In January of this year, the United States Patent and Trademark Office (“PTO”) released two AIA-mandated reports.  The first report is titled “International Patent Protections for Small Businesses,” and it analyzes the value of foreign patents for startups.  Though hardly a sliver of the coming overhaul of the Patent Act, the report is an interesting study in one element of the AIA’s perceived role in stimulating a still-flagging economy.

A Quick Note on Methodology

One of the most striking passages in the report is the section discussing its methodology.  It is almost apologetic in tone, noting that the PTO had only four months and limited resources to complete the report.  Consequently, much of the analysis is based on data that was not meant to query small business patenting practices, and all of the public input was collected at two hearings.  It is, therefore, a broad overview of issues surrounding foreign patents as they relate to small businesses.

Stimulating Growth Through Patents

A primary purpose of the AIA is to reward innovation through sweeping changes in the patent process.  At the core of this goal is the promise of job creation, a process that is driven by new business.  As Tim Kane of the Kauffman Foundation noted: “…startups aren’t everything when it comes to job growth.  They’re the only thing.”  The PTO agrees, stating in the Executive Summary of its report that “small businesses are the primary driver of job creation in the United States, with young startup companies, which are by their nature small businesses, creating on average three million U.S. jobs per year.”

The PTO report points to evidence that there is a correlation between patenting and economic success among small high technology companies.  In spite of this apparent relationship between patenting and success, very few early startups participate in the patent process.  Not surprisingly, most patent activity among small businesses is concentrated in high technology sectors.  The reasons for the popularity of patenting among tech companies are rooted as much in the financial/investment life cycle common in that arena as they are in the reliance on patentable gadgetry, with executives stating that “patenting was important for capturing competitive advantage in the marketplace, preventing copying, improving success at attracting investment, and increasing the likelihood of being acquired by another company or having a successful initial public offering (“IPO”).”  In short, patents are important assets for tech companies.

An International Perspective

As the title of the report indicates, its primary focus is on the role of foreign patents in the success of small businesses.  Foreign patents for U.S. small businesses are rare – a fact that tends to hamper internationalization efforts.  One of the problems is that many small companies do not realize that the power of a U.S. patent only extends as far as this country’s borders.  A lack of understanding of international intellectual property laws can make it difficult for U.S. companies to connect with global partners.  Without local protection for their markets, international partners tend to shy away from collaboration and investment.  Furthermore, there is a very real risk of foreign companies copying and patenting inventions in their home countries, leaving U.S. companies in a weakened position globally.

Diplomacy and Education in Lieu of Financial Assistance

One of the biggest barriers facing small businesses that wish to acquire foreign patents is that of cost.  International patents are relatively expensive (particularly when factoring in attorney costs and translation fees), and patent expenses tend to occur early in a startup’s life cycle.  The report discusses the issue of expense at some length, but warns against government intervention in “private sector issues.”  Most of the companies whose input was collected at the two hearings voiced a preference for avoiding government grants or loans to fund foreign patent applications.  Instead, the report suggests that the government address the issue by two methods:

The first method is what it terms “diplomacy and harmonization,” which it posits could reduce foreign patent costs.  It relies on comments from several firms in a variety of industries, suggesting everything from delaying requirements for translations to assisting in negotiating down filing costs.  As evidenced most starkly by the shift from a first-to-invent to a first-to-file system, one of the goals of the AIA was to harmonize U.S. patent policies and procedures with those of other countries.  Other harmonization efforts – moving toward absolute novelty, protecting prior users, reducing subjective elements of the law – are part of the long-term implementation of the AIA.

The second method is an “aggressive” foreign patent education effort aimed at small businesses.  The notion is that informing small businesses of the value of foreign patents, as well as the “pathways and mechanisms” necessary to file, would result in increased patent activity.  It is suggested that the PTO should partner with the Small Business Administration (“SBA”) to expand the PTO’s Intellectual Property Awareness Campaign, leverage the SBA’s nationwide network of Small Business Development Centers, and scale efforts to reach more businesses.

What Now?

Will the PTO work with the SBA to reach more small businesses and educate them on the value of foreign patents?  Can they leverage diplomacy efforts with Patent Cooperation Treaty (“PCT”) countries to streamline the international patent application process?  Will these changes add up to increased globalization for domestic startups and a positive influence on job creation, or will the overall effect of the AIA be negative?  The real effects of the AIA remain to be seen, but change is clearly on the way.

Though many of the changes are procedural and legal, there will be at least one tangible manifestation of the AIA’s effect this year.  In an effort to expand capacity and reduce backlog, the PTO will open three (or more) satellite offices, with the first opening in Detroit on July 16, 2012.  At least two more offices will be open by September 16, 2014.  The most hotly anticipated change is, of course, the shift to a first-to-file system, which is scheduled to take place on March 16, 2013.  Until then, a host of other provisions will become active on a rolling basis.

While Prometheus may have narrowed the scope of §101, it also left clues for how to successfully draft patentable health sciences process claims.  These clues are: (1) root the process in a physical transformation; and (2) frame a robust inventive concept.

1. Root the process in a physical transformation

Considering the last several decades of jurisprudence, the processes that were held unpatentable by the Supreme Court under §101 were all linked to another process. For example: in Benson, the claimed process identified the pure binary numeral value from a binary-coded decimal numeral for further computer processes (“The method of converting signals from binary coded decimal form into binary . . .”); in Flook, the claimed process identified values for an alarm process monitoring catalytic conversion reactions (“A method for updating the value of at least one alarm unit . . .”); in Bilski, the claimed process identified values for hedging payment processes (“A method for managing the consumption risk costs of a commodity . . .”); and in Prometheus, the claimed process identified values for a process of administering drugs (“A method of optimizing therapeutic efficacy . . .”).

In contrast to these process claims that were unpatentable under §101, the process claim in Diehr was patentable under §101. In Diehr, the patentable process was a computer code operating a machine that molded a rubber tire (“A method of operating a rubber-molding press . . .”).  Since the machine running the process made rubber, the process was rooted in a physical transformation.

Claim 1 of the ‘623 patent in Prometheus could be rooted in a physical transformation as follows:

Original claim 1:

“A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising . . .”

Revised claim 1:

“A method of optimally administering a thiopurine drug for treatment of an immune-mediated disorder, comprising . . .”

In contrast to the original claim 1, the revised claim 1 process directly causes a physical transformation, i.e. the drug activity in the patient, by framing the claim as “administering” instead of “optimizing” a calculation.

2. Frame a robust inventive concept

The patent claims should create a robust “inventive concept,” which is the essence of the invention in a claim.  In Prometheus, the Supreme Court mentions “inventive concept” in quoting Flook, but, in addition, the inventive concept theme underlies the Court’s §101 patentability analyses.

In a process claim, an inventive concept should be drafted where, beyond the law of nature, the extra steps are sufficient in quality and are sufficiently integrated with the law of nature.  On the quality of extra steps, the Supreme Court stated that a patentable process should have additional steps beyond the law of nature that consist of more than “well-understood, routine, conventional activity already engaged in the scientific community.”

On the integration of extra steps, the Court stated that additional steps should be integrated into in a patentable process, so that “when viewed as a whole add [something] significant [to the law of nature] beyond the sum of their parts taken separately.”  On adding limitations to a patentable process, the claims should not attempt “to limit the use of the formula to a particular technological environment or [add] insignificant postsolution activity.”  Instead, a patentable process should explain “how the variables used in the formula were to be selected” and the claims should contain disclosures “relating to the chemical process at work so the other steps in the process [would] limit the claim to a particular application.”

In sum, a robust inventive concept will, beyond any law of nature, include additional steps that:

1. Are more than well-understood, routine activity.

2. Are integral to and limiting to the particular application.

Claim 1 of the ‘623 patent in Prometheus could be amended to have a robust inventive concept as follows:

Original claim 1:

“A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:

(a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and

(b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder,

wherein the level of 6-thioguanine less than about 230 pmol per 8×10^8 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and

wherein the level of 6-thioguanine greater than about 400 pmol per 8×10^8 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

Revised claim 1:

“A method of optimally administering a thiopurine drug for treatment of an immune-mediated disorder, comprising:

(a) administering a 6-thioguanine providing drug

wherein the administered dosage of the drug is adjusted to maintain the metabolite levels of 6-thioguanine between 230 pmol and 400 pmol per 8×10^8 red blood cells.”

The optimum values of metabolites to signal the therapeutic window were not known and, therefore, using the metabolite parameters to administer thiopurine drugs was a previously poorly-understood activity.  Additionally, the law of nature is minimized and more integrated into the revised claim 1, because the law is only a indirect subpart within the administering step, rather than a separate step from administering the drug.

Conclusion

The Supreme Court’s decision in Prometheus raised the bar in patenting health sciences process claims under §101.  However, Prometheus provides clues on how to successfully patent health science process claims under §101.  Two claim drafting rules can be deduced from Prometheus.  They are: (1) root the process in a physical transformation; and (2) frame a robust inventive concept.  More specifically, a robustly framed inventive concept will, beyond the law of nature, include additional steps that: (a) are more than well-understood, routine activity and (b) are integral to and limiting to the particular application.  Ultimately, patent drafters should be able to use techniques such as these to overcome §101 caselaw and patent processes in the health sciences.

The controversy of this Section arises for people like Lawrence Golan who previously enjoyed free access to these works without having to seek permission from copyright holders.  Others, like the Electronic Frontier Foundation, see even larger issues between private and public interests at stake with the upholding of URAA.  Accordingly, the petitioners challenged the constitutionality of the Section both under the Constitution’s Copyright and Patent Clause (Art. I, § 8, cl. 8 ) and under the First Amendment of the Constitution.  Although the Court ultimately upheld the constitutionality of Section 514, the majority and dissent opinions bring some interesting tensions to the foreground.

Legal Background

The International Context

The Berne Convention, which originally went into effect in 1886, is an agreement that governs the copyright relations between its member nations.  More specifically, the Berne Convention grants nationals of member nations copyright protection in other member nations for a minimum of the author’s lifespan plus fifty years, unless the copyright term has expired in the nation of origin or the nation in question.

Prior to 1989, the United States was not party to this regime.  In fact, before 1891, foreign works were not granted any copyright protection whatsoever in the United States.  When the United States finally became party to the Berne Convention, the Berne Convention Implementation Act of 1988 (BCIA) adopted minimal changes to the current copyright regime, including no retroactive protection for foreign works already in the public domain.  This level of implementation of the Berne Convention was not in compliance with Article 18 and other member nations were not pleased with the level of commitment from the U.S.  These nations demanded reciprocity if the United States expected their compliance, but, in the absence of any meaningful enforcement mechanism, nothing was changed.

However, 1994 brought the creation of the World Trade Organization (“WTO”) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), both of which the United States joined.  Not only did TRIPS require implementation of the first 21 articles of the Berne Convention, but it also threatened WTO enforcement, which brought the risk of tariffs and cross-sector retaliation to noncompliance.  Accordingly, Congress enacted Section 514 of URAA to bring the United States into compliance with Article 18 and the rest of the relevant Berne Convention provisions.

Eldred v. Ashcroft

Before Golan, the major decision addressing Congress’ right to retroactively change the copyright status of copyrighted works was Eldred v. Ashcroft, 537 U.S. 186 (2003). Eldred addressed the constitutionality of the Copyright Term Extension Act of 1988 (“CTEA”), which extended the length of copyright entitlements by an amount of 20 years—for a total of 70 years—after a creator’s death.  The petitioners in Eldred, individuals and businesses that relied on once copyrighted works that had subsequently entered the public domain, challenged the validity of CTEA on similar grounds as those in Golan: violation of the Copyright Clause and violation of the First Amendment.

Even though Golan and Eldred cover somewhat different territory (the URAA at play in Golan referred to works already in the public domain while the CTEA in Eldred affected works that were concurrently copyrighted for a fixed term), there are several similarities between the two cases.  In both cases, the petitioners objected to retroactive application of the law (to unprotected foreign works in Golan and formally copyrighted works in Eldred).  Also, both cases rejected petitioners’ arguments that Congress was limited in its power to expand the scope of copyright beyond the pre-existing boundaries of the public domain.

In fact, for those familiar with Eldred, Golan seems like somewhat of a replay (particularly with Justice Breyer writing a dissenting opinion for both cases).  Some commentators have expressed dismay that the Golan decision does not seem to deviate in any meaningful way from Eldred.  Even though the petitioners in Golan took pains to distinguish their fact pattern from Eldred, Golan can be viewed as reinforcing the outcome of the Eldred decision, affirming Congress’s discretion to reach into the public domain.

The Opinion (delivered by Justice Ginsburg)

Copyright Clause Claim

The Copyright Clause of the Constitution states that “Congress shall have Power . . . [t]o promote the Progress of Science . . . by securing for limited Times to Authors . . . the exclusive Right to their Writings.”  In holding that the Copyright Clause allows Congress to apply copyright protection to works currently in the public domain, the Court pointed to three things: (1) the Court’s previous decision in Eldred on the meaning of ‘limited time’; (2) historical practice, and; (3) the meaning of promoting the “Progress of Science.”

On the first point, the Court recapitulated its argument in Eldred to say that the word limited should not be narrowly construed to mean that, once set, the time is permanently fixed or unalterable.  The petitioners’ concern was that removing works from the public domain erodes a fixed, predictable period and allows the term to be reset or renewed at the whim of Congress.  Furthermore, as in Eldred, the petitioners were concerned that altering the time could result in Congress granting copyright protection in perpetuity, at its whim.  The Court, however (as it did in Eldred), interpreted “limited” to mean “circumscribed in some way” and did not feel the need to speak on hypothetical misbehavior.  Distinguishing their case from Eldred, the petitioners claimed that work in the public domain has already enjoyed a limited time; however, the Court found the argument less convincing in Golan where the foreign works had enjoyed the limited time of “zero.”

The Court then proceeded to give examples of previous actions by Congress where works were pulled out of the public domain, notably pointing to the Copyright Act of 1790 and claiming that the First Congress “did not view the public domain as inviolate.”  However, one commentator has criticized this section of the opinion on the grounds that this historical evidence is unclear.  The Court also cited several private patent and copyright laws that removed works from the public domain to show a historical basis for this action.  But, the previous commentator notes that Congress’s repetitive actions do not necessarily imply constitutionality (especially when the contrary impulse can be found).

Finally, the Court responded to the main thrust of the petitioners claim that since Section 514 does not apply to new works, it does not “promote the progress of Science” by incentivizing creation.  The Court again referenced a similar argument and rebuttal in Eldred where it was determined that the Clause empowers Congress to create a regime that will serve those ends.  Thus, each individual provision does not have to incentivize the creation of new work in order to promote the progress of Science.  Furthermore, the Court held that promoting the “Progress of Science” involves dissemination as well as creation, and that compliance with international regulations could conceivably increase dissemination.

Free Speech Claim

Again pointing to Eldred, the Court held that there was no need for heightened review of Section 514 under the First Amendment because of the already existing “speech-protective purposes and safeguards,” provided by Copyright Law (namely the idea/expression dichotomy and the fair use defense).  While copyright inevitably restricts expression, the Court held that the absence of restrictions on the ideas behind those expressions was a “built-in First Amendment accommodation.”  Moreover, the fair use defense actually lifts the restrictions on copyrighted forms of expression in certain circumstances.

Finally, the court held that, rather than restricting the use of copyrighted works entirely, Section 514 merely adds additional costs to such uses, which are determined by the market.  Although the Court does concede that these costs may be prohibitive in some cases (i.e. with orphan works), the Court found this issue not to be exclusive to the collection of foreign works affected by Golan and best suited for resolution by the legislature.

The Dissent (Delivered by Justice Breyer)

Justice Breyer—joined by Justice Alito—focused his dissent on the Copyright Clause and what he sees to be its utilitarian objective.  The utilitarian approach is a normative theory used to justify Intellectual Property rights by calling for a system that balances the incentive to create new works with the limited access to information goods that the regime creates.  Breyer provided an in-depth history that supports a utilitarian understanding of the Clause, which suggests that it should be an essential component of analyzing Congresses authority to enact a provision.  Some commentators have even gone so far as to say that it is the most important component.

Breyer’s other arguments flowed from this basic premise.  For instance, he also argued that taking works such as “Peter and the Wolf” out of the public domain would actually hinder their dissemination through the imposition of fees and certain administrative costs involved with finding out whether a work has been “restored” and who its current copyright holder is.  Breyer conceded that these costs exist for the use of all works protected by copyright (to a lesser extent), but found these costs to be permissible when incentivizing the creation of new works.

In contrast, Breyer argued that Section 514 does not provide a monetary incentive to produce new works but just makes the industry richer based on existing works.  Furthermore, Breyer contended that while a richer industry could theoretically result in the distribution of pre-existing work that would otherwise have not been released, no firm focused on creating future revenue would make such a decision.  Even from an international reciprocity standpoint, Breyer interpreted the legislation as a means to create a private, rather than public, benefit, which was not in the spirit of the Clause.

Implications

While commentary lamenting the narrowing of the public domain abounds, the Golan decision can also be viewed as another step in a broader trend towards American IP law compliance with international conventions and away from the cultural imperialism of yesteryear (the switch from a “first to invent” to a “first to file” system in US Patent Law is another indication of such a trend).  But, some commentators still view the decision as an unconstitutional increase of Congress’s legislative powers for the purpose of compliance with treaty.  They maintain that compliance with a treaty is not a constitutional justification for an expansion of Congressional power and that it gives foreign governments power over our legislative process.  Along those lines, certain commentators raise the issue of whose interests are being represented with this retroactive inclusion of copyright protection—echoing Justice Breyer’s concern about the private vs. public benefit.

Furthermore, others are worried about how far-reaching the implications of this decision will be, predicting that there will be domestic pressure to restore copyright protection to works that lapsed from failure to comply with notice and renewal requirements. Conversely, perhaps this decision provides an opportunity to critically re-examine various aspects of our current copyright regime.  For instance, some hope that this decision will prompt a closer look at how courts can utilize the fair use defense to find a fair balance.  Others have suggested that this decision might prompt consideration of something like an “orphan works” defense.  Parties could assert this defense to bar statutory damages of infringement if they were unable to locate the copyright holder of a given work after a diligent search.  A defense of this sort could mitigate some of Justice Breyer’s complaints about the effects of URAA.

Also, as the majority opinion suggested, perhaps the legislature will now have to pause to address the high fees, administrative costs, and rates of piracy that the current regime might incur—though, judging by the Congressional impetus behind Eldred and Golan, this might be an overly optimistic outlook.

New Jersey Joins the Ranks of the UTSA

On January 9, 2012, Governor Chris Christie signed into law the New Jersey Trade Secrets Act (S-2456/A921), which covers issues of trade secret misappropriation previously dealt with under common law. The statute aligns closely with the UTSA but differs in some significant ways. First, the statute specifically incorporates the protections of the common law stating that application of the statute shall not “be construed to deny, abrogate or impair any common law . . . right, remedy or prohibition.” One interpretation of the statute predicts that application of this section of the statute will protect proprietary and/or confidential information that does not meet the statutory requirements of trade secret, but was none the less protected under common law.

Second, the statute demands that New Jersey courts “shall preserve the secrecy of an alleged trade secret by reasonable means” including sealing of court records and allowing for in-camera hearings. This provision of the New Jersey statute runs counter to the public interest in access to court records put forth by the Supreme Court in Nixon v. Warner Communs., Inc., 435 U.S. 589, 597 (1978), that has led some litigators to promote arbitration. In Nixon, the Court stated that the judiciary recognizes “a general right to inspect . . . public records and documents, including judicial records and documents” although the Court explained that this right could be denied “where court files might have become a vehicle for improper purposes.” This right to inspect public records seems to directly clash with the New Jersey statute’s favoring of record sealing to protect what secrecy remains as to the alleged trade secrets. However, New Jersey courts may find that court records revealing a trade secret constitute a “vehicle for improper purposes” such that the courts may deem record sealing appropriate.

On the whole, New Jersey’s new statute parallels the UTSA and furthers the UTSA’s promotion of uniform trade secret protection from one state to the next. Time will tell if the statute’s unique variations limit the nationwide uniformity the UTSA intended.

California— Reverse Engineering With a EULA Not “Improper Means”

Across the country, a Federal District Court recently handed down a convincing interpretation of California’s own version of the UTSA, Cal. Civ. Code § 3426.1, in Aqua Connect, Inc. v. Code Rebel, LLC, No. CV 11-5764-RSWL (C.D. Cal. Feb. 13, 2012). While a ruling by the Federal District Court is not binding as to interpretation of state trade secret law, the California state courts may nevertheless find the court’s ruling to be persuasive authority in future cases.

In Aqua Connect, the court addressed whether Code Rebel violated the California trade secret statute when the company downloaded a trial version of Aqua Connect, Inc.’s software and reversed engineered to software to sell a version of its own in violation of the End User License Agreement (“EULA”). Reverse engineering is commonly defined, including by New Jersey’s recent UTSA adaption, as “starting with the known product and working backward to find the method by which it was developed.” Specifically the court had to determine whether Code Rebel’s actions constituted “misappropriation” by deciding whether the statute’s requirement of use of the “plaintiff’s trade secret through improper means” had been met.

Although the California statute finds that reverse engineering by itself, cannon constitute “improper means,” the court had to determine if breach of a EULA could convert reverse engineering into an “improper means” such that Code Rebel would be liable for misappropriation.

The Aqua Connect court found that mere presence of a EULA did not convert reverse engineering into an “improper means.” Instead, the court suggested that “reverse engineering must be combined with some other improper action in order for it to form the basis of a cognizable misappropriation claim.” Accordingly the court held that Aqua Connect had failed to state a claim because it did “not allege that the [] trial software was obtained through unfair or dishonest means” as the software had been provided to Code Rebel by Aqua Connect itself.

Aqua Connect also argued that the EULA created a “duty to maintain secrecy” that Code Rebel had breached thus opening itself to liability under the California statute. The court rejected this argument because California courts have refused to find that such a duty arises from a form license agreement. Having rejected both of Aqua Connect’s arguments, the court dismissed the claim without leave to amend — “find[ing] that no additional facts can be alleged to support a legally cognizable misappropriation of trade secret claim.”

This decision reinforces the California statute’s rejection of reverse engineering as an “improper means” of acquiring a trade secret. However the case suggests that should foul play be involved in how the product or software is acquired by a defendant, reverse engineering might be converted into an improper means warranting liability under the statute. The decision also suggests that companies implementing EULAs as a means of trade secret protection should think twice as the agreement likely does not create liability on its own.

Virginia Supreme Court — Trade Secret Misappropriation Regardless of Competition

Virginia — another state having adopted the UTSA, Va. Code. §§ 59.1-336 — recently addressed the issue of whether or not a trade secret must be used by a competitor of the trade secret holder in order to be liable for misappropriation. The Virginia Supreme Court in Collelo v. Geographic Services, Inc., Nos. 101411, 101421 (Va. Jan. 13, 2012) held that the Virginia statute does not require proof that trade secrets were used for competition against the trade secret holder.

In Collelo, Mr. Collelo left his old employer (GSI) to work for a company (Boeing) that had been and continued to purchase services from GSI. Collelo performed the same work for Boeing that he had when Boeing had been a client of GSI. As a result, Boeing relied on GSI less for the services Collelo had provided. The trial court had reasoned GSI could not bring a claim against Boeing because Boeing “is not doing and has not been doing the same work as” GSI.

The Virginia Supreme Court looked to the wording of the statute — materially similar to the UTSA — finding that it only requires: (1) proof of a trade secret, (2) misappropriation of the trade secret by someone who had reason to know that the secret was acquired by improper means, and (3) proof of actual damages caused by the misappropriation. In particular, the court held that a non-competitor to the plaintiff’s market for the trade secret could meet these requirements as long as the secret was acquired by improper means and use of the secret caused actual damages to the plaintiff. The court held that a party which does not compete with the trade secret holder can meet these requirements. Boeing had utilized the trade secret to reduce its need for GSI’s services, thus potentially causing actual damages through its use of the trade secret. As such, GSI could succeed on its trade secret claim as long it could actually prove that it sustained damages through this reduction in services.

Although trade secret misappropriation generally involves a competitor discovering and implementing an originator’s trade secret, this decision suggests that the UTSA applies more broadly than traditionally thought. As long as harm can be attributed to use of a trade secret gathered by improper means, a strict reading of the language of the UTSA provides for misappropriation liability and recovery for a trade secret holder.

Broader Implications of These Progresses

Trade secrets have thus far lacked the nationwide protection awarded to other areas of intellectual property law — patents by 35 U.S.C. §§ 101-05, copyrights by 17 U.S.C. §§ 101-22, and trademarks under the Lanham Act. The UTSA and its state-by-state adaptations attempt to overcome the lack of federal protection for trade secrets and limit forum shopping. Consequently, decisions by the forty-six states that have adopted some form of the UTSA tend to influence the application by the other states so long as the state has not varied its UTSA adaptation too much from the original.

Accordingly, the California and Virginia decisions discussed above will likely have implications outside of the state whose law the court applied. As a result of the Virginia Supreme Court’s decision in Collelo, other states might see an influx of non-traditional trade secret cases involving use by non-competitors. However, this sort of influx seems unlikely as most companies in the position of GSI would likely have employees such as Mr. Collelo sign non-compete consulting agreements to prevent similar defections.  Furthermore, software and other companies across the country that traditionally rely on EULAs to prevent trade secret misappropriation during beta testing must consider the California district court’s ruling in Aqua Connect.

The Post Grant Review Process

PGR is a process where a third party can challenge patent claims within nine months of their issuance using evidence on a broad range of grounds, such as subject matter, novelty, nonobviousness, enablement and written description. 35 USC § 321(b),(c).  PGR can only affect pharmaceutical patents issued at least a few years from now, as it only applies to those pharmaceutical patent claims with effective dates on or after March 16, 2013. § 329(f).  The Director will accept a third party petition for PGR if “the information in the petition, if such information is not rebutted, would demonstrate that it is more likely than not that at least one of the claims challenged in the petition is unpatentable” or if “the petition raises a novel or unsettled legal question that is important to other patents or patent applications.” § 324(a),(b).  If the petition satisfies either of these burdens, the proceedings between the petitioner and patentee are held before the Patent Trial and Appeal Board (“PTAB”). § 328(a).  Before the proceeding, the parties undertake a limited discovery, and during the proceedings they can present a wide variety of evidence, including presenting and cross-examining witnesses.  § 322(a), § 326(a)(5).

In a PGR, the petitioner is only required to prove unpatentability by a preponderance of the evidence. § 326(e).  During the PGR process a patentee can amend his claim once as a matter of right. § 326(a)(9), (d)(1).  The proceedings before the PTAB are limited to 1 year, and extendable to 18 months only for good cause. § 326(a)(11).  Ultimately, the parties can settle or the PTAB can confirm, narrow, or cancel contested claims. § 328(b).  Appeals are heard by the Court of Appeals for the Federal Circuit (“CAFC”). § 141.  A party cannot petition for a PGR if infringement litigation is underway, but any civil claims filed on or after the PGR petition are automatically stayed. § 325(a).  The petitioner is estopped from raising future “claims on any ground that the petitioner raised or reasonably could have raised during that PGR.” § 325(e)(1).  But there is an important exception to this estoppel effect.  The petitioner can still bring patent invalidity counterclaims in subsequent litigation, as they are independent of PGR estoppel. § 325(a)(3), (e)(2).  Many of the further details of the PGR process are uncertain as the PTO has yet to issue the regulations for PGR.

Utility of PGR in Challenging Pharmaceutical Patents

Because of the many beneficial attributes of PGR, it is a particularly useful way of challenging pharmaceutical patents.  First, the petitioner can invalidate the patent on nearly every ground that is available in litigation, including subject matter, novelty, nonobviousness, enablement and written description. § 321(b).  Second, the parties can use a broad range of evidence, such as witness depositions, in the proceeding. § 322(a), § 326(a)(5).  This is an advantage over Inter Partes Review, which offers fewer grounds to contest claims.  Third, the PGR process only requires an initial “more likely than not” standard to initiate review followed by a “preponderance of the evidence” standard for invalidity.  § 324(a), § 326(e).  Both of these standards constitute a much lower burden than the “clear and convincing evidence” standard used for invalidating claims in litigation.  Fourth, the proceeding can extend, at most, to 18 months. § 326(a)(11).  In contrast, patent litigation typically does not even begin until two years after the initial filings, and it can stretch on years thereafter.

Fifth, the petitioner is not estopped from asserting invalidity counterclaims in later infringement litigation. § 325(a)(3), (e)(2).  The limitation of the PGR estoppel is that after a PGR proceeding a petitioner will not be able to initiate a declaratory judgment infringement action based on “claims on any ground that the petitioner raised or reasonably could have raised during that PGR” against the contested claims. § 325(e)(1).  Traditionally, accused infringers assert both an invalidity affirmative defense and an invalidity counterclaim.  And in fact, an invalidity counterclaim is more useful than an invalidity affirmative defense because, in contrast to an affirmative defense of invalidity, a counterclaim against a patent claim persists even after a patentee revokes the infringement action for that patent claim.  In instances where some courts invalidated an invalidity counterclaim (while sometimes upholding the invalidity affirmative defense), the courts have held that the accused infringer did not plead invalidity with sufficient specificity in the counterclaim.  However, with the benefit of the knowledge gained from a PGR proceeding, a petitioner should not have trouble later pleading an invalidity counterclaim with sufficient specificity in future infringement litigation on that patent.  Finally, unlike in litigation, a patentee’s claims could be narrowed at the end of the PGR. § 328(b).  Therefore, even if the petitioner doesn’t succeed in invalidating a claim outright, it may still be able to narrow the claims to the point they are no longer valuable to the patentee.

The Problem of the Nine Month Time Limit on Filing a PGR Petition

The primary problem of PGR with respect to pharmaceutical patents is that the 9-month window for PGR will have elapsed on many of the critical patents before the drug candidate is tested in clinical trials. § 321(c).  Of the clinical drug candidates that pharmaceutical companies file an Investigational New Drug (“IND”) Application for, only 20% of these drug candidates reach the point where the pharmaceutical company files a New Drug Application (“NDA”). Although the patents on the active ingredients may have issued early on, methods of treatment and formulations may be patented after the NDA is filed.

Generic pharmaceutical companies must, therefore, challenge pharmaceutical patents that may have a less than 1-in-5 chance of applying to a future valuable FDA-approved drug.  These challenges should be performed strategically by assessing IND information, clinical trials information, publicity related to any drug candidates and the potential weakness of the claims in a patent at issue.  The generic drug companies could also petition for PGR as a group, effectively spreading the cost of a PGR among the mutual potential beneficiaries and limiting free-riding. § 325(d).  A further advantage of PGR is that these invalidity issues can be challenged long before any Abbreviated New Drug Application (“ANDA”), thus settling expectations among the industry many years in advance.

Empirical Data from EPO Opposition Proceedings

The generic drug manufactures should also consider the results of Oppositions at the European Patent Office (“EPO”).  PGR is analogous to European opposition proceedings, but with some procedural and substantive differences (p.143). In a 2004 article, Hall and Harhoff discussed empirical data on the EPO opposition proceedings. They found that approximately 8% of patents at the EPO issued between 1980 and 1995 were opposed.  This suggests that at the EPO, patent challengers must find the Opposition practice useful.  The cost for a 2004 EPO opposition proceeding ranged from around $15,000 to $50,000.  This cost is about two orders of magnitude less compared to US patent infringement litigation, which generally costs between $2.5 to $5 million where there was between $1 and $ 25 million at risk. PGR proceedings may cost even less than the EPO Oppositions, as the EPO proceedings typically last at least a couple of years as opposed to the 1 year limit for PGR proceedings. § 326(a)(11).  Ultimately, the outcome of the EPO oppositions is that approximately one third of the claims are revoked, one third are narrowed, and one third are unchanged.  The PGR outcomes may be similar to these results as the EPO evidentiary standard of “balance of the probabilities” is analogous to the US “preponderance of the evidence” standard.

Conclusion

Post Grant Review could be a useful tool to challenge pharmaceutical patents.  PGR has the advantages of: (1) challenging the claims on a broad range of grounds and evidence; (2) it requires relatively low evidentiary standards; (3) it is generally limited to 1 year; (4) the petitioner is not estopped from later using invalidity counterclaims at trial; and (5) the patent claims can be productively narrowed, even if they are not invalidated altogether.  The primary difficulty of using PGR to challenge pharmaceutical patents is the nine month post-issuance filing limit.  This limit would frequently require petitioners to challenge patents using PGR before they know whether a pharmaceutical drug will originate from the patent.  This filing limit makes PGR more risky and expensive, but the advantages of using PGR to challenge the pharmaceutical patents outweigh these risks.  Finally, data on EPO Oppositions suggests that PGR will be useful, cost-effective, and that petitioners could ultimately amend or revoke two-thirds of contested patent claims using PGR.

The report announced the Administration’s new four-element online privacy framework, which is designed to augment already existing privacy protection laws. The first, and perhaps most critical, element of the new framework is a Consumer Privacy Bill of Rights (“CPBR”). The framework also consists of a multistakeholder process “to specify how the principles in the [CPBR] apply in particular business contexts, recommendations for effective enforcement, and a commitment to increase interoperability with international privacy protections.”

This post includes a dissection of each of the four elements of the Administration’s new framework, followed by a discussion of initial reactions to the framework.

Consumer Privacy Bill of Rights

The first element of the Administration’s new privacy framework is a comprehensive Privacy Bill of Rights. The CPBR is designed to set forth “individual rights and corresponding obligations of companies in connection with personal data.” The rights are fundamentally based on Fair Information Practice Principles (“FIPPs”), which were developed by the United States in the 1970s and have since achieved international recognition. The Administration’s new CPBR seeks to apply FIPPs to the current environment of the Internet, in which data processing about individuals is “far more decentralized and pervasive” than ever before. To accomplish this, the Administration seeks to carry FIPPs forward in two ways: by “affirming a set of rights that inform what they should expect about companies that handle personal data,” and by “emphasiz[ing] the importance of context” in the application of such rights. The CPBR holds that consumers have the right to the following:

1. Individual Control: “Consumers have a right to exercise control over what personal data companies collect from them and how they use it.”

This right states that companies should provide consumers with the “appropriate control” over the data they share with others and how companies “collect, use, or disclose” the personal data they collect. The amount of control options that a website presents should be a function of both how much information a company collects, as well as the sensitivity of the information. Consumers also have the responsibility to “evaluate their choices” and to “take responsibility for the ones that they do make.”

1. Transparency: “Consumers have a right to easily understandable and accessible information about privacy and security practices.”

This right states that companies should provide clear descriptions of “what personal data they collect, why they need the data, how they will use it, when they will delete it, and whether and for what purposes they may share personal data with third parties.” This information should be made available at times and places where it is must useful for the consumer to gain a meaningful understanding of privacy risks and the ability to exercise self-control.

1. Respect for Context: “Consumers have a right to expect that companies will collect, use, and disclose personal data in ways that are consistent with the context in which consumers provide the data.”

This right states that companies should “limit their use and disclosure of personal data to those purposes that are consistent with both the relationship that they have with consumers and the context in which consumers originally disclosed the data.” Should a company decide to use or sell such information for purposes outside of the established context, the company should be especially transparent about its use of the data by “disclosing these other purposes in a manner that is prominent and easily actionable by consumers at the time of data collection.”

1. Security: “Consumers have a right to secure and responsible handling of personal data.”

This right states that companies should “assess the privacy and security risks associated their personal data practices” and in turn “maintain reasonable safeguards” to prevent loss of data, unauthorized access or modification, and improper disclosure.

1. Access and Accuracy: “Consumers have a right to access and correct personal data in usable formats, in a manner that is appropriate to the sensitivity of the data and the risk of adverse consequences to consumers if the data is inaccurate.”

This right states that companies should use “reasonable measures to ensure they maintain accurate personal data” and should “provide consumers with reasonable access to personal data that they collect” as well as the “appropriate means and opportunity to correct inaccurate data or request its deletion or use limitation.”

1. Focused Collection: “Consumers have a right to reasonable limits on the personal data that companies collect and retain.”

This right states that companies should “collect only as much personal data as they need” to accomplish the purpose of the website. Companies should also “securely dispose of or de-identify personal data once they no longer need it.”

1. Accountability: “Consumers have a right to have personal data handled by companies with appropriate measures in place to assure they adhere to the Consumer Privacy Bill of Rights.”

This right states that companies should be “accountable to enforcement authorities and consumers for adhering to these principles.” Companies also should “hold employees responsible for adhering to these principles.” To achieve this, the report advises that companies should “train their employees to handle personal data in a matter consistent with these principles” and, where appropriate, “conduct full audits.” For companies that disclose personal data to third parties, the report states that they should, at a minimum, “ensure that the recipients are under enforceable contractual obligations to adhere to these principles.”

Multistakeholder Process to Develop Codes of Conduct

To implement the principles enshrined in the CPBR, the Administration recommends and encourages that a broad coalition of actors come together under the direction of the Department of Commerce’s National Telecommunications and Information Administration (“NITA”). The Administration views the multistakeholder processes as a way for interested parties to develop and then adapt codes of conduct that “protect consumers’ privacy as technologies and market conditions change.” Such open and transparent processes are extolled by the Administration because they “provide the flexibility, speed, and decentralization necessary to address Internet policy changes.” The Administration specifically calls out “individual companies, industry groups, privacy advocates, consumer groups, crime victims, academics, international partners, State Attorneys General, Federal civil and criminal law enforcement representatives, and other relevant groups” to be a part of the multistakeholder process.

The report defines the multistakeholder process it envisions in terms of three principal stages. The first stage of the process is deliberation. With the assistance of NITA stakeholder groups are to identify “markets and industry sectors that involve significant consumer data privacy issues.” NITA will then work to enlist the participation of stakeholders to “develop an enforceable code of conduct.” Once interested parties are convened, NITA is responsible for ensuring that stakeholders work together to resolve any differences that may arise. A code of conduct that “reflects the agreement of all stakeholders” is then ready for companies to consider adopting.

The second stage of the process is adoption. The report states that once a code of conduct has reached completion, companies to which the code is relevant may choose to adopt it. The Administration relies on Section 5 of the FTC Act to make a company’s public commitment to adhere to a code of conduct enforceable.

The third stage of the process is evolution. The Administration states that a key goal of the multistakeholder process is to “enable stakeholders to modify privacy protections in response to rapid changes in technology, consumer expectations, and market conditions.” The report states that individual stakeholders can at any time decide that a code of conduct is no longer relevant. In addition, NITA can also come to the conclusion that a code is in need of revision and seek to re-convene stakeholders in a new deliberation process. The report emphasizes that a code of conduct is a voluntary agreement that may not be revised directly by the federal government.

Notably, a code of conduct related to the “Do Not Track” mechanism has been created through a procedure similar in nature to the Administration’s ideal multistakeholder process. Following efforts spearheaded by the Digital Advertising Alliance, the FTC and the Commerce Department, all four major Internet browser developers and many of the leaders of the online advertising business agreed to implement ‘do not track” policies. Such policies will allow individuals to tell websites (via an HTML header) that they do not want their web browsing activity “tracked,” that is, reported back to third-party services that collect the information for advertising and other purposes.

Recommendations for Effective Enforcement

The third element of the new privacy framework consists of establishing enforcement mechanisms that ensure privacy commitments made by companies are meaningful. The Administration first explains that under current law the FTC has authority to enforce the commitments of companies to adhere to codes of conduct developed through the multistakeholder process. Nonetheless, the Administration recommends that Congress pass legislation that adopts the CPBR and grants the FTC and State Attorneys General specific authority to enforce each of its elements.

Beyond its appeal for statutory codification, the Administration further recommends that Congress create a provision that gives the FTC the authority to grant a “safe harbor” (defined as forbearance from enforcement of the statutory CPBR) to companies that follow a code of conduct that the FTC has reviewed and approved.

The Administration stresses that a federally enacted CPBR should “provide a national standard for protecting consumer data” that creates “certainty for companies and consistent protections for consumers.” The Administration thus requests that Congress ensures that any enacted legislation preempts inconsistent state laws.

The Administration also voices support for preserving existing sector-specific federal data privacy laws that effectively protect personal data. Such existing privacy laws generally establish legal obligations that are tailored to the sensitivity of the data associated with a specific industry, such as healthcare or banking. To avoid “duplicative regulatory burdens,” the Administration supports exempting companies from any newly enacted privacy legislation, to the extent that “their activities are subject to existing Federal data privacy laws.” However, activities within such companies “that do not fall under an existing data privacy law” would still be covered by the new privacy legislation recommended by the Administration.

Finally, the Administration recommends the adoption of a national standard that requires companies to notify consumers of unauthorized disclosures of personal data. While almost all states currently have independently-created security breach notification laws, the creation of a single standard would eliminate a significant burden on companies that have to comply with the current patchwork of state laws.

Promoting International Interoperability

The Administration emphasizes that establishing a workable and meaningful privacy policy in today’s world requires an international mindset. To this end, the fourth element of the Administration’s new framework embraces the goal of “increased international interoperability as a means to provide consistent, low-barrier rules for personal data in the user-driven and decentralized Internet environment.”

The Administration states that the two principles that underlie its approach to achieving interoperability are mutual recognition and enforcement cooperation. The Administration states that mutual recognition depends on the existence of effective enforcement and well-defined accountability mechanisms. To achieve this, the Administration recommends the international adoption of multistakeholder processes because of their ability to develop scalable and flexible codes of conduct that “simplify companies’ compliance obligations.” Enforcement cooperation, in turn, will ensure that countries are able “to protect their citizens’ rights when personal data crosses national boundaries.”

Critical Reception to the Framework

While the Administration’s privacy framework is still in its infancy, the framework appears to have been met with subdued optimism. Time states that the most “remarkable” element of the new framework is that it has not been greeted with outrage from Silicon Valley companies, who have previously opposed similar privacy legislation efforts led by the California State Senate. However, Time also posits that one of the main reasons why technology companies have so far been optimistic about the new framework is because it is “just a policy outline” that “will be sent to a Congress that isn’t likely to touch it anytime soon.”

Technology companies also appear to view the framework as an opportunity to participate in ongoing discussions about the future of privacy legislation. This is perhaps because of the framework’s focus on multistakeholder decision making processes, which encourage the full involvement of all affected parties. Participating in such privacy discussions allows companies to “be at the table and help shape solutions,” says Jules Polonetsky, director of the Future of Privacy Forum. Technology companies can therefore ensure that the ultimate legislation adopted can be feasibly implemented. At the same time, companies that take part in this privacy discussion can reassure their users that privacy is an issue that they pay attention to and take seriously.

Technology public interest groups have also expressed general optimism towards the framework. The Electronic Frontier Foundation has stated that it believes the Administration’s “user-centered approach to privacy protection” is a “solid one.” The Center for Democracy and Technology “welcome[d] the Administration’s unveiling,” stating that it supports the report’s “call for the development of consensus rules on emerging privacy issues to be worked out by industry, civil society, and regulators.”

Some commentators, however, have expressed concerns about the new privacy framework. A Forbes op-ed authored by Adam Thierer highlights that “no matter how well-intentioned regulation proposals may be, they can often have unforeseen, unintended consequences.” The author expresses concern that a government-led approach to establish privacy protection will result in a “heavy-handed, innovation-killing model of information control on the Internet.” Other commentators have lamented the fact that technology companies will be able to exert so much influence in the future of privacy legislation, calling the framework : “toothless” and “misguided,” while others argue that it doesn’t focus on the most pressing issues.

Conclusion

While it is too early to tell for certain, President Obama’s new privacy framework appears to usher forward a new discussion about digital privacy rights. The process of ultimately adopting new online privacy norms will likely entail significant efforts by interested parties both on and off Capitol Hill. It is encouraging that the Administration’s framework has sought to ensure that this process involves a wide variety of affected parties in a transparent, inclusionary process. By incentivizing technology companies to come forward and participate in the creation process, the resulting legislation should provide additional consumer protection without stifling the development of future activities on the web.

It should be noted, however, that in order for the Administration’s proposed framework to truly work as intended, all of the parties involved must remain diligently committed to privacy reform for the long term. This will require an effort by consumers to become more knowledgeable and aware of their online privacy rights and expectations. Clear and easy to understand privacy policies and proposals, such as the Administration’s new CPBR, will be essential in making this a reality.

The Opinion: Justice Scalia 

Delivering the opinion of the court, Scalia holds that the law enforcement’s placement of a GPS device on a vehicle and then using that device to track the vehicle’s movements constituted a “search.” Id. at *3. Notably, Scalia — joined by Chief Justice Roberts and Justices Kennedy and Thomas as well as Justice Sotomayor in part through her concurrence — found that by using the GPS tracking device, the Government had “physically occupied private property for the purpose of obtaining information” such that the “physical intrusion would have been considered a ‘search’ within the meaning of the Fourth Amendment when it was adopted.” Id. at *4. Scalia’s majority focuses its analysis on the jurisprudence of common-law trespass and takes an originalism approach to the Fourth Amendment — focusing on what the authors of the Amendment intended to protect against. Id.

This majority opinion takes into consideration the Katz v. United States, 389 U.S. 347 (1967), reasonable-expectation-of-privacy test. The Katz test looks beyond the Fourth Amendment to determine if a Government’s actions violate a citizen’s reasonable expectation of privacy such that an unprotected search has occurred. However, Scalia’s opinion criticizes Justice Alito’s concurrence for its focus on exclusively applying the Katz test without consideration of the Fourth Amendment and its original intent. Id. at *11. On the other hand, the concurrence criticizes Scalia’s opinion for failing to deal with cases in which no physical trespass or contact occurs and the “search” only involves the transmission of electronic signals. Id. Scalia’s majority opinion addresses this issue by stating that situations not involving physical trespass “would remain subject to Katz analysis,” identical to that which the concurrence would apply exclusively. Id.

Notably, Scalia’s opinion sidesteps the issues of the length of time for which warrantless tracking (without a physical trespass) would be legal. Id. at *12. The opinion also fails to consider how the severity of offenses — for example, a suspected drug dealer as opposed to a suspected terrorist — would affect the amount of time for which warrantless tracking would be permitted. Id. Instead, the opinion chooses to leave these “vexing problems” for a future case where the search does not involve a classic physical trespass.

Justice Sotomayor, Concurring

Although Sotomayor’s concurring opinion failed to convince any other Justices to join, her opinion provides some of the most powerful commentary on the concerns that the public should have for its privacy in the digital age. See id., Sotomayor, J., concurring, at *3. In fact, Sotomayor’s concerns over the chilling of associational and expressive freedoms potentially caused by awareness that the Government could be watching citizens’ movements align closely with the joint amicus brief filed by the American Civil Liberties Union (“ACLU”) of the Nation’s Capital and the Electronic Frontier Foundation (“EFF”) in the D.C. Circuit. For instance, Justice Sotomayor worries that if citizens might choose not to attend certain political, cultural or religious events for fear of being publicly associated with a group or idea that they would only choose to associate with in private. Justice Sotomayor suggests that it may be time for the Court “to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties . . . [an approach] ill suited to the digital age, in which people reveal a great deal of information about themselves to third parties in the course of carrying out mundane tasks.” Id. at *5.

While Justice Sotomayor agrees with the majority that the GPS tracking in this case constituted a “search,” her concurrence goes on to support Justice Alito’s concurrence’s strong stance that long-term tracking using a GPS device violates the Katz reasonable-expectation-of-privacy test, a question which the majority leaves for future Courts to decide.  Id. at *3-4. At least one legal blogger has already praised Justice Sotomayor for her interest in rethinking established areas of law — such as privacy — to adapt them to “the digital age.”

The Concurrence: Justice Alito

Joined by Justices Ginsburg, Breyer and Kagan, Justice Alito’s concurrence analyzes the case solely by applying the Katz reasonable-expectation-of-privacy test. Id., Alito, J., concurring, at *1. The concurrence draws two key concerns about the majority opinion. Id. at *7. First, Alito criticizes the majority for its focus on the physical intrusion as a “search” instead of what he believes is truly important, the use of GPS for long-term tracking. Id. at *8. Alito suggests that the majority’s approach would fail to provide adequate protection to the public should the Government begin to utilize the GPS already present in newer automobiles rather than physically trespassing to place a GPS device of its own. Id.

Second, Alito’s concurrence warns that application of the majority’s opinion would lead to incongruous results between the use of GPS and the use of physical resources, such as unmarked cars and aerial assistance, to track suspected criminals. Id. For example, the unwarranted use of GPS for even short-term tracking would be deemed unconstitutional under the majority’s opinion if it involved a physical trespass to place the GPS device. Conversely, law enforcement could track a suspected criminal with extensive physical resources for a long period of time without a warrant and face no constitutional concerns. Id.

By applying the Katz test, Alito aims to avoid these complications, but even the Katz test involves some difficulty in application. Id. at *10. Since the Katz test considers what a reasonable person would consider to be an invasion of his or her reasonable expectation of privacy, the test relies heavily on an “assumption that this hypothetical reasonable person has a well-developed and stable set of privacy expectations” which may or may not be true in the digital age. Id. As David Kravets of Wired magazine reflected in response to the oral arguments from last November: “As it turns out, our culture has voluntarily joined the Surveillance Society, leaving reasonable expectations behind. And only a fool would deny that.”

Alito expresses concerns that new technology and future periods of technological change may lead to significant changes in what a reasonable person expects regarding his or her privacy. The courts may thus have difficulty applying an exact standard in any case that would be anything more than a temporal grasp at a standard. Id.  Therefore, Alito’s concurrence leaves the future implications of this decision to the legislature, which he views to be “well situated to gauge changing public attitudes, to draw detailed lines, and to balance privacy and public safety in a comprehensive way.” Id. at *13.

Finally, Alito notes that the police may always seek a warrant if they are unsure if their investigative methods fail the Katz reasonable-expectation-of-privacy test. Id. at *14.

Implications of the “Decision”

Although the Court delivered a majority opinion, many of the questions posed by the case remain unanswered by the Court’s narrow and unclear opinion and concurrences. Certainly the Court decided that the Government has not been handed the blanket ability to track citizens’ indefinitely and without a warrant, but there is not much clarity beyond this limitation.

The Court fails to come to a majority ruling as to what time frame of tracking a suspected criminal using a GPS device would not offend the Katz test. Nor does the Court address precisely how it would rule had the Government used a vehicle’s internal GPS device rather than placing a GPS device and incurring the physical trespass deeming the tracking a “search.” As predicted in this author’s assessment of the Court’s oral argument, the Court gladly leaves the question of the legality of GPS tracking with a proper warrant to Congress and the individual states to legislate. However, Justice Alito’s concurrence notes that, to date, “Congress and most States have not enacted statutes regulating the use of GPS tracking technology for law enforcement purposes” so that the best the court can do is “to apply existing Fourth Amendment doctrine and to act whether the use of GPS tracking in a particular case involved a degree of intrusion that a reasonable person would not have anticipated.” Id. at *13.

Unsurprisingly, the Court’s Jones decision has led to confusion in the press as journalists attempt to interpret the Court’s opinion and concurrences. Much of this confusion arises out of the public’s interest in whether or not the Government needs a warrant to install and track a citizen using a GPS device. Unfortunately, the answer is a solid “maybe” and a “more likely than not” if the Government intends long-term monitoring.  As Tom Goldstein stated in his coverage of the press confusion, “The inevitable impression left by at least most of these [press] pieces is that the police always have to get a warrant from a judge to use GPS tracking. That is simply not true. The question is at best unresolved, and at worst it may prove to be completely incorrect when the courts later [address] monitoring over the course of a short time.”

In regard to this case, the Court certainly came to the correct conclusion in favor of Jones. But, the Court’s ambiguity and failure to address short-term monitoring and GPS tracking with a warrant likely means that the court will soon face another similar case asking those very questions. Perhaps Justice Alito correctly assigned the duty of dealing with such questions of law enforcement procedures to Congress and the state legislatures. However, it seems that such legislative action will only arise from public outrage as to the improper use of GPS devices for tracking criminal suspects. This means that the desired legislative action depends upon the Government’s abuse of the ambiguity left by this decision.

Presently, the split in agreement among the court’s opinions suggests that short-term monitoring without a warrant would likely be deemed legal, especially if it lacked the trespass element of actually placing a device on a suspect’s vehicle. However, even the placement of the device may not prove to be much of a barrier since four members of the court already think that such placement is not even a “search.” Thus it seems likely that in a future case, another Justice would join these four in establishing a majority holding that the installation of the GPS device does not require a warrant. How “short-term” monitoring must be in order to avoid having to seek a warrant is unclear after this decision, but certainly less than the four weeks Jones was tracked in this case. In future cases where a warrant is properly executed for such tracking, Justice Alito’s concurrence suggests that the Government would be given more leeway as to the time over which they may monitor a suspect’s actions.

All in all, the Government does not appear to be much hindered by the Jones decision. The Government must simply follow procedure and receive a warrant if law enforcement wants to track a criminal suspect for an extended period of time using GPS tracking. However, based on the split of the justices and the ambiguities in the decision, law enforcement could presumably install a GPS device and monitor a suspect for several days before deciding whether or not to seek warrant for further monitoring.

Background Analysis of the Acts

Overview of the PROTECT IP Act (“PIPA”)

Following an earlier stalled attempt at passing similar legislation, on May 12, 2011, Senator Leahy introduced the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act (the PROTECT IP Act or “PIPA”).

The Act contained language that would authorize the Attorney General to initiate a civil forfeiture proceeding against a nondomestic domain name that is used in the U.S. and is associated with an Internet website “dedicated to infringing activities.” The Act defined an “Internet site dedicated to infringing activities” as an Internet site that has no significant use other than, or is marketed by its operator primarily as a means for, enabling or facilitating the reproduction, distribution or performance of copyrighted works. If a court grants an injunction, law enforcement officials can then serve court orders to operators of non-authoritative domain name servers to direct them to prevent access to seized domain names through the least burdensome technically feasible means. Non-authoritative domain name servers are intermediary servers used to resolve a domain name to its IP address; usually, they are general Internet service providers. An injunction also allows a law enforcement official to serve a court order to financial transaction providers (including credit card companies and PayPal), Internet advertising services, and information location tools (search engines) to require them to cut off service to the Internet site.

Perhaps the most important addition to PIPA was its inclusion of a private right of action for IP owners. For domestically registered domain names, the Act allowed the owner of an IP right harmed by the activities of an Internet site to bring suit against a person who registered the site’s domain name. The Act also allowed for an IP owner to bring suit against a nondomestic domain name that is being used by a site dedicated to infringing activities. A federal court can then issue an injunction against the domain name if it is used within the U.S. to access the website. An IP holder could then use this injunction to order financial transaction providers and Internet advertising services to stop providing service to the website.

In contrast to earlier legislation, the language of PIPA no longer required action by domain name registries to cut off access to an infringing site. Instead, the Act required action by nonauthoritiative domain name servers. The Act also required potential plaintiffs to make an effort at identifying a person connected with the infringing website before proceeding against the domain name itself.

Overview of the Stop Online Piracy Act (“SOPA”)

Seeking to introduce a bill in the House of Representatives that corresponded with the Senate’s PIPA, Representative Lamar Smith introduced the Stop Online Piracy Act on October 26, 2011. While SOPA contained several provisions that correspond with PIPA, it also had some key differences, most notably in respect to its private action provisions.

SOPA contained two main titles, the first of which was originally called the E-PARASITE Act. Title I was designed to encapsulate most of the enhanced copyright protection provisions of PIPA. In accordance with this, § 102 of SOPA authorized the Attorney General to take action in federal court against foreign websites that are dedicated to offering infringing content. The bill allowed courts to order ISPs, payment network providers (such as credit card companies and PayPal), search engines, and advertising services to take “technically feasible and reasonable measures” to prevent U.S. citizens from accessing the content.

SOPA’s provisions relating to private causes of action had some importance differences from those found in PIPA. SOPA’s § 103 creates a framework for rights holders to initiate such proceeding orders themselves, in a manner similar to the DMCA’s notice and take down procedures. Under SOPA, a rights holder could send a take-down notice to the accused website’s ISP or payment provider, stating that a website “engages in, enables or facilitates” infringement. Importantly, websites that deliberately acted to “avoid confirming a high probability” that the site is used to commit infringement also qualified for take-down notices. The ISP or payment provider would then have to forward the take-down notice to the website owner, who could respond via a counter notice if he had reason to object to the conclusion that the site was engaged in infringement. If a counter notice was received, then the ISP or payment provider would not have to cut off service. The rights holder would then have to pursue the action in federal court. In an important difference from PIPA, IP rights holder could initiate these proceedings against both U.S. and foreign-based websites under SOPA.

Title II of SOPA dealt primarily with creating increased penalties for the online streaming of infringing content. It was meant to be the House’s encapsulation of another bill recently introduced into the Senate, the so-called “illegal streaming bill.” The Act amended § 506(a)(1)(B), making a public performance by means of digital transmission a felony when the total retail value of the performance is more than $1,000. The Act also amended § 596(a)(1)(c) to add public performance “of a work being prepared for commercial dissemination” as an offense, an alteration from the statute’s current reference to “commercial distribution.”

Initial Opposition to the Bills

From the start, numerous technology advocacy organizations, including the Electronic Frontier Foundation and Public Knowledge, voiced concern and opposition to both bills. Over 100 law professors, lawyers and practitioners signed letters against both PIPA and SOPA, expressing concerns that the bills were overly broad and would result in a curtailing of technical innovation and free speech on the Internet.

Several technical groups and commentators also expressed concern that the bills would have a potentially disastrous effect on the Internet. Kent Walker, the Senior VP of Google, provided Congressional testimony that “DNS blocking itself could affect the Internet’s reliability, security, and performance.” In addition, others pointed out that the bills’ domain blocking approach would be ineffective, as the sites will still be accessible through their IP addresses.

Notably, the Electronic Frontier Foundation stated that not only would the bills “sabotage the domain name system,” they would “effectively eliminate the DMCA safe-harbor provisions that have spurred much economic growth and online creativity.” EFF also voiced concern that the bill’s broad definitions of a website “engaged in or facilitating” infringement could be used to cut off support for services like Tor, which has been instrumental in providing tools for anonymous free expression, but can also be used to mask the identities of illegal downloaders. Numerous public interest groups pointed out that the bill would allow IP rights-holders to cut off a website’s support system without any proceedings ever taking place in court.

The bills also faced stiff criticism from several technology trade groups. Fred Wilson, Principal of Union Square Ventures, expressed concern that SOPA would alter the DMCA safe-harbor landscape that has been instrumental in allowing start-up companies like Facebook and Twitter to avoid squandering money on litigation. The Future of Music Coalition refused to support SOPA, claiming that it “raises serious concerns about unintended consequences.” The Consumer Electronics Association, NetCoalition, and the Communications Industry Association sent a letter to the House expressing their opposition to the Act.

The Blackout Movement

Despite these numerous criticisms, both bills moved through their respective committees in Congress, enjoying broad bipartisan support and appearing to be on a fast track towards becoming law. Numerous websites soon began organizing days of protest as the bills moved through the legislative process. On November 16, 2011, the day that SOPA was debated in the U.S. House Committee on the Judiciary, Internet companies such as Mozilla, Techdirt and Tumbler took part in the “American Censorship Day” by displaying black banners over their site logos. In addition, after it was revealed that Internet domain name registration company GoDaddy.com supported the legislation, Internet users lead by the website Reddit staged a boycott of the site on December 29, 2011. This boycott resulted in GoDaddy.com changing its position to oppose the SOPA/PIPA legislation.

January 18, 2012 Blackout

Following these initial protest efforts, discussion began to formulate about a worldwide day of online protest against the bills. In December 2011, Wikipedia founder Jimmy Wales began discussion about the possibility of shutting down the popular user-contributed online encyclopedia. The social news website Reddit announced on January 10, 2012 that it would blackout the site for 12 hours on January 18, the day that one of its co-founders would testify before Congress about SOPA. Following a vote by the community in support of the proposal, Wikipedia announced that the English version of the website would be blacked-out for 24 hours on January 18, 2012.

An estimated 75,000 websites from around the world joined in on the blackout effort. Websites that blacked out their sites for the day included Boing Boing, the icanhazCheezburger Network, Oreily.com, Imgur, Mozilla, and numerous others. Many other websites dramatically altered the appearance of their website while urging visitors to contact their Congressional representatives. Popular websites Google, Craigslist, Flicker all took part in such censoring efforts. The website sopastrike.com contains a list of all websites that took part in the blackout effort.

Public Reception of the Blackout and Congressional Reaction

The blackout effort received a large amount of media coverage from around the world and was widely viewed as a success. A reported 1 billion visitors were blocked from visiting websites. Over 10 million signatures, 8 million calls and 4 million emails were sent to Congressional representatives expressing opposition to the bill. Discussion of the blackout took over most online social services, with Twitter reporting over 2.4 million tweets about the subject. Media reports varied in their coverage of the blackout, with some hailing the effort as a success and others calling the effort a “hissy fit.” The New York Times described the blackout as ‘Noted, but as a brief inconvenience.” Leaders from the content industry, including representatives from the Motion Picture Association of America and the Recording Industry Association of America, voiced opposition to the blackout, calling it an “abuse of power.”

The online opposition movement triggered a response from Washington before the blackout even officially began, with President Obama announcing his opposition to the bills. Following the blackout 18 Senators (including six of the bill’s original sponsors) and more than 20 Representatives switched their positions on the bills. Time reported that before the day had ended, “the political dominoes [in support of the bills] began to fall.”

While a floor vote on SOPA was scheduled to take place on January 24, 2012, the vote was postponed. Senate Majority Leader Harry Reid instructed the bill’s main sponsor to work out a compromise between the interests of the content industries and the concerns of online protesters. Similarly, the House Judiciary Subcommittee announced that further voting on PIPA would be put off until a consensus could be reached. Subsequently, several media outlets reported that both bills have been shelved indefinitely.

The Future of Online Protesting and Copyright Law Reform Movements

What may prove to be the most interesting and important aspect of the blackout movement is the fact that it represents the first time the technology and Internet communities have come together to form a political movement. Commentators have noted that the movement “epitomizes a promising new turn in American politics, as critics of intellectual property law finally find an audience and, more important, the makings of a political constituency.” Indeed, the blackout movement caused Harvard law professor and intellectual property scholar Lawrence Lessig to proclaim that “for the first time ever, the Internet ha[s] taken on Hollywood extremists and won.” The blackout efforts eventually caused major media outlets to stop and investigate the story behind the new ‘Silicon Valley Coalition’ that had successfully halted legislation that enjoyed broad bipartisan support. “A new and profoundly different political force has emerged in the last few months,” wrote one commentator, “a constituency that identifies itself not by local interests but as citizens of the Internet.”

While the blackout movement definitely appears to be a significant moment in the history of the Internet and the future of copyright legislation, it is also clear that challenges lie ahead for this newly minted political contingency. Importantly, the movement has to determine and agree on what to do next, which may prove to be no small feat for what has traditionally been a decentralized environment. It is clear that creative content producers will continue to lobby for new legislation to protect their interests on the web. The question that remains is whether the Internet community will begin to exert the political force necessary to make sure that any such future legislation will not protect creative content at the expense of the continued evolution of the Internet.

In reaching this decision, the Court relied upon In re Grand Jury Subpoena to Boucher, 2007 WL 4246473 (D. Vt. Nov. 29, 2007) (Boucher I) and In re Grand Jury Subpoena to Boucher, 2009 WL 424718 (D. Vt. Feb. 19, 2009) (Boucher II). The Boucher decisions, in turn, relied upon the Supreme Court’s decision in United States v. Doe, 487 U.S. 201 (1984).

Doe distinguished between compelling the testimony of new information to the government (not permitted under the Fifth Amendment) and compelling giving access to existing information (permitted so long as the act of production results in no new facts). Thus, a defendant may be compelled to provide a key to a wall safe. In contrast, a defendant may not be compelled to provide a combination since the combination itself would constitute new information. Therefore, the government may compel a defendant to provide access to a computer’s contents once it knows the defendant has the ability to access the computer. But it may not compel production of a password.

This may seem like a distinction without a difference, but there could be scenarios where information like the password is itself incriminating — for instance, if the password was “ImGuiltyScrewTheFeds.” Moreover, to the extent that people frequently reuse passwords, providing a password to the government could enable unsanctioned fishing expeditions across the Internet.

Although civil liberties groups have expressed concern about the decision, it will have little impact on tech savvy computer users. The defendant here used an encryption program called PGP Desktop. She could easily have avoided her current dilemma by using comparable encryption software with a “hidden container” feature, such as TrueCrypt. In effect, TrueCrypt permits its users to encrypt their computers with two different passwords. Using the first password to decrypt the system would reveal one set of data. Using the second password would reveal an additional hidden set of data. TrueCrypt is designed in such a way as to render it technically infeasible to detect the presence of the hidden data, absent the second password.

Absent any other information, the owner of a computer encrypted in such manner may plausibly deny the existence of hidden data. Moreover, the Fifth Amendment bars the government from compelling access to this hidden data since to do so would confirm that the hidden data exists.

That said, the government may compel access to hidden data should the government discover its existence through other means. In Fricosu, the court pointed to a recorded conversation between the defendant and her ex-husband as evidence that the defendant was capable of decrypting the laptop in question. While technology like TrueCrypt can make it technically impossible to tell if hidden data exists, revealing that fact to others could make it a moot point.

In its ruling, the Court said that “a process which involves removal of a stem cell from a human embryo at the blastocyst stage, entailing the destruction of that embryo, cannot be patented. The use of human embryos for therapeutic or diagnostic purposes which are applied to the human embryo and are useful to it is patentable, but their use for purposes of scientific research is not patentable.”

Case Background

Professor Bruestle, a German neurology professor and one of the leading stem cell research pioneers, is the holder of the disputed German patent. The patent, filed on December 19th 1997, concerns isolated and purified neural precursor cells, methods for the production of such neural precursor cells from embryonic stem cells, and the use of such neural precursor cells for the treatment of neural defects such as Parkinson or Alzheimer. The patent seeks to resolve the technical problem of using embryonic stem cells to produce an almost unlimited quantity of isolated and purified precursor cells having neural or glial properties. Professor Brustle’s patent was issued in Germany as DE 19756864 in 1999. 

Greenpeace e.V. sought a fundamental decision on how the protection of human embryos is to be laid out under EU (patent) law, and therefore chose to oppose Professor Bruestle’s patent. Greenpeace wanted the patent to be declared invalid for moral reasons (“ordre public”), in light of ethical objections to the commercialization of human life. In its view, § 2 II 2 of the German Patent Act (“PatG”) and the German Stem Cell Act would not allow patent DE 19756864. On application by Greenpeace e.V., the Bundespatentgericht (Federal Patent Court, Germany) ruled on December 5th, 2006 that Prof. Bruestle’s patent was invalid in so far as it covers processes for obtaining precursor cells from human embryonic stem cells. Professor Bruestle appealed the Federal Patent Court’s decision to the Bundesgerichtshof (Federal Court of Justice, Germany).

Relevant Aspects of EU and German National Law

The Bundesgerichtshof, hearing Prof. Bruestle’s appeal, decided to refer several questions to the European Court of Justice (“ECJ”) for a preliminary ruling. Referral to the ECJ was necessary as the patentability of Bruestle’s patent under the PatG, depended on the definition of certain terms under the EU directive on which the pertinent part of the PatG was based. According to Article 267 of the Treaty on the Functioning of the European Union, a national court shall bring the interpretation of acts of the institutions of the Union (Directive 98/44/EC in this case) in a pending case in front of the ECJ. In its role as the highest European Court, the ECJ decides questions concerning the interpretation of EU Law in order to guarantee a common understanding within the European Union. The need for a uniform application of the European Union law requires that the terms of a provision of European Union law, which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope, must normally be given an independent and uniform interpretation throughout the EU. Thus the national law, the German Patent Act, has to be in accordance with the Directive.

Specifically, the outcome of the application for annulment by Greenpeace depended on the interpretation of the concept of ‘human embryo’ as used in the EU Directive (98/44/EC) on the Legal Protection of Biotechnological Inventions. This so-called EU Biotechnology Directive rules out patentability for certain inventions, including “uses of human embryos for industrial or commercial purposes.”

On a fundamental level, the issue was whether the technical teaching of Brustle’s patent was excluded from patentability under § 2 II 1 No. 3, of the German Patent Act, which states: “patents shall not be granted in respect of the uses of human embryos for industrial or commercial purposes.” The answer to this question, in turn, depended on the interpretation that should be given to Article 6 (2) (c) of the EU Biotechnology Directive 98/44/EC, which states: “inventions shall be considered unpatentable where their commercial exploitation would be contrary to ordre public or morality . . . in particular uses of human embryos for industrial or commercial purposes . . . shall be considered unpatentable.”

§ 2 II 1 No. 3, of the German Patent Act is derived from this EU Directive. EU Directives harmonize law within the EU, and the Member States have to implement the legal meaning of the Directive into their national statutes – in this case into the German Patent Act – a process that leaves space for interpretation, legal uncertainties and disputes such as this one.

Article 6 (2) (c) of the Directive does not allow the Member States any discretion regarding the fact that the processes and uses listed therein are not patentable. In other words, § 2 II of the German Patent Act – in particular the concept of embryo which it uses – cannot be interpreted differently from that of the corresponding concept in Article 6 (2) (c) of the Directive.

Holding

One of the questions that the Bundesgerichtshof asked the ECJ to address was the meaning of the term “human embryos.” The EU Directive itself, as the primary legal source, does not define the term “human embryo.” The ECJ underlined that an autonomous concept of European Union law must be applied when looking for the definition for the purposes of a uniform interpretation of law within the EU: “The lack of a uniform definition of the concept of human embryo would create a risk for the authors of certain biotechnological inventions being tempted to seek their patentability in the Member States which have the narrowest concept of human embryo and are accordingly the most liberal as regards possible patentability, because those inventions would not be patentable in the other Member States.” ECJ Judgment at ¶ 28. This result would create an obstacle to inter-Community trade and thus be contra-productive for the Internal Market, one of the major goals of the European Union (as laid out in Article 26 of the Treaty on the Functioning of the European Union).

Thus the Court sought the definition within the EU law and concluded that “the concept of ‘human embryo’ has to be understood in a wide way” because “the European Union legislature intended to exclude any possibility of patentability where respect for human dignity could be thereby affected.” Id. at ¶ 34. “[Al]though [the EU] seeks to promote investment in the field of biotechnology, use of biological material originating from humans must be consistent with regard for fundamental rights and, in particular, the dignity of the person.” Id. at ¶ 32. Therefore “any human ovum after fertilization, any non-fertilized human ovum into which the cell nucleus from a mature human cell has been transplanted and any non-fertilized human ovum whose division and further development have been stimulated by parthenogenesis constitute a ‘human embryo’ within the meaning of Article 6(2)(c) of the Directive.” Id. at ¶ 38.

Furthermore “the concept of ‘uses of human embryos for industrial or commercial purposes’ within the meaning of Article 6(2)(c) of the Directive also covers the use of human embryos for purposes of scientific research.” Id. at ¶ 39.

In addition to this, “Article 6(2)(c) of the Directive excludes an invention from patentability where the technical teaching which is the subject-matter of the patent application requires the prior destruction of human embryos or their use as base material, whatever the stage at which that takes place and even if the description of the technical teaching claimed does not refer to the use of human embryos.” Id. at ¶ 52. “The fact that destruction may occur at a stage long before the implementation of the invention, as in the case of the production of embryonic stem cells from a lineage of stem cells the mere production of which implied the destruction of human embryos is, in that regard, irrelevant.” Id. at ¶ 49.

Outlook

After having received clarification regarding the interpretation of EU law, the Bundesgerichtshof must now decide on Bruestle’s appeal on the annulment of his patent. As the ECJ pointed out, “[a]s regards stem cells obtained from a human embryo at the blastocyst stage, it is for the [Federal Court of Justice] to ascertain . . . whether they are capable of commencing the process of development of a human being and, therefore, are included within the concept of ‘human embryo.’” Id. at ¶ 37. Given Germany’s broad understanding of the beginning and end of “human life” for historical and ethical reasons, it seems very likely that Bruestle’s appeal will not be successful, and his patent will remain invalid.

Implications

The ECJ’s decision only ruled upon the unpatentability, but not the research with stem cells itself. Prof. Bruestle commented on the ruling that “[i]t means that fundamental research can take place in Europe, but that developments that follow from that cannot be implemented in Europe. It means European researchers can prepare these things, but others will pick the fruits in the US or Asia. That is very regrettable.”

Paradoxically, stem cell research has been broadly funded by the European Union in recent years. Consequently, many pharmaceutical and biotechnological companies locate their research headquarters in Europe – often next to very good universities or national laboratories where the necessary highly qualified and specialized human resources can be found. Therefore, the decision might not directly affect European stem cell research in the way Professor Bruestle fears. In fact, the pharmaceutical and biotechnology industry’s reaction towards the decision in various newspaper statements has not been that negative. The industry will simply have to patent its inventions in the rest of the world.

by Claudia Langer, Attorney at Law admitted to the German Bar, Ph.D. Researcher and Visiting Scholar at UC Berkeley Law School