IP's Impact on a Clean Energy Future

By Tyler Gruttadauria, J.D. Candidate L’23

Over 170 cities and more than 10 countries across the world have committed to achieving 100% clean energy. Here at home, President Biden pledged that the U.S. will lead the world in addressing the climate emergency by ensuring that the U.S. achieves a 100% clean energy economy and net-zero emissions no later than 2050.

The U.S.’ transition to clean energy depends in large part on its shift to sustainable forms of transportation and electric-vehicle (EV) production because the U.S.’ transportation industry accounts for 29% of the U.S.’ total greenhouse gas emissions.

The shift to EVs can either be propelled or inhibited by the U.S.’ intellectual property (IP) system. The IP system is intended to serve a utilitarian function by optimizing the incentive for inventors to create and innovate for the public good. For example, companies are afforded certain IP protections, and thus a competitive advantage, for any valuable information or processes they maintain as trade secrets. This incentive structure creates a tradeoff question: How should the social benefits produced through trade secrets be weighed against the social costs of limiting the diffusion of knowledge?

This tradeoff question came into play following a recent case before the International Trade Commission (ITC) between two EV battery manufacturers, LG Energy Solutions  (LG) and SK Innovation (SK).

LG claimed that SK misappropriated LG’s trade secrets when SK poached employees from LG who in turn violated their non-disclosure agreements. The ITC found for LG and prohibited SK from importing its EV-batteries to the U.S. for 10 years. In its decision, the ITC relied upon the fact that LG’s trade secrets took over 15 years and billions of research dollars to develop.

President Biden had 60 days to veto the ITC’s decision unless the two companies reached a settlement. LG’s attorney, David Callahan, from Latham & Watkins, remarked on SK’s behavior: “they're the ones who did bad; they’re supposed to get hurt.” On the other hand, stifling SK’s production would also stifle the U.S.’ transition to EVs. So, the question becomes: Does the current IP system serve its utilitarian purpose by penalizing SK for trade secret misappropriation, or instead, does the penalty restrict an important area of technological development and implementation?

President Biden’s plan to transition to EVs was a cornerstone in his pledge to combat climate change. This pledge was expected to be put to the test by his decision of whether to veto the ITC’s ruling. However, fortunate for Biden, LG and SK decided to settle at the last minute. SK Innovation will finish out building its EV-battery manufacturing factory in Georgia, which will supply up to 310,000 EV-batteries per year to Ford and Volkswagen. 

If the ITC’s ruling had held, the Biden Administration’s sustainable transportation initiatives and its ability to influence the U.S. transition to EVs would have been severely impacted since automakers like Ford and Volkswagen had designed their EVs based on SK's batteries. In addition, the production capacity from SK’s recent investment in a $2.6B EV-battery manufacturing facility in Georgia would have gone untapped not to mention the 3,000 jobs it would have created.

Moving forward, the U.S. will certainly need to focus on the transportation industry as it transitions to a cleaner future. And inevitably, the Biden Administration will need to consider the tradeoff question once again: whether enforcing important IP protections at the expense of executing the U.S.’ clean energy goals is the right decision for the public’s welfare and future innovation. What complicates matters further is that the Biden Administration recently proposed a $174B EV plan to construct 500,000 EV charging stations, to electrify school and transit buses, and to shift the Postal Service and other federal agencies to EVs all by 2030. Thus, the Biden Administration will be faced with even more pressure than simply living up to its more general campaign pledge to “lead the way.”

Addressing the tradeoff question in the clean energy context will not only impact the U.S.’ clean energy goals but may also alter the way we think about the underlying incentive structure of the U.S.’ IP system with respect to other significant, time sensitive challenges such as vaccine development for global pandemics.

The “Spirit” of Skidmore

By Nikki Bourassa J.D. Candidate L’23/WG’23

Amid the challenges and constraints of 2020, at least one thing remained consistent: copyright disputes over music. In particular, in March 2020, the Ninth Circuit issued a long-awaited decision in Skidmore v. Led Zeppelin that has already begun to reshape music copyright disputes.

Undoing the inverse ratio rule

The court in Skidmore considered whether Led Zeppelin’s “Stairway to Heaven” infringes a copyright for the song “Taurus” written by a member of the contemporaneous band Spirit. To show infringement, a plaintiff must demonstrate that a defendant had access to the allegedly infringed work and that the defendant’s work is substantially similar to its protected extrinsic and intrinsic aspects. 

Until Skidmore, the Ninth Circuit used the controversial “inverse ratio” rule to determine the amount of extrinsic substantial similarity the plaintiff must prove. Under this rule, a plaintiff that could prove a defendant had a high degree of access to a protected work would face a lower standard of proof for substantial similarity between the works in question. Other circuits -- including the Second, Fifth, Seventh, and Eleventh -- have rejected the inverse ratio rule.

In its majority decision, the Ninth Circuit affirmed no substantial similarity between the two songs. But the court, sitting en banc, also took the opportunity to abrogate its inverse ratio rule, restoring preponderance of the evidence as the evidentiary burden for proving copyright infringement. The court described the rule’s history and the confusion and uncertainty around its application, among both judges and practitioners alike. It also acknowledged that the inverse ratio rule gives an advantage to owners of highly popular works whose music can be accessed more readily than that of less well-known creators.

Beyond abrogating the inverse ratio rule, the Ninth Circuit also clarified that the scope of protection for works registered under the 1909 Copyright Act is limited to the deposit copy and thus does not extend protection to any sound recording of the work. Additionally, the court rejected the appellant’s request for a selection and arrangement jury instruction, which would have informed the jury that the selection and arrangement of unprotectable musical elements are protectable. Led Zeppelin and amici sought to establish that in such cases, "virtual identity” between two works should supplant a standard of substantial similarity. The court did not render a decision on this issue, but rather used a footnote to emphasize that the standard is always substantial similarity: if two works contain unprotectable elements, the range of potentially protected expression narrows, and could possibly narrow such that the works must be virtually identical.

The Supreme Court denied Skidmore certiorari in October 2020, but the plaintiff promptly filed a motion for rehearing. Therefore, the outcome of Skidmore technically remains in limbo.

Stairway to… somewhere

Skidmore has already proved consequential in recent copyright decisions. The District Court for the Central District of California threw out $2.8 million in damages awarded to plaintiffs who sued Katy Perry for copyright infringement in her song “Dark Horse”. Citing to and discussing the decision in Skidmore, the court held that the defendants were entitled to judgment as a matter of law on the copyright infringement claim pursuant to the extrinsic test. A few months later, a copyright infringement claim against The Weeknd fizzled in the same court, ending in summary judgment in the defendant’s favor. In other circuits, the Southern District of New York found Skidmore persuasive and narrowed the scope of copyright infringement claims that can proceed against Ed Sheeran, limiting the comparison of Sheeran’s “Thinking Out Loud” to the deposit copy of Gaye’s “Let’s Get It On.”

Indeed, the decision has been considered positive for defendants, especially in the aftermath of the 2015 Williams v. Gaye verdict. In Williams, a jury found Robin Thicke’s “Blurred Lines” contained work substantially similar to that of Marvin Gaye’s “Got to Give It Up” and awarded over $7 million in damages to the plaintiff’s estate, putting the music industry on edge. The Ninth Circuit later largely upheld the verdict and reduced damages to just over $5 million. Some, wary of litigious plaintiffs empowered by the outcome, warned Williams would result in “chilling effects” on musical creativity and expression. The opinion’s proponents noted historical disparities in terms of who suffers at the hands of copyright infringement: often artists of color, and more broadly those with less power in society.

Blurred Lines: Getting Blurrier

As 2021 begins, copyright litigation appears poised for more complexity. The music industry will look to the outcome of the unresolved aforementioned cases, and examine how other circuits accept or reject the Ninth Circuit’s approach. Other developments in copyright law suggest an even more fundamental shift: with the passage of the CASE Act in the December 2020 omnibus appropriations package, a small tribunal for copyright adjudication is on the horizon. Though envisioned as a forum for small copyright claims to be adjudicated effectively and efficiently, the Act has also been met with concern and apprehension. To what extent these measures help—or harm—music creators is yet to be seen, but one thing seems certain: blurred lines in copyright law are only getting blurrier. 

Google v. Oracle: A win for advocates of fair use (or maybe just Google)

By Nile Delso J.D. Candidate L’23

A decade-long battle between two modern software giants concluded with the Supreme Court’s decision in Google v. Oracle. The copyright confrontation centered on Google’s unlicensed use of Oracle’s Java application programming interfaces (APIs). The dispute began in 2005, when Google and Sun Microsystems (later Oracle) failed to come to terms on a deal that would license Sun’s code to Google for use in the development of their Android mobile operating system. Despite this, Google moved forward with use of the Java software in their 2007 Android release.

Specifically, Google copied approximately 11,500 lines of Java API code. An API is a software intermediary that allows two applications to communicate (a familiar analogy might be to think of an API as a restaurant waiter that communicates customer orders back to the kitchen). Although Google additionally created millions of lines of original code to build Android, it recognized that use of Java API would be necessary to entice programmers to build on Android.

In 2010, the same year it acquired Sun Microsystems, Oracle sued Google for copyright infringement (a related patent infringement suit was eventually dropped). The Federal Circuit, in two separate holdings (both reversals of district court decisions), held that “the API’s declaring code and its organizational structure could by copyrighted” and that Google’s use of the API was not a fair use. The Supreme Court granted cert. Two issues were presented to the Court: (1) whether copyright protections extend to APIs and (2) if so, does Google's copying of the declaring code constitute fair use?

The Court did not provide a definitive answer on the question of copyrightability, opting instead to narrowly find for Google on the issue of fair use. The Court analyzed fair use from the perspective of each of the four factors set forth in §107 of the 1976 Copyright Act.

First, the nature of the copyrighted work, the Java API, favored a fair use finding because “declaring code is . . . further than most computer programs (such as the implementing code) from the core of copyright.” This is because the inherent value of the declaring code is related to its function as a standardized language with which programmers are familiar, not its unique expression.

Second, the Court was convinced that the purpose and character of Google’s use of the APIs was transformative, favoring fair use. The use generated a new product “consistent with that creative ‘progress’ that is the basic constitutional objective of copyright itself.” In the industry, reimplementation of certain software interfaces is necessary for programmers to build upon their preexisting skillset, and “reuse of APIs is common.”

Next, the amount and substantiality of the copied portion was held to be “tethered to a valid, and transformative, purpose,” again favoring fair use. The Court held that the copying of the ~11,500 lines of code was necessary to achieve Google’s purpose of enticing Java-comfortable programmers to build on Android.

Finally, the Court analyzed market effects. Google’s platform, specific to mobile devices, was not a substitute for the copyrighted work, which was built for use in desktop or laptop computers. Oracle, in fact, would benefit from the promotion of Java use in new products. Notably, the Court concluded that enforcement of Oracle’s copyright on these standardized functional software elements would dampen innovation and ultimately “risk harm to the public.”

Many analysts consider this holding to be a win for software developers who rely on standardization in programming languages and who wish to use these standardized codes in novel software development. Though, in practice, this case may demonstrate that fair use is only an option for wealthy companies, such as Google, who can afford a decade of litigation.

America Invents Act: Mission Accomplished or Promise Unfulfilled?

By Nithya Pathalam JD Candidate L'23

The Penn Intellectual Property Group (PIPG) held their annual symposium on March 25, 2021. With the AIA’s 10th anniversary upcoming, the symposium—entitled America Invents Act: Mission Accomplished or Promise Unfulfilled?—examined the AIA’s effect on patent law and explored how our view of innovation might have changed over the past ten years.

The symposium opened with a conversation about the real world. Former USPTO Director Andrei Iancu chatted with Penn alum Marc Hankin on a wide range of topics from pendency (the amount of time it takes to get a patent or trademark), technology integration at the USPTO, and controversies regarding the Patent Trial and Appeals Board (PTAB).

Director Iancu began by stressing the bipartisan nature of intellectual property and his goal, as director, of increasing efficiency at the Office. For patents, Iancu noted that the Office reduced pendency to under 24 months for the first time in the modern era. But lately, there has been a larger pendency delay for trademarks. Even though telework is the norm for a majority of trademarks examiners, which served to curb the impact of COVID-related delays, a dramatic increase in Chinese applications coupled with changing economic situations caused the delays. Nonetheless, Iancu was optimistic about the Office’s ability to meet the demand. Iancu discussed the future of the Office as well, stressing the need for new technology tools and AI integration to speed up the IP applications process. Last, he briefly waded into the controversies regarding inter-partes review and the PTAB.

The first panel discussion, between Detkin IP Clinic’s Professor Cynthia Dahl and Dr. Benjamin Dibling, Deputy Managing Director of the Penn Center for Innovation, centered on the AIA’s impact on technology transfer, university innovation, and the relations between academia and commercial markets. First, Professor Dahl spoke about her upcoming paper regarding the impact of AIA on technology transfers. Then, panelists examined the AIA’s impact on university innovation.

How did the first-to-file system change innovation and patent law in the US? Our neighbor’s to the North, Canada, changed their patent system to first-to-file in 1989, providing a unique opportunity for retrospection. Penn’s Professors Polk Wagner and David Abrams wrote a paper analyzing how first-to-file impacted innovation in Canada, especially among small-time inventors. Professor Abrams discussed the paper during the second panel and received excellent commentary from Sean McEldowney, a partner at Kirkland & Ellis, and Marc Hankin the founding partner at Hankin Patent Law.

The final panel discussion, featuring Professor Saurabh Vishnubhakat of Texas A&M University School of Law, examined the efficiency and economic benefits of non-Article III options for patent revocation. Commentary from Marissa Ducca, a partner at Quinn Emanuel, and Matthew Johnson, a partner at Jones Day, highlighted how radical it was to move validity questions from Article III courts.

The Power of Patents: The Antitrust Implications of IP

By Wesley Newton, JD Candidate L’22

If 2020 was a momentous year for antitrust suits against Big Tech, 2020 also was an eventful year for the relationship between antitrust law and patents. Two circuit court opinions illustrate the diversity of issues involving antitrust law and patents. 

Federal Trade Commission v. Qualcomm Incorporated

Qualcomm distinguished merely “hypercompetitive behavior” from unlawfully “anticompetitive behavior.” Defendant Qualcomm owned patents needed for cellular devices and manufactured chips for those devices. Qualcomm’s tactics were aggressive. Qualcomm did not license other chip manufacturers but instead licensed cellular-device manufacturers. Under a “no license, no chips” policy, Qualcomm made cellular-device manufacturers obtain licenses from Qualcomm before Qualcomm would sell them chips. Qualcomm also charged cellular-device manufacturers controversial patent royalty rates. Further, Qualcomm made restrictive agreements with Apple. Qualcomm’s aggressiveness drew criticism from other chip manufacturers and cellular-device manufacturers.

The Federal Trade Commission (FTC) claimed that Qualcomm violated antitrust law under the Sherman Act. The FTC’s suit involved two sections of the Act. Section 1 prohibits agreements that unreasonably restrain trade. Section 2 forbids monopolists from willfully procuring or preserving their monopoly in a manner that causes antitrust harm. The district court granted partial summary judgment and an injunction against Qualcomm.

The Ninth Circuit disagreed. Quoting the Supreme Court case Spectrum Sports, Inc. v. McQuillan, the circuit court noted that “[o]ur job is not to condone or punish Qualcomm for its success, but rather to assess whether the FTC has met its burden under the rule of reason to show that Qualcomm’s practices have crossed the line to ‘conduct which unfairly tends to destroy competition itself.’” First, the circuit court found that Qualcomm did not violate the Sherman Act by only licensing its patents to cellular-device manufacturers, rather than other chip manufacturers. Qualcomm had “no antitrust duty to deal.” 

Second, the court found that Qualcomm did not violate the Sherman Act through its “no license, no chips” policy and its royalty rates. These tactics did not anti-competitively surcharge competing chip sources. These tactics were “neutral” between Qualcomm’s and other manufacturers’ chips. “[E]ven if” cellular-device manufacturers suffered, the only “relevant market” for antitrust purposes was the other chip sellers. 

Third, the court found that Qualcomm’s agreement with Apple did not violate the Sherman Act. Qualcomm offered incentives contingent on Apple’s use of Qualcomm’s chips, but the deal did not sufficiently harm competition in the relevant chip market. 

Federal Trade Commission v. AbbVie Incorporated

AbbVie addressed concerns about patent holders hindering generic drug competitors. Defendants AbbVie* and Besins patented a testosterone treatment. Teva and Perrigo sought to introduce generic treatments for the same. Following procedure, Teva and Perrigo notified the patent holders about their intentions. These notices give the patent holders the opportunity to sue for patent infringement, which could delay the approval of generics. 

AbbVie and Besins sued Teva and Perrigo. Teva settled with AbbVie, promising to delay introducing its generic. Simultaneously, AbbVie pledged to license and supply another drug to Teva in exchange for payment.

The FTC alleged that the Teva settlement was an unlawfully anticompetitive reverse payment—because AbbVie paid to have the generic delayed—and that the infringement suits were sham litigations. Under a sham litigation theory, the actors pursuing the litigation must have a monopoly “in the relevant market,” the litigation must be objectively legally baseless, and the litigation must have a subjective motivation to anti-competitively abuse the litigation process. The district court dismissed the reverse payment allegation. However, the FTC prevailed on the sham litigation claim, winning summary judgment on the objective legal baselessness prong and winning at trial on the subjective motivation prong. 

The Third Circuit partially reversed the district court’s decision. First, the circuit court allowed the reverse payment claim to proceed. The court noted, among other things, that reverse payments can be non-monetary and that Teva’s “token payment” did not automatically make the agreement lawful.

Second, the court affirmed that “the Perrigo litigation was a sham.” AbbVie and Besins had a monopoly “in the relevant market.” The lawsuit was objectively baseless because the patent application ultimately had disclaimed ownership for the relevant technology. Lastly, there was circumstantial evidence of an anticompetitive subjective motivation.

Third, the court held that the Teva lawsuit was not a sham, because, unlike in the Perrigo suit, the patent application record did not preclude a successful lawsuit against Teva. 

What next?

Qualcomm and AbbVie illustrate the dynamic connections between antitrust law and patents. The Supreme Court last significantly explored the antitrust-patent relationship in 2013, in Federal Trade Commission v. Actavis Incorporated. Will the Court revisit this intersection?

*AbbVie had several predecessors. When referring to predecessor(s)’ actions, I speak of “AbbVie,” even though AbbVie was formed after the alleged violations.

I am grateful to Michael Carrier, whose Intellectual Property course discussed the Actavis case and the antitrust implications of patent rights.

Can personal data be legally transferred from the EU to the U.S.? The case of Schrems II.

By Lucia Minnucci, LLM’21

Many countries around the world are approving privacy regulations protecting personal data and the rights of data subjects. However, controversies arise when data is transferred between countries with different regulations, such as the United States and the European Union. On July 16, 2020, in Data Protection Commissioner v Facebook Ireland, Maximilian Schrems (Schrems II), the Court of Justice of the European Union (CJEU) found the EU-US Privacy Shield, the legal framework regulating the transfer of data from the EU to the U.S., to be invalid.

Schrems filed his complaint after the disclosure, in 2013, of the existence of surveillance operations carried out by the U.S. National Security Agency (NSA). Schrems requested that Facebook be prohibited from transferring personal data to the U.S, claiming that the U.S. lacked adequate protection of personal data against such surveillance. The court held that the Safe Harbor, the legal framework in force at the time, was invalid (Schrems I). As a consequence, the EU Commission issued a new adequacy decision on the framework negotiated after Schrems I, the EU-US Privacy Shield, declaring that, under this framework, the U.S. met the necessary level of data protection to European data subjects. However, in Schrems II the CJEU rejected the EU Commission’s reasoning and declared the Privacy Shield invalid.

In explanation, the CJEU argued that the EU and U.S. had different frameworks for allowing interference with European data subject’s private information. In the U.S., the Privacy Shield generally enabled interference with European data subjects’ privacy rights either for U.S. national security and public interest or based on U.S. domestic legislation. However, by EU law, interferences are allowed only if explicitly provided by law and strictly necessary. Moreover, under EU law, anyone who felt their privacy violated had the right to an effective remedy before a tribunal, while, under the Privacy Shield, European individuals could not enforce their privacy rights in court against U.S. authorities. Because of these discrepancies, the CJEU found the Privacy Shield invalid.

This decision has serious implications for cross-border data processing. It is now unclear on what grounds personal data can be transferred from the EU to the U.S. In the absence of an adequacy decision, transfers to a non-EU country may be justified if appropriate safeguards are in place in that country, including the use of Standard Contractual Clauses (SCCs), (model contracts that legitimize international data transfers) or the application of specific derogations (such as consent) provided by art. 49  of the EU General Data Protection Regulation. 

It should be noted that in Schrems II, the CJEU found that SCCs are not inadequate a priori but must be verified on a case-by-case basis. If a company in the EU wants to send a European’s private data to another country, the transferer must determine whether the law of the other country guarantees adequate protection of data transferred according to an SCC. If not, it should provide adequate additional safeguards to ensure protection or, if that is not possible, suspend that transfer.

Exactly how companies and other entities should go about transferring data to the U.S. based on SCCs or art. 49 derogations is complex and not entirely clear. Privacy professionals are looking at the newly issued guidelines from the European Data Protection Board and are on the lookout for further guidance from the Data Protection Authorities to determine the best way to go about it.

Nike v. Lotas: Nike Dunk Confusion?

By Virinchi Sindhwani, JD Candidate L’23

Iconic Los Angeles-based designer Warren Lotas has made a name for himself in the fashion industry. Over the past few years, Lotas has exploded onto the streetwear scene and into the wardrobe of "hypebeasts,” NBA players, and fashion icons alike. For years, Lotas has been known for his customized Nike Dunk Low-inspired sneakers, paying homage to the classic shoe while referencing famous horror movie characters, such as Jason Vorhees and Freddy Krueger. 

Last month, Lotas revealed that he had teamed up with Nike collaborator Jeff Staple to release another version of the Dunk Low silhouette, this time to reinterpret the famous—and highly expensive—Nike Dunk SB Low Staple NYC Pigeon. Lotas did not receive permission from Nike before the collaboration and release.

On October 14th, 2020, Nike filed a new “trademark and anti-dilution” lawsuit against Lotas in the Central District Court of California, asserting that Nike had not authorized the reintroduction of the sneaker.

Nike has submitted claims of trademark infringement and dilution, unfair competition, and false designation of origin. The company is seeking monetary damages, as well as immediate and permanent injunctive relief to prevent the release of these sneakers, hoping to enjoin Lotas and his company from appropriating Nike in the future.

Nike stated that it “protects its iconic sneaker designs, and its intellectual property in those designs, by rooting-out bad actors that undermine the DNA of sneaker culture by promoting and selling fakes.” Nike asserted, “Warren Lotas is one those bad actors,” and is “currently promoting and selling fakes of coveted Nike Dunks,” which were first released “over 30 years ago, [and which are] now recognized as one of the most iconic and influential sneakers of all time.”

Nike went on to claim that “there is already confusion in the marketplace regarding whether they are legitimate customizations or illegal fakes,” as indicated by commentary on social media. Hardly a coincidence, such alleged confusion about the nature of the lookalike sneakers has been “intentionally created” by Warren Lotas, per Nike, which argues that Lotas “is attempting to capitalize on it.” 

Nike contends that Lotas is violating federal trademark law by using Nike’s registered DUNK word mark, Nike’s registered Dunk trade dress, and a mark that is confusingly similar to Nike’s famous Swoosh design to promote and sell his shoes. According to the company, this use is “likely to confuse, mislead, or deceive customers, purchasers, and members of the general public as to the origin, source, sponsorship, or affiliation of [Lotas] or [his] infringing products with Nike or Nike’s products,” and, “is likely to cause such people to believe in error that [his] infringing products have been authorized, sponsored, approved, endorsed, or licensed by Nike or that [Warren Lotas] is in some way affiliated with Nike”. 

Nike claims it has filed suit “to protect its intellectual property and to clear the confusion in the marketplace by setting the record straight—not a single component of Warren Lotas’s fake sneakers comes from an original Nike Dunk,” and more than that, “Warren Lotas’s ‘Dunk’ sneakers are not legitimate customizations, they are illegal fakes.”

On Instagram, Lotas fired back against Nike, stating, “We believe they are using this lawsuit to suffocate small brands, customizers, and artists, not just WL. Even if you hate us, you need to understand the precedent this will set for creating as the little guy.”

Nike has filed a continuation of its lawsuit, attacking a replacement shoe Lotas had offered his customers. The case remains pending.