Source: http://www.techlawjournal.com/alert/2007/09/07.asp
Timestamp: 2019-04-22 18:59:40+00:00

Document:
TLJ Daily E-Mail Alert No. 1,636, September 7, 2007.
September 7, 2007, Alert No. 1,636.
9/7. The House amended and approved HR 1908 [LOC | WW] the "Patent Reform Act of 2007". The vote on final passage was 220-175. See, Roll Call No. 863. Democrats voted 160-58. Republicans voted 60-117. 37 members did not vote in this Friday afternoon roll call.
Rep. John Conyers (D-MI), the Chairman of the House Judiciary Committee (HJC), stated during floor debate that patent reform is necessary because of "the trolling situation", "unnecessary litigation", "abusive practices", and lawsuits with "nuisance value".
He also said that the U.S. needs to convert to a first inventor to file system.
Rep. Lamar Smith (R-TX), the ranking member of the HJC, stated that patent reform is necessary because "too many patents of questionable integrity have been approved" and "holders of these weak patents discovered a novel way to make money, not by commercializing the patents but by suing manufacturing companies whose operations might incorporate the patents".
Rep. Smith said that the result is "legalized extortion in which companies pay a lot of money to use suspect patents". He argued that this bill "will eliminate legal gamesmanship from the current system that rewards lawsuit abuses".
The House approved Rep. Conyers' manager's amendment [19 pages in PDF] to the bill as reported by the HJC. The vote was 263-136. See, Roll Call No. 862.
The House approved by voice vote Rep. Darrell Issa's (R-CA) amendment [2 pages in PDF] that permits patent applicants to delay publication until the later of (1) three months after a second U.S. Patent and Trademark Office (USPTO) action or (2) 18 months after the filing date.
The House approved by voice vote Rep. Issa's amendment [PDF] regarding USPTO authority to write regulations, and legislative authority to veto regulations.
The House approved by voice vote Rep. Mike Pence's (R-IN) amendment [2 pages in PDF] regarding prohibiting post grant reviews based upon best mode. That is, the HJC version of the bill retained the best mode as a specifications requirement for obtaining a patent, but provided that best mode could not be used as a legal defense to infringement in patent litigation. (See also, Rep. Pence's July 18, 2007, amendment [2 pages in PDF] removing best mode as a litigation defense.) The floor amendment approved on September 7 provides that best mode cannot serve as the basis for a post grant review proceeding.
The House approved by voice vote Rep. Sheila Lee's (D-TX) amendment [4 pages in PDF] regarding conducting a study of patent damage awards.
No other amendments were made in order by the rule for consideration of the bill that was adopted by the House Rules Committee (HRC) on September 6, 2007, and approved by the full House on September 7.
9/5. The U.S. Court of Appeals (9thCir) issued its opinion [23 pages in PDF] in Zila v. Tinnell, a case regarding the Supreme Court's dubious doctrine of Brulotte v. Thys. The Supreme Court held that patent royalty agreements are unenforceable to the extent that they extend royalty payments beyond the expiration date of the patent.
This doctrine has been frequently criticized by economists, government antitrust agencies, and lower courts. This Court of Appeals wrote that "No matter how unconvincing Brulotte’s foundation may be" it must be followed".
Moreover, the Court of Appeals applied it to a situation where the royalty agreement was executed before the issuance of a patent, and covered all revenues on sales of the invention, regardless of whether a patent ever issued.
James Tinnell invented a liquid solution for use in medical treatments. It is now named Tilactin. He also acquired a corporation now named Zila to market and sell Tilactin. He also applied for a patent. However, before acquiring a patent he assigned all rights in his invention to the company in return for royalty payments and stock. The contract provided that he would relinquish all rights to Zilactin, whether or not a patent issued, and would receive in return a 5% royalty in perpetuity on Zila's sales of the invention.
The USPTO did in fact issue a patent after execution of the agreement. Other U.S. patents followed. Also, the Canadian patent office issued a patent.
Later, Zila stopped paying royalties. It filed a complaint in U.S. District Court (DNev) seeking declaratory relief. Tinnell counterclaimed for declaratory relief.
The District Court held that the agreement was unlawful per se under federal patent law.
The Court of Appeals wrote that "Brulotte renders unenforceable some aspects of an otherwise valid contract. And it does so for a reason that many courts and commentators have found economically unconvincing". However, "No matter how unconvincing Brulotte’s foundation may be, however, we are bound to apply its holding if it applies to the case before us.
The Court of Appeals rejected the District Court's unlawful per se conclusion. It wrote that there is no support the notion that Brulotte "erects a general barrier to the enforcement of otherwise valid contract terms unless and until that last applicable patent expires."
It stated that the question is "not whether but the extent to which Brulotte preempts state law with regard to a contract for payment of royalties on the sale of an invention that may be patented, if a patent indeed issues on the invention."
It concluded that "Brulotte does not render an entire contract void and unenforceable merely because it includes an invalid licensing agreement. Rather, Brulotte renders unenforceable only that portion of a license agreement that demands royalty payments beyond the expiration of the patent for which the royalties are paid."
The Supreme Court held in Brulotte v. Thys Co., 379 U.S. 29 (1964), that a patent holder's attempt to collect royalties beyond the term of the patent constituted misuse of the patent.
The Federal Trade Commission (FTC) and the Department of Justice (DOJ) released a report [217 pages in PDF] on April 17, 2007, that suggests that economic analysis demonstrates that the doctrine announced in Brulotte should be revisited.
This report is titled "Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition". See also, story titled "FTC and DOJ Release Report on IPR and Antitrust" in TLJ Daily E-Mail Alert No. 1,566, April 17, 2007.
For example, the FTC and DOJ wrote that "Collecting royalties beyond a patent's statutory term can be efficient. Although there are limitations on a patent owner's ability to collect royalties beyond a patent’s statutory term, that practice may permit licensees to pay lower royalty rates over a longer period of time, which reduces the deadweight loss associated with a patent monopoly and allows the patent holder to recover the full value of the patent, thereby preserving innovation incentives."
The U.S. Court of Appeals (7thCir) criticized Brulotte in its 2002 opinion in Scheiber v. Dolby Laboratories. See, story titled "7th Circuit Criticizes But Follows Brulotte" in TLJ Daily E-Mail Alert No. 453, June 18, 2002.
Moreover, Judge Richard Posner wrote the opinion. Posner is also the author or co-author of many books, including Economic Analysis of Law [Amazon], Antitrust Law [2nd edition, Amazon], and The Economic Structure of Intellectual Property Law [Amazon].
The opinion in Scheiber v. Dolby states that "we have no authority to overrule a Supreme Court decision no matter how dubious its reasoning strikes us, or even how out of touch with the Supreme Court's current thinking the decision seems." While the 7th Circuit applied the Brulotte holding, it went on to explain at length why Brulotte is such an awful precedent.
This case is Zila, Inc. v. James Tinnell, U.S. Court of Appeals for the 9th Circuit, App. Ct. Nos. 05-15031 and 05-15087, appeals from the U.S. District Court for the District of Nevada, D.C. CV-00-01345-KJD, Judge Kent Dawson presiding. Judge Marsha Berzon wrote the opinion of the Court of Appeals, in which Judges Robert Cowen, sitting by designation, and Dorothy Nelson joined.
9/5. The Federal Communications Commission (FCC) released a Memorandum Opinion and Order (MO&O) [20 pages in PDF] upholding the FCC's Media Bureau's denial of Comcast's request for waiver of the integration ban as to three set top boxes.
Section 629 of the Telecommunications Act of 1996, which is codified at 47 U.S.C. § 549(a), provides, in part, that the FCC "shall ... adopt regulations to assure the commercial availability, to consumers of multichannel video programming and other services offered over multichannel video programming systems, of converter boxes, interactive communications equipment, and other equipment used by consumers to access multichannel video programming and other services offered over multichannel video programming systems, from manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor."
FCC Commissioner Michael Copps wrote in his statement [PDF] associated with this MO&O that "Eleven years ago, Congress instructed the Commission to assure the commercial availability of set top boxes. The message was clear: American consumers should be able to purchase a device at Best Buy or Wal-Mart that works just as well with their television as the cable company’s own device. This openness is clearly good news for cable subscribers. Vigorous competition will drive prices down and increase the pace of technological innovation."
FCC Commissioners Jonathan Adelstein and Robert McDowell wrote in a joint concurring statement [PDF] that while the FCC has set a July 1, 2007, date for compliance, "the industry is still years away from implementing downloadable security nationwide".
They wrote that what the FCC has done, "through a series of Bureau-issued orders, is focus on the operator who requested the waiver, rather than the box." They concluded that "Because Comcast’s waiver request was not granted, the company will have to deploy more expensive boxes that contain separated security and likely will pass on this cost to its subscribers. Those who subscribe to a company whose waiver was granted will pay less for an integrated box, even though that box comes with the same functions and features as Comcast’s. That result doesn’t make sense -- for consumers, for MVPDs for the consumer electronics industry, or for the creation of the national retail market Congress intended."
This MO&O states that it was adopted on July 20, 2007, but not released until September 4, 2007.
This MO&O is FCC 07-127. The relevant proceedings are titled "In the Matter of Comcast Corporation Request for Waiver of Section 76.1204(a)(1) of the Commission’s Rules" and "In the Matter of Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation Devices: Application for Review" and numbered CSR-7012-Z and CS Docket No. 97-80.
9/6. The Federal Communications Commission (FCC) asserted in a release [PDF] that it seeks "applications from engineering school graduates with superior academic credentials and an interest in communications engineering for its 2007 Engineer-in-Training (EIT) Program".
The FCC's release, and the associated vacancy announcement (DEU-EIT-2007-0003), set a very short deadline for applications -- September 21, 2007.
Also, while high percentages of degrees awarded by U.S. universities in IT related engineering fields are awarded to non-U.S. citizens, the FCC restricts these positions to U.S. citizens.
Moreover, the positions advertised by the FCC are both low level, either GS-855-5, 7, or 9, and low pay, with annual salaries starting at $32,755 per year.
The FCC is an agency comprised of, and run by, communications lawyers. There is also a high turnover rate, with attorneys coming from, and going to, regulated companies, trade groups, and the law firms that represent them.
The FCC has not sought, and does not possess, significant in house expertise in either new and emerging information technologies or economic analysis. The FCC is reliant upon information provided to it by outside entities, usually regulated companies and their representatives, regarding IT and economic analysis.
9/6. The U.S. Court of Appeals (1stCir) issued its opinion in Verizon v. Maine PUC and Verizon v. New Hampshire PUC, a pair of cases involving Section 271 and state regulation of Regional Bell Operating Companies (RBOCs).
These two consolidated appeals pertain to Verizon New England's entry into the long distance markets in the states of Maine and New Hampshire following the issuance of approvals by the Federal Communications Commission (FCC) pursuant to 47 U.S.C. § 271.
However, both the Maine Public Utilities Commission (MPUC) and the New Hampshire Public Utilities Commission (NHPUC) insisted that Verizon continue to provide disputed network elements and do so at TELRIC pricing.
Verizon filed complaint in the U.S. District Court (DMaine) against the Maine PUC, and a second complaint in the U.S. District Court (DNH) against the NHPUC. The Maine court ruled for the MPUC, and the New Hampshire court ruled for Verizon. Verizon appealed the Maine court's judgment, and the NHPUC appealed the New Hampshire court's judgment. The Court of Appeals consolidated the two appeals.
The Court of Appeals held for Verizon, and therefore vacated the judgment of the Maine court, and affirmed the judgment of the New Hampshire court.
The Court of Appeals held that "neither state agency may require elements that the FCC has delisted and are not enumerated in section 271 nor require that section 271 elements be offered under TELRIC pricing that the FCC has explicitly rejected."
It added that "As to line sharing and dark fiber, the matter should be resolved after the FCC's views have been solicited."
Scott Angstreich and Kelly Dunbar of the Washington DC law firm of Kellogg Huber represented Verizon.
This case two consolidated appeals, Verizon New England, Inc. v. Maine Public Utilities Commission, Stephen Diamond, Sharon Reishus, and Kurt Adams, U.S. Court of Appeals for the 1st Circuit, App. Ct. No. 06-2151, an appeal from the U.S. District Court for the District of Maine, Judge Gene Carter presiding, and Verizon New England, Inc. v. New Hampshire Public Utilities Commission, Thomas Getz, Graham Morrison, and Michael Harrington, App. Ct. No. 06-2429, an Appeal from the U.S. District Court for the District of New Hampshire, Judge Paul Barbadoro presiding. Judge Boudin wrote the opinion of the Court of Appeals, in which Judges Lynch and Lipez joined.
The House will meet at 10:30 AM for morning hour, and at 12:00 NOON for legislative business. The House will consider several non-technology related items under suspension of the rules. Votes will be postponed until at least 6:30 PM.
The Senate will meet at 10:00 AM. It will first consider judicial nominations. It will then begin consideration of consideration of HR 3074 [LOC | WW], the Transportation and HUD appropriations bill for FY 2008.
The House will meet in pro forma session only.
9:30 AM. The Federal Communications Commission (FCC) will host an event titled "Open Meeting". See, agenda [PDF], deletion of item [PDF], and story titled "FCC Commissioners to Hold Next Monthly Event on September 11" in TLJ Daily E-Mail Alert No. 1,634, September 5, 2007. Location: FCC, Commission Meeting Room, 445 12th St., SW.
10:00 AM. The House Commerce Committee's (HCC) Subcommittee on Telecommunications and the Internet will hold a hearing titled "Issues in Emergency Communications: A Legislative Hearing on H.R. 3403, the 911 Modernization and Public Safety Act of 2007, and an Oversight Hearing of the Department of Homeland Security’s Office of Emergency Communications". This hearing will be webcast by the HCC. Location: Room 2322, Rayburn Building.
10:00 AM. The Senate Finance Committee (SFC) will hold a hearing titled "U.S.-Peru Trade Promotion Agreement". See, notice. Location: Room 215, Dirksen Building.
9:30 AM. The Senate Commerce Committee's (SCC) Subcommittee on Interstate Commerce, Trade and Tourism will hold a hearing titled "Federal Trade Commission Reauthorization". See, notice. Location: Room 253, Russell Building.
TIME CHANGE. 11:00 AM. The Senate Judiciary Committee (SJC) will hold a hearing titled "Regulatory Preemption: Are Federal Agencies Usurping Congressional and State Authority?". Location: Room 226, Dirksen Building.
12:30 - 2:30 PM. The DC Bar Association will host a panel discussion titled "Trade, Investment and Politics: A Roundtable on the U.S. - Latin America Relationship". The speakers will be Mario Gustavo Guzmán Saldana (Bolivia's Ambassador to the US), Luis Benigno Gallegos Chiriboga (Ecuador's Ambassador to the US), Thomas Shannon (Assistant Secretary of State, Bureau of Western Hemisphere Affairs), Everett Eissenstat (Assistant U.S. Trade Representative for the Americas), Rep. Gregory Meeks (D-NY), and Omar Garcia (President, Chairman of the Inter-American Legal Affairs Committee). The price to attend ranges from $5 to $25. For more information, call 202-626-3463. See, notice. Location: McKenna Long & Aldridge, 1900 K St., NW.
EXTENDED TO OCTOBER 1. Deadline to submit reply comments to the Copyright Office (CO) in response to its Notice of Inquiry (NOI) regarding the operation of, and continued necessity for, the cable and satellite statutory licenses under the Copyright Act. See, notice in the Federal Register, April 16, 2007, Vol. 72, No. 72, at Pages 19039-19055. See also, technical correction notice in the Federal Register, April 24, 2007, Vol. 72, No. 78, at Page 20374. See, notice of extension in the Federal Register, June 19, 2007, Vol. 72, No. 117, at Pages 33776-33777.
Deadline to submit written requests to testify (and copies of prepared testimony) at the Office of the U.S. Trade Representative (OUSTR) hearing on September 27, 2007. The OUSTR will hold a hearing to assist it in preparing its annual report to the Congress on the People's Republic of China's compliance with the commitments made in connection with its accession to the World Trade Organization (WTO). The OUSTR will consider, among other things, intellectual property rights (IPR) and IPR enforcement. See, notice in the Federal Register, July 25, 2007, Vol. 72, No. 142, at Pages 40905-40906.
2:00 - 4:00 PM. The American Enterprise Institute (AEI) will host a panel discussion titled "Should the SEC's Rule 12b-1 Survive?". The speakers will be Paul Stevens (Investment Company Institute), Barry Barbash (Willkie Farr & Gallagher), Mercer Bullard (Fund Democracy), Mary Bush (Bush International), and Peter Wallison (AEI). See, notice. Location: AEI, 12th floor, 1150 17th St., NW.
Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) regarding its Draft Special Publication 800-48 Revision 1 [96 pages in PDF] titled "Wireless Network Security for IEEE 802.11a/b/g and Bluetooth".
Day one of a two day conference titled "Future of Music Policy Summit". See, conference web site. Location: Marvin Center, George Washington University, 21st Street between H and I Streets, NW.

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