Table of Contents

Patent Exhaustion for the Exhausted Defendant: Should Parties Be Able to Contract Around Exhaustion in Settling Patent Litigation?

Samuel F. Ernst, Chapman University - The Dale E. Fowler School of Law

Court Competition for Patent Cases

Jonas Anderson, American University - Washington College of Law

Form & Substance in Nancy Kim's Wrap Contracts

Danielle Kie Hart, Southwestern Law School

The JOBS Act and the Costs of Going Public

Susan Chaplinsky, University of Virginia (UVA) - Darden School of Business
Kathleen Weiss Hanley, University of Maryland
S. Katie Moon, University of Southern California - Marshall School of Business

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"Patent Exhaustion for the Exhausted Defendant: Should Parties Be Able to Contract Around Exhaustion in Settling Patent Litigation?" Free Download
Journal of Law, Technology and Policy, Vol. 2014, No. 2, 2014, Forthcoming
Chapman University, Fowler Law Research Paper No. 14-11

SAMUEL F. ERNST, Chapman University - The Dale E. Fowler School of Law

The first sale doctrine provides that when a patent holder unconditionally authorizes another party to sell a patented item, the patent holder’s right to exclude with respect to the patented item is “exhausted.? The licensee can then sell the patented item to a third party — a downstream purchaser — and the patent holder will not be able to sue the third party for patent infringement based on the resale or other use of that item. A principal animating policy behind the exhaustion doctrine is to prevent patent-holders from receiving overcompensation for their patented inventions by, for example, aggregating royalties along multiple points in the production and distribution chain.

Patent-holders settling infringement litigation often seek to draft a license agreement that precludes application of the exhaustion doctrine, so that they may continue to pursue licensed products downstream. Such provisions are likely ineffective if drafted as post-sale restrictions on what downstream purchasers may do with their patented products. However, it is possible to contract around exhaustion by limiting the scope of the authorized sale (a “pre-sale restriction?) or through other clever licensing devices that are described in this paper.

But should such provisions be enforceable? The prevailing view in the academic literature argues from a law and economics perspective that it is economically efficient to allow patent holders to license their patents at multiple points along the production chain, and that the free market will curb patent holders’ ability to receive double-recovery.

This article counters the law and economics literature to argue that such provisions should not be enforced if they are brokered as part of a litigation settlement. The litigation settlement context distorts the economic efficiencies allegedly created by contracting around exhaustion and can prevent free market checks on double-recovery. The expense and risk of litigation, the threat of injunctions, and the pressure to settle can weigh heavily on the patent infringement defendant. The license fee that is negotiated may not be sufficiently discounted to account for the reservation of downstream rights preserved by the patent holder. This is particularly true in light of research in cognitive psychology indicating that litigants do not engage in economically rational behavior in making settlement decisions. Defendants will likely favor a lower settlement price in exchange for a provision contracting around exhaustion, and take the risk that litigation against downstream customers will be defeated or that indemnification can be avoided.

If there is a clear rule against contracting around exhaustion, the parties will set the license fee at a rate that gives the patent holder full compensation up front, and the defendant can simply pass along this extra cost to downstream purchasers. This efficiently avoids the costs of additional litigation against downstream purchasers.

"Court Competition for Patent Cases" Free Download
University of Pennsylvania Law Review, Vol. 163, 2015 Forthcoming

JONAS ANDERSON, American University - Washington College of Law

The traditional academic explanation for forum shopping is simple: litigants prefer to file cases in courts that offer some substantial advantage — either legal or procedural — over all other courts. But the traditional explanation fails to account for competition for litigants among courts. This Article suggests that forum shopping in patent law is driven in part by the creation of procedural and administrative distinctions among courts that are designed to attract, or in some cases to repel, patent litigants.

This Article makes two primary contributions to the literature, one theoretical and one normative. First, it theorizes that judicial competition for litigants is an inherent drawback in specialized adjudication, thus connecting the theoretical scholarship on specialized courts (primarily the literature on bankruptcy law's experience with court competition) with the abundant literature on forum shopping. Normatively, it proposes a solution to forum shopping in patent law: a national, randomized assignment procedure for patent cases. Aside from eliminating forum shopping, such an assignment system could also be designed to increase judicial expertise in patent cases and to incentivize courts to create procedural and administrative rules that result in the efficient adjudication of patent disputes.

"Form & Substance in Nancy Kim's Wrap Contracts" Free Download
Southwestern University Law Review, Vol. 44, 2014, Forthcoming

DANIELLE KIE HART, Southwestern Law School

Nancy Kim’s book, Wrap Contracts, is ambitious and well worth reading. Kim coins the term “wrap contracts? to expose, explain and demystify the world of mostly online contracting. By revealing the ubiquity (and audacity) of wrap contracts, Kim also skillfully demonstrates that just about everything we do or want to do now involves a contract and, as a result, non-drafting parties like consumers have no choice but to accept the terms imposed by wrap contracts if they want to participate in modern society. In demonstrating so persuasively that drafters of wrap contracts consistently make more aggressive use of even more one-sided terms in their contracts than their offline counterparts, Kim has effectively made the case that wrap contracts pose significant problems for non-drafting parties in particular and society in general. That said, the crux of the problem posed by wrap contracts is the (mis)use of bargaining power within a contract law system that permits the (mis)use of unequal bargaining power to go unchecked and unimpeded. Kim’s solutions — the duty to draft reasonably and specific assent — do not effectively address this fundamental problem built into modern contract law. Consequently, it is unclear how Kim’s solutions end up assisting non-drafting parties in any meaningful way. On the contrary, her solutions appear to elevate form over substance in ways that will produce two adverse outcomes for non-drafting parties both of which will make it harder for non-drafting parties to get out of problematic wrap contracts. This is clearly not Kim’s intent. But I fear it will be the result.

"The JOBS Act and the Costs of Going Public" Free Download

SUSAN CHAPLINSKY, University of Virginia (UVA) - Darden School of Business
KATHLEEN WEISS HANLEY, University of Maryland
S. KATIE MOON, University of Southern California - Marshall School of Business

We examine the effects of Title I of the Jumpstart Our Business Startups Act (JOBS) for a sample of 213 EGC IPOs issued between April 5, 2012 and April 30, 2014. We show no reduction in the direct costs of issuance, accounting, legal, or underwriting fees, for EGC IPOs. Further, the indirect cost of issuance, underpricing, is significantly higher for EGCs than other IPOs. More importantly, greater underpricing is present only for larger firms that were not previously eligible for scaled disclosure under Regulation S-K. EGCs that are more definitive about their intentions to use the provisions of the Act have lower underpricing than those that are ambiguous. Finally, we find no increase in IPO volume after the Act. Overall, we find little evidence that the Act has initially been effective in achieving its main objectives and conclude that there are significant consequences to extending scaled disclosure to larger issuers.


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This eJournal distributes working paper and accepted paper abstracts in subject matters that concern how the law, broadly conceived, impacts entrepreneurship, small business, growth companies, entrepreneurship within large companies, and innovation policy generally.

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