences may be offered -- but also has the appearance of cutting to the chase without taking due account of the evolution of the patent or patents at the hands of its owner before the point at which a granted patent is available to license, or indeed to infringe.  However, it would not be fair to judge this book on the strength of the marketing blurb, so it will be good to find out how the author treats the subject

This book is volume 58 in the publishers' International Competition Law Series. You can check its contents here and inspect a sample chapter here
Price: 120 euro/ US$ 162.
More information here

Friday, 12 September 2014

E-CRIME and the economic impact of cyber crime in Europe

Monica Lagazio (Associate Partner, Trilateral Research & Consulting LLP), has informed us of the commencement of a new European project, E-CRIME, which focuses  on the economic impact of cyber crime [which also touches on criminal aspects of intellectual property right protection] in Europe.  In conjunction with this, she has sent us a media release which reads, in relevant part:
"Some progress has been made in understanding and managing cyber crime as well assessing its economic impact. Yet much remains to be done. Lack of co-ordination in law enforcement and legislation, lack of common consensus on the nature of cyber crime and lack of knowledge sharing and trust are just some of the issues that both afflict cyber crime responses and cloud our understanding of cyber crime. 
The European Union is sponsoring a European project called E-CRIME in order to address these well-known problems. E-CRIME focuses on analysing the economic impact of cyber crime and developing concrete measures to manage risks and deter cyber criminals in non-ICT sectors. E-CRIME does so by adopting an inter-disciplinary and multi-level-stakeholder approach that fully integrates a wide range of stakeholders’ knowledge and insights into the project. 
First, the project will create a detailed taxonomy and inventory of cyber crime in non-ICT sectors, and analyse cyber criminal structures and economies by combining the best existing data sources with specialist new insights from key stakeholders and experts. 
Secondly, E-CRIME will assess existing counter-measures against cyber crime in non-ICT sectors in the form of current technology, best practices, policy and enforcement approaches, and awareness and trust initiatives. 
Thirdly, the project will use available information and new data to develop a multi-level model to measure the economic impact of cyber crime on non ICT-sectors. 
Fourthly, E-CRIME will integrate all its previous findings to identify and develop diverse, concrete counter-measures, combined in portfolios of inter-sector and intra-sector solutions.

... 
The consortium has now set up the E-CRIME Stakeholder Forum (ESF) comprising 24 representatives from key non-ICT sectors, ISPs and communication networks, law enforcement agencies, cyber security, legal, civil, and insurance companies, and governmental organisations from the Member States. The ESF acts as an advisory body for the consortium."
IP Finance proposes to keep an eye on this project, for which some ϵ3,749, 289 has been allocated. It will be interesting to see whether, and to what extent, the work of E-CRIME overlaps or is complementary to that of another institution, the OHIM-hosted European Observatory on Infringements of Intellectual Property Rights.

When clinical trial data is fudged; woe to the company or woe to the industry?

When I think of clinical test data, my attention is usually drawn to controversial Article 39.3 of
the TRIPS Agreement, which affords protection for confidential regulatory data in industries such as pharma and agrochemicals. Article 39.3 provides as follows:
“Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.”
However, the issue of trial data in the context of regulatory approval took on an entirely different meaning this week when it was announced, here, that a U.S. company, Hyperion Therapeutics, here, was cancelling its agreement to acquire the Israeli company Andromeda Biotech, here. Andromeda has been developing a Type1 (juvenile) diabetes drug (DiaPep 277).The value of the deal, which was announced a half-year ago, would have reached $570 million plus additional payments of royalties. As a part of the arrangement, Hyperion also undertook to fund Andromeda’s continued R&D activities. The primary beneficiary of the deal was Clal Biotechnology Industries Ltd, the controlling shareholder of the company. A first payment of $20 million dollars in cash and shares had already been made.

What was the reason for the cancellation of the transaction? As reported by Globes, a leading Israeli business newspaper, Hyperion advised that it had “uncovered evidence” that Andromeda employees had falsified certain clinical trials of the drug. More particularly, it is reported that Andromeda conspired
“with a third-party biostatistics firm in Israel to improperly receive un-blinded DIA-AID 1 trial data and to use such data in order to manipulate the analyses to obtain a favorable result.’ Hyperion further stated that ‘[a]ll of these acts were concealed from Hyperion and others. ”
Shares of both Hyperion and Clal Biotechnology nosedived in the aftermath of the disclosure.

What is both interesting and curious is that questions had already been raised about both the value of the transaction and the propriety of the company’s trial data. As for the price tag of the acquisition, Globes observed that “there were some who raised their eyebrows and wondered why the product was being sold at a relatively low price, earlier than expected, to a relatively unknown partner.” In light of recent developments, as observed by Globes,” the question arises whether other companies ran away from the deal after seeing Andromeda’s data.” Indeed, it is reported that rumors had already circulated in the past regarding what was termed “inconsistencies” between previously obtained trial results.

An interesting comment in this respect was reportedly made, here, by Mr Mori Arkin, a well-known investor, who often teams up with Clal Biotechnologies in investing in the biotech sector. Arkin is quoted as saying:
“There is no need for us to rebuke ourselves too much – neither the Israeli company nor the biomedical industry as a whole. The acquiring company, Hyperion, is not a large company. The data had these weaknesses from the beginning, and large companies probably realized it. If Hyperion overlooked weak points in the data, it’s their mistake, not that of the other side, and it’s not nice to make such unilateral accusations. It’s the court’s job to do that after a claim, and it’s not acceptable to lash out and damage the reputation of various parties.”
Arkin’s comments are particularly intriguing because they seem to place the burden for the failure to understand the problems with the trial data, at least in the context of the acquisition, on the acquiring party. In particular, it is suggested that the acquiring company (as a “small” company) did not carry out “proper” due diligence, in contrast with other, unnamed larger companies, which would likely have picked up on the “weak points of the data.” If Arkin is correct that size so matters in an acquirer’s ability to investigate a biotech target properly , especially when questionable data are at issue, this is a matter of material concern, giving new meaning to the term “caveat emptor” and raising a red flag on the ability of “smaller” biotech companies to carry out proper diligence in connection with acquisition activity.

Alternatively, however, perhaps what is taking place is an attempt by a major investor in the field to deal with a threat to the broader perception of the integrity of the entire industry, at least within the Israeli content. What better way to do confront this challenge (and presumably protect one's investments in the area) than to suggest that culpability lies not with the company and the ecosystem of the industry but with the acquiring company. The first class action suit has already been filed against Clal. Clearly, though, sorting out what really happened has only begun.

Thursday, 11 September 2014

Bold Proposal on U.S. Patent Reform: Eliminate the U.S. Court of Appeals for the Federal Circuit

The Cato Institute is "a public policy research organization — a think tank – dedicated to the principles of individual liberty, limited government, free markets and peace," which operates the Cato Unbound forum, an online journal.  This month's journal features a discussion titled, "Patents and Public Choice."  The feature essay is authored by Eli Dourado, a research fellow at the Mercatus Center at George Mason University, and critically tackles the U.S. patent system.  There is one responding essay by Professor Zorina Khan (I recently highlighted one of her papers concerning patent trolls, here).  Forthcoming essays will be published by Professor John F. Duffy of the University of Virginia Law School and Professor Christina Mulligan of the Brooklyn Law School.  Mr. Dourado's essay is titled, "The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons."  The essay essentially argues that the U.S. Court of Appeals for the Federal Circuit, the supposedly specialist patent court in the U.S. with nationwide jurisdiction over patent appeals from U.S. district courts and jurisdiction over patent appeals from the United States Patent and Trademark Office, has been captured by the patent bar and has continuously expanded patent eligible subject matter to the detriment of innovation.  He points to software patents as a problem, including a discussion of the tragedy of the anticommons, as well as patent trolls.  Despite the U.S. Supreme Court's attempt to reign in software patents, he believes the Federal Circuit will continue to evade Supreme Court precedent (maybe true, but the composition of the court has been changing).  Here are his proposals for reform:

It would be better instead simply to abolish the Federal Circuit and return to the pre-1982 system, in which patents received no special treatment in appeals. This leaves open the possibility of circuit splits, which the creation of the Federal Circuit was designed to mitigate, but there are worse problems than circuit splits, and we now have them.

Another helpful reform would be for Congress to limit the scope of patentable subject matter via statute. New Zealand has done just that, declaring that software is “not an invention” to get around WTO obligations to respect intellectual property. Congress should do the same with respect to both software and business methods.

 . . . Current legislation in Congress addresses this class of [patent troll] problem[s] by mandating disclosures, shifting fees in the case of spurious lawsuits, and enabling a review of the patent’s validity before a trial commences.

What matters for prosperity is not just property rights in the abstract, but good property-defining institutions. Without reform, our patent system will continue to favor special interests and forestall economic growth.

I am not so convinced that returning to the uncertainty and splits of jurisdiction existing before the creation of the Federal Circuit and “races to the courthouse” is going to put us in a better position.  And, the party advocating for change and carrying the burden of proof may need to make a stronger case for reform given the relative success of the biotechnology and information technology industries in the U.S.   Professor Khan offers an incisive rebuttal, here.  This blog has featured posts challenging the assertion that patents in the information and technology communications space are inhibiting innovation, here,  [Although I do wonder about price.] and describing counter-arguments to proposals to reduce the Federal Circuit's influence over patent law, here.  We look forward to Professor Duffy and Professor Mulligan's essays.  [Hat Tip to Professor Dennis Crouch's Patently-Obvious Blog for a lead to the essay.]