Private Law & IP, Licensing II

Session 4: Licensing II

Moderator: David J. Kappos

 

Karen Sandrik, “Empowering Inventors”: Reformers must understand the law they are planning to reform before trying to reform it. Stephen Smith, Contract Theory.  Shiffrin, Divergence of Contract & Promise: two sets of norms—legal and moral. Shiffrin says you are the author of your own story and the law should accommodate this. Kar: broad range of human needs can work together: efficiency, fairness, trust, reliance, harmony, etc. R&D collaboration partnerships—innovation in the shadow of the law.

 

Normal pharma contract: Eli Lilly v. Emisphere Tech: Eli Lilly wants to help them develop it; very complex agreement. Very clear that the tech now and after collaboration would belong to Emisphere, even after commercialization, and that Eli Lilly shouldn’t work in their own lab on it.  Other aspects of the agreement were loose/informal, but the court looked at this and saw Eli Lilly as having cut out Emisphere in commercializing it.  Emisphere learns after the fact after both walked away, as the contract allowed, that Eli Lilly had a patent in the area Emisphere had spent years developing. Emisphere sues for breach of contract/return of patent.

 

A gap in morality and law may be corrosive to our institutions.  Kimble v. Marvel: a patent attorney who comes up w/shooting web toy.  Court didn’t enforce clear intention of the parties for licensee to pay for its continued use of the invention post-patent expiration.  We should treat promises the same or we get conflicting results.  Court isn’t transparent about why there’s no enforcement.  Although it’s an outdated rule, that’s not the key reason—contract law would have handled it differently.  Promise should be enforced unless there’s clear harm to the public.  Promissory obligation should have more weight; otherwise there’s corrosive effect on R&D, which often starts out w/ simple agreement & grows into multilayered license.

 

Where not to enforce: Harry Steenbock comes up w/ groundbreaking tech that will eradicate rickets. Doesn’t want to take out patents; he’s a researcher, but he’s persuaded to apply & gets several patents covering his inventions. He wanted to get patents in order to avoid patent pirates that would use patents to restrict access.  He also wanted to control the quality of the product, including down to the taste of the food.  You had to come to his lab to learn his technique.  At first it worked.  Empowered by contract law to let others use his tech with a promise to maintain quality.  Over time: Access to his tech was blocked; prices got too high (even with high quality, he wouldn’t release it); other licensing practices looked bad.  Patents were eventually invalidated on antitrust grounds. We can learn from contract: contract handles this well, and patent doesn’t. Public policy defense would be a way for licensees to say they have a right not to uphold their promises.

 

Commentator: Oren Bracha: Kimble was a case of refusing to overrule prior precedent even if it doesn’t make any sense.  We can keep the rule saying certain promises won’t be enforced b/c it’s easily evaded.  That’s a bit unfair, but it’s sort of what the Court says.  Sandrik says that’s a terrible reason.  What does that have to do with the relationship of contract law to the norms of promise-keeping?  It makes the rationale nontransparent/incoherent, so a moral person who wants to assess this particular norm is left helpless.  Beyond that, there’s a more fundamental problem: the parties agreed/promised.  Strong separation between public policy, whether efficiency or something else, and contract law, which is the realm of keeping promises.

 

As to the first argument: it’s limited to those specific circumstances of Kimble: Court bases decision on stare decisis, not relevant elsewhere.  But exactly under the Shiffrin framework, there might be good justification for divergence b/t norms of promise keeping and contract: Shiffrin says divergence is ok where there are distinctively legal normative arguments for the divergence.  And stare decisis is distinctively legal.

 

Assume that Kimble has some justification in patent policy (though that’s not the majority).  Still conflicts w/ keeping promises norm. What exactly is wrong with a general structure that says, even within contract law, this norm of keeping promises is overridden by other considerations, including public policy.  Rather than building contract law on promise keeping; it’s saying that promise-keeping is a consideration w/in contract law, as well as others.

 

Kappos: Example of other cases where contract would work well?

 

Sandrik: other patent licensing cases where there are agreements to assign, involving universities.  If you don’t say “I grant you” and say “I will grant” we don’t enforce the promise.  We create this weird rigid formal structure that doesn’t work, and contract law would handle it if you clearly anticipated an assignment.  Four corners/intent are contract principles that would be useful.  IP licensing has weird doctrines, leads to wordsmithing/routes around special rules. Contract = if the parties agree, absent public policy issues, then that’s enough.  Exceptions include public health; enforcing a statute (antitrust); etc.

 

Bracha: Contract law has formalities, with well-known purposes. We can debate what formalities ought to be required, and innovation policy can bear on which they should be.

 

Scott Kieff: Kimble/Brulotte/Quickpoint: the language of the SCt speaks about speaking clearly: if you’re straightforward, and you’re contracting over the option—patent may exist, may be valid, may never be issued, may expire—if you price each state differently, at least the majority in Aronson seems to say such a commercial contract between sophisticated parties would be complete and enforceable. Maybe it’s about protecting smaller entities (even though Marvel wins in Kimble) and clear contracting.

 

Sandrik:  Kimble seems to be more about Roe v. Wade. Contract in Kimble seems to be more about trade secret/something else than the patent, which they sold.  She’s ok with formalities; Quanta was just a poorly drafted contract, and Intel tried to get what it didn’t get with contract law. 

 

Jacques de Werra, “Two Challenges of Global Intellectual Property Licensing at the Interface between Contract and Property”: Non-US focus.  Atomization/fragmentation due to different rules.  Paper explores how to minimize fragmentation.  Freedom of contract may create tensions with local public policies.  Issue of standing is beyond the power of contracting parties in US.  But still worth exploring role of freedom of contract.

 

Who can sue for patent infringement? Exclusive licensee? Parties should select rather than local courts.  Is the right to sublicense relevant?  Yes, but should be decided under local law.  Can we have a uniform solution?  Current rules split between China, Japan, Europe.  IP asset purchases: allow licensor termination because licensor sold to another?  One way would be to invoke the concept of a third-party beneficiary, including implied obligation of licensor to tolerate former licensee.  Difficulty may arise b/c of confidentiality clauses.  Content can’t be disclosed to third parties, who might still be told they’re bound.  Local registries for licenses: notice to third parties? In many cases the license itself isn’t recorded, just a one page document—doesn’t really make sense, because third party is formally notified about existence of license but has no idea of the content.

 

Commentator: Bruce Boyden: Even if countries agree that exclusive licensees have standing to sue, there are still issues with who counts as an exclusive licensee.  How far down the line can we realistically go and get int’l agreement?  On persistence of license post-sale—significant policy differences exist.  May be unfair to licensee who reasonably expected a longer agreement if new owner can terminate; may also be unfair to new owner if it didn’t know what the terms of the license were before it bought.  So this is not an easy question.

 

Single transaction can mutate into different forms depending on where executed—arises from analogy to real property; IP tries to make intangible rights more thing-like by giving rights to exclude that in the real world might be subject to physical exclusion.  Here, might be able to make them more thing-like by giving more legal force to equally intangible agreements: IP rights as the wavicles of law, with property and contract like elements. There’s no transfer of possession that occurs as a result of an exclusive license—the buyer starts doing something and the seller stops.  With physical property, you’re only subject to one state’s law at any given time, but IP object seems to be present simultaneously everywhere the IP owner has rights.  Weird to say that those dimensions can vary from place to place simultaneously.  Contract law handles that particular problem better than standard property law, at least to the parties’ expectations ex ante. Maybe there’s not one IP right but a set of national IP rights under each nation’s law, in a way that physical objects don’t divide.

 

Kappos: China, India, Korea putting into place requirements for how you can license your US patents if you want to do business there. Gov’ts reaching into contract regime and not allowing you to contract around the baseline they set.

 

A: this is a matter of state resistance; not easy to overcome. We sometimes focus too much on hard law int’l agreements. Soft law may be helpful.  WIPO recommendations on TM licenses, where you can see definitions of exclusive license etc.  IP law will have to be treated locally, subject to conflict of laws; one way to avoid that would be to try to find a unanimously recognized ability to pick one set of laws.