By Dugie Standeford for Intellectual Property Watch
The year 2008 could be a turning point for intellectual property policy and law in the United States, with key patent, copyright and enforcement legislation pending, legal decisions unfolding, and high drama in the battle over content online. All of this comes in the context of a national presidential election late in the year.

Bills proposing major changes to patent and copyright law in the United States could see action, according to sources, and a judicial decision is possible in the challenge to the US Patent and Trademark Office’s unpopular rules on continuation of patent applications.

On the copyright side, efforts continue to strengthen enforcement worldwide, negotiations are ongoing on webcaster performance royalty rates, traditional radio broadcasters face the removal of their royalty exemption, and the content industry’s infringement litigation continues unabated.

Patent Reform

Efforts to overhaul the US patent system took off in 2007 and are expected to remain on the front burner in 2008.

In September, the US House of Representatives approved “The Patent Reform Act of 2007,” HR 1908, after a fractious debate (IPW, US Policy, 9 September 2007). The legislation, highly unpopular with many patent lawyers, seeks to harmonise US patent practice with that of other countries, produce better quality patents and revamp infringement litigation (IPW, Subscribers, 25 July 2007).

The Senate version, S 1145, won approval from the Judiciary Committee, but both bills are now gridlocked, Foley Lardner attorney Harold Wegner said in late December. Until well into 2007, a vote for cloture – requiring approval by 60 Senators out of 100 – seemed “all but assured” to break a “hold” placed on S 1145 and permit passage, Wegner said. But neither chamber’s bill is “in clean shape for enactment” and the two are not at all identical in scope or content, he said.

Uncertainties over the final content are a contributing factor to the reluctance to invoke cloture, Wegner said. Sponsors of the legislation have implied that if the Senate version passes they will “work something out” through the process of informal conferencing between chambers. However, he said, conflicting promises to various factions are causing problems, as is the possibility that the compromise version would allow the US Patent and Trademark Office (USPTO) to implement through rule-making many of the changes viewed as “dubious” under today’s regime, notably the continuation rules, Wegner said.

The Intellectual Property Owners Association (IPO) reported in December that Senate Judiciary Committee Chairman Patrick Leahy (Democrat-Vermont) may attempt to bring the bill to a floor vote in late January or in February. Leahy is said to be likely to propose several changes to the original measure to align it with the House version. It is unclear whether the Senate will approve the amended version, the IPO said.

Separately, the USPTO remains embroiled in a lawsuit over its new rules limiting the number of continuation requests for patent applications (IPW, 10 September 2007). Continuing applications are important, particularly in the high-tech sector, because they are considered to refer back to the date of the original application, allowing patent seekers to claim various aspects of their invention while protecting their priority rights against would-be infringers, Wolf Greenfield patent attorney Roque El-Hayek said in September.

The rules, which were set to come into effect on 1 November 2007, were challenged in a US federal court by inventor Triantafyllos Tafas and pharmaceutical giant GlaxoSmithKline and temporarily blocked (IPW, US Policy, 5 November 2007). The case is now making its way through the judicial system. Both sides are seeking summary judgment; their motions are tentatively set for hearing on 8 February, said Tafas’s lead counsel James Nealon of Kelley Drye & Warren.

Patent practitioners can expect more uncertainty in the coming year as recent decisions by the US Supreme Court, proposed USPTO rules on practices, and possible changes to patent law put pressure on the system, said Dow Lohnes attorney Bruce Weider.

Key 2007 Supreme Court cases included Teleflex v. KSR, which shook up longstanding rules about when an invention is too obvious to be patentable (IPW, Patent Policy, 9 May 2007), and Microsoft Corp. v. AT&T Corp., which held that software companies liable for infringing a patent in the United States cannot at the same time be held liable by American courts for the same activities abroad (IPW, Patent Policy, 15 May 2007). These and other decisions are said to be directions to the Court of Appeals for the Federal Circuit, which hears most patent cases, to take a more nuanced approach to interpreting patent law, experts said.

Copyright Legislation

A flurry of copyright-related bills emerged in Congress this year, most of which have not moved ahead.

However, the “Prioritising Resources and Organisation for Intellectual Property Act of 2007 (PRO IP),” introduced on 5 December, “seems to have traction at the moment” and could advance in 2008, said Dow Lohnes attorney James Burger. PRO IP aims to toughen civil and criminal penalties for copyright and trademark infringement (IPW, US Policy, 10 December 2007). It also creates an IP enforcement czar, establishes a new IP division in the Department of Justice, and authorises appointment of IP officers to assist foreign countries in countering piracy and counterfeiting.

Testifying at a December congressional hearing on PRO IP, Public Knowledge President Gigi Sohn challenged the assumption that boosting penalties for copyright violations will create a deterrent to piracy. Of all the changes that need to be made to copyright law, increased penalties is probably the least productive, she said.

Radio and Internet Performance Royalties

A particularly heated issue in 2007 was the setting of performance royalties for webcasters.

In March, the Copyright Royalty Board (CRB) of the US Copyright Office imposed royalty rates for commercial Internet radio companies, prompting outrage from webcasters and a congressional move to set aside the ruling (IPW, US Policy, 26 June 2007).

In July, webcasters and SoundExchange, which collects digital royalties for artists and record labels, reached a compromise on rates for large webcasters such as Yahoo and AOL (IPW, US Policy, 15 July 2007). However, they and smaller companies continued to press for substantially lower rates (IPW, US Policy, 4 September 2007).

On 3 December, the CRB set satellite radio royalty fees for the period 1 January 2007 to 31 December 2012 (IPW, US Policy, 10 December 2007). Five Internet radio services then asked Congress to equalise royalties among all radio services, whether online, satellite, cable or traditional broadcast.

On 18 December, Senators Leahy and Orrin Hatch (Republican-Utah), and Representatives Howard Berman (D-California) and Darrell Issa (R-California) introduced legislation to end traditional broadcast radio’s exemption from copyright royalties.

The “Performance Rights Act” would allow over-the-air broadcasters to use a statutory license and make an annual payment under a government-set rate for all music they play, musicFIRST (Fairness in Radio Starting Today) said.Enforcement Expansion Continues

Meanwhile, the music and film industries can be expected to maintain their judicial assault on alleged pirates.

The Recording Industry Association of America in December launched its eleventh wave of pre-litigation settlement letters to 22 universities nationwide as part of its campaign against online music theft. The process allows students to resolve infringement claims arising from peer-to-peer (P2P) file-swapping at a discounted rate before a formal lawsuit is filed, the organisation said. Meanwhile, its ongoing suits against commercial downloaders continue.

One lawsuit making waves is Atlantic v. Howell, an Arizona file-sharing case in which the recording industry argues that ripping legally purchased CDs to a computer and placing them in a shared folder is “unauthorised” use of copyrighted content.

The case sparked media reports that the RIAA considers the making of personal MP3 copies from CDs infringement, but is forebearing from taking action against consumers. Several copyright experts, however, said the industry brief had been misinterpreted.

“The RIAA is not saying that the mere format copying of a CD to an MP3 files that resides only on one’s hard drive and is never shared is infringement,” Google Senior Copyright Counsel Willam Patry wrote on his copyright blog. This is a “huge distinction” the press should have picked up on, he said.

The RIAA statement could be interpreted as meaning either that authorisation to make private copies lapses once an MP3 file is made available in a shared folder, or that the industry is giving consumers authorisation to make otherwise infringing copies, Burger said. Either interpretation, if established as precedent, “has serious consequences,” he said, adding he does not think RIAA is seeking a ruling on the precise issue.

Another way in which enforcement efforts will continue is through bilateral free trade agreements, which typically commit trading partners to higher IP protection standards than are found in World Trade Organization rules. The US Congress in November passed the renegotiated agreement with Peru that reflected the softening of protections on IP rights related to pharmaceuticals (IPW, US Policy, 5 November 2007). Congress will be under pressure from US industry to proceed to an agreement with Colombia, possibly followed by agreements struck in 2007 with Panama and South Korea.

Other ongoing negotiations all look stalled, according to a December assessment [pdf] by the Emergency Committee for American Trade. The other negotiations involve Ecuador, Malaysia, South African Customs Union, Thailand, United Arab Emirates and the Free Trade Area of the Americas.

The United States also will pursue enforcement efforts in multilateral environments such as its two dispute settlement cases against China underway at the World Trade Organization.

Digital Rights Management

As of January, the four major largest recording companies – EMI Group, Universal Music Group, Warner Music Group Corp. and Sony BMG Music Entertainment – will offer music tracks in digital rights management (DRM)-free downloads. Napster will reportedly join them sometime in the spring.

Another sign that DRM enthusiasm on the part of the content industry may be waning was Wal-Mart’s decision to halt its movie download service four days before Christmas. One contributing factor, the International Herald Tribune reported, was a DRM system that prevented consumers from playing films on anything but Microsoft’s Window Media Player program.

William New contributed to this story.

Dugie Standeford may be reached at info@ip-watch.ch.