Michael Froman’s decision in the Apple/Samsung ITC patent dispute and the USTR trade agenda

froman.jpgOn Saturday, August 3, 2013, USTR head Ambassador Michael B. G. Froman wrote to the Chairman of the U.S. International Trade Commission (ITC), to “disapprove the USITC’s determination to issue an exclusion order and cease and desist order” for Apple Inc. “smart phones and tablet computers that infringe a U.S. patent owned by Samsung Electronics,” in the ITC Investigation No. 337-TA-794. (copy of letter here) According to press reports, this is the first time since 1987 that the White House has overturned an exclusion order by the ITC.

Froman’s letter cited the legislative history of USC § 1337, which includes a review of the impact on “(1) public health and welfare; (2) competitive conditions in the U.S. economy; (3) production of competitive articles in the United States; (4) U.S. consumers; and (5) U.S. foreign relations, economic and political.”

By deciding that Apple would be allowed to import devices into the United States that infringe a patent held by Samsung, the USTR signaled that it would not back the exclusive rights in patents cases where there are abuses or conflicts with the public interest, or other domestic concerns. While written to address the narrow issue of injunctions for “standards-essential patents” (SEPs), the decision clearly has broader political significance, coming at the moment the U.S. is trying to conclude the intellectual property chapter in the Trans-Pacific Partnership (TPP) Agreement, and in the middle of a major effort to dissuade India from granting compulsory licenses on patents on drugs for cancer and other illnesses.

This is perhaps Froman’s most high profile decision since formally taking over leadership of the USTR following his confirmation on June 19, 2013. It raises a broader question of USTR policy on intellectual property rights, at a time when some are questioning longstanding IPR maximalist dogma embraced by many U.S. government trade negotiators. While the decision is clearly an important data point, it is worth remembering that Froman has long supervised the USTR’s trade agenda from the White House, and USTR may hope that the Apple/Samsung ITC decision, released on a Saturday in August, will be seen as a narrow and pragmatic effort to implement the existing DOJ/USPTO position on standard-essential patents (/node/1663), and not a change in Administration policy.

In general, however, the USTR is faced with a broader challenge. Can the USTR come to grips with the growing recognition that the existing IPR regime is not not only flawed, but in need of new thinking and new policies, including new trade policies?

In the past, the Obama Administration has floundered on IP policy, much of this under Froman’s discrete White House supervision. The administration has frequently pandered to PhRMA and the hardliners at the MPAA and the Chamber, when it comes to patents and copyright trade policies, and staffed the USPTO (Permutter, Hughes, Ferriter, Reeves, etc), USTR (McCoy) and Commerce (Wilson), OMB (Espinel) with IPR hardliners. One of the great disappointments has been the failure of the Obama Administration to embrace more rigor in developing policy positions, and to evaluate intellectual property policy on the basis of economic analysis. Instead, USTR and other federal agencies have openly and without shame let lobbying efforts shape the discourse over intellectual property.

In 2012, the former USPTO chief economist Stuart Graham collaborated with economist and Acting Secretary of Commerce Rebecca Blank to publish a report with the title “Intellectual Property and the U.S. Economy: Industries in Focus.” This report is now used endlessly by lobbyists for publishers, drug companies and other right holder groups to justify almost any expansion or defense of patent or copyright holder interests, despite the fact that the report did a lousy job of measuring intellectual property “intensity” in various businesses, relied on superficial statistics on industries like grocery or clothing retail stories that sold trademarked goods to blow up the employment numbers, and made no claims whatsoever on the benefits or negatives of expanding or contracting IP rights in any industry. (/node/1432) That this report was even published at all was an embarrassment, and the way it has been used by the Obama Administration in justifying trade policy is a travesty for anyone who pretends to aspire more rational policy making.

For many years political figures found it easier to repeat talking points from MPAA, PhRMA, BIO and other right holder lobby groups than to understand or educate anyone on what is going on in the increasingly competitive and complex global economy. The fact that intellectual assets are often more valuable when widely accessible and widely used was not something that has fit into the USPTO or USTR talking points and it does not seem part of the internal understanding of key agency staff. But why not? Is it smart to be stupid, if you work for the government? Is Washington DC so under the thumb of lobbyists that staff positions and promotions serve the most focused lobbies rather than the public at large?

Assuming for a minute that the public could choose its own staff and offer its own promotions, what types of questions would it like answered, as regards intellectual property rights policies? These are just a few suggestions:

Copyright terms
USTR is asking for copyright terms of life plus 70 in trade negotiations. Why?

1. At what point do the length of copyright terms become excessive, as regards the incentives to create works, and as a barrier to access works?
2. If the willingness to pay collection societies is relatively inelastic as regards the term, would shorter copyright terms result in higher incomes to artists who are still alive (or the 1st generation of heirs)?
3. For works-for-hire owned by corporate interests (such as motion pictures, stories in newspapers, etc), how many decades of exclusive rights are needed to stimulate production of new works?
4. What would be the practical benefits to society of re-introducing or expanding the role of formalities in determining how rights in works are exercised (or ignored)?
5. Which US industries and which US user groups would benefit from broader access to older copyrighted works?

Copyright exceptions, copyright three-step test

USTR is asking that trade agreements narrow all copyright exceptions, by making them subject to a “three-step test.” Why?

1. If the all copyright exceptions were truly limited to a restrictive implementation of the so-called “three step test” in copyright, how much of current U.S. law would be subject to dispute resolution in trade agreements?
2. Does the U.S. Fair Use legal framework fit within a restrictive application of the three step test?
3. As a matter of law, how important at the Berne Convention “particular” exceptions as regards the space for fair use in global copyright norms? And, what would be the practical consequence of eliminating their separate standards for copyright exceptions in favor of a strict three step test approach?
4. What would be the consequences of a more restrictive global framework for copyright exceptions on access to knowledge in the context of the U.S. education system?
5. What would be the consequences of a more restrictive global framework for copyright exceptions on access to knowledge for businesses and government agencies?
6. Do U.S. businesses make more money globally by selling access to copyrighted information, or by providing services that expand access to copyrighted information?
7. How much of the U.S. and global market for journals and education textbooks is foreign owned?
8. What would be the economic benefits of expanded exceptions for data mining, and access to works not currently exploited commercially? What is the enabling global legal framework to to implement such exceptions?

Patentable subject matter, standards for granting patents

The U.S. wants to expand patentable subject matter in trade agreements, and lower standards for granting patents. Why?

1. If the United States was to eliminate patents on software and business methods, would the U.S. economy be better off, or worse off?
2. How much time and money is spent resolving disputes over the validity of software patents?
3. What is the optimal term for software patents? Is 20 years excessive?
4. Can anyone build a complex software application without infringing on third party patents?
5. If the USPTO granted far less patents every year, would the U.S. economy be better off, or worse off?
6. Given the rate and acceleration of patent grants in China, at what point in time will patents become a major barrier for U.S. firms trying to selling goods and services in China?

Patents and other intellectual property protection for drugs, vaccines, diagnostics and other medical technologies.
USTR is pushing for policies to make it harder to negotiate low prices, expands IPR protections and shrinks exceptions for drugs and other medical technologies. Why?

1. What does the US have to give up on other parts of trade agreements, when it asks our trading partners to accept stronger IPR and higher prices for medicine?
2. As regards pharmaceutical drugs, what percent of patents in the U.S. Orange Book are foreign owned?
3. How do high prices for medicines impact access and outcomes in the United States?
4. Can the US expand access to antiretroviral drugs for persons who are HIV+, without dealing with high prices for drugs?
5. If the trend for prices in drugs for cancer and orphan illnesses continues, can access be sustained in the United States?
6. How many U.S. jobs in the pharmaceutical sector involve sales and marketing? How does this impact the competitiveness of other sectors of the economy?
7. How much are prices increased by the IPR system, and what does the public get back in terms of investments in R&D?
8. What would be the benefits to a switch to full de-linkage for R&D on new drugs, and what trade rules would enable such a change?

Froman’s leadership at USTR

There are two types of problems with US trade policy on intellectual property rights. The first is that no one in the government is able to provide answers to these types of questions. The second problem is that no one in the government seems to think these questions are even worth answering. Michael Froman can change this, or he can keep the agency on its traditional lobbyist driven trajectory of anti-consumer policies. Since Obama won’t have a third term in his future, only a legacy, it would be nice if Froman could begin something new, and more thoughtful, as regards policy making on trade and IP.

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