In Response to Hyperbole: Apple and the “Andriod Killer” Patent

There has been a lot of discussion of a patent issued to Apple last week. U.S. Patent 8,223,134, issued to Apple on July 17, 2012, and has been called everything from an “Android Killer” to something all other smartphone makers should fear. This patent relates to the the user interface of various iOS devices. However, many people don’t realize how the exclusionary power of a patent is defined. Only the claims, those numbered paragraphs at the end of the patent, define what is protected.

Some have characterized the claims of the ‘134 patent a overly broad, but take a look at the broadest device claim:

A portable multifunction device, comprising:

a touch screen display;

one or more processors;

memory; and

one or more programs,

wherein the one or more programs are stored in the memory and configured to be executed by the one or more processors,

the one or more programs including instructions for: displaying a portion of an electronic document on the touch screen display, wherein the displayed portion of the electronic document has a vertical position in the electronic document;

displaying a vertical bar on top of the displayed portion of the electronic document, the vertical bar displayed proximate to a vertical edge of the displayed portion of the electronic document,

wherein: the vertical bar has a vertical position on top of the displayed portion of the electronic document that corresponds to the vertical position in the electronic document of the displayed portion of the electronic document; and

the vertical bar is not a scroll bar;

detecting a movement of an object in a direction on the displayed portion of the electronic document;

in response to detecting the movement: scrolling the electronic document displayed on the touch screen display in the direction of movement of the object so that a new portion of the electronic document is displayed,

moving the vertical bar to a new vertical position such that the new vertical position corresponds to the vertical position in the electronic document of the displayed new portion of the electronic document, and

maintaining the vertical bar proximate to the vertical edge of the displayed portion of the electronic document; and

in response to a predetermined condition being met, ceasing to display the vertical bar while continuing to display the displayed portion of the electronic document, wherein the displayed portion of the electronic document has a vertical extent that is less than a vertical extent of the electronic document.

The claims are actually fairly narrowly tailored to cover the iPhone and other devices non-scroll bar on list and document displays. The vertical bar must not be a scroll bar; it mus be imposed over the image being displayed; it must change its position as the image is moved vertically by the user (who must be moving the image via natural scrolling); the vertical bar must stop being displayed, i.e., after a preset time with no movement on the screen. All of these conditions must be met by another device’s UI before it can infringe this claim. Omitting any of them will avoid literal infringement.

I realize it’s not as exciting as claiming that the patent will shut down all competition in smartphones, but it won’t.

I personally think this shows the value of patents in this area. What Apple has done with these claims is to provide itself with some protection against direct copying of these features of its UI. Other companies still have a lot of room to develop competing systems and devices, even better ones. These patents help prevent knockoffs from eliminating the incentive to create while still leaving the door open to new competition. In the end, consumers win.

Should You Assign Your IP to a Holding Company?

When you have a piece of intellectual property, like a patent, it’s a good idea to make sure it’s clear who owns it. Under U.S. law, inventions are owned by their inventors unless there is an agreement to the contrary.  That usually means that the inventor executes an assignment of the ownership rights in the patent to their employer or other entity.

Some entities have set up holding companies that hold the intellectual property of the parent entity.  This is done for a variety of reasons, including simplified portfolio management, tax planning, and others, but there is a cost. In some cases, damages from an infringement suit brought on behalf of an IP holding company may be limited to the “reasonable royalty” minimum, and not include lost profits. That’s because the patent owner (the holding company) doesn’t generate a profit and thus had not profits to lose.

The question, though, has come up anew with the recent news that Qualcomm is spinning off some of its R&D functions into a new company. It’s important, though, to keep in mind the wide array or pros and cons to using an IP holding company. Whether you will practice the patent, intend to license it, if it embodies standard-essential technology, and your competitive position in the market that the technology relates to all impact the decision.

As with assigning any corporate asset, it isn’t a clear cut decision and will require good advice from a variety of professionals. In the case of patents assignments, consulting with a patent attorney may be as important, or even more so, than consulting with a tax planner.

Reverse Payments in Generic Pharma Litigation Held Presumtively Anti-Competitive

The Third Circuit has held that reverse payments in settlement of Orange Book litigation are presumptively illegal.

Reverse payments in settlements of pharmaceutical patent cases have been controversial for some time. Under the Hatch-Waxman Act, a generic manufacturer can get approval for the generic form of a name-brand drub using a streamlined process that relies on data originally submitted by the name-brand manufacturer. The generic manufacturer makes a certification to the FDA that their product doesn’t infringe the patent claims that supposedly cover the drug either because the patent in invalid or the generic version falls outside the scope of the patent claims. The making of the certification itself is an act of patent infringement that can prompt a lawsuit. These patents are listed in the FDA’s Orange Book and these types of cases are often referred to as “Orange Book litigation.”

The goal of Hatch-Waxman was to streamline the approval process for generic drugs and increase their availability on the market. The generic manufacturer could piggyback on the name-brand’s data and avoid costly studies, and the name-brand could bring an immediate suit to defend its patents without waiting for the generic to enter the market. However, the unique situation this created also lead to a new form of settlement that includes a “reverse payment” to the accused infringer.

Reverse payments are those from the patent holder, to the infringer, made in exchange for the infringer’s agreement to not enter the market. The idea of reverse payments can be unsettling because of the apparent anti-competitive effects. Some view the arrangements as a way for a brand-name manufacturer to keep a lock on the market without having to defend the validity of its patent in court. Logically, the reverse payment would only be made if the expected profits resulting from maintaining its position as the only provider of a drug exceeds the size of the reverse payment.

However, there is a less cynical view of the reverse payment arrangement. Consider a piece of property to which doesn’t have a clean title. For example, a neighbor may claim an easement, or allege adverse possession of a part of the property. The property owner may choose to pay the neighbor (also a putative trespasser) in exchange for the neighbor abandoning its claim to any of the property.

In the case of Orange Book litigation, the patent owner has a piece of property, but its meets and bounds may be in question. The accused infringer may claim the patent is invalid or that their formulation isn’t covered by the claims. This is akin to a cloud on the title. The patent owner has a strong incentive to clean the title by removing the challenges to validity and scope. This can be done through litigation, however, litigation always carries the risk of loss. Settlements, including reverse payment arrangements, can be a reasonable way for the parties to price the risk of litigation.

This doesn’t mean that reverse payments can’t be abused. This is a result of the way Hatch-Waxman excludes third party generic manufactures from the market for the drug to give the first generic an incentive to initiate the process. A patent owner can collude with the generic manufacturer to create a prohibition on third party generic manufactures when the parties both believe the patent to be either invalid or not infringed. However, when such an arrangement should be illegal can be difficult to determine.

Since there is always a risk that a patent will be held invalid or its claims not infringed, the patent owner will always have some concern about it. How certain must the patent owner be that the patent is invalid or not infringed? 50%? 80%? 90%? Should the likelihood of invalidity or non-infringement be measure subjectively from the patent owners perspective, or objectively? At what point would you simply be forced to litigate all of the issues to know if the settlement is legal?

To deal with this, courts have generally applied a “scope of the patent” test. The test looks to see if the agreement extends the exclusive rights of the patent owner beyond what they are entitled to under the patent. Of course, the point of a settlement is to avoid litigating the issues of validity and infringement, and in the review, these are generally assumed.  The result is that no reverse payment arrangements have been found to be antitrust violations under the test.

Enter the Third Circuit. This week in In Re: K-Dur Antitrust Litigation, the court held that reverse payment settlements between a patent holder and generic pharmaceutical manufacturer are presumptively anti-competitive. This presumption can be overcome by showing that either the payment was not for the purpose of delaying market entry by the generic manufacturer or that the agreement offers some pro-competitive benefit.

This analysis is called a “quick-look rule of reason analysis” and is familiar to antitrust scholars and practitioners. However, it could have significant affects on the generic/name-brand dichotomy in the pharmaceutical industry. In any event, this creates a very clear circuit split involving mutually exclusive antitrust tests for reverse payment settlements and sets up an interesting opportunity for the Supreme Court to weigh in on the issue.