September 24, 2018

Release 29 to Intellectual Property and Computer Crimes

Law Journal Press just published Release 29 to my book Intellectual Property and Computer Crimes. The Release addresses developments involving the Defend Trade Secrets Act of 2016 (DTSA), including cases where courts have held that pre-enactment DTSA allegations of a misappropriation of a trade secret coupled with post-enactment continued use are sufficient to sustain a claim under the DTSA. Further discussion of the DTSA addresses the rights of trade secret owners, including the provision that a court may not authorize the disclosure of any information that the owner asserts to be a trade secret.

In addition, the Release expands the book’s discussion of sentencing guidelines under the Economic Espionage Act (EEA) by detailing the steps to be taken to determine the appropriate guideline range using the U.S. Sentencing Guidelines. The Release also examines sentencing guidelines for trademark counterfeiting, including the base offense level, infringement amount, risk of bodily harm, and the use of encryption, as well as an analysis of the upward adjustment requirement for a finding that the defendant has abused a position of trust or use of a special skill.

Other topics discussed in this Release include:

The Ninth Circuit in United States v. Liew in which the defendant was charged with trade secret misappropriation from DuPont as an agent of the People’s Republic of China.

Difficulties in attempting service of process of foreign parties for conspiring to steal trade secrets.

Mandatory Victims Restitution Act (MVRA) requirement that if property cannot be returned to a victim, the defendant must pay the victim the value of the property either on the date of the damage or the date of sentencing.

In order for the government to establish criminality for receiving buying or possessing a trade secret knowing the same to have been stolen without authorization, they first must establish the defendant “knew” that the items was stolen.

Ways the government may prove intent by showing the circumstances in which the defendant made use of the trade secret.

Waymo and Uber Settle Trade Secret Case

Less than a week into their blockbuster trade secret showdown, Waymo and Uber have settled their dispute over driverless car technology.

The parties announced that they had reached an agreement Friday morning on what was set to be the fifth day of trial in U.S. District Judge William Alsup’s courtroom.

According to a statement from Waymo, the settlement includes a payment from Uber which includes 0.34 percent of Uber equity—or about $244.8 million in stock based on a $72 billion valuation of Uber.

The underlying dispute centered on Uber’s acquisition of Ottomotto, an autonomous car company founded by former Google engineer Anthony Levandowski. At trial, Waymo’s lawyers from Quinn Emanuel Urquhart & Sullivan presented evidence that Levandowski had downloaded a trove of 14,000-plus files from Google before he left to form the start-up and that he had copied the files to his personal laptop and mobile storage devices.

Uber CEO Dara Khosrowshahi issued a prepared statement Friday morning acknowledging that the acquisition of Otto “made good business sense” at the time.

The statement continued: “But the prospect that a couple of Waymo employees may have inappropriately solicited others to join Otto, and that they may have potentially left with Google files in their possession, in retrospect, raised some hard questions.”

“To be clear, while we do not believe that any trade secrets made their way from Waymo to Uber, nor do we believe that Uber has used any of Waymo’s proprietary information in its self-driving technology, we are taking steps with Waymo to ensure our Lidar and software represents just our good work,” Khosrowshahi said.

Waymo (Alphabet) versus Uber: A 21st Century Trade Secrets Case

One of the biggest trade secret cases ever began this week in San Francisco between Waymo, Google’s self-driving car company owned by Alphabet, and Uber, the worldwide ride sharing service. Waymo has accused Uber of conspiring with Anthony Levandowski to steal trade secrets from their project. Levandowski worked on Google’s autonomous car team until January 2016 at which point he left to start his own company, Otto, which was then acquired by Uber in late July 2016. Before leaving Waymo, Levandowski allegedly downloaded 14,000 files of data.

Uber has a lot riding on this case: Waymo is claiming as much as $3.7 billion in damages and is seeking to prevent Uber from using any technology in the future that it may have stolen from Waymo’s self-driving cars. This could be a huge set back for Uber’s program. Indeed, during his first day of being questioned, the former CEO of Uber, Travis Kalanick, agreed that developing autonomous vehicles amounts to an “existential question” for Uber, and that the market for driverless cars is likely to be “winner-take-all.”

Waymo’s lead attorney tried to set the tone for the trial during opening statements, suggesting no less than a contest between good and evil is at issue. He claimed that Kalanick, who was CEO at the time of the events in question, “made a decision that winning was more important than obeying the law.” The attorney asserted that “[t]here will be documents… internal documents from Uber where the CEO of the company said ‘we want their cheat codes.’” He also claimed that there are texts between Levandowski and Kalanick in which they discussed the need to win at all costs. Levandowski even said in one text, “we need to think through the strategy to take all the shortcuts we can find.” In another, he said, “I just see this as a race and we need to win, second place is the first looser [sic].”

In response, Uber is expected to argue that none of the files Levandowski downloaded reached Uber’s servers, that none of the information stolen by Levandowski is a trade secret, that Levandowski is entirely responsible, and that Uber’s only crime was in hiring Levandowski.

Although it is always difficult to predict the outcome of a trial, from a high-level vantage point Waymo appears to be in the driver’s seat for a variety of reasons. First, jurors will question why Levandowski downloaded 14,000 files before departing Waymo, even if those files do not contain any trade secrets. It looks really bad and it will be difficult for Uber to overcome this perception. Moreover, Judge Alsup, who is presiding at trial and is widely regarded as one of the smartest federal judges, has referred the matter to the Justice Department for criminal investigation. This means that Levandowski will assert the Fifth Amendment right against self-incrimination when questioned and, unlike criminal cases, jurors can draw an adverse inference about the facts he refuses to discuss. Although Judge Alsup has warned that the case is “not whether or not Uber is an evil corporation,” the jury is likely to hold Levandowski’s failure to testify and his downloading of Waymo’s files against Uber, regardless of how often Judge Alsup attempts to clarify the issue.

Assuming Uber doesn’t completely lose the war of good versus evil, the jurors will be asked to decide based on the facts whether Waymo has proven that Uber misappropriated eight trade secrets, mostly relating to LIDAR, an abbreviation for “light detection and ranging” devices that measure distances using lasers. These are critical in the operation of autonomous vehicles. One of the other alleged trade secrets relates to “negative know-how,” a term describing what doesn’t work, which can be almost as valuable as a trade secret relating to what does work, since it allows a company to appropriate money to potentially more fruitful projects.

In order to prevail, Waymo must prove, among other things, that the technology meets the definition of a trade secret, which is generally defined as information that has value based on it not being generally known in the industry (secret) and is the subject of “reasonable measures” to maintain its secrecy. In response, Uber will argue that to the extent it has or has used similar technology, it developed the technology or it was available from public sources and Waymo did not do enough to protect the technology.

Another very important issue that will be closely watched and may have an impact on the future hiring of engineers by competitors in Silicon Valley is the distinction between general skills and knowledge—an engineer’s “tool kit,” so to speak—that can be taken from one job to another, and proprietary information that cannot. To put it another way, how does a prospective new employer differentiate between someone who knows an awful lot about a certain technology and someone whose knowledge is based on stolen trade secrets? The answer to this question is particularly important to companies in Silicon Valley, where engineers move freely from one company to another taking their knowledge with them. In a pretrial proceeding, Judge Alsup expressed the difficulty in making this distinction. He also expressed concern about how to protect engineers in the advancement of their careers, where their former employers designate “everything in the universe” as a trade secret. Judge Alsup then suggested that employees are not required “to get a frontal lobotomy before they go to the next job”

Even if Waymo does not prevail in this trial, the lawsuit, the stakes involved, and Judge Alsup’s referral to the DOJ have generated so much publicity that it is likely to have a major impact on how companies—especially in Silicon Valley—do business. If companies have not already done so, they need to rethink their management of trade secrets and hiring practices to make sure that they do not become ensnared in major trade secret litigation with literally billions of dollars at stake. Worse still, they may have to defend their actions to a United States Attorney’s Office in order to show that they did not violate the Economic Espionage Act.

Whether Uber took adequate steps to protect itself when it hired Levandowski ultimately will be left to a jury to decide. Critics, including investors suing the company, say it could have done more to anticipate and avoid the legal mess and accompanying negative publicity from hiring him. Companies are more likely than ever to resort to litigation when an important engineer or high-level employee leaves for a competitor. The enactment of the Defend Trade Secrets Act in May 2016 makes it far easier for victims to sue in federal court for theft of trade secrets, even if the trade secrets are contained only in the mind of a departing employee.

Not Alternative Facts

These PTAB numbers do not lie. IPWatchdog authors Gene Quinn and Steve Brachmann with assistance from pro-patent advocates Paul Morinville and Josh Malone provide real data proving PTAB’s exaggerated harm to our patent system. 2017’s shifts in venture capital were just reported. File these posts for use later when discussing the need for The STRONGER Patents Act  with your delegations.

PTAB Facts: An ugly picture of an tribunal run amok

By Gene Quinn on Jan 08, 2018 02:30 pm
69% of cases reaching a final decision by the PTAB have all claims invalidated. 82.5% of patents reviewed by PTAB in a final decision are found defective… As the facts laid out in this article show, the PTAB is substantially more likely to find patents to be defective than a Federal District Court. This reality is a significant problem for patent owners, and should be a serious concern for anyone at all concerned with separation of powers. Even after prevailing in Federal District Court, and even after prevailing at the Federal Circuit as VirnetX had done, the PTAB can still invalidate claims already adjudicated as valid by an Article III tribunal. If patents are to be considered any kind of property right (as the statute says) title must at some point quiet, and an Article I administrative tribunal simply cannot have the power to overrule an Article III tribunal. If patent owners cannot have full faith and confidence in the patent granted by the Federal Government, and they similarly cannot have full faith and confidence in a final adjudication by the federal courts, how can they be expected to invest the millions, and sometimes billions, required to bring technology to the market.

58 Patents Upheld in District Court Invalidated by PTAB on Same Grounds

By Steve Brachmann on Jan 08, 2018 08:30 am
When going through the list of patents that have been deemed valid in district court and then invalidated through PTAB proceedings, there are 58 cases where the patent is invalidated at the PTAB on the same statutory grounds asserted at district court and which did not lead to invalidity. So, contrary to any notion that any data we’ve published fails to pass muster, there is plenty of evidence that the activities of the PTAB present an unfair playing ground for patent owners who are dragged before it, often after those patent owners have already been victorious in district court in proceedings where Article III federal judges have confirmed the validity of those patents.

Here is today’s an Axios analysis of the changing nature of venture capital availability. Readers can be certain that the IPW posts above help explain why.

3 Chinese Defendants Charged with Violating the CFAA and the EEA

According to recently released documents, in September 2017, U.S. prosecutors charged three Chinese nationals with hacking three companies with extensive U.S. operations. The hacks, which took place between 2011 and 2017, were carried out by employees and associates of a Chinese cyber security service firm known as Boyusec, affiliated with China’s People’s Liberation Army. Despite this affiliation, prosecutors are not treating this case as an instance of state-sponsored hacking, and defendants were not charged under 18 U.S.C. 1831.

According to the indictment, the hackers gained access to the three companies’ information systems by exploiting “hop point” servers in an effort to hide their identities and gain unauthorized access to the companies’ systems. In addition, the indictment alleges that the defendants used spear-phishing emails—email-spoofing attacks that target a specific organization or individual—and malware to infect the companies’ systems. Upon gaining access to the systems, the defendants allegedly used stolen network credentials to conceal their unauthorized access to the computer networks. Through these attacks, the defendants were allegedly able to access “hundreds of gigabytes” of trade secrets, market research, and confidential internal communications.

Trump Campaign Officials Likely Violated the CFAA

This article was first published in Law360.

There are many interesting details about the Trump’s campaign contacts with Russian officials that are contained in the George Papadopoulos Statement of Offense, and are available from other facts recently disclosed, including Donald Trump Jr.’s contacts with Wikileaks, but as a former federal prosecutor with the Computer Crime & Intellectual Property Section of the Justice Department, the facts relating to potential violations of the Computer Fraud & Abuse Act (“CFAA”), which, in general is the federal criminal law against computer hacking, are what jump out to me. In particular, the publicly available evidence strongly suggests that certain Trump campaign officials had knowledge that Russian hackers had penetrated the DNC computer system before this became publicly known, and sought political benefit from this and by maximizing the disclosure’s negative impact on the Hillary Clinton. If this is true, it appears that there is probable cause to charge Trump officials, and maybe the President himself, with felony violations of the CFAA.

Turning first to what we do know; The Papadopoulos Statement of Offense establishes Papadopoulos had a number of meetings with individuals in Europe, including one who was identified as the “Professor,” who allegedly had connections “to senior Russian officials.” In particular, at an April 26, 2016, meeting, the Professor allegedly informed Papadopoulos that he had learned that the Russians had obtained “dirt” on then candidate Clinton … ‘They (the Russians) have dirt on her’; ‘the Russians had emails of Clinton”; ‘they have thousands of emails.’” These emails seemingly can be traced to March 19, 2016, when Clinton campaign chairman John Podesta reportedly receives a phishing email, which led to the theft of the emails going back years, including embarrassing campaign correspondence. The U.S. intelligence agencies have unanimously concluded Russia’s intelligence agency, the GRU, was responsible for the hacking. The public did not learn of the Russian breaches into the Democratic Committee’s computer network until June 14, 2016, or approximately six weeks after Papadopoulos had learned of it.

It is not entirely clear from the Statement of Offense with whom at the Trump campaign Papadopoulos shared this exact information, but it strains credulity that he did not share it with senior officials shortly after the April 26, meeting. Further, less than one month later, Donald Trump Jr. received an email from an intermediary with contacts in Russia saying that the Russian government had information that “would incriminate Hillary and her dealing with Russia and would be very useful to your father,” which described as “part of Russia and its government’s support for Mr. Trump.” To which Junior replied “great,” setting up the now-infamous meeting in Trump Tower on June 9. It is highly likely that the information relates to the Clinton emails that had been obtained from the DNC’s computers. The same afternoon as the meeting, Trump tweeted for the first time about Clinton’s missing emails.

In addition we have just learned that Trump Jr. was in contact with Wikileaks: “Hiya, it’d be great if you guys could comment on/push this story,” WikiLeaks said in a message to Mr. Trump on Oct. 3, 2016, that included a quote from Mrs. Clinton in which she said she wanted to “just drone this guy” “Already did that earlier today,” Mr. Trump said in response. “It’s amazing what she can get away with.” In a message a week later, WikiLeaks asked Mr. Trump to have his father Tweet a link to a site where users could search through hacked emails from Democrats. “There’s many great stories the press are missing and we’re sure some of your follows will find it,” WikiLeaks said, adding that the group had just released more emails stolen from Mrs. Clinton’s campaign chairman, John D. Podesta. Mr. Trump did not respond. Fifteen minutes later, however, his father tweeted: “Very little pick-up by the dishonest media of incredible information provided by WikiLeaks. So dishonest! Rigged system!”

Assuming that Trump campaign officials, including Donald Trump Jr. as well as perhaps, Donald Trump himself, had prior knowledge of the Russian hacking and the Clinton emails and provided even limited advice on what and when to release the information, which is not an unreasonable based on the above, are any or all of them guilty of aiding and abetting a violation of section 1030(a)(2)(C) of the CFAA?

In general, the relevant section of the CFAA makes it a crime to “intentionally access[] a computer without authorization … and thereby obtain[] … information from any protected computer.” This simply means that individuals who hack into a computer system without the permission of the operator of the system and obtain information, such as social security numbers or emails have committed a crime. It undoubted applies to the hackers who actually broke into the DNC computer system.

Federal law also imposes liability where an individual “aids, abets, counsels, commands, induces or procures” the commission of a crime, and he or she is punished to the same extent as the person who committed the crime. In other words, if you know someone is going to commit a crime and you encourage him to do so you are equally guilty of committing the crime as the person who actually did the act. More specifically, under Supreme Court precedent, a person is liable for aiding and abetting a crime “if and only if he (1) takes an affirmative act in furtherance of the offense, and (2) with the intent of facilitating the offense’s commission.” Thus, a person cannot be charged with a criminal offense where the offense has been completed.

In the case of whether Trump officials violated the CFAA, the analysis become more complicated because the subsection of the CFAA that prohibits improperly accessing a computer really involves two separate offenses as described above. . It is a misdemeanor where the offense simply involved accessing a computer without authorization and obtaining information. The offense becomes an enhanced felony if “the offense was committed in furtherance of any criminal or tortious act in violation of the Constitution or laws of the United States or any state.” Since the felony provision requires additional acts, the misdemeanor portion of the statute can be complete, but because the felony provision of the subsection requires proving all the elements of a separate crime, it would likely be treated by the courts as a separate offense even if formally categorized as a sentencing enhancement. For example, where a defendant uses the information he obtained from hacking a computer to extort money the felony enhancement provision would apply.

At present there is no evidence that Trump officials at the time knew that the Russians had hacked the DNC and obtained Clinton emails. The officials learned of it only after the hacking was complete, and thus cannot be charged under the misdemeanor provision. However, if the Trump officials used the stolen emails to further a crime or tort then the first requirement of aiding and abetting the felony enhancement provision is satisfied which appears to be the case.

The government also must establish that the defendant acted “with the intent of facilitating the offense’s commission.” According to the Supreme Court “the intent must go to the specific and entire crime charged,” so here, the government would have to show that a Trump official had the requisite intent as to the entire CFFA crime, not just the felony enhancement provision. Here, the evidence indicates that the Trump officials either were told that the emails were hacked or they would have known from the circumstantial evidence. For example, the London professor informed Papadopoulos that the Russians “have dirt on” Clinton, and “they have thousands of emails.” Papadopoulos claims that this information was shared with high ranking Trump campaign officials, including Sam Clovis. It also seems likely that these emails were the source of the “dirt” that was the topic of the May 9, 2016, attended by Donald Trump Jr. among others. Further, WikiLeaks asked Mr. Trump to have his father Tweet a link to a site where users could search through hacked emails from Democrats, and told him that the group had just released more emails stolen from Mrs. Clinton’s campaign chairman, John D. Podesta. Although Don Jr. didn’t respond to this email, his father tweeted: “Very little pick-up by the dishonest media of incredible information provided by WikiLeaks. So dishonest! Rigged system!” This strongly suggests that Don Jr. told his father who implicitly encouraged Wikileaks to release more information.

The final hurdle is what tort or other crime satisfies the felony enhancement provision. Since the statute includes torts and state crimes, the universe of possibilities is extremely large. At least one commentator has suggested an invasion of privacy tort based on the publication of private emails, but there are certainly other possibilities under state law. For example, the California version of the CFAA makes it a crime to “[k]knowingly access[] and without permission … makes use of any data from a computer, computer system or computer network ….” Since under this provision the crime would not be complete until the emails were publicly disclosed, the stolen information was used in furtherance of a violation of a California criminal law. There also are almost undoubtedly other state laws that were violated.

Based on the above assumptions, understanding and legal analysis, there appears to be enough evidence to charge certain Trump campaign officials, including Sam Clovis, with a felony violation of the CFAA. It also appears that Trump Jr. had knowledge of the Russian hacking before it became known to the public. To the extent that there is evidence that he was involved in the timing of the disclosure, he may also have violated the CFAA. Finally, there is evidence that the President may have violated the CFAA as well based on the timing of comments he made and their contents that may be seen as encouraging the timing of their release. Charging Trump campaign officials with violating the CFAA is perhaps not the most serious charge that officials may be facing, however, such a violation really goes to the crux of the Mueller investigation and would affirmatively answer the question of whether Trump campaign officials “colluded” with Russia.

Senator McCaskill Introduces Bill to Strip Native American Tribes of Sovereign Immunity

On October 5, 2017, Senator Claire McCaskill introduced legislation that would remove the right of Native American Indian Tribes to assert sovereign immunity in inter partes review (IPR) proceedings at the United States Patent and Trademark Office (USPTO) conducted by the Patent Trial and Appeal Board (PTAB). As discussed in my previous posts on this issue, the bill was introduced in response to the assignment by Allergan of the patents covering RESTASIS to the Saint Regis Mohawk Tribe, with the Tribe granting back to Allergan an exclusive license. The purpose of the transaction was to permit the Tribe to assert sovereign immunity and defeat the jurisdiction of the PTAB of the USPTO, which has been hostile to the rights of patent owners in IPR proceedings.

Senator McCaskill’s bill doesn’t appear to be particular well thought out in a number of respects. First, it would discriminate against Native American Indian Tribes while allowing state universities to continue to assert sovereign immunity pursuant to the PTAB’s earlier decision relating to a patent owned by the University of Florida Research Foundation.

Second, the bill only covers IPR proceedings, Tribes could still assert sovereign immunity in post grant proceedings and covered business method proceedings. The reasons behind Sen. McCaskill’s hastily and poorly drafted bill are open to debate, but as a Washington cynic, I would guess that it may have something to do with fundraising for her 2018 Senate reelection campaign.

The Saint Regis Mohawk Tribe issued an immediate and scathing statement after the bill was introduced, which reads:

“The Saint Regis Mohawk Tribe is outraged that U.S. Senator Claire McCaskill (D-MO), has introduced legislation that specifically targets Indian tribes, yet exempts state universities and other sovereign governments engaged in the very same IPR process.  The double standard that is being introduced by the Senator as a solution for a perceived abuse of the IPR proceedings does nothing to solve the underlying problem. The Tribes authority is inherent and has been reaffirmed through treaties and legislation from the earliest days of the country.

It is cruelly ironic that Indian Tribes, with the highest unmet health care needs in the entire country, are being attacked for exercising their sovereign obligation to fill gaps in health coverage caused by the federal government’s abject failure to uphold its trust responsibility.  The fact that the Mohawk community is home to three unmitigated EPA Superfund sites that harm the health of the community and surrounding non-Native communities is a stark example of the government’s failure.  Congress shouldn’t double down on its mistakes by denying the Tribe’s sovereign authority in the IPR process.

As the largest private employer in Northern New York, the Tribe has a responsibility to ensure the livelihood and well-being of its tribal members and its hundreds of non-Native employees. The Tribe remains committed to working with all Members of Congress to discuss how its recent economic diversification efforts benefits the Tribe, its members, and the surrounding communities without harming competition among pharmaceutical companies (both private and generic) or artificially inflating drug prices.”

Senator McCaskill’s efforts would be better and more productively spent on efforts to improve the patent system, which is stacked against patent owners especially those lacking the resources to fight effectively to protect their patents.

 

Release 28 to Intellectual Property & Computer Crimes Published

The Computer Fraud and Abuse Act (CFAA) contains numerous subsections sanctioning a party for obtaining access to a protected computer either without authorization or in excess of authorization. Release 28 to my treatise, Intellectual Property & Computer Crimes features an analysis of these concepts of authorization, including whether authorization needs to be obtained both an individual party as well, as an entity that controls access. In addition, there is discussion of what constitutes exceeding authorization, including using such access to obtain or alter information in the computer that the accesser is not entitled to.

The Release also examines whether individuals other than the computer’s owner may bring an action under the CFAA because they may be proximately harmed by unauthorized access, particularly if they have rights to data on the computer.

Other topics receiving treatment in this Release include:

  • Sentencing Commission amending Section 2B5.3, setting out a formula to use to determine the pecuniary harm by trademark and copyright counterfeiting by treating this infringing like theft and fraud
  • Economic Espionage Act (EEA) amending the definition of a trade secret to address “independent economic value”
  • Ninth Circuit examination of whether disclosure to a single competitor destroys trade secret protection because the information became generally known or ascertainable by the public
  • Interpretation of Section 2411(2)(D) of the Electronic Communications Privacy Act (ECPA) which only requires the consent of one party to a communication contrasted with some state laws which requires the consent of all parties

Indian Tribe files Motion to Dismiss IPR Proceeding based on Sovereign Immunity

The Saint Regis Mohawk Tribe filed a Motion to Dismiss all of the IPR proceedings relating to the Allergan drug RESTASIS on September 19, 2017. As discussed in my previous post, the drug company Allergan recently assigned the patents to the Tribe, with the Tribe granting back to Allergan an exclusive license. Allergan must pay the Tribe quarterly royalties of $3,750,000 for its field-of-use license. The purpose of the transaction was to permit the Tribe to assert sovereign immunity and defeat the jurisdiction of the PTAB of the USPTO, which has been hostile to the rights of patent owners in IPR proceedings. The Tribe argues that it is a sovereign government that cannot be sued “unless Congress unequivocally abrogate is immunity or the Tribe expressly waives it” and neither of these exceptions applies in this instance.

As the Tribes notes, Supreme Court recognized in 1832 in Worcester v. State of Georgia that sovereign Indian Tribes are “‘distinct independent political communities,”  and, as such, have inherent sovereign immunity. Such immunity can only be waived by the Tribe or “congressional abrogation,” and absent such waiver all suits against the Tribe are barred. The Tribe argues that Congress has not unequivocally abrogated the Tribe’s immunity from suit by statute (as required by the Supreme Court), and that neither has the Tribe unequivocally waived its immunity. Therefore, according to the Tribe, the “action must be dismissed.”

It is interesting that in the Section addressing whether the proceeding may move forward without the consent of the Tribe, the Tribe notes that the petitioners still have an adequate remedy since they have challenged the validity of the same patents “in a recently completed five-day bench trial in the Eastern District of Texas” and “The Tribe will not assert sovereign immunity in the Eastern District of Texas case. So dismissing this case does not deprive Petitioners of an adequate remedy; it only deprives them of multiple bites at the same apple.”

The Tribe is relying on well and long established principles of law, and the PTAB should dismiss the IPR proceedings. However, given the track record of the PTAB, this outcome is far from certain.

Will the Supreme Court or Native Americans Come to the Rescue of the U.S. Patent System?

The drug company Allergan has transferred its dry-eye drug Restasis patents to the Saint Regis Mohawk Tribe in upstate New York in an attempt to avoid a challenge to the validity of the patents in an Inter Partes Review before the United States Patent and Trademark Office. Allergan apparently will pay $13.75 to the tribe in exchange for the tribe claiming sovereign immunity as grounds to dismiss the challenge to the validity of the patents before the USPTO brought by Mylan. The tribe will lease the patents back to Allergan and receive $15 million in annual royalties so long as the patents remain valid. Allergan also is waiting for a decision from a federal district court in the Eastern District on the validity of the same patents, but by transferring the patents to the Tribe, the company hopes to avoid having the same issue heard in two venues. Allergan’s actions may not be as far-fetched as they appear at first blush: the USPTO has ruled, in a case involving the University of Florida, that challenges to the validity of patents held by the University should be dismissed. As an arm of the state of Florida, the university should be granted sovereign immunity.

Allergan’s actions have been criticized as an end-run around a program that was implemented by Congress in 2011 as part of the America Invents Act. In a telephone hearing on the St. Regis Tribe’s motion to dismiss the IPRs at the PTAB, Mylan’s counsel called the patent transfer a “sham transaction” on seven occasions.

At the time the AIA was enacted, most of the analysis of the Act’s impact was focused on the change from the first to invent to the first to file. However, in the subsequent six years, the biggest change was the introduction of a number of post-grant patent procedures that allow for potential infringers to attack the validity of issued patents through the Inter Partes Review (IPR) and post grant review conducted by the Patent Trial Appellate Board of the USPTO. Ostensibly the intent of this procedure was to remove defective patents or claims that were mistakenly issued. Unfortunately, it has resulted in nothing less than the destruction of the patent system.

While the USPTO “promotes misleading statistics the erroneously suggest the impact of IPR has been minimal, the truth on the ground in the real world is quite different.” From experience, many patent owners do not bring legitimate patent infringement actions out of concern that they simply cannot afford to defend an IPR that can cost upwards of $250,000. Plaintiff lawyers who previously may have brought a patent infringement action on a contingency fee basis prior to the enactment of the AIA and IPR are now put off by the almost certainty that their client will face an IPR, and a likely stay of the infringement action in federal court Moreover, there is the very high probability that the patent that is being asserted or at a minimum, a number of the claims of the patent will be held to be invalid by the PTAB. In short, there is a big difference in value between a patent that is subject to an IPR and one that is not.

According to the leading patent blog, IPWatchdog, “only 4 percent of all PTAB petitions end with a final written decision in which all claims are upheld as patentable! … Of the 1,556 patents for patent review proceedings at the PTAB that have reached final written decisions only 16 percent of those final written decisions left all claims upheld. Of the remaining percent of cases, a full 69 percent (1,076 petitions) have led to findings of all claims unpatentable; with 15 percent of final written decisions a mixture of claim findings in which at least some claims have been invalidated… The numbers move even more significantly tilted when adding in both pre- and post-institution settlements; … only 8 percent of petitions reach a final written decision of all claims upheld.”[i] Accordingly, it is not surprising that Allergan has chosen this unconventional approach to avoid the PTAB.

Fortunately, there may be hope for patent owners other than having to transfer their patents to an entity with sovereign immunity. The Supreme Court is set to hear Oil States v. Greene’s Energy, which that will consider the constitutionality of post-grant patent validity challenges in an administrative venue, as opposed to proceeding in federal district court. The question faced by the Supreme Court concerns is whether patents should be considered exclusive private property with the attendant rights that, and cannot be taken away in an administrative proceeding. In other words, to determine whether there is a private property right in one’s invention and that it cannot simply be taken away by the PTAB.

As many of the amicus curiae briefs demonstrate, there is “a striking unanimity in the judicial decisions construing decisions as private property rights,” and that the Federal Circuit is wrong in its decision that patents are “public rights.” For example, one of the briefs cites Chief Justice John Marshall from an 1813 circuit case (Evans v. Johnson) that found that “[a] patent was certainly required to make the property right enforceable, but the right itself ‘was vested in the inventor, from the moment of discovery,’ but the right itself ‘was vested in the inventor, from the moment of discovery,’ was an ‘indefeasible property in the thing discovered,’ and was being merely ‘perfected by the patent.’” According to another brief, the Supreme Court recently reiterated this understanding in Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, where the court cites the 1890 patent case Solomons v. U.S., “whatever invention [an inventor] may thus conceive and perfect is his individual property.”

Despite the strength of the position that patents are private property rights, there is no assurance that the Supreme Court will accept this view, especially in light of the Supreme Court’s confused and confusing recent patent law decisions. But hopefully, the Court will find that patents are private property and are protected by the same due process and substantive rights as any other individual right or property. Otherwise, there are more than 500 tribes in the United States and state universities that may be interested in exploring transactions such as the one entered into by the St. Regis Tribe. Many patent owners, not just pharmaceutical companies, will undoubtedly be interested in being able to enforce their rights without the risk of having to face an IPR.

[i]  http://www.ipwatchdog.com/2017/06/14/90-percent-patents-challenged-ptab-defective/id=84343/ (June 14, 2017).