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November 25 / Article, Featured, Other Intellectual Property, Patent

Daraprim and the Pharmaceutical Pricing Paradox: A Broken System?

Abstract: On August 10, 2015, at a cost of $55 million, Turing Pharmaceuticals acquired the exclusive U.S. marketing rights to Daraprim, a drug that treats toxoplasmosis (a life-threatening parasitic infection), from Impax Laboratories. Just a few weeks after the acquisition, Turing announced that, effective immediately, the price of Daraprim would be raised from $13.50 a tablet to $750 a tablet, an increase of over 5,500 percent. The overnight price spike has generated considerable censure from healthcare professionals, politicians and the general public. Yet, Turing Pharmaceuticals is not the only company in recent months to substantially increase the price of one of its brand-name drugs.  Just nine days after Turing’s acquisition of Daraprim, Rodelis Therapeutics announced its acquisition of Cycloserine, a drug used to treat tuberculosis, and subsequently raised the price for 30 capsules of the drug from $500 to $10,800. While public pressure has since forced the price of Cycloserine to be scaled back to $1,050, Turing and Rodelis have shown that pharmaceutical companies can realize substantial upside by targeting old, neglected drugs (often for rare diseases) and refashioning them into high-priced specialty drugs.

In a recent study by the American Association of Retired Persons (AARP), the average prices for brand-name prescription drugs were found to have increased by an average of 13 percent in 2013, compared to the inflation rate the year of just 1.5 percent. The Daraprim and Cycloserine cases, while extreme illustrations, depict a broader trend of increasing U.S. drug and health care costs to patients. The two manufacturers’ pricing decisions illustrate a longstanding tension in the pharmaceutical industry between the need for firms to recoup the high costs associated with bringing drugs to market and keeping drugs affordable for consumers.  To date, neither Turing nor Rodelis faces any lawsuits tied to their pricing decisions for Daraprim and Cycloserine respectively.  However, given what has transpired with Daraprim and Cycloserine, and the need to keep drug and health care costs down, perhaps action should be taken to deter future price spikes on brand-name drugs.  That is, under these circumstances, should the government intervene to curb the considerable price-making power that pharmaceutical companies possess in order to better serve the patients who rely on their brand-name drugs and society at large?

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March 23 / Computing, Copyright, Featured

On the Legality of Watching Unlicensed TV Streams

By: Monica Rodriguez

According to a September 2014 report by Nielsen, internet streaming has become the obvious choice for a generation on the go—with digital use among persons 18-34 at 16%.[1]  In fact, online video streaming had an increase of close to 60% during the 3rd quarter of 2014 among the same age group.[2]

Nielsen TV streaming Graph

Nielsen, Digital Growth is Fueling an Increase in Media Time.

 

In a world where demand and efficiency rule entertainment, young adults are moving away from traditional television viewing to digital video.  The Wall Street Journal explained that Americans increased web streaming to about 11 hours a month, up from 7 in 2013 and noted that online consumption is likely even higher, as viewing with devices such as the Roku or smartphones are not included.[3]  Although shows like HBO’s Game of Thrones or even the Super Bowl provide streaming on their own websites, in an effort to shift with the trend, many viewers choose to stream from unlicensed third-party streaming providers, citing that the account subscriptions and targeted commercials are major hindrances to their viewing experience.[4]  With the growing number of people who promote the digital platform, one significant question remains—is watching streamed, unlicensed television content even legal?[5]

Although there are many ways to focus on this issue, the most direct seems to be through an examination of copyright law.  17 USC §102(a) explains that copyright protection subsists in original works of authorship fixed on any tangible medium of expression; in other words, copyright protection applies to original works, like television shows, at the moment it is created.[6]  Exclusive rights with current copyright laws include ability to make copies and control distribution for revenue and profits.  However, there is not necessarily a violation of copyright if a “reproduction manifests itself so fleetingly that it cannot be copied, perceived, or communicated;” in other words, the “dividing line can be drawn between reproductions that exist for a sufficient period of time to be capable of being ‘perceived, reproduced, or otherwise communicated’ and those that do not.”[7]  Because of all these rights and limitations, the question of the whether watching unlicensed television streams is legal becomes complicated.

The Associated Press v. Meltwater case, in which daily headlines and bits of newspaper stories on Meltwater had links to the full online articles from the Associated Press as well as others, which made unauthorized copyrighted content available to viewers for free, had two different outcomes in the U.S. and U.K.[8]  While the U.S. focused on Meltwater as the host of infringing content, the European courts ruled that “users who see content online, without actually willingly making a copy of it, should not be held accountable for any resulting copyright infringement.”[9]  Jim Gibson, director of the Intellectual Property Institute at the University of Richmond law school in an article with Business Insider, furthered this concept explaining, “when the user downloads even part of a file—called ‘pseudo-streaming’— it counts as a copy of copyrighted material, which is illegal. And when the user streams content as a ‘public performance’—namely, when it’s shown to a substantial number of people […] it also constitutes a copyright violation.  Outside of these cases, accessing unlicensed streamed content is generally legal.”[10]

On the other hand, the government has been pushing Congress to make online streaming a felony and wants to shift blame to the viewers, declaring, “downloading a copy of the movie ‘Captain America’ illegally is a felony, but if you were to simply stream the same movie illegally it would only be a misdemeanor,’ [Congressman] Nadler [Democrat, New York] said. ‘Does this distinction make sense?”[11] Deputy Assistant Attorney General David Bitkower explained the significance of streaming viewers by pointing to the Megaupload.com case, in which over 150 million registered users (and 50 million daily visitors) would access reproduced and distributed copies of unauthorized content accounting for as much as 4% of all Internet traffic. [12]  Arguing that viewers also have a role in illegal stream watching, the Department of Justice explained that the amount of bandwidth devoted to copyright-infringing video streaming grew by 470% in a two year span beginning in 2010.[13]

In short, the answer to legality of watching streamed, unlicensed television content is that it remains legal, although likely not for long.  This is true for two main reasons—(1) we must account for technological advances like “pseudo-streaming” which currently serve as violation loopholes in copyright law and (2) Congress is making active steps to uniformly shift liability to viewers for both downloading and viewing unlicensed content.  Despite this legal debate, it is important to note that the MPAA (Motion Picture Association of America) seldom pursues litigation against individuals who stream these shows as it is difficult to identify the IP address linked to the illegal activity.[14]

 


 

[1] Nielson, Shifts in Viewing: The Cross-Platform Report Q2 2014 (2014),  

http://www.nielsen.com/us/en/insights/reports/2014/shifts-in-viewing-the-cross-platform-report-q2-2014.html

[2] Wall Street Journal, TV Viewing Slips as Streaming Booms, Nielsen Report Shows (2014),

http://www.wsj.com/articles/tv-viewing-slips-as-streaming-booms-nielsen-report-shows-1417604401

[3] Id.

[4] Christina Sterbenz, How Sketchy Streaming Sites Really Work — And Why Some Are Legal (2014),

http://www.businessinsider.com/are-streaming-sites-legal-2014-4; See also Stephanie Rabiner, Illegal Sports Websites Shut Down by Feds Ahead of Super Sunday (2012), http://blogs.findlaw.com/tarnished_twenty/2012/02/illegal-sports-websites-shut-down-by-feds-ahead-of-super-sunday.html

[5] Supra 4.

[6] 17 U.S.C.A. § 102. (West)

[7] U.S. Copyright Office, DMCA Section 104 Report 111 (August 2001); see also 73 Fed. Reg. at 40808.

[8] BGR, Pirating copyrighted content is legal in Europe, if done correctly( 2014), http://bgr.com/2014/06/05/streaming-movies-and-tv-shows-for-free/; see also Gigaom, You can’t break copyright by looking at something online, Europe’s top court rules (2014) https://gigaom.com/2014/06/05/you-cant-break-copyright-by-looking-at-something-online-europes-top-court-rules/.

[9] Supra 8.

[10] Christina Sterbenz, How Sketchy Streaming Sites Really Work — And Why Some Are Legal (2014),

http://www.businessinsider.com/are-streaming-sites-legal-2014-4

[11] The Hill, DOJ To Congress: Make Online Streaming a Felony (2014), http://thehill.com/policy/technology/213285-doj-to-congress-make-online-streaming-a-felony

[12] U.S. Department of Justice, Statement of David Bitkower Acting Deputy Assistant Attorney General Criminal Division, Copyright Remedies. ( 2014), available at, http://judiciary.house.gov/_cache/files/c2cf069f-5e3d-4449-8614-c05b183fd910/bitkower-doj-remedies-testimony.pdf

[13] Id.

[14] Stephanie Rabiner, Is Streaming or Watching Movies Illegal? (2012), http://blogs.findlaw.com/law_and_life/2012/04/is-streaming-or-watching-movies-illegal.html

April 23 / All Articles, Copyright, Featured, Patent, Trade Secret

Intellectual Property Indemnity Clauses

The practices associated with intellectual property indemnity can be traced in part to Article 2 of the Uniform Commercial Code. At the dawn of the computer age, practitioners searched for legal models that they could use for transactions in intangible rights and products such as computer software. Although computer software did not fit easily into the “sale of goods” paradigm, analogies to the familiar rules governing sales of goods were inevitable.

Lurking in the lower reaches of Article 2 of the UCC, one finds an implied warranty of non-infringement in Section 2-312(2):

Unless otherwise agreed, a seller that is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer that furnishes specifications to the seller must hold the seller harmless against any such claim that arises out of compliance with the specifications.

In the context of a sale of goods at the time Article 2 was drafted, a non-infringement warranty made good economic sense. The only form of intellectual property likely to be of concern to the purchaser of goods was patent protection. In the mid-twentieth century, when Article 2 of the UCC was adopted, patents were the disfavored stepchildren of the federal courts. A high percentage of patents were held to be invalid, and the damages accorded to those found to be valid were often limited to a modest royalty. Furthermore, patent rights are—as a rule—exhausted upon the first sale of a product and far fewer patents were being issued. Additionally, products were less complex, typically falling into only a single engineering domain, with correspondingly fewer points of intersection with issued patents. For all these reasons, the risk that the ultimate purchaser of a product would be sued for patent infringement was very remote, and even if the purchaser were sued, the damages would be only a tiny fraction of the purchase price—the average and median for all products was between five and seven percent.

In this context, a product manufacturer could provide an implied warranty of non-infringement with very little risk beyond whatever modest risk of infringement the manufacturer had already incurred by manufacturing the product itself. Product purchasers did not typically insist on an indemnity beyond the implied warranty , perhaps because the risk was perceived as too remote to be worth worrying about. The exhaustion doctrine would—in many cases—cause the claim to be made against the manufacturer rather than the user. Therefore, they would assume—probably quite rightly—that the manufacturer would “stand behind its product” and obtain the required license if an infringement claim were actually made.

With this background, and without giving the matter too much additional thought, it did not seem unreasonable for the lawyers representing software and other technology providers to provide a warranty of non-infringement governing their clients’ products as well. Such a warranty was certainly consistent with established practice as embodied in UCC Article 2. It therefore would have met the expectations of the marketplace. Furthermore, the risk of infringement liability seemed manageable. At that time, virtually no one believed that computer software would be patentable, and absolutely no one imagined that business methods would be patentable. The risks of trade secret or copyright infringement liability are more uniquely within the control of the software provider since each of them requires an element of intent or a near equivalent. By adopting appropriate internal controls and standards, sometimes even including a “clean room,” a software provider ought to be able to minimize its infringement risk.

As licensors, software providers had an additional consideration of the desire to control litigation concerning rights in the product. At that time, protection for computer software was in a state of flux. Copyright in computer software expanded in the years following the Copyright Act of 1976, but doubt persisted as to the extent of its protection. For instance, in following decades, the courts were faced difficult questions regarding whether copyright protected operating systems that communicate only with machines and whether it protected the “look and feel” of the user interface generated by the software. These were considered weighty issues going to the heart of the value represented by computer software. Accordingly, the software providers did not want to risk having them decided in litigation against their licensees, whose interest in broad protection would likely be less than the interest of the software providers.

In response to this concern, software providers migrated the infringement issue from the warranty clauses of software license agreements to indemnity provisions. As quid pro quo for indemnity, the licensor obtained prompt notice of the claim and full authority to defend or settle the case on behalf of the licensee. To mitigate their risk, most software licensors further provided that their obligation—and the licensee’s sole remedy—was to (a) obtain for the licensee the right to use the licensed product; (b) modify the product to make it non-infringing; or—failing (a) or (b)—(c) to terminate the license and refund a pro-rated portion of the purchase price depending on how much of the license term had been exhausted at the date of termination.

Clauses along these lines became a de facto standard in the software industry and persisted for many years. They were hardly perfect from the standpoint of licensees. Option (c) could be very detrimental in the case of software that was critical to a business, Even if comparable non-infringing software were available, the end user would be in the position of having to find, implement, and migrate all data or customizations to the new system. This could be expensive, risky and time-consuming. If no comparable non-infringing software were available and the patentee refused to offer a license on commercially reasonably terms, a business that relied on the software could be crippled. Even option (b) could be problematic if the required modifications degraded functionality or compatibility. As a result, licensees with sufficient bargaining power would nibble at the edges of such indemnity clauses, sometimes allowing full refunds and often providing that (b) could only be exercised if functionality were not compromised. Nonetheless, the basic pattern—limited indemnity in exchange for control over litigation—became well-fixed in many practitioners’ minds.

As so often happens in the law, the basic practices that emerged in one field—the software industry—migrated to other industries as well. Intellectual property indemnification clauses were inserted into virtually any agreement in which the parties foresaw a risk of intellectual property infringement.

February 4 / All Articles, Computing, Featured

Keep An I On The Sky: E-Discovery Risks Forecasted For Apple’s iCloud

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On February 22, and March 5, 1873, Barrett and Walton delivered to plaintiff … one hundred and forty tierces of lard, to be shipped …. On the night of March 14, while the lard was stored in defendant’s warehouse, awaiting shipment, it was destroyed by an accidental fire …. [S]aid goods put in said warehouse upon the agreement and understanding that the defendant should not be liable for a loss by accidental fire, was clearly made out. Such being the case, the common law liability is limited by this special agreement.

Some things have not changed since the fire of March 14, 1873. The competing interests of clients seeking convenient storage on one side against providers seeking protection from liability on the other continue to pervade the legal landscape. Naturally, some things have changed, such as the items being stored, the nature of the storage facilities, the associated risks, and the rules governing preservation obligations. Physical property has been replaced with electronically stored information (“ESI”) and warehouses now take the form of remote data servers. And in addition to longstanding conventional risks, such as accidental fire, companies now face very particularized risks resulting from e-discovery obligations imposed by the Federal Rules of Civil Procedure.

Businesses have continuously attempted to reduce their exposure to e-discovery liability by utilizing risk-mitigating ESI storage systems. Cloud computing has emerged as a promising solution to reduce the risk of data loss as well as to transfer data loss liability to the vendor. Naturally, cloud computing service providers have expanded the limited liability provisions in their contracts to shield themselves and transfer the risk back to their clients. E-discovery has thereby perpetuated the age-old battle over the balance of risk.

This article illustrates how, despite cloud computing’s theoretical advantages, the technology poses a variety of practical e-discovery risks for employers. Part I introduces cloud computing, plots out its inevitable integration into the workplace, and discusses its potential e-discovery advantages over conventional local data storage. Part II moves from the theoretical to the practical by applying a magnifying glass to Apple’s new cloud computing product, iCloud, and revealing the various e-discovery risks that still remain. Finally, Part III offers employers some recommendations for how to reconcile their interest in cloud computing with the risks that the technology presents. While the right choice might be different for each business, the considerations and risks discussed below apply broadly.

January 10 / All Articles, Computing, Copyright, Featured

Defenseless in The Zombie Infested Internet: Why Audio-Visual Works Demand Exemption Under the Digital Millennium Copyright Act

Before Flash ruled the media-streaming world, and when iTunes simply did not exist, there was Monkey Island II: LeChuck’s Revenge (“Monkey Island”). Aside from its highly addictive gameplay, Monkey Island had one noteworthy characteristic: a Decoder Wheel. Upon inserting the game, the software would prompt the user to align various icons on the wheel to generate a numeric password that varied with every use, verifying that the user had purchased the game legitimately. As technology progressed, the means of protecting digital rights expanded into a vast array of software encryption and protection known as Digital Rights Management (“DRM”). Today, DRM can be found in everything from audio CDs to video games. However, the public has not embraced DRM. The integration of DRM into consumer electronics sprouted a variety of allegations that these software encryption and protection methods make personal computers (“PCs”) vulnerable to malware and privacy invasion.

In the aftermath of Napster and Pirate Bay’s shameless disregard for copyrights, DRM strategies are necessary to protect the incentives that encourage artists and programmers to create and publicly display their works. Yet the security risks associated with DRM levy a high cost on the public, on whose patronage the content creators depend. By restricting research and investigation into security risks in popular public technologies, U.S. copyright law, particularly under the anti-circumvention provisions of the Digital Millennium Copyright Act (“DMCA”), removed necessary safeguards for the public. The large influx of new consumer electronics demands exemption from the anti-circumvention provision of the DMCA for good faith research into security flaws and vulnerabilities in DRM.

This Note discusses the current state of American copyright law under the Digital Millennium Copyright Act. The main thesis addresses whether the current rule-making procedure allowing for a triennial determination for exemptions to the DMCA is adequate to protect the best interests of the public. This Note focuses on the 2010 rule-making under the DMCA allowing for circumvention of access controls for good faith research in investigating and correcting security vulnerabilities in video games is the focal point. Creating a statutory exemption allowing for circumvention of a broader class of works for good faith research into software defects would better suit the interests of the general public, while also preserving the rights of copyright holders. This argument is followed by a discussion of the current risks that DRM software associated with audio-visual works poses for the general public and the benefits that a broader exemption would provide.

*Eric Maher

October 24 / All Articles, Featured, Patent

Do Business Method Patents Encourage Innovation?

Although the United States Patent and Trademark Office (“PTO”) had issued business method patents (“BMPs”) prior to 1999, the decisions of the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) in State Street Bank & Trust Co. v. Signature Financial Group, Inc. in 1998 and AT&T Corp. v. Excel Communications, Inc. in 1999 led to a significant increase in the number of BMP applications filed with and granted by the PTO. Although grants of such patents have considerably stabilized in recent years, many policy issues raised by financial, electronic commerce and software companies in response to the State Street Bank and AT&T Corp. decisions regarding the patentability of business methods remain unanswered. Several legal and economic scholars, as well as the press, have examined this issue and have raised concerns about the quantity, quality and patentability of BMPs. There is some consensus in their point of views.

Many of these scholarly works provide fairly detailed and systematic studies of individual cases and their implications. Comparatively, there is little literature on the effect of BMPs on innovation, which is grounded in a more comprehensive theoretical perspective and empirical approach. This paper endeavors to fill this gap by reviewing the extant literature on patents in general and attempting to draw inferences about the implications of this literature for BMPs. The paper primarily focuses on the role of patents in driving innovation and the effect of poor patent quality on innovation.

The remainder of the paper is divided into seven sections. Section I briefly outlines the history and economic rationale of the patent system. Section II discusses the history of BMPs in the United States. Section III sheds light on the provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement regarding BMPs. Section IV briefly illustrates how different Member States of the World Trade Organization (“WTO”) have used the TRIPS agreement’s flexibility regarding BMPs in their national laws. Section V presents theoretical and empirical evidence about the general relationship between patent system and innovations, with analysis to understand the probable impact of BMPs on innovation. Section VI briefly presents the issues concerning BMPs and their consequences. Section VII presents a summary of the policy recommendations made by various scholars who have followed BMP’s evolution to becoming acceptable subject matter. The paper concludes with a brief discussion about some key policy recommendations for improving BMPs.

Rajnish Kumar Rai & Srinath Jagannathan

August 23 / All Articles, Copyright, Featured

Digital Copyright, “Fair Access” and The Problem of DRM Misuse

The advent of the digital age and the wide diffusion of copyrighted works over the Internet have brought about a drastic challenge to the pre-existing rules and legal standards governing the exchange of information. This article points out one of the ways the development of these new technologies has altered the boundaries of copyright, specifically by enabling copyright holders to strategically expand the scope of protection through the strategic use of Digital Rights Management (hereinafter, DRM). After a brief overview of these technologies and their contribution to the development of online markets for copyrighted works, the article discusses the risks of using DRM as a means of stretching the legal protection conferred by Intellectual Property law.

As a potential solution to such problem, the article looks at the role of the courts and the approach embraced vis a vis specific cases of abuse of DRM in the copyright context. In carrying out this analysis, some considerations are made on the pro-competitive benefit that may derive from these practices, and thus the different outcome that would result from an application of a pure antitrust scrutiny to the same situation. The article then concludes recommending a two-fold approach to the assessment of the legality of such practices, where antitrust analysis and IP principles are intermingled, proposing a legal test to facilitate this complex assessment.

Nicolo Zingales