Market Solutions to IP Law Confusion

The somewhat “unsettled” nature of certain aspects of intellectual property law is unsurprising. By definition, the discipline considers the new, the novel, the original, etc. Though the patent world seemed to struggle for a time when it came to computer-related inventions, it was no coincidence that the Copyright Act of 1976 explicitly anticipated “original works of authorship fixed in any tangible medium of expression, now known or later developed…”[1] In recent years, however, prolonged periods of legal uncertainty in developing fields ranging from biotech to video streaming seem to have inspired actors in these fields to abandon protection claims for market-based solutions.

A devastating example is the recent Ariosa v. Sequenom affair.[2] In June 2015, the Federal Circuit held a new, non-invasive prenatal diagnosis process based on the discovery of cell-free fetal DNA unpatentable for lack of subject matter eligibility. Attributed to Drs. Dennis Lo and James Wainscoat, the research revolutionized fetal detection of Down Syndrome and other diseases across the globe. The Court, however, “declined pleas by the pharma-bio world to shape doctrine to permit protection of an important discovery.”[3] The Court’s reasoning, largely based on the Supreme Court’s two-part test for subject matter eligibility laid out in Mayo, has been widely criticized by jurists and scientists alike.[4] Indeed, many argue that the rigid Mayo test was largely dicta (including Judge Dyk concurring in the denial of the petition for rehearing en banc) and/or that the Federal Circuit’s finding that the Ariosa test lacked an “inventive step” was absurd given the nature of the advancement. A concurring opinion by Judge Linn begins: “I join the court’s opinion invalidating the claims of the ‘540 patent only because I am bound by the sweeping language of the test set out in Mayo…This case represents the consequence—perhaps unintended—of that broad language in excluding a meritorious invention from the patent protection it deserves and should have been entitled to retain.”

Ariosa is but one of a series of cases muddying the waters of patent-eligible subject matter.[5] Former director of the USPTO Dave Kappos described the current case-law as “a real mess, and you could actually use much stronger language than that.” While Kappos has proposed that the US follow the examples of Europe and Asia and “abolish Section 101,” the scientific community has sought solutions outside the realm of patent protection.

Considerable ink has been spilt over the advantages and disadvantages of various patent systems and their three main alternatives: prizes (ex-ante or ex-post), R&D funding (typically government), and rents via first mover advantage, complementary goods, trade secrets, etc. “Prizes for innovations are currently experiencing a renaissance, following their marked decline during the nineteenth century.”[6] Indeed, national, international, private and public organizations alike have significantly increased prize offering efforts in recent years.

This September, Dr. Dennis Lo received the “first-ever Chinese version of the Nobel prize” for his Ariosa discovery and test. Moreover, having been cited among the Thomson Reuters Citation Laureates, Lo is likely also among this year’s Nobel Prize candidates.

Whether or not Lo will gain as much as a prize-winner as he would have as a patent-holder is difficult to say. What seems clear, however, is that the demand for prize systems in which inventors such as Lo can, at the very least, be recognized for their significant contribution, is partly a result of the inability by courts or Congress to resolve the confusion surrounding American Patent Act Section. This inability has garnered similar market-based solution initiatives for copyright protection.

The famous Aereo decision on the definition of public performance in a world of global broadcasting left another confusing trail of circuit decisions.[7] After witnessing music streaming services successfully emerge in the wake of Napster, the film and television industry side-stepped the public performance issue by offering license-based streaming services (e.g. Netflix, Hulu, HboGo, Amazon Video, etc.). Again, whether or not creators benefit as much under the new system is difficult to say. Nonetheless, recent studies indicate a significant decline in video torrenting (and while some cite an increase in illegal streaming, overall piracy rates still report downward trends).  In the case of online piracy, market-based solutions therefore might not only be escaping unclear legal regimes, but avoiding congressional inefficiency altogether (amending the Copyright Act has been a topic of discussion for many years) by providing their own solution to piracy. This effect is further supported by the music industry model’s success in reducing P2P traffic, though disputes continue as to whether music sales have improved.

The case of audio/video streaming only serves to highlight the recent unresponsiveness to market demands in intellectual property statute and precedent. It remains to be seen if and how these market adaptations will affect innovation and creation. Whatever the impact though, case law and eventual statutory revision will likely encounter difficulty resolving fundamental invention and creation incentive ideology with these modified models.

[1] 17 U.S.C.A. §102, emphasis added.

[2] Ariosa Diagnostics, Inc. v. Sequenom, Inc. 788 F.3d 1371 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 2511 (2016).

[3] Harold Edgar, Patents, 2016.

[4] Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012).

[5] See, e.g., Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013), Bilsiki v. Kappos, 130 S. Ct. 3218 (2010), Alice Corp. Pty. Ltd. V. CLS Bank International, 134 S. Ct. 2347 (2014)

[6] B. Zorina Khan, Inventing Prizes: A Historical Perspective on Innovation Awards and Technology Policy, Business History Review (working paper).

[7] American Broadcasting Companies, Inc. v. Aereo, Inc., 134 S. Ct. 2498 (2014).

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