Bit Swap: Motivation to Modify Prior Art Needn’t Be Inventor’s Motivation
Addressing the issue of obviousness, the US Court of Appeals for the Federal Circuit reversed a Patent Trial & Appeal Board decision, finding that the challenged patent claims were obvious because a person of ordinary skill in the art (POSITA) would have been motivated to switch two specific information bits in a 20-bit codeword to improve performance. Honeywell Int’l Inc. v. 3G Licensing, S.A., Case Nos. 23-1354; -1384; -1407 (Fed. Cir. Jan. 2, 2025) (Dyk, Chen, JJ.) (Stoll, J., dissenting).
3G Licensing owns a patent concerning a coding method for transmitting a channel quality indicator (CQI) in mobile communication systems. The CQI, a five-bit binary integer (0 to 30) is sent from user equipment, such as a cell phone, to a base station to indicate cellular connection quality. Base stations adjust data rates using adaptive modulation and coding, assigning higher rates to strong signals and lower rates to weaker ones. CQI accuracy is critical for maximizing data transmission efficiency and ensuring recovery of the original message despite transmission errors.
The challenged claims of the 3G patent relate to a CQI code designed to maximize protection of the most significant bit (MSB) to reduce the impact of transmission errors. The prior art disclosed a method and a basis sequence table that provided additional protection to the MSB, minimizing root-mean-square error. However, the claimed invention differed in that it required swapping the last two bits of the basis sequence table. The Board found that a skilled artisan would not have been motivated to make this modification to enhance MSB protection, nor would a skilled artisan have deemed it desirable. Honeywell appealed.
The Federal Circuit reversed, finding the claims obvious for four primary reasons. First, the Court determined that the Board incorrectly concluded that a POSITA would not have been motivated to swap the last two bits to improve MSB protection. The Court emphasized that the motivation to modify prior art does not need to align with the inventor’s motivation. As a result, the Board’s reasoning that minimizing root-mean-square error was not the patent’s primary purpose should not have been a primary consideration.
Second, the Federal Circuit found that prior art explicitly taught the importance of protecting the MSB through redundancy. A skilled artisan would have understood that swapping the two bits, as claimed, would add redundancy and enhance protection. Honeywell’s expert testimony further supported the conclusion that the prior art would have provided the requisite motivation to arrive at the claimed invention, and 3G’s expert did not dispute that the swap increased MSB protection.
Third, the Federal Circuit concluded that the Board improperly conflated obviousness with anticipation by requiring that the prior art disclose swapping the two bits. Anticipation requires the prior art to specifically disclose the claimed modification, but obviousness does not. The Court found that the Board erroneously treated the two standards as interchangeable.
Finally, the Federal Circuit found that the Board wrongly required that the claimed basis sequence table represent the preferred or most optimal combination. As the Court explained, obviousness does not depend on whether a claimed invention is the best possible solution, but instead on whether the prior art as a whole suggests its desirability.
Judge Stoll dissented in part, agreeing that the Board conflated obviousness with anticipation but arguing that this error only warranted vacating and remanding the Board’s decision for further analysis. She criticized the majority for engaging in fact finding and deciding arguments not raised by the parties.
Practice Note: The Federal Circuit’s decision underscores the importance of correctly evaluating and applying the relevant obviousness considerations.
Skilled Artisan’s View Is Decisive in Assessing Asserted Claim Drafting Error
The Court of Appeal (CoA) of the Unified Patent Court (UPC) clarified the legal standard for correcting obvious type inaccuracies in patent claims, explaining that the view of a skilled person at the filing date is decisive when assessing whether a patent claim contains an obvious error. Alexion Pharmaceuticals, Inc. v. Samsung Bioepis NL B.V., Case No. UPC_CoA_402/2024; APL_40470/2024 (CoA Luxembourg Dec. 20, 2024) (Grabinski, Blok, Gougé, JJ.; Enderlin, Hedberg, TJJ.)
Alexion owns a European patent directed to a drug comprising an antibody that includes the “SEQ ID NO:4” amino acid sequence and that binds “complement component 5” (C5). The description refers to SEQ ID NO:4 as a sequence of 236 amino acids, and the claims also refer to SEQ ID NO:4. It is known in the state of the art that the entire amino acid sequence is unlikely to bind C5, including amino acids, forming “signal peptides.” Alexion sought provisional measures, arguing that Samsung infringed Alexion’s patent even though Samsung’s drug did not include the first 22 amino acids (i.e., the signal peptide in this case) of SEQ ID NO:4.
Originally, Alexion applied for the patent as granted but later requested to amend the claims to exclude the first 22 amino acids because of an obvious error during prosecution. The Technical Board of Appeal (TBA) of the European Patent Office (EPO) rejected the request and found that the requested amendment was not a correction of an obvious error.
The Court of First Instance similarly rejected Alexion’s request, although it found that Samsung made literal use of the patent. The Court of First Instance argued, contrary to the TBA, that the first 22 amino acids were meant to be excluded from SEQ ID NO:4 in the patent claim, and that this sequence was obviously not correctly reproduced in the view of a skilled person because otherwise the claimed drug would be unsuitable to bind to C5 (as was undisputed by the parties). However, the Court of First Instance rejected Alexion’s request for provisional measures against Samsung. The Court of First Instance clarified that it must consider not only its own claim interpretation but also the TBA’s different interpretation. Its rationale was that because it is the infringement-focused court, the Court of First Instance should, before ordering provisional measures, consider whether the TBA, based on its interpretation, would revoke the patent in parallel proceedings because of insufficient disclosure under Article 83 of the European Patent Convention. Ultimately, considering the TBA’s claim interpretation, the Court of First Instance found that the patent’s validity was not certain to the extent required to provide provisional measures. Alexion appealed.
The CoA rejected Alexion’s appeal, finding that the Court of First Instance’s claim interpretation (i.e., excluding the first 22 amino acids from the claim) was legally flawed. The CoA instead adopted the TBA’s claim interpretation and argued (on this point, not much different from the Court of First Instance) that the EPO was likely to revoke the patent. The CoA clarified that the view of a skilled person at the filing date is decisive for assessing whether a patent claim contains an obvious type error. This view was supported by Alexion’s assertions during prosecution (even if it later abandoned those assertions) and by decisions of the EPO. Such prosecution history can outweigh undisputed pleading before the Court of First Instance that the antibody including the first 22 amino acids of SEQ ID NO:4 (or including the signal peptide) would be unable to bind to C5, as long as this inability was not obvious to the skilled person. Alexion and the TBA argued during prosecution that it is generally possible for an antibody, including signal peptides, to bind to C5. The CoA thus concluded that the patent description and claims did not disclose an exclusion of the first 22 amino acids of SEQ ID NO:4, and that it would not have been obvious to a skilled person at the time of the application to correct the sequence by excluding the first 22 amino acids.
Practice Note: Potentially differing EPO decisions on claim construction should be considered when making a prognosis of patent validity in proceedings for provisional measures. The UPC sets a high bar for correcting any errors in patent claims, and a patentee should be prepared to deal with its own assertions made during prosecution.
CNIPA Press Conference: Over 1 Million Invention Patents Granted in 2024
On January 15, 2025, the China State Council Information Office held a press conference with China’s National Intellectual Property Administration (CNIPA) detailing statistics of 2024. Per Hu Wenhui, deputy director of the CNIPA, in 2024, a total of 1.045 million invention patents were authorized, a year-on-year increase of 13.5%. 67,000 patent reexaminations and invalidation cases were closed. The examination cycle of invention patents was reduced to 15.5 months. 75,000 PCT international patent applications were accepted. Chinese applicants submitted 4,868 international design applications through the Hague Agreement, a year-on-year increase of 29.5%, ranking first in the world. More detailed data should be released before the end of the month including utility model authorizations.
Excerpts from the press conference follow. The full transcript is available here via social media (Chinese only).
Hu Wenhui:
By the end of 2024, my country will have 4.756 million valid invention patents, becoming the first country in the world to exceed 4 million. my country will have 14 high-value invention patents per 10,000 people, completing the expected goals of the country’s 14th Five-Year Plan ahead of schedule.
4.781 million trademarks were registered throughout the year, a year-on-year increase of 9.1%. 383,000 trademark review cases and 103,000 opposition cases were concluded. The average review period for trademark registration remained stable at 4 months, and the average review period for opposition review cases was further shortened. The qualification rate of various trademark services remained above 97%. 7,039 Madrid trademark international registration applications were received from Chinese applicants throughout the year, a year-on-year increase of 13.6%.
As of the end of 2024, the number of valid trademark registrations in my country was 47.62 million.
A total of 36 geographical indication products were recognized throughout the year, 125 geographical indications were approved for registration as collective trademarks and certification trademarks, and 8,680 business entities were approved to use geographical indication special marks.
As of the end of 2024, my country has recognized a total of 2,544 geographical indication products, approved 7,402 registrations of geographical indications as collective trademarks and certification trademarks, the total number of operators of geographical indication special marks is nearly 33,000, and the direct output value of geographical indication products exceeds 960 billion yuan, with stable growth for many consecutive years.
A total of 11,000 integrated circuit layout design registrations and certificates were issued throughout the year.
As of the end of 2024, my country had issued a total of 83,000 integrated circuit layout-design certificates.
…
The number of domestic high-value invention patents reached 1.978 million, an increase of 18.8% year-on-year, and the number of invention patents belonging to strategic emerging industries reached 1.349 million, an increase of 15.7% year-on-year.
…
Among China’s high-value invention patents, 130,000 have been authorized overseas at the same time, nearly doubling from the end of the 13th Five-Year Plan, involving 16,000 innovative entities, an increase of more than 6,700 from the end of the 13th Five-Year Plan. More domestic innovative entities pay more attention to using intellectual property rights to open up international markets and continuously improve their international competitiveness.
…
The Draft Amendment to the Regulations on the Protection of Integrated Circuit Layout Designs mainly revised three aspects:
First, the registration and confirmation procedures for integrated circuit layout designs have been improved to strengthen the protection of intellectual property rights at the source. The application documents submitted by the applicant are required to clearly display and identify the protected content of the layout design, and failure to meet this requirement will be used as grounds for rejection and revocation. Provisions for initiating revocation procedures upon application have been added to better balance the rights and interests of all parties.
Second, we will strengthen the protection of exclusive rights for integrated circuit layout designs and effectively safeguard the legitimate rights and interests of right holders. It is clarified that the scope of exclusive rights protection is based on the submitted copies and drawings, and the originality statement of layout designs is used to explain the copies and drawings. New provisions on the principle of good faith are added, and a punitive compensation system for serious intentional infringements is introduced. Relevant provisions on pre-litigation evidence preservation are added to more effectively protect the legitimate rights and interests of right holders and reduce the cost of rights protection.
Third, promote the implementation and application of layout designs and boost the development of new quality productivity. New regulations on job creation rewards are added, stipulating that legal persons or non-legal persons should reward natural persons who create layout designs after the layout design is registered. After the layout design is implemented, the natural persons who create the layout design should be given reasonable remuneration based on the scope of its promotion and application and the economic benefits obtained. Improve the relevant regulations on the exercise of rights and transfer, licensing and pledge of exclusive rights by co-owners of layout designs to more fully stimulate enthusiasm for innovation and creation.
New FY2025 USPTO Price Increases to Go into Effect Beginning on January 18, 2025
The United States Patent and Trademark Office (“USPTO”) has published a Final Rule[i] setting new patent and trademark fees, which target an overall 7.5 percent increase in the case of patent fees—with certain fees seeing even higher percentage increases. The Final Rule also includes certain new fees that may alter patent and trademark applicants’ typical practices, so it is important for applicants to become familiar with the upcoming fee changes. The patent fee changes will officially take effect on January 19, 2025, along with a set of trademark fee changes that are set to take effect on January 18, 2025.
Patent Filing Fee Increases
The Final Rule implements a roughly 10 percent fee increase for filing, search, and examination fees. As an example, the new total filing fees for an undiscounted entity (e.g., a “Large entity” filer) will increase from $1,820 to $2,000.
New Patent Continuation Fees
The Final Rule outlines new fees owed on continuation applications that claim priority to a patent application having a filing date more than six years earlier (but no more than nine years). (Note: This new fee does include consideration of claims of priority to provisional applications in determining whether the six-year limit is met.) For continuation applications filed more than six years after its earliest priority, an undiscounted entity will pay $2,700, in addition to normal filing fees.
Where a continuation application is filed more than nine years after its earliest priority date to a non-provisional application, an undiscounted entity will pay $4,000, in addition to filing fees. (Note: An applicant will not be charged more than one fee if more than one benefit claim is presented that qualifies the application for both new continuation fees. Instead, they will just pay the greatest fee that applies in their situation.)
Request for Continued Examination (“RCE”) Fees (Patent)
Filing costs for first RCE requests will increase by 10 percent, that is, moving from $1,360 to $1,500 for an undiscounted entity. The filing cost of any second (or subsequent, i.e., third, fourth, etc.) RCE request will increase by a much more substantial amount of 43 percent, moving from $2,000 to $2,860 for an undiscounted entity.
The new fees may make it more financially beneficial in some situations for an applicant to file a new continuation application rather than a second or subsequent RCE after a Final Office Action. However, as always, each situation is fact-specific, and the best strategic decisions should be made in conjunction with advice from counsel.
Excess Patent Claims Fees
Excess Claims fees will also see a sizeable “targeted” fee increase. The fees for each independent claim in an application in excess of three independent claims will go from $480 to $600 for undiscounted entities, and from $192 to $240 for undiscounted entities (i.e., a 25 percent increase). The fees for each claim in an application in excess of 20 total claims will go from $100 to $200 for undiscounted entities, and from $40 to $80 for undiscounted entities (i.e., a 100 percent increase).
New Patent Information Disclosure Statement (“IDS”) Fees for Excessive Citations
Filing an IDS that causes cumulative number of applicant-provided items of information to exceed 50 references but not 100 references: $200
Filing an IDS that causes cumulative number of applicant-provided items of information to exceed 100 references but not 200 references: $500 (less any excess IDS reference amount previously paid)
Filing an IDS that causes cumulative number of applicant-provided items of information to exceed 200 references: $800 (less any excess IDS reference amount previously paid)
Each IDS must also now “contain a clear written assertion” that the IDS is accompanied by the appropriate IDS excessive citation fee or that no IDS excessive citation fee is required. (A blanket “authorization to charge fees to a deposit account” is not considered a compliant written assertion under the new requirements, unless it specifically refers to the particular IDS fee that should be charged.)
Patent Trial and Appeal Board (“PTAB”) fee adjustments
All fees associated with filing and/or initiating an America Invents Act (“AIA”) trial (e.g., an Inter Partes Review (“IPR”) or a Post-Grant Review (“PGR”)) will increase by 25 percent.
Design Patent Fees
Nearly all design patent-related fees will go up by a larger percentage than utility patent fees. For example, for direct US filings, the design filing fees will increase 36 percent (from $220 to $300), search fees will increase by 88 percent (from $160 to $300), examination fees will increase by 9 percent (from $640 to $700), and issue fees will increase by 76 percent (from $740 to $1,300).
Thus, for an undiscounted entity, filing and issuance fees for a typical design patent currently costs $1,760. This amount will increase by 48 percent (to $2,600) when the new fees take effect.
Trademark Fee Adjustments
The Final Rule for Trademark fees sets or adjusts the fees starting January 18, 2025, as highlighted in the Fee Changes table available at https://www.uspto.gov/trademarks/fees-payment-information/summary-2025-trademark-fee-changes, and includes two general types of trademark fee adjustments: targeted fee adjustments and new base application fees.
Note: The USPTO is discontinuing the current Trademark Electronic Application System (“TEAS”) Standard and Plus application filing options and fees.
Sample Trademark fee increases for FY2025 are shown below:
TEAS Standard Application
Current Fee: $350
New Fee: n/a
TEAS Plus Application
Current Fee: $250
New Fee: n/a
Base Application (Sections 1 and 44), per class
Current Fee: n/a
New Fee: $350
Application Fee Filed with WIPO (Section 66(a)), per class
Current Fee: $500
New Fee: $600
Subsequent designation fee filed with WIPO (Section 66(a)), per class
Current Fee: $500
New Fee: $600
In the course of prosecution, an additional fee of $100 for insufficient information (e.g., missing color claim, translation, transliteration, living individual consent).
Section 9 Registration Renewal Application, per class
Current Fee: $300
New Fee: $325
Section 8 Declaration, per class
Current Fee: $225
New Fee: $325
Section 15 Declaration, per class
Current Fee: $200
New Fee: $250
Section 71 Declaration, per class
Current Fee: $225
New Fee: $325
Renewal Fee Filed at WIPO
Current Fee: $300
New Fee: $325
2024 Hatch-Waxman Year in Review
Introduction
In 2024, the Hatch-Waxman Act continued to play a critical role in the U.S. pharmaceutical landscape, driving the dynamics between brand-name drugmakers and generics. This landmark legislation, enacted to encourage innovation while ensuring access to affordable medications, remained a focal point for numerous legal battles and regulatory shifts. Key decisions throughout the year have refined interpretations of its provisions, influencing patent challenges, market exclusivities, and the pathway for generics. As the pharmaceutical sector navigates evolving market pressures, agency action, and possible legislation, the legal contours of the Hatch-Waxman Act continued to impact both the business and legal strategies of pharmaceutical companies in 2024.
The Year By Numbers
In the year 2024, 312 complaints were filed initiating Hatch-Waxman litigation (compared to 259 in 2023)1:
As evident above, the overwhelming majority of ANDA complaints were filed in the District of Delaware and the District of New Jersey. This common trend remains consistent for the same reasons these district courts have always been hubs for ANDA litigation: most pharmaceutical companies are incorporated in Delaware and are commonly headquartered in New Jersey. Furthermore, because these two jurisdictions handle the majority of ANDA litigation, the local patent rules and proclivities of judges within these districts generally account for the unique procedural complexities that large-scale Hatch-Waxman litigation can impose on these dockets.
Given that Hatch-Waxman litigation is statutorily decided at the bench if it goes to trial, it behooves all litigants to have matters handled by judges experienced in the technical subject matter. As shown above, almost 50% of all ANDA complaints filed were assigned to one of five judges, ensuring that those judges have familiarity with common Hatch-Waxman substantive and procedural issues, and usually leading to a rapport between those judges and the attorneys that frequently litigate in front of them.
In 2024, 283 on-going Hatch-Waxman litigations were either resolved or terminated.2 There was a slight decrease in settlements in 2024: 39% of terminated matters in 2024 compared to 50% in 2023.3 Innovator companies (i.e., NDA & patent holders) were considered to have prevailed on issues 20% of the time, whereas generic companies were considered to have prevailed on issues only 2% of the time (i.e., those decisions excluding settlements and procedural resolutions). While these statistics may suggest that innovator companies find favorable resolutions more frequently than generic manufacturers, generics generally may be more inclined to seek settlement when perceiving a likely favorable outcome, rather than continue litigation. This trend existed in 2023 and remained in 2024.
Looking at patent findings from 2024 (below4), evidently very few ANDA cases were decided at summary judgment in 2024, a frequency from which few conclusions can be drawn. When cases went to trial, however, we saw a finding of infringement more frequently than noninfringement, and validity was upheld more frequently than not. Of those that were held invalid at trial, most were decided on obviousness grounds. Granted, however, these numbers don’t consider invalidity positions that were dropped due to case narrowing prior to trial, rather than on the merits.
This contrasts slightly to the results from 2023 (below5):
Namely, judges were seemingly more reticent to find patents invalid at summary judgment in 2024, while they did so three times in 2023 – again, however, a small sample size. In good news for innovator companies, district courts not only held patents invalid at trial far less frequently in 2024 compared to the year prior: 4 of 17 (24%) and 9 of 15 (60%), respectively. District courts also found infringement of valid patents at trial slightly more in 2024 compared to the year prior: 9 of 13 (69%) versus 6 of 10 (60%), respectively.
Federal Circuit Decisions and the Greater Context In Which They Fit
We saw a slight uptick in Hatch-Waxman decisions from the Federal Circuit last year (7 in 2024 compared to 5 in both 2023 and 2022), some of which significantly affect going forward how practitioners and in-house counsel manage and plan their IP strategies, expand their portfolios through prosecution, and preserve existing exclusivities in the federal courts and in front of the Patent Trial and Appeal Board. Some of the decisions we’ve seen from the Federal Circuit in 2024 were also germane to broader agency and legislative proposals that could come to fruition in 2025, as discussed below.
Edwards Lifesciences v. Meril Life Sciences6& the Safe Harbor Provision
Holding: The Hatch-Waxman safe harbor applied to the importation of two demonstration samples to a medical conference for the purpose of recruiting clinical investigators to support FDA approval.
Although not a decision surrounding the filing of an ANDA, the Federal Circuit began their 2024 Hatch-Waxman jurisprudence addressing the safe harbor provision, 35 U.S.C. § 271(e)(1): a valuable mechanism for fostering innovation in the pharmaceutical space. Federal Circuit precedent has interpreted the provision as broad, applying “as long as there is a reasonable basis for believing that the use of the patented invention will produce the types of information that are relevant to an FDA submission,”7 and even extending to activities which may be promotional rather than regulatory, but “where those activities are consistent with the collection of data necessary for filing an application with the FDA.”8 Here, Judges Stoll, Cunningham, and Lourie (dissenting) addressed whether the importation of two demonstration-only transcatheter heart valves for a conference during the process of pre-market approval was protected by the safe harbor, and ultimately affirmed precedent.9 As Judge Stoll put it, the question is not why or how the devices were imported or used, but whether the importation was for a use reasonably related to submitting information to the FDA.10 It was here. On appeal from a grant of summary judgment of no infringement, the Federal Circuit affirmed that there was no genuine dispute of material fact that Meril imported the devices for purposes reasonably related to recruiting investigators during pre-market approval processes and thus was covered by the safe harbor provision.11 For innovator companies, especially those in crowded commercial spaces where the risk of “brand-to-brand” litigation is higher, the safe harbor’s broad applicability to a variety of pre-approval activities under the ”reasonably related” standard offers peace of mind throughout early stages of product development; however, practitioners should advise their clients that the safe harbor is less helpful post-FDA approval, where routine submissions aren’t generally afforded the same protection.12
While courts may view the Hatch-Waxman safe harbor as offering a “wide berth,”13 U.S. patent law generally has a particularly narrow experimental use defense to patent infringement.14 The Edwards decision was followed months later by a request for public commentary by the United States Patent and Trademark Office (USPTO) on the potential legislative codification of the experimental use exception.15 To date, statutory experimental use defenses are confined in the U.S. to the Hatch-Waxman Act16 and the Plant Variety Protection Act,17 but are codified in a much broader fashion in other leading IP countries, such as Germany, China, and India. Feedback to the USPTO’s request was mixed; proponents of further codification suggested the exception was overly narrow, vague, or detrimental to US innovation on the global scale, whereas those with opposing viewpoints generally suggested the status quo was sufficient. At this time, the USPTO has not taken any further public action on the topic, but don’t be surprised if we see legislation promoting American innovation in 2025, such as an expanded codification of the experimental use defense.
Salix Pharmaceuticals v. Norwich Pharmaceuticals,18Post-trial Section VIII Carve-outs, and the Obviousness of Polymorph Patents
Holding: The district court did not err in denying the generic’s motion to modify judgment after amending its ANDA to remove an infringing indication after trial; the district court also did not err in finding that a person of ordinary skill in the art would have a reasonable expectation of success obtaining certain polymorph forms of rifaximin.
One month later, the first ANDA decision came from the Federal Circuit from Judges Lourie, Chen, and Cunningham (dissenting in part), who issued a surprising decision in light of (but not contradictory to) previous rulings on polymorph patents, while also addressing a unique post-trial tactic by the ANDA filer to gain earlier entry into the market. With respect to the former, Federal Circuit precedent has made it clear that finding polymorph claims obvious is a tall task given the unpredictability of chemical polymorphism and therefore the lack of reasonable expectation of success, as discussed in Grunenthal GMBH v. Alkem19 (2019) and Pharmacyclics v. Alvogen20 (2022). However, unique to this case were the “distinct factual predicates” that justified the district court’s obviousness finding.21 The prior art here contained examples which disclosed in detail the process that would produce the claimed polymorph, turn demonstrating a reasonable expectation of success in doing so.22 Therefore, unlike in previous § 103 decision on polymorphs, those at issue here was appropriately found to be obvious. Separately, Norwich’s ANDA sought to market generic Xifaxan for three indications: travelers’ disease, hepatic encephalopathy (HE) and irritable-bowel syndrome with diarrhea (IBS-D).23 However, when the district court ordered that the ANDA would not be approved until the expiry of the HE patents (which were found infringed), Norwich amended its ANDA post-trial to remove the infringing HE indication and sought to modify the judgment and gain earlier market entry.24 Both the district court and Federal Circuit rejected this attempt.25 The latter held that “it [was] not the potential use that of the drug for HE that is the relevant infringement,” but instead “the submission of the ANDA that included an infringing use,” and therefore “[t]hat the ANDA further recited a non-patent-protected indication does not negate the infringement resulting from the ANDA’s submission.”26 Further, allowing amendment of an ANDA at the Rule 60 stage is in the discretion of the district court, and the Federal Circuit’s affirmation of the district court’s decision created strong precedent that determining “whether an ANDA applicant has successfully carved out language from a label to turn infringement into non-infringement” “would essentially be a second litigation,” and is “inequitable and inappropriate.”27
This decision offers two key takeaways for counsel for both innovators and generics: for the former, the nonobviousness of polymorph patents is not a guaranteed, despite the unique, unpredictable nature of the science and the general position of related jurisprudence. While finding polymorph patents obvious is still a significant challenge given their general nature, it is possible for the right facts to line up correctly in a § 103 analysis. For generic companies, future tactical attempts to carve out infringing indications post-trial now must overcome cut-and-dry precedent suggesting the futility of the practice to gain earlier market entry.
Amarin Pharma v. Hikma Pharmaceuticals28 & Skinny Labels
Holding: The complaint plausibly pleaded induced infringement based on the label and public statements made by the generic manufacturer.
The next panel from the Federal Circuit (Moore, Lourie, Albright) next dealt with what seemed like a section viii carve out ANDA case, but was rather a “run-of-the-mill induced infringement case.”29 The generic product, an icosapent ethyl already on the market, was approved for only one of the two indications (treatment of severe hypertriglyceridemia) that the NDA product (Vascepa) had been approved for, but included no limitation of use as to the second indication, and the generic manufacturer had made repeated public statements referring to itself as the “generic Vascepa,” despite being approved for only half the indications.30 Unique to this case was that it was appealed from the motion to dismiss stage, and thus discovery had not occurred.31 Not in dispute however was that the complaint sufficiently alleged direct infringement, knowledge, and intent, and thus the Federal Circuit’s decision focused on whether an “inducing act” was sufficiently alleged – it was.32 Reversing the district court’s dismissal, the Federal Circuit managed to walk along the “careful balance struck by the Hatch-Waxman Act regarding section viii carve-outs,” emphasizing that this decision did not “effectively eviscerate section viii-carveouts,” as argued by Hikma, and was instead “limited to the allegations” and “guided by the standard of review appropriate for this stage of the proceedings.”33 Given those explicitly limiting statements, this decision does little to affect true section viii jurisprudence under the Hatch-Waxman Act, and thus for practitioners, reliance on cases such as GlaxoSmithKline v. Teva (2021)34 is still appropriate for skinny label analyses.
Following the Salix and Amarin decisions in 2024 we saw new related agency action from the FDA and year-end legislation. In July 2024, the FDA rejected a citizen’s petition from Novartis requesting the FDA reject ANDAs for generic Entresto, instead allowing generic manufacturers to add new language to their label, not included in the currently approved indication, that would effectively narrow the subset of patients for which use of the generic product is appropriate.35 In this case, inclusion of the language “patients with…reduced ejection fraction” was permissible as it therefore excluded “patients with…preserved ejection fraction,” which is patent protected.36 This decision was affirmed by the District Court for the District of Columbia.37 To wrap up 2024, we also saw the introduction of a bill titled the “Skinny Labels, Big Savings Act” on December 17, which seeks to provide safe harbor protection to generics and biosimilars using skinny labels in certain contexts.38
Allergan USA v. MSN Laboratories39 & Obviousness-type Double Patenting
Holding: First-filed, first-issued, later-expiring patent claims were not invalid for obviousness-type double patenting over later-filed, later-issued, earlier-expiring reference claims.
In August, the Federal Circuit clarified its 2023 In re Cellect decision40 which, at the time, served to massively upheave the doctrine of obviousness-type double patenting (ODP), patent term adjustments (PTA), and terminal disclaimers. However, Judges Lourie, Dyk, and Reyna reeled the impacts of that decision back in. Although the district court considered itself “bound” by the In re Cellect holding, the Federal Circuit distinguished the two as addressing different questions.41 Here, the question was “can a first-filed, first-issued, later-expiring claim be invalidated by a later-filed, later-issued, earlier-expiring reference claim having a common priority date,” to which the Court decided “no.”42 The Cellect decision, however, was boiled down to establishing the rule that “when it comes to evaluating ODP on a patent that has received PTA, the relevant expiration date is the expiration date including PTA—not the original expiration date measured twenty years from the priority date.”43 Practitioners now know that Cellect does not require a patent to be invalidated by reference patents simply because it expires later. The doctrine of obviousness-type double patent serves to prohibit the extension of a first patent by subsequently filed patently indistinct patents; it does not serve to cut short first-filed patents with duly received PTA, simply because later-filed patents expire first.
This decision also follows a May proposal from the USPTO to implement a new rule on terminal disclaimers, such that a terminal disclaimer would include a provision aiming to reduce the costs associated with challenging patent families under ODP.44 The rule proposed that when filing a terminal disclaimer, a patentee must agree that a patent subject to a terminal disclaimer would only be enforceable if it was not tied through such a disclaimer to a patent which had otherwise been held unpatentable or invalid.45 The rule avoids the issue of having to invalidate multiple related patents separately, and if implemented, may significantly impact how practitioners approach continuation patents and handle large patent families within a portfolio. We may see a decrease in continuation applications, and instead see applications claiming much broader scopes and an increase in divisional applications.
Astellas Pharma v. Sandoz46 & Patent Eligibility
Holding: Courts may not sua sponte consider patent eligibility as grounds for patent invalidity.
In September, the Federal Circuit made clear that issues of patent eligibility under Section 101 cannot be decided sua sponte by district courts. Known as the principle of party presentation, there are circumstances in which a court may take “a modest initiating role” in shaping litigation,47 but addressing patent eligibility when not raised by a party is not one such circumstance. Here, patent eligibility was never raised during the course of the litigation, but the court considered it anyway in its final decision.48 While the district court phrased its decision in such a manner that parties may not “consent around the bounds of patent eligibility,” the Federal Circuit Judges Lourie, Prost, and Reyna made clear that patent eligibility is not a threshold issue akin to subject-matter jurisdiction, but instead is entitled to the presumption of validity, as is the case with other grounds of validity.49 While perhaps this decision offers greater direction to courts than counsel, it serves as a polite reminder to practitioners that any invalidity defense not raised is waived.
The topic of patent eligibility was particularly ripe in 2024, and continuing into 2025, especially with the growth of artificial intelligence (AI). Although not a topic that is overly adjacent to Hatch-Waxman litigation, counsel for both innovator and generic companies should remain cognizant of updated guidance from the USPTO, such as that which issued in July.50 A full summary of the guidance can be found here. Generic companies do appear to be raising § 101 invalidity grounds less frequently in recent years; however, counsel should nonetheless stay informed on both procedural and substantive developments in patent eligibility jurisprudence.
Galderma Laboratories v. Lupin51 & Bioequivalence Data and In Vitro Testing
Holding: The district court did not err in holding that the plaintiff had not proven infringement by relying on its in vitro testing and bioequivalence.
As one of two December ANDA decisions in 2024, the Federal Circuit analyzed whether in vitro testing and bioequivalence were sufficient to establish literal infringement or infringement under the doctrine of equivalence. The result? They aren’t. Although likely not a hard-and-fast rule that in vivo and in vitro results are not comparable, the Federal Circuit found no clear error in the district court’s conclusion as such in this particular case, finding that Galderma improperly drew conclusions about in vivo behavior from in vitro testing.52 Evidently, the issue was a failure of proof, rather than scientific incomparability.53 Further, unique to the facts of this case, although with a slightly broader applicability generally, under a doctrine of equivalents analysis, a showing of bioequivalence, at most, shows substantially the same result, but fails to show substantially the same function or substantially the same way, as is required under the “function, way, result” test.54 This decision highlights the importance of accurate and reliable testing to prove infringement, as well as fulsome expert testimony relaying as such.
Teva v. Amneal Pharmaceuticals55 & Orange-Book Listings
Holding: Patents directed towards inhaler devices were improperly listed in the Orange Book.
Wrapping up 2024, the Federal Circuit addressed a key issue pressing innovator pharmaceutical companies: the propriety of Orange Book listings. In this case, Teva had listed patents directed to inhaler devices in the Orange Book in order to delay the entry of generic products to the market.56 Because such patents “contain no claim for the active ingredient at issue,” Judges Prost, Taranto, and Hughes affirmed the district court’s delisting order.57 In what ultimately came down to issues of statutory interpretation, the Federal Circuit rejected arguments that a patent is properly listed if it “reads on” the approved drug or claims any component of a drug.58 Practitioners now know this is not the case. First, “the fact that an NDA could infringe a patent does not mean that the patent ‘claims’ the underlying drug within the meaning of the listing provision.”59 And second, “[t]o list a patent in the Orange Book, that patent must, among other things, claim the drug for which the applicant submitted the application and for which the application was approved,” i.e., the active ingredient.60 While NDA holders are keen to protect their products from generic entry into the market, this decision from the Federal Circuit affirms that there is a limit to the Orange Book, and NDA holders would be wise to ensure any such listings do in fact claim the active ingredient at issue.
This decision comes in the wake of threats by the Federal Trade Commission and new de-listing policies. For example, in September 2023, the FTC issued a new policy61 stating that improper Orange Book listings may constitute a violation of Section 5 of the FTC Act, and in November 2023, the FTC announced a plan62 to challenge over 100 Orange Book Listings and a further 300 listings in April 202463. Many companies have received warning letters from the FTC, only some of whom have voluntarily delisted at-risk Orange Book patents however. The financial detriment of doing so is clear, and other companies have therefore pushed back, arguing compliance with the listing provisions. The FTC appears to be predominantly targeting medical device patents, such as those in Teva v. Amneal, but for the most part, action by the FTC remains limited to issuing policies and sending letters to NDA holders. Further, it has yet to be determined whether this is an appropriate exercise of agency power, especially in the wake of the Supreme Court’s goodbye to Chevron deference.64
To conclude, many of the Federal Circuit’s Hatch-Waxman decisions in 2024 reshaped how pharmaceutical companies and their counsel address patent prosecution, litigation, and portfolio management, especially in view of the broader regulatory, legislative, agency-based changes that may occur in 2025 and beyond. As patent law continues to evolve, these cases will serve as critical touchstones in understanding the future of pharmaceutical patents and the broader implications for drug pricing and accessibility in the years to come.
1 LexMachina stats showing 312 federal district court cases with “Patent:ANDA” case tag, filed between ”2024-01-01 and 2024-12-31″) (Compare with LexMachina stats showing 259 federal district court cases with ”Patent:ANDA” case tag, filed between ”2023-01-01 and 2023-12-31″.2 LexMachina stats showing 283 federal district court cases with “Patent:ANDA” case tag, terminated between ”2024-01-01 and 2024-12-31″.3 Compare supra with LexMachina stats showing 284 federal district court cases with “Patent:ANDA” case tag, terminated between ”2023-01-01 and 2023-12-31″.4 LexMachina stats showing 91 findings in cases with “Patent:ANDA” case tag, with ”Infringement, Invalidity, No Infringement, No Invalidity, No Unenforceability, or Unenforceability” as patent findings, with findings decided between ”2024-01-01 and 2024-12-31″.5 LexMachina stats showing 91 findings in cases with “Patent:ANDA” case tag, with ”Infringement, Invalidity, No Infringement, No Invalidity, No Unenforceability, or Unenforceability” as patent findings, with findings decided between ”2023-01-01 and 2023-12-31″.6 Edwards Lifesciences Corp. v. Meril Life Scis. Pvt. Ltd., 96 F.4th 1347 (Fed. Cir. 2024).7 Amgen Inc. v. Hospira, Inc., 944 F.3d 1327, 1338 (Fed. Cir. 2019).8 Momenta Pharm., Inc. v. Teva Pharm. USA Inc., 809 F.3d 610, 619 (Fed. Cir. 2015).9 Supra, note 6, at 1351.10 Id. at 135311 Id. at 1355.12 Classen Immunotherapies v. Biogen IDEC, 659 F.3d 1057, 1070 (Fed. Cir. 2011).13 Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193, 202 (2005).14 See, e.g., Madey v. Duke Univ., 307 F.3d 1351 (Fed. Cir. 2002).15 89 Fed. Reg. 53963.16 35 U.S.C. § 271(e)(1).17 7 U.S.C. § 2544.18 Salix Pharms., Ltd. v. Norwich Pharms. Inc., 98 F.4th 1056 (Fed. Cir. 2024).19 Grunenthal GMBH v. Alkem Lab’ys Ltd., 919 F.3d 1333 (Fed. Cir. 2019).20 Pharmacyclics LLC v. Alvogen, Inc., No. 2021-2270, 2022 WL 16943006 (Fed. Cir. Nov. 15, 2022).21 Supra, note 18, at 1065.22 Id. at 1066-67.23 Id. at 1060.24 Id. at 1068-69.25 Id. at 1069.26 Id. at 1068.27 Id. at 1069.28 Amarin Pharma, Inc. v. Hikma Pharms. USA Inc., 104 F.4th 1370 (Fed. Cir. 2024).29 Id. at 1377.30 Id. at 1372-74.31 Id. at 1377.32 Id. at 1378.33 Id. at 1381.34 GlaxoSmithKline LLC v. Teva Pharms. USA, Inc., 7 F.4th 1320 (Fed. Cir. 2021).35 Final Response Letter from FDA CDER to Novartis Pharmaceuticals Corporation, Docket FDA-2022-P02228 (24 Jul. 2024), https://downloads.regulations.gov/FDA-2022-P-2228-0015/attachment_1.pdf. 36 See id.37 Novartis Pharms. Corp. v. Becerra, No. 24-CV-02234 (DLF), 2024 WL 4492072 (D.D.C. Oct. 15, 2024).38 Sens. Hickenlooper, Welch, Cotton, & Collins, Skinny Labels, Big Savings Act, https://www.hickenlooper.senate.gov/wp-content/uploads/2024/12/Skinny-Labels.pdf.39 Allergan USA, Inc. v. MSN Lab’ys Priv. Ltd., 111 F.4th 1358 (Fed. Cir. 2024).40 In re: Cellect, LLC, 81 F.4th 1216 (Fed. Cir. 2023).41 Supra, note 39, at 1368.42 Id. at 1366.43 Id. at 1369.44 89 Fed.Reg. 4043945 Id.46 Astellas Pharma, Inc. v. Sandoz Inc., 117 F.4th 1371 (Fed. Cir. 2024).47 United States v. Sineneng-Smith, 590 U.S. 371, 376 (2020).48 Supra, note 46, at 1376.49 Id. at 1378.50 89 Fed.Reg. 5812851 Galderma Lab’ys, L.P. v. Lupin Inc., 122 F.4th 902 (Fed. Cir. 2024).52 Id. at 908.53 Id. at 908.54 Id. at 910.55 Teva Branded Pharm. Prods. R&D, Inc. v. Amneal Pharms. of New York, LLC, No. 2024-1936, 2024 WL 5176737 (Fed. Cir. Dec. 20, 2024).56 Id. at *5-*6.57 Id. at *7, *17.58 Id. at *10-*11.59 Id. at *12.60 Id. at *15.61 Federal Trade Commission, “Federal Trade Commission Statement Concerning Brand Drug Manufacturers’ Improper Listing of Patents in the Orange Book,” (14 Sept. 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p239900orangebookpolicystatement092023.pdf.62 Federal Trade Commission, “FTC Challenges More Than 100 Patents as Improperly Listed in the FDA’s Orange Book,” (November 7, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/11/ftc-challenges-more-100-patents-improperly-listed-fdas-orange-book.63 Federal Trade Commission, “FTC Expands Patent Listing Challenges, Targeting More Than 300 Junk Listings for Diabetes, Weight Loss, Asthma and COPD Drugs,” (April 30, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-expands-patent-listing-challenges-targeting-more-300-junk-listings-diabetes-weight-loss-asthma.64 Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
Federal Circuit Clarifies Claim Construction at the Pleading Stage
Many lower courts have interpreted the Federal Circuit’s Nalco decision to hold that claim construction is inappropriate at the motion to dismiss stage. But the Federal Circuit’s recent UTTO decision clarified that claim construction is not categorically forbidden at the motion to dismiss stage.
The Court noted whether claim construction is appropriate at the motion to dismiss stage is case-specific, as sometimes “a claim’s meaning may be so clear . . . that no additional process is needed.” For patent litigants, the UTTO decision provides express support for patent litigants to make claim construction arguments at the motion to dismiss stage.
Prior Understandings From Nalco
Nalco Co. (“Nalco”) was the exclusive licensee of U.S. Patent No. U.S. 6,808,692 (the “’692 Patent), which was directed to “Enhanced mercury control in coal-fired power plants.” Independent claim 1 of the ’692 Patent recites “[a] method of treating coal combustion flue gas containing mercury, comprising . . . injecting a member selected from the group consisting of molecular halogen and a thermolabile molecular halogen precursor into said flue gas.” Chem-Mod, LLC (“Chem-Mod”) is an environmental services company that specializes in pollutant control technologies and licenses its “Chem-Mod Solution.” The Chem-Mod Solution comprises mixing a thermolabile molecular halogen precursor with coal before the coal is fed into a coal combustion process.
Nalco brought an action for patent infringement against Chem-Mod, arguing that the Chem-Mod Solution practices all steps of at least claim 1 of the ’692 Patent. At the district court, Chem-Mod argued that the Chem-Mod Solution did not infringe because mixing thermolabile molecular halogen precursors prior to combustion does not constitute “injecting” such precursors into flue gas post-combustion. The district court ultimately agreed, dismissing Nalco’s complaint and subsequent amended complaints, which Nalco ultimately appealed to the Federal Circuit.
The Federal Circuit reversed and remanded the district court’s dismissal and, in doing so, discussed the inappropriateness of claim construction at the pleading stage in this case. Focusing on the Twombly/Iqbal pleading standards, the Court held that Nalco had plausibly alleged that “injection” of the halogen precursor occurred when treated coal was fed into a furnace for combustion. In discussing this theory of infringement, the Court went on to explain:
Defendants’ objections to this theory of infringement read like classic Markman arguments. Defendants first take issue with Nalco’s allegation that “coal combustion flue gas” is “the gas that is created during the combustion of coal. But Defendants’ arguments boil down to objections to Nalco’s proposed claim construction for “flue gas,” a dispute not suitable for resolution on a motion to dismiss.
Many lower courts have read this passage and others in Nalco to hold that claim construction is categorically forbidden at the motion to dismiss stage.
UTTO’s Clarification of Nalco
UTTO Inc. (“UTTO”) owned U.S. Patent No. U.S. 9,086,441 (the “’441 Patent), which was directed to “Detection of buried assets using current location and known buffer zones.” Independent claim 1 of the ’441 Patent recites “[a] method . . . comprising . . . generating, based on the group of buried asset data points, a two dimensional area comprising the buffer zone . . ..” The core of the process involves using both (1) a GPS to pinpoint a person’s location and (2) previously stored buried assert data to locate and generate a buffer zone around a buried asset.
Metrotech Corp. (“Metrotech”), a competitor of UTTO, sold a device that had a “walk back” feature that performed substantially similar to the claimed method. However, the walk back feature “requires only a single point” to generate a buffer zone, as opposed to a group of buried asset data points.
UTTO brought an action for patent infringement and moved for a preliminary injunction against Metrotech, arguing that the walk back feature infringes on the ’441 Patent. In denying Metrotech’s motion for preliminary injunction, the district court construed the claims in favor of Metrotech.
Specifically with respect to claim 1, the Court noted that “[t]he claim does not mention ‘one or more’ data points, or ‘a’ data point. It describes a ‘group’ of ‘data points,’ plural. The ordinary and customary meaning indicates that more than one data point is necessary to create the buffer zone.” Based on the Court’s construction, Metrotech moved to dismiss UTTO’s complaint, and the dismissal of UTTO’s third amended complaint was ultimately appealed to the Federal Circuit.
The Federal Circuit sided with UTTO and vacated the dismissal of UTTO’s third amended complaint, finding the district court’s claim construction to be incomplete in this case. However, the Court squarely addressed arguments made in UTTO’s briefing that misconstrued Nalco. Specifically directed to the passages of Nalco provided in the previous Section, the Court noted that:
Those passages, we conclude, should not be read as stating a categorical rule against a district court’s adoption of a claim construction in adjudicating a motion to dismiss. The passages do not in terms state such a rule. They are readily understood to be drawing a conclusion about the need for further proceedings to resolve the particular claim-construction issues in that case before a sound determination of the appropriateness of dismissal could be reached. Nalco should be read in that case-specific way.
The Court went on to say that some case-specific circumstances make it improper to resolve a claim construction dispute at the pleading stage, but “sometimes a claim’s meaning may be so clear . . . that no additional process is needed.”
While claim construction is now expressly not forbidden at the pleading stage under UTTO, Nalco is still good law and should be read in a case-specific way. Like the Federal Circuit did in both Nalco and UTTO, cases will still be remanded where “[t]here has been insufficient exploration in the record, both [at the Federal Circuit] and in the district court, of too many questions of apparent relevance to identifying a proper construction of [a] limitation.”
How Will the Cannabis World Look When Marijuana Is Rescheduled?
A few weeks ago, someone at a holiday party asked “Whitt, why doesn’t Budding Trends take on the weighty legal issues of the day and instead resort to cheap pop culture references and puns?” I thought about responding with a quote from “Run Like an Antelope” but then it hit me: Maybe we should give some thought to a more high-minded discussion about the practical implications of marijuana rescheduling. (Editor’s note: This exchange did not actually happen.) So, I guess set the gear shift for the high gear of your soul, and let’s dive in.
It has been said that our greatest hopes and our worst fears are seldom realized. I think the recent efforts by DEA to reschedule marijuana from Schedule I to Schedule III is a good example of both. Those looking for news that marijuana is soon to be freely available nationwide will be disappointed, as, we suspect, will those who fear that rescheduling will immediately destroy the existing marijuana industry. It’s like Tom Petty reminded us, “most things I worry about, never happen anyway.”
None of This Matters if Marijuana Is Not Rescheduled, and That’s Far from a Settled Question
All of this is, of course, moot if marijuana is not rescheduled. While rescheduling is considered by many to be a fait accompli (oh yeah, Budding Trends dropping French on you) – and I agree it is more likely than not that marijuana will be rescheduled, although not in 2025 – there are a number of potential roadblocks standing in the way. We previously wrote about the process here.
But even if marijuana is not rescheduled in the near future, hopefully the discussion below will be helpful in thinking through the practical implications if marijuana is rescheduled in the future.
280E in the Rearview
It is widely assumed by many that one of the certain impacts of rescheduling is that marijuana operators would no longer be subject to the draconian tax consequences of 280E.
We previously wrote on the subject:
One of the most significant impediments to the growth of marijuana operators, and dispensaries in particular, is 26 U.S.C 280E. That one-sentence provision may be the biggest hurdle to the development of the marijuana industry in the United States. It dictates that:
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
280E has crippled the marijuana industry, often exacting an effective tax rate north of 60% for operators. “Within the meaning of schedule I and II of the Controlled Substances Act” is the ballgame. If marijuana is rescheduled to Schedule III, 280E would no longer apply and marijuana operations would be taxed as normal businesses – provided that Congress did not specially enact a marijuana tax.
Obviously, state tax laws may still penalize marijuana businesses akin to 280E, but some states proactively exempted licensed cannabis businesses from those impacts.
One question that has stuck in my mind is whether rescheduling marijuana to Schedule III would remove state-legal operators from the ambit of 280E, or would that benefit only be afforded to businesses who manufactured, distributed, and sold FDA-approved Schedule III products (i.e., not most state-licensed operators at present)?
This is a question of statutory interpretation, and I think it comes down to how the government characterizes marijuana that is not compliant with Schedule III requirements. Is non-compliant marijuana still a Schedule III substance? If so, does it somehow become Schedule I or II? If not, then it would appear that that 280E does not capture non-compliant marijuana because that provision appears to be limited on its face to Schedule I and II substances. I think the better reading is that, while non-compliant marijuana operators may face consequences as discussed immediately below, 280E will no longer include marijuana.
Another related question of great interest to marijuana operators currently sitting on huge overdue tax bills is whether rescheduling marijuana would have a retroactive effect eliminating the existing tax liabilities for marijuana operators. Generally speaking, changes to tax laws are not retroactive unless Congress expressly says so. It strikes me as very unlikely that lawmakers will be interested in allowing marijuana operators who have not paid their full tax bills for years (and in some instances publicly admitted as much) to simply walk away from those obligations.
State Medical Programs
So, if marijuana is rescheduled, what happens to existing marijuana businesses operating under the auspices of state laws? This, as well as the fate of adult-use operators discussed immediately below, may be the most consequential yet unclear aspects of rescheduling.
State-licensed marijuana operators have existed in a sort of legal limbo since their inception. How, if at all, will the rules change for state-licensed operators if marijuana is rescheduled?
The way I see it, there are three paths forward for state-licensed marijuana operators if marijuana is rescheduled:
The federal government, in a break from more than a decade of quasi-official federal policy, could actually follow the Controlled Substances Act and require marijuana operators to meet the requirements for Schedule III substances.
There is no practical change and the federal policy of non-enforcement of most marijuana operations remains in place, along with a similar posture from the states with marijuana regimes.
There is no immediate change in federal enforcement policy, but states tighten marijuana rules over time to allow for a gradual change such that access to marijuana is not immediately shut off as the federal government and marijuana operators take the steps necessary to treat marijuana like other Schedule III substances.
In a nutshell, the path chosen will answer what I believe is the most interesting and critical question in this whole discussion: Does the government intend for marijuana scheduling to be a dead letter or does the government intend to regulate marijuana as a controlled substance?
That answer will govern whether and, if so, how the federal government will regulate state-licensed cannabis operators – including potential enforcement actions.
Of the three paths above, the first strikes me as the least likely and the last strikes me as the most likely. Why? I am skeptical that the federal government would shut down existing access to marijuana (i.e., state-licensed operators) under the guise of making marijuana more available. That certainly does not comport with the statements of the political supporters of rescheduling or the spirit of rescheduling. And make no mistake, it will take years of clinical trials and FDA approval for the first marijuana medication (in a specific formulation with a specific indication) to be approved for use by patients.
I do think, however, that there will be political pressure from certain companies that do develop FDA-approved marijuana medications to curtail the state markets. Why would a company spend the substantial time and money to develop a Schedule III medication for FDA approval for a specific indication when someone can just buy marijuana to be used for any purpose from a dispensary down the street?
State Adult-Use Programs
Like state-licensed medical marijuana operators, state-licensed adult use operators have also been operating in legal purgatory, albeit with probably less legal certainty than medical operators.
To be very clear: Rescheduling marijuana under the Controlled Substances Act will do absolutely nothing to the legality of adult-use marijuana. Schedule III regulates medications prescribed by physicians and does not contemplate the recreational use of any Schedule III product.
But what does this actually mean for adult-use programs and individual operators as a practical matter? Well, as with several of the points above, we’ll see.
It is certainly possible that the federal government will continue its hands-off approach to adult-use marijuana programs. It is also possible that the federal government – and potentially some state governments – will use the ability to access federally legal marijuana by prescription to scrap existing adult-use programs. But if I was a betting man (and I am), I would bet that at least in the short term there would not be much impact, if any, to adult-use regimes.
Interstate Commerce
When it comes to transporting marijuana across state lines with Schedule III approval and appropriate federal and state licenses, interstate commerce should not be a problem.
When it comes to transporting unlicensed marijuana, theoretically it would remain illegal, and it will come down to the federal government’s appetite to enforce interstate transportation of marijuana.
Banking
Here is another instance where it depends on whether the federal government insists that marijuana products comply with the rules of Schedule III.
If the federal government insists on strict compliance with Schedule III, then any non-conforming products would likely fall within the ambit of anti-money laundering statutes. If, on the other hand, the government treats all marijuana as Schedule III, then banks may be able (albeit perhaps uninterested initially) to bank all marijuana businesses.
Private Investment
I expect there will be an immediate influx of private capital to marijuana businesses if marijuana is rescheduled. Momentum will (at least appear to) be on the side of marijuana businesses. A number of funds that have formal or informal policies governing investment in marijuana businesses will immediately investigate the opportunities. And investors will be even more motivated because it appears that 280E would no longer provide a substantial tax headwind for growth of those businesses.
This could all be thwarted if the federal government immediately makes clear that it will vigorously enforce the requirements of Schedule III, meaning that it will be extremely cash-intensive to develop profit-generating products. As noted above, I think that is unlikely, but it would certainly be an impediment to obtaining private capital.
Big Pharma/Pharmacies
The multibillion-dollar question: What role, if any, will big pharmaceutical companies and pharmacies play in the event marijuana is rescheduled?
I suspect big pharma won’t rush into the marijuana space, in part because of all the uncertainties discussed above and in part for reputational reasons. But I will be on the lookout for quiet investments by Big Pharma in companies researching and developing marijuana formulations that meet the requirements of Schedule III.
If things break a certain way, you may be able to get the best weed ever made courtesy of a brand-name pharmaceutical company. But I do believe we are years away from that happening.
Intellectual Property
This area of the law could be particularly interesting because the USPTO will have a layer of input on top of the Department of Justice and state regulators. If a product complies with Schedule III, it will have the ability to be protected by United States intellectual property laws, including trademarks and patents. If it does not comply with Schedule III, the USPTO could independently conclude that such products may not avail themselves of those protections.
Conclusions
[Deep exhale] For years, cannabis activists and legal scholars have debated the possibility and the wisdom of rescheduling marijuana. Now that we may – and I stress may – be on the horizon, it seems there are just as many questions as answers about what the implications of that change would be. So much of those implications depend on things that we do not yet know. For example, will a Trump HHS/DOJ/DEA take a different position than the Biden HHS/DOJ/DEA? Will states change their rules in response to rescheduling? And how will financial institutions and private investors react to those developments.
China’s National Intellectual Property Administration Issues Guidelines for Patent Applications for AI-Related Inventions
On December 31, 2024, China’s National Intellectual Property Administration (CNIPA) issued the Guidelines for Patent Applications for AI-Related Inventions (Trial Implementation) (人工智能相关发明专利申请指引(试行)). The Guidelines follow up on CNIPA’s draft for comments issued December 6, 2024 in which only a week for comments were provided. The short comment period implied CNIPA did not actually want comments and is in contravention of the not-yet-effective Regulations on the Procedures for Formulating Regulations of the CNIPA (国家知识产权局规章制定程序规定(局令第83号)) requiring a 30-day minimum comment period. Highlights follow including several examples regarding subject matter eligibility.
There are four types of AI-related patent applications:
Patent applications related to AI algorithms or models themselves
Artificial intelligence algorithms or models, that is, advanced statistical and mathematical model forms, include machine learning, deep learning, neural networks, fuzzy logic, genetic algorithms, etc. These algorithms or models constitute the core content of artificial intelligence. They can simulate intelligent decision-making and learning capabilities, enabling computing devices to handle complex problems and perform tasks that usually require human intelligence.
Accordingly, this type of patent application usually involves the artificial intelligence algorithm or model itself and its improvement or optimization, for example, model structure, model compression, model training, etc.
Patent applications related to functions or field applications based on artificial intelligence algorithms or models
Patent applications related to the functional or field application of artificial intelligence algorithms or models refer to the integration of artificial intelligence algorithms or models into inventions as an intrinsic part of the proposed solution for products, methods or their improvements. For example: a new type of electron microscope based on artificial intelligence image sharpening technology. This type of patent application usually involves the use of artificial intelligence algorithms or models to achieve specific functions or apply them to specific fields.
Functions based on artificial intelligence algorithms or models refer to functions implemented using one or more artificial intelligence algorithms or models. They usually include: natural language processing, which enables computers to understand and generate human language; computer vision, which enables computers to “see” and understand images or videos; speech processing, including speech recognition, speech synthesis, etc.; knowledge representation and reasoning, which represents information and enables computers to solve problems, including knowledge graphs, graph computing, etc.; data mining, which calculates and analyzes massive amounts of data to identify information or laws such as potential patterns, trends or relationships. Artificial intelligence algorithms or models can be applied to specific fields based on their functions.
Field applications based on artificial intelligence algorithms or models refer to the application of artificial intelligence to various scenarios, such as transportation, telecommunications, life and medical sciences, security, commerce, education, entertainment, finance, etc., to promote technological innovation and improve the level of intelligence in all walks of life.
Patent applications involving inventions made with the assistance of artificial intelligence
Inventions assisted by artificial intelligence are inventions that are made using artificial intelligence technology as an auxiliary tool in the invention process. In this case, artificial intelligence plays a role similar to that of an information processor or a drawing tool. For example, artificial intelligence is used to identify specific protein binding sites, and finally obtains a new drug compound.
Patent applications involving AI-generated inventions
AI-generated inventions refer to inventions and creations generated autonomously by AI without substantial human contribution, for example, a food container autonomously designed by AI technology.
AI cannot be an inventor:
1. The inventor must be a natural person
Section 4.1.2 of Chapter 1 of Part 1 of the Guidelines clearly states that “the inventor must be an individual, and the application form shall not contain an entity or collective, nor the name of artificial intelligence.”
The inventor named in the patent document must be a natural person. Artificial intelligence systems and other non-natural persons cannot be inventors. When there are multiple inventors, each inventor must be a natural person. The property rights to obtain income and the personal rights to sign enjoyed by the inventor are civil rights. Only civil subjects that meet the provisions of the civil law can be the rights holders of the inventor’s related civil rights. Artificial intelligence systems cannot currently enjoy civil rights as civil subjects, and therefore cannot be inventors.
2. The inventor should make a creative contribution to the essential features of the invention
For patent applications involving artificial intelligence algorithms or models, functions or field applications based on artificial intelligence algorithms or models, the inventor refers to the person who has made creative contributions to the essential features of the invention.
For inventions assisted by AI, a natural person who has made a creative contribution to the substantive features of the invention can be named as the inventor of the patent application. For inventions generated by AI, it is not possible to grant AI inventor status under the current legal context in my country.
Examples of subject matter eligibility:
The solution of the claim should reflect the use of technical means that follow the laws of nature to solve technical problems and achieve technical effects
The “technical solution” stipulated in Article 2, Paragraph 2 of the Patent Law refers to a collection of technical means that utilize natural laws to solve the technical problems to be solved. When a claim records that a technical means that utilizes natural laws is used to solve the technical problems to be solved, and a technical effect that conforms to natural laws is obtained thereby, the solution defined in the claim belongs to the technical solution. On the contrary, a solution that does not use technical means that utilize natural laws to solve technical problems to obtain technical effects that conform to natural laws does not belong to the technical solution.
As an example and not a limitation, the following content describes several common situations where related solutions belong to technical solutions.
Scenario 1: AI algorithms or models process data with specific technical meaning in the technical field
If the drafting of a claim can reflect that the object processed by the artificial intelligence algorithm or model is data with a definite technical meaning in the technical field, so that based on the understanding of those skilled in the art, they can know that the execution of the algorithm or model directly reflects the process of solving a certain technical problem by using natural laws, and obtains a technical effect, then the solution defined in the claim belongs to the technical solution. For example, a method for identifying and classifying images using a neural network model. Image data belongs to data with a definite technical meaning in the technical field. If those skilled in the art can know that the various steps of processing image features in the solution are closely related to the technical problem of identifying and classifying objects to be solved, and obtain corresponding technical effects, then the solution belongs to the technical solution.
Scenario 2: There is a specific technical connection between the AI algorithm or model and the internal structure of the computer system
If the drafting of a claim can reflect the specific technical connection between the artificial intelligence algorithm or model and the internal structure of the computer system, thereby solving the technical problem of how to improve the hardware computing efficiency or execution effect, including reducing the amount of data storage, reducing the amount of data transmission, increasing the hardware processing speed, etc., and can obtain the technical effect of improving the internal performance of the computer system in accordance with the laws of nature, then the solution defined in the claim belongs to the technical solution.
This specific technical association reflects the mutual adaptation and coordination between algorithmic features and features related to the internal structure of a computer system at the technical implementation level, such as adjusting the architecture or related parameters of a computer system to support the operation of a specific algorithm or model, making adaptive improvements to the algorithm or model based on a specific internal structure or parameters of a computer system, or a combination of the two.
For example, a neural network model compression method for a memristor accelerator includes: step 1, adjusting the pruning granularity according to the actual array size of the memristor during network pruning through an array-aware regularized incremental pruning algorithm to obtain a regularized sparse model adapted to the memristor array; step 2, reducing the ADC accuracy requirements and the number of low-resistance devices in the memristor array through a power-of-two quantization algorithm to reduce overall system power consumption.
In this example, in order to solve the problem of excessive hardware resource consumption and high power consumption of ADC units and computing arrays when the original model is mapped to the memristor accelerator, the solution uses pruning algorithms and quantization algorithms to adjust the pruning granularity according to the actual array size of the memristor, reducing the number of low-resistance devices in the memristor array. The above means are algorithm improvements made to improve the performance of the memristor accelerator. They are constrained by hardware condition parameters, reflecting the specific technical relationship between the algorithm characteristics and the internal structure of the computer system. They use technical means that conform to the laws of nature to solve the technical problems of excessive hardware consumption and high power consumption of the memristor accelerator, and obtain the technical effect of improving the internal performance of the computer system that conforms to the laws of nature. Therefore, this solution belongs to the technical solution.
Specific technical associations do not mean that changes must be made to the hardware structure of the computer system. For solutions to improve artificial intelligence algorithms, even if the hardware structure of the computer system itself has not changed, the solution can achieve the technical effect of improving the internal performance of the computer system as a whole by optimizing the system resource configuration. In such cases, it can be considered that there is a specific technical association between the characteristics of the artificial intelligence algorithm and the internal structure of the computer system, which can improve the execution effect of the hardware.
For example, a training method for a deep neural network model includes: when the size of training data changes, for the changed training data, respectively calculating the training time of the changed training data in preset candidate training schemes; selecting a training scheme with the shortest training time from the preset candidate training schemes as the optimal training scheme for the changed training data, the candidate training schemes including a single-processor training scheme and a multi-processor training scheme based on data parallelism; and performing model training on the changed training data in the optimal training scheme.
In order to solve the problem of slow training speed of deep neural network models, this solution selects a single-processor training solution or a multi-processor training solution with different processing efficiency for training data of different sizes. This model training method has a specific technical connection with the internal structure of the computer system, which improves the execution effect of the hardware during the training process, thereby obtaining the technical effect of improving the internal performance of the computer system in accordance with the laws of nature, thus constituting a technical solution.
However, if a claim merely utilizes a computer system as a carrier for implementing the operation of an artificial intelligence algorithm or model, and does not reflect the specific technical relationship between the algorithm features and the internal structure of the computer system, it does not fall within the scope of Scenario 2.
For example, a computer system for training a neural network includes a memory and a processor, wherein the memory stores instructions and the processor reads the instructions to train the neural network by optimizing a loss function.
In this solution, the memory and processor in the computer system are merely conventional carriers for algorithm storage and execution. There is no specific technical association between the algorithm features involved in training the neural network using the optimized loss function and the memory and processor contained in the computer system. This solution solves the problem of optimizing neural network training, which is not a technical problem. The effect obtained is only to improve the efficiency of model training, which is not a technical effect of improving the internal performance of the computer system. Therefore, it does not constitute a technical solution.
Scenario 3: Using artificial intelligence algorithms to mine the inherent correlations in big data in specific application fields that conform to the laws of nature
When artificial intelligence algorithms or models are applied in various fields, data analysis, evaluation, prediction or recommendation can be performed. For such applications, if the claims reflect that the big data in a specific application field is processed, and artificial intelligence algorithms such as neural networks are used to mine the inherent correlation between data that conforms to the laws of nature, and the technical problem of how to improve the reliability or accuracy of big data analysis in a specific application field is solved, and the corresponding technical effects are obtained, then the solution of the claim constitutes a technical solution.
The means of using artificial intelligence algorithms or models to conduct data mining and train artificial intelligence models that can obtain output results based on input data cannot directly constitute technical means. Only when the inherent correlation between the data mined based on artificial intelligence algorithms or models conforms to the laws of nature, the relevant means as a whole can constitute technical means that utilize the laws of nature. Therefore, it is necessary to clarify in the scheme recorded in the claims which indicators, parameters, etc. are used to reflect the characteristics of the analyzed object in order to obtain the analysis results, and whether the inherent correlation between these indicators, parameters, etc. (model input) mined by artificial intelligence algorithms or models and the result data (model output) conforms to the laws of nature.
For example, a food safety risk prediction method obtains and analyzes historical food safety risk events to obtain header entity data and tail entity data representing food raw materials, edible items, and food sampling poisonous substances, and their corresponding timestamp data; based on each header entity data and its corresponding tail entity data, and its corresponding entity relationship carrying timestamp data representing the content level, risk or intervention of each type of hazard, corresponding four-tuple data is constructed to obtain a corresponding knowledge graph; the knowledge graph is used to train a preset neural network to obtain a food safety knowledge graph model; and the food safety risk at the prediction time is predicted based on the food safety knowledge graph model.
The background technology of the program description records that the existing technology uses static knowledge graphs to predict food safety risks, which cannot reflect the fact that food data in actual situations changes over time and ignores the influence between data. Those skilled in the art know that food raw materials, edible items or food sampling poisons will gradually change over time. For example, the longer the food is stored, the more microorganisms there are in the food, and the content of food sampling poisons will increase accordingly. When the food contains a variety of raw materials that can react chemically, the chemical reaction may also cause food safety risks at some point in the future over time. This program predicts food safety risks based on the inherent characteristics of food changing over time, so that timestamps are added when constructing the knowledge graph, and a preset neural network is trained based on entity data related to food safety risks at each moment to predict food safety risks at the time to be predicted. It uses technical means that follow the laws of nature to solve the technical problem of inaccurate prediction of food safety risks at future time points, and can obtain corresponding technical effects, thus constituting a technical solution.
If the intrinsic correlation between the indicator parameters mined by artificial intelligence algorithms or models and the prediction results is only subject to economic laws or social laws, it is a case of not following the laws of nature. For example, a method of estimating the regional economic prosperity index using a neural network uses a neural network to mine the intrinsic correlation between economic data and electricity consumption data and the economic prosperity index, and predicts the regional economic prosperity index based on the intrinsic correlation. Since the intrinsic correlation between economic data and electricity consumption data and the economic prosperity index is subject to economic laws and not natural laws, this solution does not use technical means and does not constitute a technical solution.
The full text is available here (Chinese only).
Animator Sues Disney for $10 Billion Over Alleged Moana Copyright Theft
Animator Sues Disney for $10 Billion Over Alleged Moana 2 Copyright Theft. An animator has filed a lawsuit against Disney, accusing the company of appropriating the concept for the Moana franchise from his long-standing screenplay without his permission. Buck Woodall submitted the lawsuit in a federal court in California on Friday, claiming that Disney incorporated […]
Important Update: USPTO Fee Changes Effective January 2025
Highlights
Patent fees will increase across most categories, including filing, maintenance, and excess claims, on Jan. 19, 2025
New surcharges will apply to continuations filed six or nine years after the earliest benefit date (EBD); PTAB petitions will experience increases across the board
Trademark fees also will see adjustment including a unified application fee that will replace the TEAS Plus/Standard system, as well as others. Additional surcharges will apply for missing information, custom descriptions, and lengthy filings.
The U.S. Patent and Trademark Office (USPTO) is set to increase fees beginning Jan. 19, 2025, for patent-related fees, and Jan. 18, 2025, for trademark-related fees as part of routine updates at the USPTO to maintain alignment with operational costs and resource requirements. Tables that summarize targeted fee increases for the most common types of filings with the USPTO are included below. A global 7.5 percent increase is being applied to all filings that do not have a targeted fee increase.
Patent-Related Fees
Current Fee
Fee Effective 1/19/2025
Percentage Increase
Filing Fees
Utility Patent Application Fees
$1,820
$2,000
10%
Utility patent application issue fees
$1,200
$1,290
7.5%
Design patent application fees
$1,020
$1,300
27%
Design patent issue fees
$740
$1,300
76%
Claim Fees
Each independent claim in excess of 3
$480
$600
25%
Each claim in excess of 20
$100
$200
100%
Request for Continued Examination (REC) Fees
First RCE
$1,360
$1,500
10%
Second and subsequent RCE
$2,000
$2,860
43%
New Continuing Application Surcharge
Applications filed six (6) years or more after the earliest benefit date
$2,700
Applications filed nine (9) years or more after the earliest benefit date
$4,000
Information Disclosure Statement (IDS) and IDS Size Fees**
IDS filing fee
$260
$280
8%
IDS with 51 to 100 items of information
$200
IDS with 101 to 200 items of information
$500 less any amount previously paid
IDS with more than 200 items of information
$800 less any amount previously paid
Terminal Disclaimer Fees
Filing of Terminal Disclaimer
$170
$183
8%
Maintenance Fees
Fee due at 3.5 years
$2,000
$2,150
8%
Fee due at 7.5 years
$3,760
$4,040
7%
Fee due at 11.5 years
$7,700
$8,280
8%
Patent Term Extension (PTE) Applications Fees**
Application for PTE fee
$1,180
$2,500
112%
Initial Application for interim extension fee
$440
$1,320
200%
Request of a supplemental redetermination after a notice of final PTE determination
$1,440
Petition Fees
Petition Associated with Unintentional Delay of More Than 2 Years
$2,100
$3,000
43%
Patent Trials and Appeals Board (PTAB) Fees
Request of Review of PTAB Decision by Director Fees
$452
Petition for PTAB
25% increase for all PTAB trials
*Key adjustments are shown below for undiscounted (large) entity fees; small entities generally receive a 60 percent discount and micro entities generally receive a 75 percent discount on these undiscounted fees.**Fee applies to all entities with no discounts being given to small or micro entities.
Trademark-Related Fees
Current Fee
Fee Effective 1/19/2025
Percentage Increase
Application and Registration Fees
Unified Base Application Fees, per class*
$350
Intent-to-Use Applications (Statements of Use and Amendments to Allege Use) Fees, per class
$100
$150
50%
Madrid Protocol Applications (Application fee filed with WIPO (Section 66(a))), per class
$500
$600
20%
Post-Registration Maintenance Fees
Section 8 Declarations (filed between the 5th and 6th year after registration)
$225 per class
$325 per class
45%
Section 9 Renewals (filed every 10 years)
$300 per class
$325 per class
8%
Section 15 Declarations (Declaration of Incontestability)
$200 per class
$250 per class
25%
Section 71 Declarations
$225 per class
$325 per class
45%
Renewal fee filed at WIPO
$300 per class
$325 per class
8%
Petitions
Petition to the Director Fee
$250
$400
60%
Petition to Revive an Application Fee
$150
$250
67%
Letter of Protest Fee
$50
$150
300%
*The distinction between TEAS Plus and TEAS Standard applications will be eliminated and a single base application fee of $350 per class will apply to applications under Trademark Act Sections 1 and 44.
New surcharges will also be in effect for each of:
Insufficient Information: A $100 fee per class will be charged for applications lacking required details, such as the applicant’s name, domicile address, or entity type.
Custom Identifications: Using custom descriptions for goods or services instead of selecting from the USPTO’s ID Manual will incur a $200 fee per class.
Excessive Text Length: An additional $200 fee per class will apply for each set of 1,000 characters exceeding the initial 1,000 characters in custom descriptions.
For patent applications, we suggest considering a comprehensive review of your portfolio, at least with respect to each of the following:
Continuation applications that would have benefit dates of more than six or nine years
Information Disclosure Statements with over 50 cumulative prior art listings
Second or subsequent RCEs
Design patent applications
With respect to trademarks, those looking to file new applications with long or unusual descriptions of goods and services may consider filing these applications before the fees for using free-form text boxes and additional characters go into place.
Takeaways
If you are planning to file a new patent or trademark application, submit a renewal, or pay maintenance fees in the near future, it may be advantageous to do so before Jan. 19, 2025, or Jan. 18, 2025, respectively, to take advantage of the current fee structure before the increases take effect.
USTR Removes WeChat From List of Notorious Markets for Counterfeiting and Piracy, Adds Douyin
On January 8, 2025, the Office of the United States Trade Representative (USTR) released the 2024 Review of Notorious Markets for Counterfeiting and Piracy. Of note, the USTR removed Weixin (WeChat), a social media ‘super-app’ from the Review. Nonetheless, “China continues to be the number one source of counterfeit products in the world. Counterfeit and pirated goods from China, together with transshipped goods from China to Hong Kong, China, accounted for 84% of the value (measured by manufacturer’s suggested retail price) and 90% of the total quantity of counterfeit and pirated goods seized by U.S. Customs and Border Protection (CBP) in 2023.” Five China-based online markets remain on the list with Douyin (TikTok) replacing WeChat.
China-related excerpts from the Review regarding online markets follow. The full text is available here.
BAIDU WANGPAN
This cloud storage service is operated by Baidu, the largest search-engine provider in China. Users of this service are able to share links to files stored on their accounts with other users, and infringing content is reportedly disseminated widely through social media and other piracy linking sites. Baidu has been the subject of several copyright infringement cases in China brought by other content distributors, but right holders report little change in the site’s enforcement measures. Although Baidu has several tools to take down unauthorized content, according to right holders, procedures for filing complaints are applied unevenly and lack transparency. Additionally, takedown times are reportedly lengthy, and right holders often have to repeatedly follow-up with Baidu to ensure that pirated content does not reappear on the platform. Right holders report little progress in Baidu’s actions to suspend or terminate repeat infringers.
DHGATE
Headquartered in China. DHgate is one of the largest business-to-business cross-border e-commerce platforms in China, although it primarily serves purchasers outside of the country. This year, stakeholders have welcomed the introduction of a pilot IP enforcement program that includes a new portal for complaints, new procedures for screening of products and of prospective sellers, and enhanced penalties for repeat and high-volume infringers. Stakeholders have also expressed appreciation for DHgate’s efforts to increase engagement and collaboration with right holders. In its submission for this year’s List, DHgate described its significant investment in AI-based screening tools to detect and remove counterfeit goods, its vendor verification process that screens and blacklists repeat infringers, its pilot program and other efforts to resolve right holder complaints, and its efforts to cooperate with law enforcement authorities, including publishing a law enforcement guide and assisting with several investigations involving health and safety matters. DHgate’s reported successes also include proactively removing twice as many listings for infringing goods in 2023 as compared to 2022. However, some stakeholders continue to report that the platform contains a high volume of counterfeits and the repeat infringer policy is ineffective. They also note the platform appears to connect Chinese sellers and manufacturers specializing in counterfeits with wholesale buyers outside of China. Although some brand owners have successfully reduced counterfeits through collaboration with DHgate, others have reported mixed results. Sellers of counterfeit goods reportedly continue to evade detection by using code words and digitally blurred logos. DHgate has implemented policies to regulate influencers promoting products listed on its platform through posting on third-party websites, and right holders indicate that they need more time to determine the impact of these policies. Given that many stakeholders welcomed DHgate’s recent initiatives but continue to raise concerns, DHgate should further work to improve its proactive detection procedures, seller vetting process, and screening for repeat infringers.
DOUYIN SHANGCHENG (DOUYIN MALL)
Douyin Shangcheng (Douyin Mall) is a shopping platform under Douyin, the Chinese online platform offering short-form video, live stream, and e-commerce functionalities owned by ByteDance, also the parent company of Tiktok. Douyin has upgraded its e-commerce functions to include Douyin Mall as both a standalone application and an integrated feature accessible from the Douyin application. Douyin Mall allows users to scroll through suggested products or search for products and click through the Douyin Mall interface to view short videos or livestream videos about the products. From such videos or livestreams, users can use the shopping cart function to conduct purchases. Douyin contends that it has notice and takedown mechanisms, with multiple reporting portals for right holders to submit complaints, as well as a one-stop “IPPRO” platform for right holders to submit and manage IP infringement reports. Douyin also described its efforts to screen proactively for specific terms, to train proactive identification 25 models to target counterfeit products or sellers, and to cooperate with right holders and enforcement authorities, including on the pursuit of criminal cases offline. However, stakeholders have described a “rocketing” increase in the amount of counterfeit goods on the platform, an ineffective notice and takedown system, and reported lengthy delays in response to takedown requests, with little to no feedback on right holders’ complaints. Douyin should address concerns about the prevalence of counterfeits on its platform, including questions about the effectiveness of its proactive screening mechanisms and its system for managing IP infringement complaints.
PINDUODUO
Headquartered in China. Pinduoduo, a social commerce app, is one of the largest e-commerce platforms in China. Right holders report that Pinduoduo continues to offer a high volume of counterfeit goods on their platform. As in previous years, stakeholders continue to highlight concerns about Pinduoduo’s unwillingness to engage with brand owners to resolve issues or develop improved processes. Although the platform claims to have implemented anti-counterfeiting initiatives to assist with accurate product descriptions and combat misinformation from merchants, right holders convey that excessive delays in takedowns remain a problem and can take up to two weeks or more. Other longstanding issues remain unresolved, including onerous evidentiary requirements and lack of proactive measures to screen sellers and listings, as well as lack of transparency with enforcement processes, such as penalty mechanisms and decisions rejecting takedown requests. This year, right holders again noted Pinduoduo’s ineffective seller vetting and raised concerns about the platform’s reported practice of labeling sponsored listings as “authorized sellers,” giving the appearance of legitimacy to counterfeit products and misleading consumers into believing that they are purchasing from the legitimate manufacturer or a licensed distributor. Right holders also continue to report difficulties in receiving information and support from Pinduoduo in pursuing follow-on investigations to uncover the manufacturing and distribution channels of the counterfeit goods.
TAOBAO
Taobao, one of the largest e-commerce platforms in the world, is Alibaba’s platform for Chinese consumers. Alibaba has proactively engaged with right holders and the U.S. Government to improve its anti-counterfeiting processes and tools across its platforms, including Taobao. Although Alibaba emphasizes its ongoing engagement with enforcement authorities to combat the sale of counterfeits, right holders continue to express concern that a recent structural reorganization by Alibaba has left the platform with fewer anti-counterfeiting resources to conduct investigations. Right holders recognized Alibaba’s investment in anticounterfeiting measures and industry engagement efforts in recent years, but they also continued to report high volumes of counterfeit products and pirated goods, such as PDF copies of books. Right holders highlighted the need for improvements to address the site’s infringement reporting process and stringent criteria required for takedown notices, such as the requirement to identify specific piracy indicators within listings that infringers have kept deliberately vague. Furthermore, stakeholders convey that despite their ability to report obvious counterfeits that they identify on the platform for fast processing, high-quality counterfeits that are sold at prices similar to their authentic counterparts are not easily identified. Alibaba contends that its automated reporting platform is user friendly and only requires right holders to upload registration certificates to prove their rights or document their unregistered copyrights by filling out a specific form. USTR will continue to monitor the transparency and effectiveness of Taobao’s anti-counterfeiting efforts, including the evidentiary requirements for takedown requests.
Interoperability Doesn’t Imply Derivative Work
The US Court of Appeals for the Ninth Circuit explained that to be a derivative work, a program interoperative with another must actually incorporate aspects of the underlying work. The Court further ruled that licensees of a copy of a computer program are not “owners” of the copy and therefore are not entitled to make copies for the purposes permitted by 17 U.S.C. § 117(a). Oracle International Corp. v. Rimini Street, Inc., Case No. 23-16038 (9th Cir. Dec. 16, 2024) (Bybee, Bumatay, Bennett, JJ.)
Rimini provides third-party support for Oracle software and is a direct competitor with Oracle in the software support services market. For more than a decade, Oracle and Rimini have been involved in what the Ninth Circuit describes as a “pitched copyright war.” This latest battle relates to changes Rimini made to its business model after a district court determined that Rimini had infringed Oracle’s copyrights. Rimini developed a new process for servicing customers using Oracle software and sought a declaratory judgment that its revised process did not infringe Oracle’s copyrights. Oracle counterclaimed for copyright infringement and Lanham Act violations.
The district court found that Rimini created infringing derivative works because its new process interacted and was usable with Oracle software. The district court found that Rimini violated Oracle’s PeopleSoft and Database licensing agreements and made several statements violating the Lanham Act. The court struck Rimini’s affirmative defense to copyright infringement under 17 U.S.C. § 117(a), granted Oracle summary judgment that Rimini infringed Oracle’s copyrights, and issued a permanent injunction against Rimini. Rimini appealed.
Derivative Works
The Ninth Circuit disagreed with the district court’s analysis of Rimini’s new process, noting that the district court focused on an “interoperability test,” which does not exist under the text of the Copyright Act or in precedent. In effect, the district court’s test would find that if a product interoperates with a preexisting copyrighted work, then it must be derivative. The Ninth Circuit explained that while the Copyright Act uses broad language to describe derivative works, the derivative work must actually incorporate the underlying work. For Rimini’s new process to be a derivative work, it must incorporate Oracle’s copyrighted work, either literally or nonliterally. The Court found that just because Rimini’s new process interacted with Oracle’s software, that was insufficient to find it was a derivative work.
Affirmative Defense: Section 117(a)
The Copyright Act permits an owner of a copy of a computer program to make a copy or adaptation of that program for certain purposes under 17 U.S.C. § 117(a). The Ninth Circuit vacated the district court’s ruling, striking Rimini’s affirmative defense under Section 117(a), because the district court erred in determining whether Oracle’s customers “owned” a copy of Oracle’s software, PeopleSoft. The Court explained that to determine whether a party is an “owner of a copy” of a computer program, the courts look to whether the party has “sufficient incidents of ownership” over the “copy” of the software, in view of the totality of the parties’ agreement. Factors that the Court considered include:
Whether the copyright owner specifies that a user is granted a license
Whether the parties’ arrangement significantly restricts the user’s ability to transfer the software
Whether the agreement imposes notable use restrictions
The Ninth Circuit noted that other incidents of ownership may be considered, including whether the user paid significant consideration to develop the programs for the sole benefit of the user and whether the user could use the program forever, regardless of whether the parties terminated their relationship.
Copyright Infringement
The Ninth Circuit vacated the district court’s ruling that Rimini’s creation of “gap customer” environments on its systems containing Oracle’s Database program infringed Oracle’s copyright because the plain language of the licensing agreement did not prohibit third-party support providers from possessing a copy of Oracle’s software to further a client’s internal business operations. The Ninth Circuit also vacated the district court’s ruling that Rimini’s use of automated tools to deliver PeopleSoft program updates to clients constituted copyright infringement, to the extent that the conclusion rested on the district court’s erroneous view of “derivative work.”
False Advertising
The Lanham Act prohibits a person from making a false or misleading description or representation of fact about goods or services in commercial advertising or promotion. But false advertising doesn’t extend to statements of opinion and puffery. The Ninth Circuit found that Rimini’s security-related statements did not constitute false advertising under the Lanham Act, except for a statement about “holistic security.” Some of the statements were about the relative security of services offered by Oracle and Rimini, which the Court held were puffery. Some of the statements were about the need for software patching, which the Court could not say were so specific and measurable as to become actionable under the Lanham Act. The Ninth Circuit reversed the district court’s ruling as to these statements.
However, the Ninth Circuit affirmed the district court’s finding that Rimini’s offer of holistic security, which the Court accepted to mean multilayered security protection, was false because Rimini does not offer multilevel security.