President Obama reportedly gave an iPod, loaded with 40 show tunes, to England's Queen Elizabeth II as a gift. Did he violate copyright laws when he did so?

Read here for a great analysis.

Dear Colleague,

I am pleased to share a new paper, "Intellectual Property Rights Protection in China: Trends in Litigation and Economic Damages," http://reaction.nera.com/rs/ct.aspx? ct=24F768199BEA43ECC4D881ABD62D9954A4920990EDA138EA670 written by NERA Senior Consultant Kristina Sepetys and Senior Vice President Dr. Alan Cox. The paper describes the changing role of Intellectual Property Rights (IPR) enforcement in an evolving economy such as China's, as well as the judicial and administrative procedures available for IPR enforcement. Drawing upon a unique dataset compiled by the authors, the paper also examines trends in damage awards in IPR cases in China. The authors conclude that IPR damages in China are generally too low to compensate IPR owners for their losses or to have any meaningful deterrent effect.

However, the paper's findings also suggest that significant damage awards are being awarded and that the frequency of such awards continues to increase. This conclusion is corroborated by recent events. For example, in a recent decision by the Intermediate People's Court of Hangzhou, Korean electronics maker Samsung was ordered to pay 50 million Yuan (approximately US$7.3 million) in compensation to Holley Communications for infringing Holley's handset patent. This patent infringement case decision is the largest ever compensation amount in China's mobile phone industry. In another important development, the Standing Committee of China's National People's Congress recently approved the third Amendment to China's Patent Law. The revised Law will take effect on 1 October 2009 and includes, among other features, a provision to increase the upper limit of statutory damages to 1 million Yuan (about US$150,000).

This paper will also be available in Chinese. Please contact the authors if you would like to receive a copy.

Please visit our website at http://reaction.nera.com/rs/ct.aspx? ct=24F768199BEA43ECC4D881ABD62D9954 AEAD5B90E3A33CEC7E9255565CC9E038FF417 to browse other papers produced by our Intellectual Property Practice.

As always, we welcome your feedback.

Regards,

Phillip A. Beutel Senior Vice President and Chair of Global Intellectual Property Practice +1 914 448 4014 phil.beutel@nera.com www.nera.com

NERA Economic Consulting 50 Main Street White Plains, NY 10606

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It is heartening to find more and more critics of our intellectual property regime, partly as a result of growing knowledge but more importantly, the growing critical reaction to the extreme excesses of the application of the law. A new voice for me is that of Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC. whose book, THE CONSERVATIVE NANNY STATE; How the Wealthy Use the Government to Stay Rich and Get Richer, is available for download on line link here under a Creative Commons license. The book is about much more than IP, as the subtitle indicates, but this review focuses on the IP issues Baker covers. He calls the chapter, "Bill Gates Welfare Mom: How Government Patent and Copyright Monopolies Enrich the Rich and Distort the Economy".

He begins by examining the richest man in the world, Bill Gates, and Microsoft, noting that it was not Gates hard work or brilliance, or the superiority of his software, but his government provided monopoly based on IP law that made him today's Croesus.

The heart of Baker's argument is that the same situation applies to patent protection in the pharmaceutical industry, and copyright protection in the entertainment industry. Vast segments of the economy are dependent on government-enforced monopolies for their profitability and survival. "In the case of prescription drugs, patent monopolies raise the average price of protected drugs by more than 200 percent, and in some cases by as much as 5,000 percent." "In the case of copyright protection, items like software and recorded music and movies that would otherwise be available at zero cost over the Internet, can instead be sold for hundreds of dollars. Clearly these forms of protection are substantial interventions in the economy."

He goes on, "The government is not obligated to award patent and copyright protection; it only makes sense if these are the best ways to promote innovation and creativity." "Copyright and patent protection support a $220 billion a year prescription drug industry, a $25 billion medical supply industry, a $12 billion recorded music industry, a $25 billion movie industry, and a $12 billion textbook industry. According to the International Intellectual Property Alliance, industries that rely heavily on copyright and patent protection accounted for $630 billion of value added in 2002, almost 6 percent of the size of the economy."

Baker's more original argument is that IP does provide an incentive for innovation as the constitution requires, but that there are less costly ways of doing so. He does so in a section titled "Efficient Mechanisms for Supporting Innovation and Creative Work".

He opens with an example, that "patent-protected brand drugs sell for more than three times the price of generic drugs that sell in a free market. This means that the country could save approximately $140 billion a year on its $220 billion annual bill for prescription drugs if the government did not provide patent protection and drugs were instead sold in a competitive market." The country could save much of that, if the research were carried on by the government, as in fact much of it already is (though to the gain of IP owner).

Baker next turns to copyright and singles out the textbook racket for close attention, arguing that revised texts are constantly being marketed with little real change in substance and at great cost. Again he would turn to the government to fund standard texts, but would allow copyrighted versions as well, which would have to find their place in a freely competitive market.

For the broader class of copyrighted material, Baker suggests a voucher system in which individuals would be given a set value of vouchers that he could credit to one or more artists. They in turn would put their creations on the internet, making them free to download. If the artist wants to copyright his work and sell it at whatever the market will bear, he could alternatively do that.

Baker ends by noting that these may not be the best alternatives to patents and copyrights, but that alternatives need to be explored.

The rest of Baker's book is ideological and will put off any who are not self identified progressives or liberals. But his basic argument is that conservatives have framed the issues in terms that they would keep the government out of much of the economy but that this is a lie. For Baker, the issue is that the government intervenes for the rich to the cost of for everyone else.

Is the Digital Theft Deterrence Act constitutional? It is being challenged by the Boston University student Joel Tannenbaum and Harvard law Professor Charles Nesson link here. The case questions how the act allows a private group copyright holders to enforce a criminal statue by way of civil suits. Mr. Nesson's goal in making this argument is to ‘'turn the courts away from allowing themselves to be used like a low-grade collection agency."

This is an interesting strategic response to how the recording industry uses current law to end file sharing of copyrighted material. I wouldn't expect an early result, but anything that makes the industry's enforcement more difficult and expensive is good news for consumers.

Just because current IP law needs reform--to say the least--does not diminish the need to understand existing IP law so as to be aware of it and navigate around it. With this in mind, I'd like to mention four excellent new IP law books I've acquired. Each of these was published in 2008 by Oxford University Press (my publisher as well) as part of its expansion of its IP offerings.

The first two are useful for patent practitioners and companies: Intellectual Property Culture: Strategies to Foster Successful Patent and Trade Secret Practices in Everyday Business, by Eric M Dobrusin and Ronald A Krasnow (reviewed here); and The Business of Intellectual Property, by Christopher M. Arena & Eduardo M. Carreras.

Patent Appeals: The Elements of Effective Advocacy in the Federal Circuit, by Mark Simon Davies, will be most useful for patent litigators, and Publishing Forms and Contracts, by Roy Kaufman, will be of interest to media, entertainment, and copyright attorneys as well as media companies. All four of these books are handsome and nicely done, and, although I have not read all of them in detail yet, they all look to be very well-done and useful to their respective audiences.

Here [PDF] is a legal opinion on trademark law that is well worth reading. [E.S.S. Entertainment v. Rockstar Games, Inc.]

The opinion contains several gems such as:

"A reasonable consumer would not think a company that owns one strip club in East Los Angeles, which is not well known to the public at large, also produces a technologically sophisticated video game like [Grand Theft Auto] San Andreas."

...

"[F]ans can spend all nine innings of a baseball game at the hot dog stand; that hardly makes Dodger Stadium a butcher's shop."

While the court's opinion is, of course, correct, I am continually amazed that the legal system still allows IP attorneys to even make such frivolous claims without being sanctioned.

In his helpful alert, Stephen Spear may have overstated the case "that business method and software patents are probably done for" in light of the Federal Court of Appeals decision in the Bilski case. It marks a significant step back from the brink of unhinged insanity in terms of patent policy, but it still isn't the true and thorough reformation that is needed.

However, everyone visiting this site should do themselves a favor and read Judge Mayer's sublime dissent in the Bilski case - arguing that the majority decision doesn't go nearly far enough in curtailing patent abuses.

Mayer's dissent starts on page 98 of this PDF document and continues on through page 122.

A few small tastes of an opinion that is worth posting in its entirety:

There are a host of difficulties associated with allowing patents to issue on methods of conducting business. Not only do such patents tend to impede rather than promote innovation, they are frequently of poor quality. Most fundamentally, they raise significant First Amendment concerns by imposing broad restrictions on speech and the free flow of ideas.

...

Business innovations, by their very nature, provide a competitive advantage and thus generate their own incentives.

...

It is often consumers who suffer when business methods are patented...Patented products are more expensive because licensing fees are often passed on to consumers...Further, as a general matter, "quantity and quality [of patented products] are less than they would be in a competitive market."

Patenting business methods makes American companies less competitive in the global marketplace.

Read the whole thing!

The Senate Jucidiary committee has reported a bill that will assign the Department of Justice the obligation of enforcing copyright. In an unusual outbreak of common sense, the Department of Justice opposes the bill arguing that it is for the private sector to enforce intellectual property through civil law.

It is interesting and little known that history is repeating itself. From chapter 2 of our book:

At the turn of nineteenth, the music industry was different from the one we are familiar with today. No CDs, no mass concerts, and no radio and TV rights. The core source of revenue was the sale of printed sheet music, which was carried out worldwide and on a very large scale. We learn, for example, that in Britain alone about twenty million copies were printed annually. The firms carrying out this business were not large multinationals as today, but family owned companies, such as Ricordi in Milano, which, nevertheless, managed to reach also foreign countries. Apparently these "majors" managed to collude quite efficiently among themselves. The records show that the average script sold in the U.K. for about a fourteen pence. Then piracy arrived, as a consequence of two changes: the development of photolithography, and the spread of "piano mania", which increased the demand for musical scripts by orders of magnitude. Pirated copies were sold at two pence each.

Naturally the "authorized publishers" had a hard time defending their monopoly power against the pirates, enforcement costs were high and the demand for cheap music books was large and hard to monitor. Music publishers reacted by organizing raids on pirate houses aimed at seizing and destroying the pirated copies. This started a systematic and illegal "hit and destroy" private war, which lead, in 1902, to the approval of a new copyright law. The latter, surprise, surprise, made violation of copyrights a matter for the penal code, putting the police in charge of enforcing what, until then, was protected only by the civil code.

...

But the police campaign did not work either. After a few months, police stations were filled with tons of paper on which various musical pieces were printed. Being unable to bring to court what was a de-facto army of "illegal" music reproducers, the police itself stopped enforcing the copyright law.

The eventual outcome? The fight continued for a while, with "regular" music producers keen on defending their monopoly and restricted sales strategy, and "pirates" printing and distributing cheap music at low prices and very large quantities. Eventually, in 1905, the king of the pirates, James Frederick Willett, was convicted for conspiracy. The very same leader of one of the music publishers associations, and the man who had invented the raids, launched the Francis, Day & Hunter's new sixpenny music series. Expensive sheet music never returned

A full en-banc 11 judge panel was asked to reconsider their previous ill-advised opinion, and a majority managed to come to their senses by an 8 to 5 vote.

In reading the opinion, it is clear what a monstrosity the Copyright Act has become - not just substantively, but in form. What ought to be the simplest of all laws that governs the flow of speech and information for everyone has now reached a level of complexity akin to the tax code.

But if you are patient and are able to get through it, you will understand just how constipated the thinking is of the dissenting judges. (Be sure to read all of the footnotes as well. The majority opinion uses them to eviscerate the reasoning of minority.)

There are so many things wrong with so many issues discussed in the opinion that it is impossible to address in one sitting. I'll only touch upon a few here.

The truly bizarre opinion comes from Judge Birch's dissent, which begins on page 27 of the opinion. Is he really suggesting that if a magazine publisher digitally transfers its pages to a CD-ROM, no copyright violation takes place, but if you then add a search program to the CD-ROM's contents, the photographer who contributed to the magazine then has a valid claim for infringement?? Maybe I'm somehow misreading the opinion, but that is the conclusion I'm drawing from it.

Nope. I didn't misread the opinion. William Patry drew the same conclusion from Birch's original decision. Patry provides additional background on the case in his post. As Judge Burch notes in the 26th footnote to the opinion "Moreover, Professor Patry even refers to me as a 'Luddite' in his recent copyright treatise edition."

In my view, that is a rather charitable word to describe Judge Birch regarding his view of copyright law.

Also be sure to check out his views on pages 72-73 of the opinion that essentially states that it is actually OK for publishers to store historical archives, just as long as access to them is limited to small, elite group of "researchers and scholars" - not the general public.

Judge Anderson's dissent isn't quite as bizarre, but that's not saying all that much. It is still so obviously wrongheaded that it is painful to read. His reasoning can be summed up in the example he cites on page 77 of the opinion which I will paraphrase as such -

Photographer X contributed a photograph to National Geographic Magazine for its March 2000 issue on Africa. He retains copyright in the individual photograph, but National Geographic has the right to reproduce it as part of its 'collective work' - meaning its magazine issue.

Years later, National Geographic decides to publish an anthology of all its past issues that dealt only with the subject of Africa, omitting the issues on other subjects. As part of this anthology, the March 2000 issue was reproduced - bound in the volume along with all of the other issues pertaining to Africa.

Anderson claims that if National Geographic merely re-printed the March 2000 issue as a stand-alone copy, there would be no copyright problem. But by placing it in the context of a larger anthology of Africa, Photographer X now miraculously has a claim for copyright infringement - even though X's photograph is reproduced within the exact same context within the issue itself. [The majority opinion points out in footnote 18 that Anderson's example should indeed be protected activity.)

What the hell is going on in that Circuit?? I realize that the majority thankfully won out in this case, but somebody still needs to switch out the Kool-Aide over there.

A notable (and legally correct) decision from the 10th Circuit Court of Appeals was just handed down that is well worth a read -

Meshworks Inc. v. Toyota [PDF file]

It essentially says if a digital artist independently creates a depiction of a copyrighted object that is too realistic looking, then his or her creation loses independent copyright protections since there is no 'originality' involved. This is so, even if it took hundreds of hours worth of labor to get the virtual object to look as realistic as possible.

This case is well written and serves as a great primer on the law of copyright in regards to the constitutional requirement of 'originality'. Anyone involved in the debate over IP should definitely check it out.

News coverage of the decision can be read [Posted at 06/18/2008 11:11 PM by Justin Levine on IP Law comments(0)]

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