News & Developments
A Reduced Win for Oracle
In late August, the U.S. Circuit Court of Appeals for the Ninth Circuit affirmed several district court rulings, including one that a second trial for Oracle would be conditioned upon the rejection of a remittitur that was much lower than their initial jury award of $1.3 billion. However, the Ninth Circuit closely scrutinized the evidence offered by Oracle to support its damages calculation and held that the district court’s proposed remittitur of $272 million was too low.
Oracle brought a copyright infringement action against German software company SAP in 2007 for systematic and illegal downloading of Oracle software. SAP stipulated to liability, and a damages trial was held. The jury awarded Oracle $1.3 billion in damages, based on its determination of the fair market value of a hypothetical license. The district court granted judgment as a matter of law in favor of SAP, on the grounds that the evidence supporting the hypothetical license was too speculative, and ordered a new trial conditioned upon a $272 million remittitur measured by the copyright holder’s lost profits plus the infringer’s profits. After Oracle rejected the remittitur, the district court ruled that if a second trial occurred, Oracle could not offer evidence related to the hypothetical license’s value. Oracle appealed this ruling with the hopes of restoring the jury award of over $1 billion.
The Ninth Circuit panel affirmed the JMOL ruling, agreeing with the district court that “the evidence Oracle presented was insufficient to establish an objective non-speculative license price” because the evidence presented at trial “failed to provide ‘the range of the reasonable market value’ for the hypothetical license in question.” In particular, the panel gave limited weight to Oracle’s expert’s testimony on the value of Oracle’s lost sales because it was based on unsupported, overly optimistic sales assumptions.
It also held, however, that the district court erred in ordering the $272 million remittitur because the amount was below the maximum amount sustainable by the proof. The Ninth Circuit affirmed the district court’s use of $236 million in infringer’s profits, but concluded that the district court erred in not applying Oracle’s higher estimate of $120.7 million in lost profits, holding that the higher estimate accounted for the lost future revenues related to customers who permanently switched to SAP. The court remanded with instructions for the district court to offer Oracle the choice between a $356.7 million remittitur and proceeding with a second trial.
Oracle hoped to restore its $1.3 billion jury verdict, but instead got an additional $55 million. The Ninth Circuit ruling limited Oracle’s chances of a high recovery by affirming the district court’s ruling that Oracle may not pursue hypothetical license damages a second time. The non-monetary win for Oracle was the court’s support that the law does not require Oracle to prove it would have licensed its product to SAP in order to recover those hypothetical damages, saying, “We have never required a plaintiff in a copyright infringement case to show that it would have licensed the infringed material. We decline to impose such a requirement now.” As to the amount of those damages, the case serves as a reminder that both district and appellate courts may closely scrutinize the evidence offered in support of damages, whether of the lost profits variety or in the determination of a hypothetical license.
Keywords: litigation, intellectual property, copyright, Oracle, SAP, remittitur
— Katie Clements, Balch & Bingham, Birmingham, AL
Copyright Infringement or Transformative Work?
The fair use doctrine was recently examined and applied Fox News Network, LLC v. TVEyes, Inc., 2014 WL 4444043 (S.D.N.Y. Sept. 9, 2014). TVEyes is a media-monitoring subscription service that “records the entire content of television and radio broadcasts and creates a searchable database of that content.” This service allows subscribers to search keywords or phrases to determine and review an aggregation of instances of the search term appearing in the media. Subscribers include businesses and governmental agencies such as the White House, United States Army, and local and state police departments—the service is not available to members of the general public. Clips are limited to ten minutes in length, and a majority of the clips are two minutes or less. Users are required to agree to use the clips for internal purposes only.
Fox News took issue with TVEyes’ commercialization of its copyrighted broadcasts and sued for infringement. It contended that TVEyes’ service would have a detrimental effect on the existing market for rebroadcasts of its copyrighted content, which Fox News made available online and also licensed to third parties.
TVEyes raised a fair use defense, and both sides moved for summary judgment. The court began with the proposition that “[t]ransformation almost always occurs when the new work ‘does something more than repackage or republish the original copyrighted work.’” (Slip op. at 13, citing Authors Guild, Inc. v. HathiTrust, 755 F.3d 87 (2d Cir. 2014).)
The court noted that “there is a strong presumption in favor of fair use for the defendant” when the copied work is being used for one of the purposes listed in § 107, such as criticism, comment, news reporting, teaching, scholarship, or research. It also observed that TVEyes’s service, by providing “the actual images and sounds depicted on television” as well as “the news information itself,” offered a “transformative” service “that no other content provider provides.” The court found the TVEyes service analogously “transformative” to the searchable database of scanned books at issue in Authors Guild v. HathiTrust and thumbnail images shown in search engine results as in Perfect 10 v. Amazon.com, but distinguished a rare recent case in which a court had found that the defendant, a news monitoring service for print news that aggregated content for subscribers based on keywords, had failed to prove its fair use defense. Associated Press v. Meltwater U.S. Holdings, 931 F. Supp. 2d 537 (S.D.N.Y. 2013).
Thus, the court decreed TVEyes’s use of Fox News broadcast content “transformative” in its discussion of the first fair use factor. It did then proceed to consider the other three factors, but it was clear that the transformativeness finding overshadowed the remaining factors. The second and third factors were found to be neutral and summarily disposed of. The fourth factor, the effect of the copied work on the market for the original, received closer inspection, but was resolved in favor of TVEyes insofar as it: (1) deleted all of the copied content every 32 days; (2) experienced few instances of sequential playback by subscribers of Fox News content, such that “no reasonable juror could find that people are using TVEyes as a substitute for watching Fox News broadcasts on television”; and (3) benefitted the public by allowing subscribing entities to use the service for correction of misinformation, regulatory compliance, reporting on and criticizing news broadcasts, and ensuring national security, among other uses. The court had already rejected the notion that commerciality of the allegedly infringing work could carry “presumptive force against a finding of fairness” in its discussion of the first factor.
As others have noted, including Judge Easterbrook in the Seventh Circuit’s recent decision in Kienitz v. Sconnie Nation, it is difficult to reconcile the broad view of transformativeness exemplified in cases like TVEyes, Authors Guild v. Hathi Trust, and Cariou v. Prince with the text of Section 106 of the Copyright Act, which grants the copyright holder the “exclusive right” to “prepare derivative works,” and Section 101, which defines “derivative work” as any “form in which a [preexisting] work may be recast, transformed, or adapted.” More broadly, decisions like TVEyes suggest that courts are moving away from viewing fair use as a narrowly-drawn exception to copyright holders’ exclusive rights in their works, to the view that fair use promotes the creation of transformative works and, thus, serves one of the goals of copyright law itself. The TVEyes opinion, which essentially presumed transformativeness of the work at the outset of the fair use analysis, indicates that the trend toward this a broader view of the role of fair use continues to gain traction in the federal courts.
Keywords: litigation, intellectual property, copyright, transformative, TVEyes, Fox News
Sherlock Holmes: The Case of the Public Domain
In Klinger v. Conan Doyle Estate, Ltd., 755 F.3d 496 (7th Cir. 2014), in an opinion by Judge Posner, the Seventh Circuit clarified the interplay between copyrights in characters and derivative works, holding that characters whose copyright had expired entered the public domain even if the characters underwent development in later derivative works.
Of the 60 published works depicting Sherlock Holmes, only 10 have unexpired copyrights and are still protected—those published in 1923 or later. The plaintiff Klinger planned a collection of stories inspired by the Sherlock Holmes character. The defendant, the estate of Arthur Conan Doyle, sent a letter to the plaintiff’s publisher threatening to prevent distribution of any unlicensed book, convincing the publisher not to publish unless the plaintiff obtained a license. The plaintiff instead sought a declaratory judgment that all story elements introduced prior to 1923 were in the public domain.
The estate argued that because Klinger had yet to write the allegedly infringing book, Klinger’s claim was hypothetical, and accordingly, any ruling would be an improper advisory opinion. The court disagreed, explaining that there was an “actual controversy” because the estate had “made clear” that it would try to pressure retailers to refrain from distributing the book and had implicitly threatened to sue the plaintiff and its publisher for copyright infringement. The court also rejected the estate’s argument that the suit was premature, reasoning that the question of whether the pre-1923 stories are in the public domain could be determined without any need to know the contents of the book that Klinger planned to write.
Characters in the Public Domain
The estate did not dispute that pre-1923 works were in the public domain. Instead, the estate asserted a novel theory that characters may not be copied until the copyright expires on all works “in which that character appears in a different form.” The estate argued that Holmes and Watson were complex characters and that later stories continued to develop them. The court found no basis for the argument that later character developments could extend the protection of the earlier, “flatter” versions of the characters. “Alterations do not revive the expired copyrights on the original characters,” and therefore, the estate could claim protection “only for the incremental additions of originality” found in works written in 1923 or later. “When a story falls into the public domain, story elements—including characters covered by the expired copyright—become fair game for follow-on authors.” Accordingly, the copyrights on those elements “were not extended by virtue of the incremental additions of originality in the derivative works.”
In a later decision (2014 WL 3805116 (7th Cir. Aug. 4, 2014)), the court, using some very strong language, held that Klinger benefitted from the “very strong” presumption in favor of fees that applies following the successful defense against an allegation of copyright infringement, particularly as he accomplished a public good at personal risk to himself. The court repeatedly criticized the estate’s business model, which it called “a disreputable business practice—a form of extortion,” and suggested that the estate’s threat to prevent distribution might have been an antitrust violation. Between the estate “playing with fire” with its threats and a groundless “quixotic” appeal, the court found Klinger was entitled to his appellate fees.
Keywords: litigation, intellectual property, Klinger, Sherlock Holmes, character copyright
October 7, 2014
Supreme Court Considers Preclusive Effect of Prior Rulings
If the Trial Trademark and Appeal Board (TTAB) has found a likelihood of confusion between two marks, should that finding have preclusive effect—or, alternatively, be given some deference—in a subsequent trademark infringement case in federal court? The Supreme Court will weigh in on that question in B&B Hardware v. Hargis Industries, Inc. (No. 13-352). The district court in the case declined to give preclusive effect (or any deference at all) to the TTAB’s ruling that there was a likelihood of confusion between the parties’ marks, a ruling that was affirmed by the Eighth Circuit. Earlier this year, while a petition for a writ of certiorari was pending, the Supreme Court asked the Solicitor General’s office to file a brief expressing the views of the United States. Solicitor General’s amicus brief, which was filed in May 2014, takes the position that the Eighth Circuit erred in declining to apply claim preclusion to the likelihood of confusion analysis performed by the TTAB. The Supreme Court thereafter granted the cert. petition, and the case is now scheduled to be argued in the Court’s October Term 2014.
Seventh Circuit Reins In "Transformative" Fair Use Standard
On September 15, 2014, the Seventh Circuit unanimously ruled in Kienitz v. Sconnie Nation LLC that an alleged infringer’s use of a copyrighted photograph on a T-shirt constituted fair use. No. 13-3004, 2014 WL 4494835 (7th Cir. Sept. 15, 2014). The Seventh Circuit rejected the Second Circuit’s expansive view of copyright fair use in Cariou v. Prince, 714 F.3d 694, 706 (2d Cir. 2013), “that ‘transformative use’ is enough to bring a modified copy within the scope of § 107.” Instead, the court emphasized the statutory factors contained in § 107, “because asking exclusively whether something is ‘transformative’ not only replaces the list in § 107 but also could override 17 U.S.C. § 106(2), which protects derivative works.” Id. The court was skeptical of the Cariou decision because it did not adequately explain “how every ‘transformative use’ can be ‘fair use’ without extinguishing the author’s rights under § 106(2).”
In 2013, photographer Michael Kienitz sued Sconnie Nation for copyright infringement after it used an altered version of the plaintiff’s photograph of Madison, Wisconsin, Mayor Paul Soglin on a T-shirt. Mr. Keintz had taken the picture of Soglin at his inauguration in 2011, which Soglin then used as his official photograph on the city’s website.
Soglin, who had attended the first Mifflin Street Block Party when it began as a political activism event in 1969, stirred controversy when he announced plans to shut down the event he had a hand in creating. Sconnie Nation took the mayor’s official photograph, posterized it, stripped it of its color and background, added garish neon and superimposed the phrase “Sorry For Partying” in a sarcastic rebuke to the mayor’s apparent change in position. The “Sorry For Partying” shirts sold by Sconnie Nation turned a small profit.
The Western District of Wisconsin granted summary judgment in favor of Sconnie Nation, holding that the defendant made fair use of the photograph. The Seventh Circuit affirmed, but on a different rationale than the district court.
The court focused on the four fair use factors, emphasizing the importance of the fourth factor, market effect. Most notably, the court questioned Cariou’s singular reliance on “transformative use” when interpreting and applying the fair use doctrine as it eliminates a copyright holder’s statutory right to prohibit derivative works under § 106(2). As in prior cases, the court asked whether the contested use was a complement (allowed) or a substitute (prohibited) for the original work. Thus, the court ruled a T-shirt was not a substitute for a photograph. More importantly, Kienitz had failed to argue how Sconnie Nation’s actions would injure his business ventures going into the future.
Although there have been criticisms of Cariou’s expansive application of the “transformative” standard in fair use analysis, Kienitz is the first circuit-level critique and represents a significant circuit split.
—Jessica Nam, American University Washington College of Law
Third Circuit Rejects Presumption of Irreparable Harm in Lanham Act Cases
The Third Circuit ruled in Ferring Pharmaceuticals v. Watson Pharmaceuticals on August 26 that “a party seeking a preliminary injunction in a Lanham Act case is not entitled to a presumption of irreparable harm but rather is required to demonstrate that she is likely to suffer irreparable harm if an injunction is not granted.” (Slip op. at 21.)
The Third Circuit observed that while it had never recognized such a presumption in false advertising cases, the presumption had long been applied in trademark infringement cases. However, the presumption is no longer tenable in light of the Supreme Court’s rejection of categorical rules that would replace the traditional four-factor test for injunctions in eBay, Inc. v. MercExchange, 547 U.S. 403 (2006), and requirement in Winter v. NRDC, 555 U.S. 7 (2008) that a party seeking a preliminary injunction must demonstrate a probability, not possibility, of irreparable harm.
Although eBay had arisen in the patent context, the court found its reasoning equally applicable to Lanham Act cases, joining the Ninth Circuit in so finding. See Herb Reed Enters. v. Fl. Entm’t Mgmt., 736 F.3d 1239 (9th Cir. 2013). A petition for a writ of certiorari is pending in Herb Reed Enterprises. INTA has an amicus brief in support of a grant of cert.
Keywords: intellectual property litigation, Third Circuit, irreparable harm
—Lesley McCall Grossberg, BakerHostetler, Philadelphia, PA
Supreme Court Weighs in on Patent-Eligible Subject Matter
On June 19, 2014, the United States Supreme Court in Alice Corp. Pty. Ltd. v. CLS Bank Int'lunanimously held that the patent claims at bar were drawn to an abstract idea, and abstract ideas cannot become patent eligible by merely requiring generic computer implementation. The case concerned a patent for a way, using a computer, to mitigate “settlement risk,” or the risk that one party in a financial transaction will not fulfil its obligations. Justice Thomas announced the opinion of the Court. Justice Sotomayor concurred, joined by Justices Ginsburg and Breyer.
The patent disclosed a scheme for mitigating risk through the creation of a clearinghouse. Under the scheme, a computer acted as an intermediary between the two transacting parties. The computer created “shadow” credit and debit records that updated in real time, and allowed only transactions when the shadow records indicated that the mutual obligations of the parties would be upheld. Through this computerized approval process, the scheme mitigated the risk that one party would not fully perform its obligations.
Before reaching the Supreme Court, the district court and Federal Circuit Court of Appeals found the patent ineligible for protection under 35 U.S.C. § 101. In 2007, CLS Bank sued Alice Corp. for a declaratory judgment that Alice’s patents were not valid or enforceable, and that CLS Bank was not liable for infringement. The district court found for CLS Bank, holding that the patent was drawn to an abstract idea and therefore was not eligible for protection under § 101. Alice Corp. appealed to the United States Court of Appeals for the Federal Circuit. On en banc rehearing, a plurality of a deeply fractured Federal Circuit Court of Appeals found the patent ineligible, following Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012).
In reviewing the patent, the Supreme Court sought to “distinguish between patents that claim the building blocks of human ingenuity and those that integrate the building blocks into something more, thereby transforming them into a patent-eligible invention.” To do so, the Supreme Court applied the two-step Mayo framework: first determining whether the patent claims an abstract idea, among other unpatentable things, and second determining whether the claims—both individually and as an “ordered combination”—transform the nature of the claim into a patent-eligible application. The second step has been described as a search for an “inventive concept.”
The Supreme Court found an abstract idea, but not an inventive concept. First, the Court found the patent to be an abstract concept similar to “hedging,” as it is “a fundamental economic practice long prevalent in our system of commerce.” Second, the Court analogized the patent at issue to the patents found invalid in Mayo, Gottschalk v. Benson, and Parker v. Flook. By contrast, the Court found that the computer-implemented mathematical equation in Diamond v. Diehr was patent eligible because it contained extra steps that “transformed the process into an inventive application of the formula.”
Looking forward, some questions remain unanswered. For example, although the opinion in Alice Corp. clarifies the patentability of computer-implemented processes, the Court explicitly reserved the question of “the precise contours of the ‘abstract ideas’ category.” Further, to what extent must a computer-implemented patent take extra steps to gain protection under § 101? More generally, time will tell whether applications such as the one in this case should not be patent eligible, or whether we are following Alice Corp. down a rabbit hole.
Keywords: intellectual property litigation, abstract idea, patent-eligible, computer implementation
—Jarrad L. Wood, American University Washington College of Law, J.D. Candidate, 2015
Does Nautilus Avoid the "Zone of Uncertainty"?
On June 2, 2014, the Supreme Court eliminated the Federal Circuit’s “insolubly ambiguous” test for indefiniteness in Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014). Prior to Nautilus, the Federal Circuit held that a claim was not “insolubly ambiguous” if it was “amenable to construction, however difficult that task may be.” Exxon Research & Eng’g Co. v. United States, 265 F.3d 1371, 1375 (Fed. Cir. 2001). Citing the Supreme Court’s decision in United Carbon Co. v. Binney & Smith Co., 317 U.S. 228 (1942), the Federal Circuit explained that the purpose of the indefiniteness doctrine was to close the invention-stymieing “zone of uncertainty” by requiring that the claims be “reasonably clear-cut.” Exxon, 265 F.3d at 1375. The Federal Circuit thus crafted the “insolubly ambiguous” test for proving indefiniteness to give equal credit to the purpose of the requirement that claims be definite, as codified in 35 U.S.C. § 112(b), and the statutory presumption of validity accorded to all issued claims as set forth in 35 U.S.C. § 282 (and the attendant clear-and-convincing burden of proof). Exxon at 1375. The Federal Circuit reasoned that “[b]y finding claims indefinite only if reasonable efforts at claim construction prove futile,” the “insolubly ambiguous” test “accord[s] respect to the statutory presumption of patent validity.” Exxon, 265 F.3d at 1375.
The Supreme Court, however, found that the Federal Circuit’s “amorphous” test ran afoul of the very reasons for which the Federal Circuit established the test. Nautilus, 134 S. Ct. at 2130–31. The Court explained that “[i]t cannot be sufficient that a court can ascribe some meaning to a patent’s claims; . . . [t]o tolerate imprecision just short of rendering a claim ‘insolubly ambiguous’ would diminish the definiteness requirement’s public-notice function and foster the innovation-discouraging ‘zone of uncertainty.’” Nautilus at 2130 (citation omitted). The Court also dismissed the notion that the “insolubly ambiguous” test was necessary to preserve the presumption of validity: the “presumption of validity does not alter the degree of clarity that § 112[(b)] demands from patent applicants; to the contrary, it incorporates that definiteness requirement by reference.” Nautilus at 2130 n.10 (citing 35 U.S.C. § 282, ¶ 2(3)). In place of the “insolubly ambiguous” test, the Court established a “reasonable certainty” test. Specifically, “a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” Nautilus at 2124. Although indefiniteness is a question of law, the Supreme Court chose to send the case back to the Federal Circuit to apply the “reasonable certainty” test in the first instance.
The “reasonable certainty” test seems to set a lower bar for indefiniteness, but what impact the test will have depends on how litigants address the test and how the Federal Circuit implements it. Of course, reasonable minds can and do differ about how claim terms should be construed, often coming up with reasonable, but differing, constructions. In light of Nautilus, parties may rely increasingly on expert testimony to do battle over what one skilled in the art at the time of the invention would understand by the claims. Despite the Supreme Court’s view, implementation of the Nautilus test may run afoul of the Supreme Court’s own directive that “if the claim were fairly susceptible of two constructions, that [construction] should be adopted which will secure to the patentee his actual invention, rather than to adopt a construction fatal to the grant.” Smith v. Snow, 294 U.S. 1, 14 (1935) (citations omitted). In any event, should the Federal Circuit implement a standard contrary to the Supreme Court’s mandate, the Supreme Court could take up Nautilus for a second time, as it did with Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013).
In addition, the impact of Nautilus on indefiniteness for means-plus-function claims is unclear, given that indefiniteness for means-plus-function claims depends on whether “the specification fails to disclose structure corresponding to the claimed function,” as opposed to whether the claims are “insolubly ambiguous.” Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 296 F.3d 1106, 1114 (Fed. Cir. 2002). As a result, the Federal Circuit may clarify its test for means-plus-function claims in view of Nautilus.
Nautilus has made indefiniteness one area of law to watch, as courts and litigants explore the contours of the new test over the coming months.
Keywords: intellectual property, litigation, insolubly ambiguous, indefiniteness, Nautilus
June 18, 2014
Lanham Act Claims for Misleading Product Description Can Coexist with FDCA Labeling Regulations
A unanimous Supreme Court (8–0, Justice Stephen Breyer recusing) ruled on June 12, 2014, in POM Wonderful v. Coca-Cola that one competitor may sue another for unfair competition under the Lanham Act for allegedly false or misleading product descriptions, notwithstanding that product labeling is regulated under the federal Food, Drug, and Cosmetic Act (FDCA) by the FDA.
Coca-Cola’s Minute Maid division makes and sells a juice blend that is labeled as “pomegranate blueberry,” even though the product contains just 0.3 percent pomegranate juice and 0.2 percent blueberry juice. Frustrated that the Coca-Cola product was made with predominantly less expensive apple and grape juices, yet connoted that it might have the same flavor profile as POM Wonderful’s own 85 percent pomegranate-15 percent blueberry drink, POM sued Coca-Cola under Section 43 of the Lanham Act for false or misleading product description.
The district court held that because Coca-Cola’s label conformed to FDCA regulations, POM’s Lanham Act suit was precluded, and the Ninth Circuit affirmed. After a star-studded oral argument in the Supreme Court in which Seth Waxman represented POM and Kathleen Sullivan argued for Coca-Cola, the latter being taken to task by Justice Kennedy when Sullivan suggested that POM didn’t sufficiently credit consumers’ intelligence—“Don’t make me feel bad, because I thought this was pomegranate juice”—the Court reversed.
Following its expansive view of Lanham Act standing from the Lexmark Int’l v. Static Control Components case, decided earlier this Term, the Court noted that POM was bringing suit as a competitor of Coca-Cola: “though in the end consumers also benefit from the Act’s proper enforcement, the cause of action is for competitors, not consumers.” This observation at the outset distinguished the POM Wonderful case from the flood of consumer suits that have been brought in recent years against food and beverage companies for allegedly misleading product labeling, many of which have been found to be preempted by the FDCA.
Turning to the statutory interpretation of the FDCA, the Court noted that the FDA apparently does not exercise significant oversight over the content of fruit juice labels; the relevant regulation only requires that a fruit juice blend label must either declare the percentage content of the named juice, or indicate that the named juice is present as a flavor or flavoring. Neither the text of the Lanham Act nor the FDCA contain any provision addressing or referring to the interplay between the two.
The Court found that harmonizing the FDCA and Lanham Act did not require preclusion of POM’s Lanham Act claim. Noting that the two statutes have co-existed since the Lanham Act was passed in 1946, the Court observed that Congress could have enacted a provision expressly preempting Lanham Act claims in favor of the FDCA, and the fact that it had not served as “powerful evidence that Congress did not intend FDA oversight to be the exclusive means” of ensuring proper food and beverage labeling. Far from interfering with the proper operation of the FDCA, the Court found, competitors’ Lanham Act claims might in fact further the same objectives: “Allowing Lanham Act suits takes advantage of synergies of multiple methods of regulation,” and competitors’ “awareness of unfair competition practices may be far more immediate and accurate than that of agency rulemakers and regulators.”
The Court’s view of the Lanham Act being a complement to, rather than precluded by, FDCA labeling regulations means that competitors bringing a false labeling claim have one less procedural hurdle to overcome. Conversely, brands should carefully consider the fact that FDCA-compliant labeling is insufficient to stave off unfair competition claims.
Keywords: intellectual property, litigation, unfair competition, product description, Lanham Act
—Lesley McCall Grossberg, BakerHostetler, Philadelphia, PA
June 17, 2014
Supreme Court Eases Standard for Award of Attorney Fees in Patent Cases
In decisions in companion cases Octane Fitness v. ICON Health and Highmark v. Allcare Health, the Supreme Court made it easier for district courts to award attorneys’ fees to the prevailing party in patent litigation. In Octane Fitness, the Court rejected the Federal Circuit’s “unduly rigid” interpretation of 35 U.S.C. § 285 and held that an “exceptional” case justifying an award of attorney fee is simply “one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” In Highmark, the Court further held that district court decisions on fee awards under this standard are to be reviewed for abuse of discretion, rejecting the de novo standard applied by the Federal Circuit.
Writing for a unanimous Court, Justice Sonia Sotomayor stated the issue before the Court as whether the framework for fee awards set by the Federal Circuit in Brooks Furniture v. Dutailier Int’l Inc. is consistent with the text of § 285. In Brooks Furniture, the Federal Circuit held that a case is exceptional under § 285 only when (a) there has been material inappropriate conduct, such as willful infringement, inequitable conduct, or conduct that violates Rule 11; or (b) the litigation was both brought in bad faith and objectively baseless.
The Court rejected the Brooks Furniture rule as “overly rigid” and not supported by the statutory language or history. The Court first observed that the misconduct prong of the Brooks Furniture rule extends largely to independently sanctionable conduct. Under the new standard, district courts could award fees in cases where a party’s conduct is not independently sanctionable but is nevertheless “exceptional.” Second, the Court noted that in Brooks Furniture the Federal Circuit imported the fee-shifting standards from Professional Real Estate Investors, Inc. v. Columbia Pictures, but that case dealt with the sham exception to the Noerr-Pennington doctrine’s protection against antitrust liability, an issue that the Court found inapplicable here. Third, the Court found that the Brooks Furniture rule was so demanding that it would render § 285 superfluous in view of the existing power of courts to depart from the “American Rule” when a party has acted in bad faith or willfully disobeyed a court order. Finally, the Court rejected the Brooks Furniture requirement of “clear and convincing evidence” on the grounds that it had not interpreted comparable fee-shifting statutes to require that level of proof and nothing in § 285 demands a heightened burden of proof.
Having rejected the Brooks Furniture rule, the Court reverted to the plain language of the statute and dictionary definitions to support its holding. The Court compared its new standard to the standard under the Copyright Act, which is not reduced to a precise rule or formula, but instead relies on the exercise of equitable discretion. In Highmark, the Court went on to rule that this discretionary determination is to be reviewed only for abuse of discretion.
The net effect of these rulings is that district courts now have greater discretion to award attorneys’ fees under 35 U.S.C. § 285, and the exercise of that discretion will now be reviewed under a more deferential abuse of discretion standard.
Keywords: intellectual property, litigation, attorney fees, abuse of discretion, patent litigation, § 285
—Michael Padden, Pearne & Gordon LLP, Chicago, IL
June 16, 2014
SCOTUS Rejects Expanded Concept of Induced Infringement
In Limelight Networks Inc. v. Akamai Technologies, Inc., the Supreme Court unanimously rejected the Federal Circuit’s expanded concept of induced infringement and held that a defendant cannot be liable for induced infringement under 35 U.S.C. § 271(b) where no one has directly infringed the patent under § 271(a) or some other statutory provision.
Akamai obtained a $40 million verdict at trial based on direct infringement, but the Federal Circuit subsequently ruled in Muniauction Inc. v. Thomson Corp. that a defendant can be liable for direct infringement of a method patent only if it “exercises control or direction over the entire process such that every step is attributable to the controlling party.” Finding that Akamai had not satisfied the Muniauction test, the trial court granted judgment as a matter of law to Limelight and a panel of the Federal Circuit affirmed. On rehearing en banc, however, the Federal Circuit reversed, finding that the verdict could be supported on a theory of induced infringement under § 271(b). The Federal Circuit reasoned that a defendant can be liable for inducing infringement under § 271(b) even if no person had committed direct infringement because direct infringement can exist independently of a violation of § 271(a). That is, the “infringement” that needs to be induced under § 271(b), unlike direct infringement under § 271(a), is not necessarily limited to infringement by a single entity.
The Supreme Court found that the Federal Circuit’s reasoning “fundamentally misunderstands what it means to infringe a method patent.” Even if the Muniaution rule is mistaken, the Court argued, that is no reason to create a separate new concept of infringement under § 271(b): “the possibility that the Federal Circuit erred by too narrowly circumscribing the scope of 271(a) is no reason for this Court to err a second time by misconstruing 271(b) to impose liability for inducing infringement where no infringement has occurred.” Ultimately, the Supreme Court reversed and remanded the case back to the Federal Circuit, where it will have the opportunity to address the issue of liability under § 271(a).
This decision makes it clear that induced infringement cannot be used to avoid the impact of the Muniaution rule on divided infringement, but the vitality of the Muniaution rule remains subject to further review at the Federal Circuit and possibly the Supreme Court as well.
Keywords: induced infringement, direct infringement, patent, § 271(b)
—Michael Padden, Pearne & Gordon LLP, Chicago, IL
Changes to the California Online Privacy Protection Act
PII is defined broadly under CalCOPPA and most operators have at least some California users. Therefore, it is likely this new amendment will impact most operators and they should review their current privacy disclosures for compliance.
The amendment took effect on January 1, 2014. Operators have 30 days to comply with the amendment’s new requirements after being notified of noncompliance. Noncompliant operators face fines of up to $2,500 per violation, which may include each download of a noncompliant mobile app.
Keywords: litigation, intellectual property, California Online Privacy Protection Act of 2003, amendment, personally identifiable information (PII), do-not-track signals, privacy policies, website operators, mobile app operators, compliance
—Megan Donohue, Cooley LLP, San Diego, CA
Internet TV Heads to the High Court
On January 10, 2014, the U.S. Supreme Court granted certiorari in ABC, Inc. v. Aereo, Inc., a major copyright case involving free Internet TV. Broadcasters, including ABC, Disney, CBS, NBC, FOX, and PBS, among many others, filed suit against Aereo alleging that the company’s distribution of broadcast TV through the Internet without paying retransmission fees violated their copyrights. Specifically, broadcasters took issue with Aereo’s infringement of their exclusive right “in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyright work publicly” under the 1976 Copyright Act, 17 U.S.C. § 106(4).
Aereo functions as a modern alternative to the “giant rooftop antenna or awkward rabbit ears” that were once required to watch free, over-the-airwaves TV. Although technically not free, for a small fee Aereo offers broadcast TV streaming live to a computer, phone, tablet or any other compatible device by housing and assigning individual antennas to each of its users. When a user logs on to an Aereo account, he or she has the option to either “watch” or “record” a particular TV show. Once the user selects to either watch or record a show, the individual antenna assigned to that user picks up the broadcast and makes a copy of the show. If the user chooses the “watch” function, then the copy of the show is streamed to the user’s device through the Internet, and after roughly a 10-second delay from the actual broadcast, the user views the show “nearly live.” If the “record” feature is enabled, the copy of the show is saved into the user’s account until the user is ready for playback.
Broadcasters claim that Aereo’s transmission of television programs to thousands of viewers constitutes a “public performance” of the programs. The Southern District of New York disagreed and refused to grant a preliminary injunction against Aereo. ABC v. Aereo, Inc., 874 F. Supp. 2d 373 (S.D.N.Y. 2012). The Second Circuit found that Aereo was not engaged in publicly performing broadcast shows and upheld the decision. WNET v. Aereo, Inc., 712 F.3d 676 (2nd Cir. 2012).
The Second Circuit emphasized the important fact that Aereo creates a unique copy of each show requested by a user. When that copy is transmitted, whether immediately under the “watch” feature or later because it was recorded, the unique copy is sent only to the user that requested it. Because Aereo creates copies for its users to watch even if they choose to view it “nearly live,” the court found that an Aereo user was not watching the same stream of broadcast TV as a person with a cable subscription. Finally, the Second Circuit rejected any suggestion by the broadcasters that Aereo’s actions should be aggregated to amount to a public transmission rather than thousands of private transmissions.
Currently, Aereo is available in 11 major markets with plans to expand to an additional 16 markets in the near future. The Supreme Court’s decision will be one of not only major legal significance but also major industry significance, either ending free Internet TV once and for all, or reshaping broadcast TV as we know it.
Keywords: litigation, intellectual property, Internet TV, public transmission, copyright infringement, retransmission fees
—Whitney Lipscomb, Balch & Bingham LLP, Gulfport, MS
U.S. Copyright Office Ponders "Small-Claims" Tribunal
In September 2013, the U.S. Copyright Office issued its Copyright Small Claims report. The report urges Congress to take a hard look at the creation of a forum that would allow copyright owners to pursue infringement matters under $30,000 arising under the Copyright Act, including declaratory judgments. In order to accomplish this, the report suggests the implementation of a tribunal, to be known as the Copyright Claims Board. This so-called “small-claims” system provides claimants with the opportunity to pursue smaller claims without being concerned about the cost of litigation and the difficulty of representing oneself in a copyright action.
One of the key features of the proposed Copyright Claims Board is that participation is by the parties’ consent. Once the claimant provides notice of the filing of an action with the tribunal, the respondent can give consent by either an opt-out mechanism or by affirmative written consent, though the exact mechanism of consent has yet to be determined. If the respondent refuses to participate in the small-claims proceeding, a federal district court action would still be an option for the claimant should he choose to proceed. In addition to consent, other proposed requirements to bring an action in front of the tribunal are that (1) damages are capped at $30,000, and (2) the copyright owner must have registered the work or at least filed an application.
While legal representation is allowed, the small-claims tribunal would be designed to allow parties to proceed pro se. Standardized forms and procedures, as well as the availability of staff attorneys, would facilitate a litigant’s self-representation.
In addition to claims arising under the Copyright Act, related contract and ownership issues may also be considered by the Copyright Claims Board; however, related trademark claims would not be subject to its jurisdiction. Respondents can assert any applicable defense, including fair use, as well as counterclaims. In addition, DCMA-related takedown notices would be considered by the small-claims tribunal.
Another important aspect of the Copyright Claims Board would be the administration of proceedings through online and teleconference means, though the tribunal would be centrally located at the Copyright Office. Parties would not be required to personally appear but would submit written materials for consideration by a panel of three adjudicators, two with significant experience in copyright law and a third with experience in alternative dispute resolution.
Discovery is to be limited, allowing some requests for production of documents, interrogatories, and requests for admissions. Notably, the report did not recommend depositions—a concept it felt went against the idea of streamlining and making the process more cost-effective. There would be no formal motion practice nor would formal rules of evidence apply, both notions that encourage quicker decisions on the merits. Statutory damages would be available in another effort to streamline damages discovery. Damages would be limited to $15,000 per work, with a cap of $30,000. Finally, this tribunal would retain the ability to dismiss any claim without prejudice that it determined it could not adjudicate fairly, or if the issue was too complicated.
Decisions by the Copyright Claims Board would only be binding on the parties and claims at issue, could be administratively reviewed for error, and could be challenged in federal court. However, the proposed tribunal would not have absolute power to order injunctions, nor would it be able to enforce its judgments—the federal court would have to step in for that.
The potential of the Copyright Claims Board is promising in that it would give access to claimants who may not have had the ability or the wherewithal to enforce their copyrights before, it would cut down on legal fees for all involved, and it would result in faster adjudications for small claims.
Keywords: litigation, intellectual property, small claims, tribunal, copyrights, U.S. Copyright Office, Copyright Act
—Loren M. Lancaster, Balch & Bingham LLP, Birmingham, AL
Finding Invalidity Early under Section 101 Post-Ultramercial
The Federal Circuit recently indicated that dismissal of a patent infringement suit at the 12(b)(6) stage because the asserted patent claims are invalid under 35 U.S.C. § 101 for lack of eligible subject is the exception, not the rule. Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 1339 (Fed. Cir. 2013). District courts, however, continue to grant motions to dismiss pursuant to Rule 12(b)(6) or 12(c) of the Federal Rules of Civil Procedure in light of the invalidity of the asserted claims under § 101. See, e.g., Lumen View Tech., LLC v. Findthebest.com, Inc., No. 13 Civ. 3599(DLC), 2013 WL 6164341 (S.D.N.Y. Nov. 22, 2013); UbiComm, LLC v. Zappos IP, Inc., No. 13-1029-RGA, 2013 WL 6019203 (D. Del. Nov. 13, 2013); Fuzzysharp Techs., Inc. v. Intel Corp., No. 12-CV-04413 YGR, 2013 WL 5955668 (N.D. Cal. Nov. 7, 2013); Content Extraction and Transmission, LLC v. Wells Fargo Bank, Nat’l Ass’n, Nos. 12-2501 (MAS)(TJB), 12-6960 (MAS)(TJB), 2013 WL 3964909 (D.N.J. July 31, 2013).
Also post-Ultramercial, the Federal Circuit described a two-step test for patent eligibility under § 101: (1) whether the invention fits one of the four statutory classes of patent-eligible subject matter set forth in § 101, and (2) whether a judicially recognized exception to subject-matter eligibility applies, such as abstractness. Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1341 (Fed. Cir. 2013). In order to find a claim invalidly abstract, a court must identify the “fundamental concept wrapped up in the claim” and then find that the claim fails to introduce any additional substantive limitations that “narrow, confine, or otherwise tie down the claim.” Id. (quoting CLS Bank Int’l v. Alice Corp., 717 F.3d 1269, 1282 (Fed. Cir. 2013) (citations omitted)).
In Accenture, the Federal Circuit held that a computer program for handling insurance-related tasks was abstract and unpatentable. The remaining four post-Ultramercial decisions finding invalidity under § 101 are district court holdings that also involve computer-related claims. The following concepts were found to be abstract: the extraction and processing of information from hardcopy documents; conditioning one action based on another; eliminating portions of well-known and established mathematical calculations; and multilateral matchmaking for financial transactions.
While Ultramercial stated that § 101 invalidity at the pleading stage is the exception, courts seem to view this as an opportunity to quickly dispose of questionable patents and the standards described in Accenture make it easier to do so.
Keywords: litigation, intellectual property, patent eligibility, infringement, invalidity, § 101, Ultramercial, Accenture
—Andy Rinehart, Kilpatrick Townsend & Stockton LLP, Winston-Salem, NC
USPTO Interprets "Financial Product or Service" Broadly in CBM Review
The America Invents Act created many new mechanisms for post-grant review of patents by the U.S. Patent and Trademark Office (PTO), and in particular the Patent Trial and Appeal Board (PTAB). One mechanism is the transitional “covered business method” (CBM) review, which allows a party that has been sued for infringement of a certain class of patents to challenge the validity of the asserted patent(s) at the PTO on a wide range of grounds, without the petition deadlines and extreme estoppel associated with other similar PTO proceedings.
For a patent to be eligible for CBM review, however, it must contain at least one claim directed to “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service. . . .” AIA § 18(d)(1); see also 37 C.F.R. §§ 42.300–304; 35 U.S.C. §§ 321–329. In applying this standard, the PTAB has explicitly noted that the legislative history indicates that the phrase “financial product or service” should be interpreted“broadly.” Apple Inc. v. Sightsound Technologies LLC, CBM2013-00019, Doc. 17 (PTAB Oct. 8, 2013). Indeed, the legislative history explains that the definition was drafted to encompass patents “claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.” 77 Fed. Reg. 48734, 48735 (Aug. 14, 2012) (emphasis added).
For example, in Apple v. Sightsound, the PTAB rejected an argument that the AIA required a “nexus” between the claims at issue and a “financial business.” There, the PTAB held that the phrase “financial product or service” is “not limited to products or services of the ‘financial service industry.’” More recently, in Volusion, Inc. v. Versata Software, Inc., CBM2013-00017, Doc. 8 (PTAB Oct. 24, 2013), the PTAB granted CBM review for a patent containing database-related method claims with no financial-oriented limitations because the specification stated that the invention had “application to a wide range of industries” including “financial services” and the broad claim language did not limit the method to any particular product or service.
Keywords: litigation, intellectual property, patent, America Invents Act, post-grant review, covered business method, CBM, financial
— Joshua Lee, Kilpatrick Townsend & Stockton LLP, Atlanta, GA
Introduction of the "Innovation Act"
On October 23, 2013, Rep. Bob Goodlatte (R-Va.) introduced a bill entitled the “Innovation Act” that contained several proposed amendments to Title 35 and the America Invents Act. The bill was introduced to “make improvements and technical corrections, and for other purposes,” and several of its provisions could significantly affect the landscape of patent litigation.
The Innovation Act would require patent-infringement complaints to identify each specific patent and claim asserted, as well as every accused instrumentality by name or model number. This requirement mirrors several jurisdictions’ local rules as to patent disclosures, but advocates for the bill assert that inclusion of this information in the complaint could streamline the pleading stage and discourage “shotgun” patent suits by a nonpracticing entity involving dozens or even hundreds of defendants.
The act states that a prevailing party in a patent lawsuit “shall” be awarded reasonable fees and expenses, unless the court determines the nonprevailing-party’s position was “substantially justified.” While the bill does not define what constitutes substantial justification, the mere threat of this provision, if passed into law, could dramatically change the math behind calculating the “nuisance value” of threatened litigation.
The act proposes two major changes to the discovery stage of an infringement action. First, the bill limits discovery prior to a Markman hearing to “information necessary for the court to determine the meaning of terms used in the patent claim.” Second, the act requires each party to produce “core documentary evidence” at its own cost, which includes patent application histories, technical specifications for accused instrumentalities, potentially invalidating prior art, licensing agreements, and profits attributable to the patent(s) at issue. Advocates for the bill assert that these provisions could make discovery faster, cheaper, and less contentious for patent litigants.
These provisions are just some of the alterations in the Innovation Act. There are several others. The act targets the proliferation of infringement actions by nonpracticing entities and could ultimately discourage unmeritorious claims.
Keywords: litigation, intellectual property, Innovation Act, patent infringement, nonpracticing entities, attorney fees, discovery, Markman hearing, American Invents Act
—Andy Rinehart, Kilpatrick Townsend & Stockton LLP, Winston-Salem, NC
June 18, 2013
Defense Jury Verdict in Formerly Consolidated Patent-Infringement Action
When the America Invents Act (AIA) was signed into law in 2011, the rule changed for the joinder of defendants in patent-infringement actions. Plaintiffs could no longer join multiple defendants in a single matter where the defendants had different products all accused of infringing the same patent, but had no other connection with each other. Some cases filed against such groups of defendants after the effective date of the new joinder provision were severed, but consolidated for the purpose of pre-trial and discovery proceedings. See Norman IP Holdings, LLC v. Lexmark Int’l, Inc., 2012 WL 3307942 (E.D. Tex. Aug. 10, 2012) (Davis, J.). Such decisions have led some commentators to declare that courts were not living up to the spirit of the AIA’s new joinder provision.
Given the short amount of time since the passage of the AIA, no case that has been severed but consolidated for pre-trial purposes has gone to trial yet. Nevertheless, at least one example exists of a pre-AIA case, severed post-filing, which has begun a series of what could be as many as seven trials. The matter(s), pending in the U.S. District Court for the Eastern District of Texas, Marshall Division and originally captioned Alexsam, Inc. v. Best Buy Stores, L.P., 2:10-cv-93-MHS-CMC, could be instructive of the effect of the new joinder provision on other cases filed against multiple defendants.
The case was originally filed in 2010 by patent holding company Alexsam, Inc. as one matter against Best Buy Stores, L.P., Barnes & Noble, Inc., the Gap, Inc., J.C. Penney Company, Inc., McDonald’s Corporation, Home Depot USA, Inc. and Toys “R” Us-Delaware, Inc. for infringement of U.S. Patent Nos. 6,000,608 and 6,189,787—patents related to gift cards. After discovery had concluded and summary-judgment motions were briefed, the Honorable Judge Michael H. Schneider severed the matter into seven separate cases due to unique factual circumstances presented by the defendants. After severing the matters for all purposes, Judge Schneider consolidated them again for the limited purpose of conducting invalidity and inequitable conduct trials. A jury recently found that the asserted patents were not invalid, and Judge Schneider found that Alexsam had not committed inequitable conduct in a reexamination proceeding.
Best Buy subsequently settled with Alexsam. Later, Alexsam dropped its claims under the ‘608 Patent against the remaining defendants.
On June 3, the first trial of the remaining defendants began against Barnes & Noble. Alexsam sought $72 million in damages from Barnes & Noble for infringement of the ‘787 Patent. Over the course of five days, Alexsam put on one fact witness (the inventor), three technical experts, and one damages expert. Witnesses for Barnes & Noble included one technical expert, one damages expert, and six live fact witnesses. The jury was presented with a total of 20 hours of evidence by both sides. Barnes & Noble was represented by Fisch Hoffman Sigler LLP of Washington, D.C., which also represents all other remaining defendants in the matter. Alexsam was represented by Fitch, Even, Tabin & Flannery LLP of Chicago, Illinois.
On June 7, after more than five hours of deliberation, a jury of six women and one man returned a unanimous verdict of no infringement of claims 1 and 19 of the ‘787 Patent.
One other trial is currently scheduled against the Gap. Pretrial conferences are scheduled for all of the other matters. The progress of the Alexsam cases could represent the future of patent- infringement cases against multiple defendants where many of the defendants opt not to settle.
Keywords: litigation, intellectual property, patent infringement, multiple defendants, America Invents Act, joinder provision
—Peter Scoolidge, Fisch Hoffman Sigler LLP, Washington, D.C.
TTAB Determination of Likelihood of Confusion Not Binding
When the Trademark Trial and Appeal Board (TTAB) refuses to register a mark based on a finding of likelihood of confusion, does that finding have a preclusive effect in a subsequent trademark-infringement action in federal court? In a recent decision, a divided panel of the U.S. Court of Appeals for the Eighth Circuit not only denied preclusive effect to a TTAB finding, but held that the district court properly excluded the finding from evidence. B&B Hardware, Inc. v. Hargis Industries, 2013 WL 1810614, 2013 U.S. App. LEXIS 8926 (8th Cir. May 1, 2013).
B&B Hardware, owner of the mark SEALTIGHT, successfully opposed Hargis Industries’ attempt to register the mark SEALTITE. The TTAB found that there was a likelihood of confusion between the two marks. When B&B subsequently brought a trademark-infringement suit in federal court, however, the judge declined to admit the TTAB finding into evidence and refused B&B’s request that the decision be given preclusive effect, or any deference whatsoever. A jury found that there was no likelihood of confusion between the marks.
The Eighth Circuit panel affirmed the district court’s ruling. First, because the TTAB is not an Article III court, the district court was not required to give the TTAB decision preclusive effect. Second, the factors the TTAB considers for trademark-registration purposes differed from the factors considered under the Eighth Circuit’s likelihood-of-confusion test for trademark infringement. In particular, the TTAB test places greater emphasis on the appearance and sound of the marks, while the Eighth Circuit test places greater emphasis on marketplace usage of the marks and products. Third, the burden of persuasion was reversed. At the TTAB, Hargis had the burden; in the infringement action, B&B had the burden. For these reasons, the Eighth Circuit agreed with the district judge that the TTAB’s ultimate conclusion was not entitled to preclusive effect and would have had minimal probative value, have been misleading and confusing to the jury, and was properly excluded from evidence.
The dissenting judge would have given preclusive effect to the TTAB’s determination of likelihood of confusion, at least in cases where the TTAB had considered the marks in a marketplace context. The different analytical approach taken by the TTAB was not enough, according to the dissent, to justify relitigation of the issue.
Keywords: litigation, intellectual property, TTAB, trademark infringement, likelihood of confusion, issue preclusion, deference
Court Approves "Appropriation Art" as Transformative Fair Use
In a significant copyright ruling involving the application of the fair use doctrine to artistic works, a Second Circuit panel unanimously held that the use of copyrighted photographs “as raw material” to create new works can constitute fair use even though the new works do not “comment” on the plaintiff photographer, the photographs “or on aspects of popular culture closely associated with” the photographer or the photographs. Cariou v. Prince, 2013 U.S. App. LEXIS 8380 (2d Cir. April 25, 2013).
Rejecting the district court’s conclusion that the defendant must “transform” the copyrighted work for one of the specific purposes mentioned in the fair use provision of the Copyright Act— “criticism, comment, news reporting, teaching . . ., scholarship, or research”—the Second Circuit held that “alter[ing] the original with ‘new expression, meaning, or message’” to create new works that differed in composition, presentation, scale, color palette and media, could also constitute fair use.
The court’s expansive view of fair use should provide artists with substantial leeway to transform copyrighted works for artistic purposes, although the court’s failure to provide a clear standard by which it determined that 25 of the 30 of the photographs were fair use as a matter of law will likely result in additional litigation as courts struggle with defining the application of fair use to artistic works. Undoubtedly, courts also will be asked to address the extent to which the Second Circuit’s analysis of fair use in Cariou applies outside the context of artistic works.
Keywords: litigation, intellectual property, Cariou, fair use, artistic works ,copyright, transformative, Richard Prince
Calling All Women IP Litigators!
The Women & IP Law Subcommittee of the Intellectual Property Committee of the ABA’s Section of Litigation fosters business development, networking, and collaborative opportunities for women IP litigators, both outside and in-house counsel. The Subcommittee typically sponsors popular events at ABA Annual Meetings. Past programs have included a panel of women in-house counsel of leading IP companies such as Hewlett-Packard Co., Oracle Corporation, Epson America, Inc., and The Gap Inc., who discussed ways for women to expand their practices.
In addition, at last year’s Annual Meeting in Chicago, the subcommittee hosted an interactive workshop program on negotiation skills for women to help develop and enhance skills in negotiating for better assignments as a junior lawyer, better and equal compensation for women associates and partners, and developing more effective negotiation skills when negotiating the terms of engagement with clients and prospective clients.
For the upcoming August 2013 Annual Meeting in San Francisco, the subcommittee is excited to announce that it is planning another panel discussion with women in-house counsel from leading Bay Area companies, as well as a networking event following the panel presentation. We will be sending along further information in the next two months regarding this program, which will provide a unique opportunity for women to learn from and network with top IP litigators.
To become a member of the subcommittee and receive information about these exciting events and networking opportunities, please contact one of our cochairs below. To join, you must first be a member of the Intellectual Property Committee of the ABA’s Section of Litigation.
We look forward to hearing from you.
Janet T. Munn, Rasco Klock
Darcy L. Jones, Kasowitz, Benson, Torres & Friedman LLP
Linda Resh DeBruin, Kirkland & Ellis LLP
Theresa M. Gillis, Mayer Brown LLP
Kathyleen A. O’Brien, Reed Smith
Women & IP Subcommittee Cochairs
Keywords: litigation, intellectual property, women, in-house, networking, ABA Annual Meeting
—Janet T. Munn, Rasco, Klock Perez & Nieto, P.L., Coral Gables, FL
The Bare Meaning of Actual Damages in Copyright Infringement
Everyone is a journalist. And today, more than ever before, the camera truly is always watching. At the expense of her own job, Ohio newscaster Catherine Balsley (also known as Catherine Bosley) learned this lesson the hard way. While on her vacation in Florida during the spring of 2003, she entered a wet T-shirt contest and danced nude at a bar. As she bore all for the stage, an amateur photographer captured the entire show and posted the goods to his website. This career-threatening ordeal led to Balsley’s firing. But she was later able to acquire all rights to the photos and register the copyrights with the U.S. Copyright Office in August of 2004.
About a year later, once Balsley was working at a different news station and attempting to reestablish her public image, a Hustler magazine reader thrust her back into the public light. LFP, Inc. [Larry Flynt Publications] publishes Hustler magazine. “Hot News Babes” is a recurring feature in the magazine. The reader nominated Balsley as a “hot news babe” in August of 2005, merely telling Hustler that it could find the wet t-shirt photos of Balsley on the Internet. Hustler’s editors perused the Internet and selected one of the photos which Balsley owned the copyright to. After consulting its attorney, Hustler determined that it could publish the photo as fair use and used it in the February 2006 issue. To her dismay, Balsley again discovered that her bare-chested mishap was plastered for the world to see. She subsequently filed suit for copyright infringement (among a host of other claims) against LFP in February 2008. Direct copyright infringement was the only claim to survive for trial. Ultimately, the jury awarded Balsley $135,000 in damages and the district court awarded $133,812.51 in attorney’s fees to Balsley as the prevailing party. On appeal, the Sixth Circuit affirmed the district court’s ruling.
LFP admitted to copying, without permission, the photo that Balsley owned a valid copyright to. However, it claimed that this use was fair use. Under 17 U.S.C. §107, fair use does not infringe copyright. To make this determination, a four-prong test must be considered: (1) the purpose and character of the use (whether commercial in nature and if the new use is “transformative”); (2) the nature of the copyrighted work; (3) the amount and substantiality of the use; and (4) the effect of the use upon the potential market for or value of the copyrighted work.
According to the fair use factors, the court held that LFP’s use was not fair use for the following reasons: (1) LFP’s use was wholly commercial (to sell more magazines); (2) the copyrighted photo was a mixture of fact and creativity, and could have been reasonably decided in Balsley’s favor (creative works garner more copyright protection); (3) LFP used the entire photo; and (4) even though Balsley had no intent to exploit her copyrighted works herself, LFP’s use directly competed for market share for the photo.
Yet, the groundbreaking part of this case was the Sixth Circuit’s first analysis of the burden of proof issue for “actual damages.” Pursuant to 17 U.S.C. §504(b): “the copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing actual damages. In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.” Even the Sixth Circuit acknowledged that the phrase “attributable to” creates confusion, especially since it appears twice. After identifying that other circuits have determined that a copyright owner’s burden of proof requires that she demonstrate a relationship between the gross revenue and the infringement, the Sixth Circuit goes a completely different direction. Instead, the court holds that other courts have imprecisely construed the first “attributable to” phrase and, in a very textualist manner, decides that the statute should be interpreted by its plain meaning.
Based on the bare language, the court concluded that Balsley, and now plaintiffs in general, have only one requirement: to prove defendant’s gross revenue. Balsley met this burden because LFP admitted that its gross revenue from the February 2006 issue of Hustler totaled $1,148,000 (of which Balsley argued that $265,000 in profits were attributable to her photo). The court did agree with sister circuits that the gross revenue number must have a reasonable relationship to the infringing activity. That said, the court emphasized that it was not imposing the more stringent burden of proving a “causal connection” on copyright owners. Thus, the Sixth Circuit refused to raise the burden on copyright owners beyond that outlined by the plain language of the statute.
Moving forward, this outcome proves one thing for certain: with respect to damages issues in copyright cases, the Sixth Circuit remains “owner friendly.” The court’s interpretation means that copyright owners will not have a high bar to clear in order to prove an infringer’s profits. Once the owner has established the infringing activity, she need only prove that infringer’s gross revenue generally; after completing that task, the owner can earnestly await a hopefully substantial award in her favor.
Keywords: litigation, intellectual property, copyright, actual damages, fair use, gross revenue, burden of proof
Christensen Brothers Win Appeal Against USA Network
“The Force” of law was with Hayden Christensen—famous for his role as Anakin Skywalker in the Star Wars prequels—and his brother, Tove Christensen, last month, when the U.S. Court of Appeals for the Second Circuit overturned an order of the U.S. District Court for the Southern District of New York that had granted defendant Universal Television Network’s motion to dismiss the Christensen brothers’ lawsuit against the network. The suit, Forest Park Pictures v. Universal Television Network, Inc. (the television production arm of NBCUniversal, a subsidiary of Comcast Corp., which controls USA Network), was originally brought in 2010 and alleges a breach of contract between Forest Park Pictures, the brothers’ production company, and Universal Television Network over USA Network’s show, Royal Pains.
The suit alleges that in 2005, Forest Park developed an idea for a show called Housecall, “in which a doctor, after being expelled from the medical community for treating patients who couldn’t pay, moves to Malibu and attends to the rich and famous.” Forest Park created a series treatment for the concept that included storylines and character bios, and the Christensen brothers met with Alex Sepiol, a programming executive at USA Network, to pitch the idea. The brothers allege that, although Sepiol was receptive to the idea, nothing ever materialized after the meeting. Subsequently, in 2009, USA began airing Royal Pains, a show that the brothers claim is a rip-off of their concept for Housecall that focuses on the life of a “concierge doctor” providing medical services to the wealthy residents of the Hamptons.
Judge Colleen McMahon had originally dismissed the suit on the grounds that the claims brought against USA Network were preempted by the Federal Copyright Act. She ruled that, because the allegations entailed the theft of uncopyrightable ideas, the suit had no merit. The Second Circuit, however, disagreed, based largely on the fact that the plaintiffs chose to allege breach of implied contract rather than copyright infringement. The Second Circuit ruled that a claim under state law for breach of implied contract, including a promise to pay, is quantitatively different from a suit to vindicate a right included in the Copyright Act and is therefore not subject to federal preemption.
Judge John M. Walker Jr., writing for the Second Circuit, explains [PDF] that, even though uncopyrightable material may fall within the subject matter of the Copyright Act, the equivalency requirement for preemption is not met in this case because “extra elements” exist that create qualitative differences between a contract claim and a copyright-violation claim. Among other things, the Copyright Act, unlike contract law, “does not provide an express right for the copyright owner to receive payment for the use of a work.” The court, accepting the plaintiffs’ version of the facts as true for the purpose of the motion, concluded that an implied contract, including a promise to pay, was formed on the Christensen brothers pitching their show concept to Sepiol and that USA Network’s failure to compensate Forest Park Productions for Royal Pains gave rise to a cause of action not subject to preemption. The court also ruled on two other issues, holding that, based on the choice of law rules for a federal court in New York sitting in diversity jurisdiction, California law should be applied in this case and that, in addition to the court’s finding of no preemption, the plaintiffs’ complaint is adequate under the Supreme Court standards in Twombly and Iqbal.
The Second Circuit’s ruling comes on the heels of another important decision for the entertainment industry, Montz v. Pilgrim Films & Television, Inc. In that suit, NBCUniversal suffered a big loss when the U.S. Court of Appeals for the Ninth Circuit ruled that a state-based contract allegation surrounding the SyFy Channel’s Ghost Hunterswas not preempted by federal copyright law and could be brought even though a copyright claim had been dismissed; the Supreme Court subsequently denied a petition for certiorari. Together, these two rulings present significant new challenges for studios in defending themselves against idea-theft lawsuits, especially because the two decisions come from circuits that cover the two main entertainment hubs of the United States—New York and Los Angeles. Studio execs and legal teams will likely pay close attention to see how the Christensen suit ultimately plays out on remand to the Southern District of New York.
The Christensen brothers and Forest Park Productions are represented by David Marek of Liddle & Robinson, LLP. Universal Television Network, Inc., is represented by Susan Weiner, deputy general counsel for NBCUniversal Media LLC, as well as Robert Penchina and Amanda M. Leith of Levine, Sullivan, Koch & Schulz, LLP.
Keywords: litigation, intellectual property, Royal Pains, Christensen, breach of contract, copyright, preemption, idea-theft
—Benjamin E. Steinberg, NYU School of Law, Class of 2014
June 11, 2012
Supreme Court Rescues Works from the Public Domain
In 1994, Congress passed the Uruguay Round Agreements Act (URAA) to ensure that the United States complied with its obligations under the international Berne Convention. Because Article 18 of the Berne Convention required that works that were still protected in their home countries must also be protected abroad, the URAA rescued from the public domain a number of foreign works that, in the United States, had either lost their copyright protections or had never been protected at all. These provisions of the URAA have been subject to years of legal challenges, but on January 18, 2012, the Supreme Court held that Section 514 of the URAA does not exceed Congress’s authority under the Copyright Clause. Golan v. Holder [PDF].
When I attended oral arguments for Golan on October 5, 2011, Tony Falzone, executive director of the Fair Use Project at Stanford Law School, focused on the petitioners’ arguments that Section 514 not only violated the “limited times” portion of the Copyright Clause, but it also impeded the First Amendment rights of those who used the public-domain foreign works, known as “reliance parties.”
Justice Ginsberg responded to the petitioners’ oral argument by distinguishing issues associated with reviving copyright for works whose natural terms had expired from those of granting a work the copyright term that it should have had all along. Ginsberg’s distinction proved a key issue in Golan.
Ultimately writing for the majority in January, Justice Ginsberg noted that Section 514 neither overreached congressional authority nor deprived citizens of their First Amendment rights. As the Court explained, Section 514 merely “put foreign works on equal footing with their U.S. counterparts.” The Court also noted that the URAA already provides protection to reliance parties who began to use these works while they were in the public domain. The holder of a restored copyright must provide notice to such reliance parties before the copyright can be enforced against them, to prevent parties from being “blindsided.”
Quoting Justice Ginsberg’s opinion in Eldred v. Ashcroft, which upheld Congress’s lengthening of the copyright term against constitutional challenges, the Court reiterated that the Copyright Clause enables Congress to “determine the intellectual property regimes that . . . will serve the ends of that Clause.” Congress’ belief that complying with an international copyright agreement would further the aims of the Copyright Clause situates Section 514 within congressional authority; the Court thus held that extending copyright protection to foreign works previously in the public domain was not inherently outside of congressional authority.
Although the decision will withdraw significant numbers of foreign works from the public domain—Picasso paintings, Prokofiev symphonies, and Hitchcock films among them—the Court reiterated that rights to those works will now be in the marketplace alongside those of American auteurs whose works have long been afforded copyright protections.
Justice Breyer, joined by Justice Alito, filed a dissenting opinion. Justice Breyer focused on the First Amendment issues raised by the majority opinion, arguing that removing works from the public domain “in literal terms, ‘abridges’ a pre-existing freedom to speak.” Breyer also noted as significant that, while copyright is intended to incentivize the creation of new works, the URAA “does not encourage anyone to produce a single new work.”
The American Bar Association filed an amicus curiae brief in support of respondents, urging the Court to uphold the URAA.
Keywords: litigation, intellectual property, Golan v. Holder, copyright, Supreme Court, Berne Convention, public domain
—Amanda M. Levendowski, NYU School of Law, Class of 2014
May 7, 2012
Cartoons and Chicken: Trademark Rights after Licenses Expire
How many of us, when we think of Louisiana Fried Chicken, think of Popeye the Sailor? The Northern District of Georgia may soon find out. This case highlights the extent to which copyrights and trademarks can become intertwined in cross-marketing. AFC Enterprises, Inc., the parent company of the Popeyes Louisiana Fried Chicken, one of the world’s largest fast-food-chicken chains, could very well be at risk of losing the use of the Popeyes name. AFC is seeking a declaratory judgment against Hearst, Inc., stating that AFC need not negotiate for or renew any licensing agreement with Hearst if AFC ceases use of and does not intend to use any of Hearst’s copyrighted “Popeye the Sailor” cartoon characters after December 31, 2012.
King Features Syndicate, a unit of Hearst, holds the copyright on the Popeye character, who first appeared in a comic strip published in 1929. In 1976, AFC acquired an exclusive license from Hearst to use the famous cartoon character in connection with the fast-food chain’s business and advertising in the United States. Today, AFC franchises and operates nearly 2,000 Popeyes restaurants, and, according to the complaint, AFC owns 422 trademark registrations for Popeyes-related marks throughout the world. Although AFC has used the Popeye character as “spokesperson” for the chicken chain for nearly 40 years, in 2008, it began to phase out the character. AFC’s complaint [PDF] states that the restaurant has phased out all use of the characters domestically and is requiring that the few remaining international franchises that still use them to cease by December 31, 2012, when AFC intends to allow the license to expire. The fast-food chain also states on its website that the chain was originally named after “Popeye Doyle,” a character portrayed by actor Gene Hackman in the 1971 Academy Award-winning film, The French Connection, rather than the cartoon character.
On the expiration of the existing agreement between AFC and Hearst, AFC believes it will have the right to continue to use the Popeyes trademark and all associated marks related to the fried-chicken chain. The agreements into which the parties have entered over the years recognize and acknowledge each party’s respective rights—AFC to its registered trademarks in its designated classifications and Hearst in its copyrights of cartoon characters’ images and likenesses. AFC alleges in its complaint that, during the course of the business relationship, Hearst has explicitly and implicitly acknowledged AFC’s ownership of the Popeyes trademark through its contracts with AFC. AFC points to a provision of the agreement that states that “nothing herein shall be construed to require AFC’s discontinuance of the ‘POPEYES’ mark for [its] restaurant services or food products after this agreement is terminated.”
AFC’s claim for declaratory judgment is most likely the result of a threat on behalf of Hearst to block AFC’s use of the Popeyes name beyond the terms of the parties’ existing licensing agreement. AFC’s complaint cites a September 2001 letter from Hearst in which Hearst’s lawyers claimed that Hearst could assert rights in the Popeyes trademark and that, if the licensing agreement were terminated, AFC could be prohibited from using its own trademark. In the 2001 correspondence, Hearst’s counsel claimed that, if the agreements were terminated or canceled, at minimum, AFC would not be able to make any use of the Popeyes marks outside of restaurant services.
This declaratory judgment, if granted, would recognize that AFC is free to use its Popeyes trademarks in the absence of a licensing agreement with Hearst and that AFC therefore has no obligation to negotiate for or renew its agreement with Hearst if it ceases its use of Hearst’s copyrighted cartoon characters. On January 23, 2012, Hearst answered AFC’s complaint, alleging that AFC is using this cause of action as leverage in negotiations for a deal that would allow AFC to continue using the cartoon character’s name in connection with the chicken chain. Hearst claims that AFC went to court without telling Hearst, “rather than honor its agreement to engage in good faith negotiations.” Hearst wants the case to either be thrown out or transferred to a federal court in New York.
This case provides a useful warning of the risks of taking on another entity’s intellectual property for marketing and advertising purposes. And the agreement between Hearst and AFC emphasizes that, where one party’s intellectual property rights stem from the use of another party’s licensed material, the greatest dangers may only arise after the agreement expires.
Keywords: litigation, intellectual property, declaratory judgment, license, trademark, characters
—Keturah Carr, NYU School of Law, Class of 2013
Apple Battles Samsung for Smartphone/Tablet Market
Trying to decide whether to buy a Samsung Galaxy Tab 10.1 or one of Apple’s iPads? If you are currently in Europe, a battle has been escalating between the two companies, and each is trying to make that decision a lot easier by having the other banned. Since April 2011, Apple and Samsung have been in court over each company’s respective smartphones and tablet computers. It began with Apple claiming that Samsung had “slavishly” copied its technology, distinctive user interface, and even packaging design when it came to several of Samsung’s smartphones and its Galaxy Tablets.
In August 2011, the first of the patent-infringement claims asserted by Apple was resolved in Europe. A court in the Hague dismissed all of Apple’s claims other than those relating to one patent: EP 2059868. The remaining patent covers Apple’s interface for viewing and navigating through photos on a touchscreen phone. Apple was granted a preliminary injunction against Samsung sales, limited to phones due to the scope of the patent, including Samsung’s Galaxy S, Galaxy S II, and Galaxy Ace models. Though the injunction on its surface may be directed to sales from the Netherlands to other European countries, Samsung’s distribution may effectively expand the injunction to a “de facto European-wide ban.” Samsung itself, however, has questioned the importance of the injunction.
Turning to tablets, in August 2011, Apple sued in the Netherlands to have Samsung’s Galaxy Tab 10.1 banned there. However, the court held that Samsung’s tablet was sufficiently different from Apple’s European design patent for Apple’s iPad and thus declined to ban the tablet computer. More recently, in January, Apple had its appeal of that ruling dismissed. Samsung has used these decisions to bolster its arguments that Samsung is an innovator who is being unfairly targeted.
Samsung has also taken the offensive, suing Apple in Germany. A district court in Mannheim, Germany, has ruled, however, that Apple did not infringe the patent asserted by Samsung against the iPhone and iPad. Apple returned the volley by filling a new lawsuit in Düsseldorf, Germany, aimed at another 10 models in Samsung’s Galaxy family of smartphones.
Lest the reader think that all the excitement is happening abroad, a judge in San Jose recently ordered Samsung to turn over pre-production samples of its Droid Charge, Infuse 4G, Galaxy S II, and Galaxy Tab 10.1 and 8.9 to Apple—all products that Samsung is preparing to introduce to the U.S. market. Samsung was later ordered to produce source code for its products to Apple as well. The court allowed this discovery so that Apple can determine whether or not to seek a preliminary injunction against any or all of the produced smartphones. The results of discovery, however, are limited to outside counsel eyes only, so neither Apple nor its in-house counsel will get to see Samsung’s products or marketing. Samsung has turned the tables back on Apple, asking for Apple to hand over information on the iPad 3 and iPhone 5, so as to head off any additional infringement claims from Apple down the road. This seems unlikely, as Samsung has already released samples and images of its own forthcoming products to the media and limited members of the public, whereas such images and samples are not yet available for the iPad 3 and iPhone 5.
There will probably not be a resolution to this conflict anytime soon, as each side tries to keep from losing its market in the United States and in Europe. However, a compromise between the two companies could happen. Who knows? Maybe there is an app for that.
Keywords: litigation, intellectual property, smartphone, Galaxy, Samsung, Apple, iPad
—Isabel Ajuria, NYU School of Law, Class of 2014
Federal Circuit Gives ITC Jurisdiction over Chinese Actions
In a 2–1 decision, the Federal Circuit has decided that the International Trade Commission (ITC) has statutory authority to prevent the importation of goods that were made in China by a secret process developed in the United States by a U.S. company where the process was obtained through trade-secret misappropriation in China. TianRui Group Co. v. International Trade Commission, 661 F.3d 1322, Case No. 2010-1395 (Fed. Cir. Oct. 11, 2011).
Some will no doubt argue that this decision is court-sponsored protectionism. Good or bad, it provides a vehicle for U.S. companies to protect the misuse of their intellectual property rights in China if the misappropriator imports goods into the United States that were created using intellectual property protected under U.S. law.
Keywords: litigation, intellectual property, Federal Circuit, China, International Trade Commission, trade secrets
—Vic Souto, WilmerHale, New York, New York
ICANN Begins Expansion of the Domain Name System
Beginning on January 12, 2012, the Internet Corporation for Assigned Names and Numbers (ICANN) has been accepting applications for new generic Top-Level Domains (gTLDs). gTLDs are roots such as .com, .gov, and .org used to indicate the character of the owner of an address or the intended purpose of the site located there. ICANN’s decision to allow new gTLDs represents one of the largest-ever expansions of the internet landscape, as it will allow a broad range of parties, including businesses, cities, and industry groups, to register their own unique domain names. There are currently 22 existing gTLDs, in addition to approximately 225 country-specific domain names. But this new program would allow for the registration of any generic word, including .brand, as well as the registration of domain names with non-Latin characters.
ICANN is instituting a rigorous and expensive application process for the first phase of this expansion, with a March 29, 2012, deadline to initially register and April 12, 2012, as the last day to submit the actual application for a new gTLD string. The time and expense of this application process may deter some potential applicants. Applicants must pay an initial $5,000 registration fee, which will be credited against a $185,000 application fee on an official submission for each independent string. Initially, there will also be quarterly maintenance fees of $6,250. In addition to these financial hurdles, applicants will undergo a 9–20 month, multi-phased approval process. On May 1, 2012, ICANN will publicly reveal all applied-for domain names, and the initial evaluation will begin on June 2. During this evaluation, third-party evaluators will consider a variety of issues, including the applicant’s intended implementation of the gTLD string, whether similarities exist with existing domain names or other requested gTLDs, whether applicants have demonstrated appropriate technical standards and financial resources, and whether requested strings are appropriate for the registrant. The initial evaluation period will end on November 12, 2012, and applicants failing this phase can request an extended evaluation until November 29, 2012. Approved applicants can then proceed with setting up their newly acquired domain name registries. Due to the complexities of those applications undergoing extended evaluation, ICANN does not have a timeline for completing the extended evaluations.
While ICANN has been vague about the benefits of this new system, merely pointing to the business opportunities it can create, commentators have articulated various benefits. Experts believe this new system can optimize web navigation by creating more memorable domain names and allowing for geographic specificity and that it can reduce phishing scams by legitimizing email addresses and create new business models. Despite these predicted benefits, the new system has also faced criticism. The Coalition for Responsible Internet Domain Oversight (CRIDO), a joint organization established by the Association of National Advertisers (ANA) and consisting of 102 trade associations and 59 individual companies, fears that cybersquatting and phishing claims may lead to significant legal costs and a burdensome requirement of defensive registrations—essentially forcing companies to spend large amounts to register gTLDs to prevent abuses. Additionally, Esther Dyson, ICANN’s founding chairman, has suggested that gTLDs will create confusion across the domain name system and increase costs to domain name registrants without actually enhancing value.
ICANN has implemented several mechanisms it believes will prevent cybersquatting and protect against trademark infringement. As such, they are hoping to avoid defensive registrations by applicants who have no intention of actually operating the registry. Experts believe that the high initial costs and extensive application process will weed out any would-be cybersquatters. Additionally, anyone can formally object to applications [PDF] once they are publicly revealed on May 1, 2012. These objections will be filtered through ICANN’s pre-existing Dispute Resolution Procedures (DRP) and will be administered by independent Dispute Resolution Service Providers (DRSP). Objections can be raised on any of four grounds: confusion with an existing or applied-for gTLD, legal rights infringements, public interest or morality objections, and communal objections against a specifically targeted string. Thus, the onus will be on parties to review these applications to determine whether any infringe the party’s intellectual property. Finally, once a new gTLD is launched, the operators must adhere to specified rights protection mechanisms. These rights-protection mechanisms will allow for rapid suspension of domain names in clear-cut cases of infringement and call for the establishment of a trademark clearinghouse—once a party’s trademark is verified in this clearinghouse, the party will have a 30-day sunrise period to claim any domain names using or infringing its trademark and subsequently will be notified if anyone attempts to register a domain name with its trademark.
Keywords: litigation, intellectual property, ICANN, gTLD, copyright, infringement, cybersquatting, domain names
—Stephen Flug of NYU School of Law, Class of 2014
March 5, 2012
WWE Hit with Lawsuit from Former AWA Wrestler
World Wrestling Entertainment (WWE) is being sued yet again, this time by a former wrestler. Douglas Somerson, more commonly known by his wrestling persona, “Pretty Boy” Doug Somers, filed a complaint against the WWE, along with cofounders Vince and Linda McMahon, in Georgia state court on six counts, alleging that the defendants used his name, likeness, and persona in a series of DVDs without authorization. Somerson, who previously wrestled for the American Wrestling Association (AWA) from the 1960s to the mid-1980s, alleges that the WWE and the McMahons, for whom he never worked, used video footage of his past matches on several DVDs commemorating the career of Shawn Michaels—without permission and without ever paying him royalties.
The complaint contains claims against all of the defendants for invasion of privacy, violation of the right of publicity, and violation of the Georgia Uniform Deceptive Trade Practices Act (GUDTPA); against the WWE alone for unauthorized use of intellectual property and unjust enrichment; and against the McMahons for negligent supervision. Somerson asserts in his complaint that he is in very poor health as a result of his wrestling career, having suffered more than 400 concussions and inoperable injuries to his neck, back, knee, and foot. He is seeking unspecified damages along with unpaid royalties, injunctive relief, attorney fees, and costs.
In January, the defendants removed the suit to federal court (N.D. Ga.) based on federal original jurisdiction and supplemental jurisdiction, positing that the Federal Copyright Act of 1976 [PDF] preempted all of the state-law copyright claims. Once removed, the WWE and the McMahons sought a more definite statement regarding the plaintiff’s allegations regarding the illegal use of the plaintiff’s name and likeness in “books, dolls, and other commercial productions,” which the defendants claim are completely unfounded. The defendants also filed a wide variety of motions to dismiss, alleging that Somerson failed to state a claim entitling him to relief under Fed. Rule Civ. Pro. 12(b)(6) and the heightened pleading requirements of Bell Atlantic v. Twombly and Ashcroft v. Iqbal; that several claims’ statute of limitations have run, time-barring them; that the court lacks personal jurisdiction under Fed. Rule Civ. Pro. 12(b)(2); and that they were improperly served under Fed. Rule Civ. Pro. 12(b)(4).
The crux of the WWE and McMahons’ defense is that their use of footage containing Somerson is completely legitimate based on their purchase of the rights to all footage from the AWA. As such, the defendants argue that they have the right to use the footage without paying royalties to Somerson and that their use is protected by the First Amendment. They further argue that most of the plaintiff’s claims fail as a matter of law and that all of his claims, with the exception of negligent supervision, are preempted by federal copyright law.
The WWE has been the subject of numerous, and frequently quite visible, law suits in the past, some successful and some not. One suit by the Worldwide Wildlife Foundation resulted in the name change from the WWF to the WWE, and another suit for withheld royalties resulted in an $800,000 jury verdict for former wrestler and Minnesota Governor Jesse “The Body” Ventura. The WWE, in its motion to dismiss, cites a previous case in which it defeated claims of copyright infringement that it claims involved similarly “baseless and preempted” allegations as Somerson’s.
The outcome of the motions filed by the WWE and the McMahons could potentially have far-reaching implications. The WWE is preparing to launch its own TV network in April on the day of one of its biggest pay-per-view events of the year, WrestleMania 28. Should Somerson succeed on even one of his claims, it could subject the WWE and the McMahons to suit by countless other former wrestlers for the unauthorized use of their names and likenesses. The WWE would not only be exposed to significant monetary liability, but it also might lose its ability to use purchased footage on its new TV network. More broadly, a Somerson victory might raise important questions for other entertainment companies that currently rely on purchased rights to archival footage without specifically addressing potential personality rights. For now, the WWE and the McMahons must simply await Somerson’s response to their motions, along with the court’s decision.
Somerson is represented by Edward M. Gilgor of Edward Gilgor LLC. The WWE and the McMahons are represented by several lawyers from both K&L Gates LLP and Taylor Feil Harper Lumsden & Hess PC.
Keywords: litigation, intellectual property, copyright, preemption, likeness, WWE
—Benjamin E. Steinberg of NYU School of Law, Class of 2014
February 22, 2012
European Union Signs Anticounterfeiting Trade Agreement
On January 26, 2012, the European Union (EU) and 22 of its member states signed the Anticounterfeiting Trade Agreement (ACTA). The ACTA was previously signed in October 2011 by a number of countries, including the United States, Canada, and Japan. The ACTA is intended to provide an effective means for the international enforcement of intellectual property rights (IPR). Member states will ensure that procedures are available permitting effective action against infringement. Beyond civil enforcement (Articles 7–12), the agreement provides for border measures (Articles 13–22) and criminal sanctions (Articles 23–26). Also, it requires effective IPR protection on the Internet (Article 27).
Formal negotiations on the ACTA started in 2007. Informal steps were undertaken by the United States and Japan in 2006 that were quickly joined by the EU, Canada, and Switzerland. The drafters’ decision to keep negotiations widely informal and secret until the release of the draft text in 2010 was the biggest obstacle to public acceptance. In addition to the lack of transparency from this unusual procedure, negotiations were accompanied by a suspicion of conspiracy from the beginning. Mistrust of the drafters’ motives was further nurtured by an initially extensive scope of protective measures. An earlier version provided for a “three-strike” rule allowing disconnection of Internet users in cases of online IPR violations and the imposition of intermediary liability on Internet service providers (ISPs) for carrying infringing content. The EU feared an impairment of freedom of expression and the right to privacy (for example, by its citizens’ potentially being subject to searches of their personal belongings and e-media at the border). Finally, the ACTA is neither part of the World Intellectual Property Organization (WIPO), nor of the World Trade Organization’s (WTO) body of agreements. It thus never had the institutional backing and legitimacy of the WIPO or the WTO.
The final version of the ACTA has shown public fears to be unwarranted. It appears that it will not result in a substantial upward alteration of EU protection standards, and it will not be significantly incongruent with trade-related aspects of intellectual property rights (TRIPs) or any WIPO agreement. This is because most contested issues raising concerns during negotiations and the drafting process are absent from the final text. Notwithstanding, some problems persist.
EU lawyers are still concerned that its actual implementation may be problematic. These concerns include, for instance, the modification of border measure rules or the inclusion of private, nonprofit IP use into the scope of criminal sanctions.
As to the ACTA’s impact on international trade and competition, the agreement will very likely prove to be a paper tiger. The major emerging economies have not been involved in the negotiations, and it does not appear that they intend to adopt the ACTA in the near future. Because the initial draft has no real teeth, however, even the accession of China, India, or Brazil would hardly enhance their domestic protection levels. See extensively EU Parliament/Policy Department, The Anti-Counterfeiting Trade Agreement (ACTA): An Assessment [PDF], EXPO/B/INTA/FWC/2009-01/Lot7/12, 7.
By and large, the ACTA will prove to be much ado about (almost) nothing. It will not alter the EU or any other TRIPs member’s system of IPR protection. Some changes could ensue. One example is the extension of border measures to all types of trademark infringement, not only those concerning counterfeit goods as currently provided for under the EU acquis. However, no remarkable impairment of existing rights and freedoms will ensue. The ACTA will not provide competitive benefits. In practice, the agreement will neither provide new and unknown opportunities for right owners, nor alarming threats for the public.
Keywords: litigation, intellectual property, Europe, anticounterfeiting, international IPR protection
—Prof. Tim W. Dornis, Leuphana University Lüneburg, Germany
The Situation vs. the Fitchuation
MTV’s Jersey Shore reality show features Italian Americans living and working for the summer in Seaside Heights, New Jersey. In its four seasons on the air, viewers have watched the eight cast-member roommates live, drink, love, drink, work, and drink their way through life in Seaside Heights, Miami Beach, and Italy. The show quickly became a cultural phenomenon, spawning catch phrases and lingo that permeated the vernacular and catapulting the cast members to reality-show stardom and D-list celebrity status. For Jersey Shore viewers, “GTL” is understood to mean “gym, tanning, laundry.” However, for Michael Sorrentino, better known as “The Situation,” one of the show’s breakout cast members, it now means “gym, tanning, litigation.”
Sorrentino has flexed his muscles in three separate trademark-infringement disputes over the past year. First, in May, Sorrentino, through his company, MPS Entertainment, LLC, brought a trademark-infringement lawsuit in the U.S. District Court for the Southern District of Florida against his father, Frank Sorrentino, and his father’s one-time business partner, Robert Fletcher, for the unauthorized use of the trademark “The Situation” and Sorrentino’s name, image, and likeness. MPS Entertainment, LLC v. Fletcher, Case No. 1:11-cv-21765-PCH (S.D. Fla. May 16, 2011). The case was quickly settled, and the court permanently enjoined the defendants from using the trademark “The Situation,” bolstering Sorrentino’s claim to his nickname.
Sorrentino later confronted the website MyGTLFuel.com, the vendor of an energy drink purporting to “fuel” a lifetstyle that Sorrentino claimed referred to his exploits. Though Sorrentino may not own a trademark in GTL, the MyGTLFuel website was taken down.
Then, on November 15, 2011, Sorrentino filed suit against Abercrombie & Fitch Stores, Inc. (“A&F”), also in the U.S. District Court for the Southern District of Florida, asserting claims for federal and common-law trademark infringement and related unfair-competition claims under both the Lanham Act and the Florida Statutes. In response to an A&F publicity stunt wherein A&F offered to pay Jersey Shore cast members to stop wearing its clothes. MPS Entertainment, LLC v. Abercrombie & Fitch Stores, Inc., Case No. 1:11-cv-24110-JAL (S.D. Fla. Nov. 15, 2011). Notably, at or around the time A&F made its offer to Sorrentino, it was selling T-shirts bearing the slogans “The Fitchuation” and “GTL . . . You Know The Deal,” arguably references to Jersey Shore and Sorrentino in particular.
A&F responded on December 12, 2011, with a motion to dismiss and a separate motion to strike. A&F argues the complaint should be dismissed for failure to state a claim under Fed. R. Civ. P. 12(b)(6) because Sorrentino does not own a valid federal or state trademark registration for either asserted trademark, “The Situation” or “GTL;” Sorrentino does not own any valid, recognizable common-law rights in any “GTL” trademark; A&F’s use of “GTL” and “The Fitchuation” were not trademark uses; and the referenced T-shirts are permissible parodies.
Sorrentino asserts that MPS Entertainment owns federally registered trademarks for “The Situation” and “GTL;” however, as A&F points out, Sorrentino has only applied to register those marks with the U.S. Patent and Trademark Office. The only registration that Sorrentino owns is for a stylized mark, “Situation,” Registration No. 3,635,203, that it acquired through an assignment from a third party and that A&F argues is invalid as an assignment in gross. Further, A&F alerts the court to Viacom International, Inc.’s (the parent company of MTV) ownership of the registration “GYM TANNING LAUNDRY,” Registration No. 4,014,420, as well as a pending application, Serial No. 77/960,143.
A&F sought to strike 13 of the 17 trademark applications Sorrentino attached to his complaint, claiming such applications do not relate to clothing and are therefore irrelevant. Sorrentino has since entered an amended complaint, voluntarily withdrawing several claims, and A&F have since renewed their motion to dismiss, reasserting various defenses.
For all of the parties’ bluster, the litigation raises various interesting trademark issues. Sorrentino’s claim relates to a nickname very much tied to him, possibly invoking the well-known Bo Ball case. A&F asserts that MTV failed to “blur” the cast’s clothing and may have suggested an endorsement, which in today’s culture seems a rare error. But A&F’s offer to pay the cast to not wear its brand could be seen as trading on the cast’s likenesses for a sort of reverse endorsement, leading to A&F’s first amended defense. Meanwhile, season five of Jersey Shore began airing in January 2012. The cast’s latest T-shirt labels remain unknown.
Keywords: litigation, intellectual property, trademark infringement, right of personality, endorsement
—Abby Dritz Salzer, Trenam Kemker, P.A., Tampa, Florida
January 11, 2012
The Debate over the Protect-IP Act and SOPA
The Internet is abuzz with discussions about Congress’s latest proposed legislation to address the ever-growing problem of online copyright infringement. The Senate’s bill is called the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act (Protect-IP Act), and the House of Representatives’ bill is called the Stop Online Piracy Act (SOPA). Although the House and the Senate each have their own versions of the proposed legislation, the heart of each version is essentially the same—they allow the U.S. government and copyright owners to more effectively combat online copyright infringement. Whether the proposed legislation goes too far, however, is an issue of heated debate.
The stated purpose of the proposed legislation is to “prevent online threats to economic creativity and theft of intellectual property” and to “promote prosperity, creativity, entrepreneurship, and innovation by combating the theft of U.S. property.” Both the Protect-IP Act and SOPA contain provisions that would allow the attorney general to seek, and courts to issue, injunctions against websites that are “dedicated to infringing activities” and owned or operated in a foreign country. Such injunctions would not only be issued to the infringing website, but also to U.S-based Internet service providers, Internet search engines, payment network providers, and Internet advertising services that are connected with, link to, or do business with the infringing site. Copyright owners may also seek such injunctions, but their relief is limited to payment network providers and Internet advertising services. The goal, apparently, is to cut off contact with the infringing site, thereby effectively protecting copyright owners from infringement.
Many people, however, are strongly opposed to the proposed legislation, labeling it the Internet Blacklist Bill. Opponents argue that it will do little more than stave off lost revenues for the entertainment industry at the expense of society’s right to freedom of speech and expression. They also argue that the proposed language of the legislation is vague and overbroad, which will allow the government and copyright owners too much leeway in choosing whom to file suit against. They argue that this could allow major corporations to file complaints against startups or rival companies merely to prevent competition or stifle innovation, rather than to legitimately attempt to protect their intellectual property rights. Lastly, those opposed to the proposed legislation argue that blacklisting domain names would force U.S. ISPs to not redirect users to the appropriate IP address, which in turn would lessen the universal nature of the Internet and raise serious technical and security concerns.
In response, those in favor of the proposed legislation say that it will not unduly hinder free speech or expression because it is aimed at preventing copyright infringement, and illegal activities are not protected conduct. In addition, they argue that by helping eliminate the massive threat of online infringement, the proposed legislation would actually foster innovation and investment in intellectual property, and thereby stimulate economic growth. Supporters also point out that online copyright infringement undermines the U.S. economy and deprives state and local governments of much-needed tax revenue. Finally, supporters of the proposed legislation argue that the alleged technical and security concerns arising from blocking domain names are “completely unfounded and without merit.”
The Protect-IP Act and SOPA are moving through the congressional gauntlet faster than usual, with votes possibly occurring before the end of January. Congressmen from both sides of the political spectrum have supported and opposed the proposed legislation, and there is no shortage of blogs, webpages, and news sites that are closely following and discussing this potentially revolutionary piece of legislation. Certain high-profile websites are even considering temporarily “blacking out” their sites as a form of protest against the bills. The Internet certainly raises unique issues that lawmakers have never before been forced to address. Doing so in the appropriate way, by balancing all the competing interests of everyone affected, is sure to be a challenge worth paying attention to.
Keywords: litigation, intellectual property, Protect-IP, SOPA, Internet, copyright infringement
—Kollin Zimmermann, Ropers, Majeski, Kohn, & Bentley, Los Angeles, California
May 26, 2011
Federal Circuit "Fixes" Inequitable Conduct Law
On May 25, 2011, the Federal Circuit issued the much awaited en banc decision about patent inequitable conduct in Therasense, Inc. v. Becton, Dickinson & Co. [PDF]. According to a dissent, the court “comes close to abolishing [the doctrine of inequitable conduct] altogether.” Slip op. dissent at 5.
In a surprise decision, the court majority narrowed the materiality test for inequitable conduct to “but-for materiality” as a general matter. Explaining the application of the new rule to the important situation of undisclosed prior art, the court said, “When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” Slip op. at 27. Thus, patent applicants have a different assurance in this standard than in the past as they consider whether to disclose what they judge to be marginal prior art.
The court also narrowed the intent test to a tight recitation of the Kingsdown, Star Scientific, and Scanner Techs. standards. “[T]o meet the clear and convincing evidence standard, the specific intent to deceive must be the ‘single most reasonable inference above to be drawn from the evidence.” Slip op. at 25. Adding emphasis, the court said that “the evidence ‘must be sufficient to require a finding of deceitful intent in the light of all the circumstances.’” Therefore, “when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.” Slip op. at 26.
Moreover, the court stated that there is not to be a “sliding scale” balancing materiality and intent and that intent may not be inferred solely from materiality. Slip op. at 25.
Thus, the court’s six-judge majority opinion, written by Chief Judge Rader for himself and Judges Newman, Lourie, Linn, Moore, and Reyna (appointed in 2011), represents the court’s abandonment of the “reasonable examiner” standard of materiality, the gross negligence standard of intent, and the balancing of materiality and intent. It also represents the court’s rejection of current “Rule 56” (37 CFR 1.56). On Rule 56, the court found that even its standards of materiality were too broad.
Somewhat unusually, however, the majority opinion stated that “but for” materiality and the rest of its test for inequitable conduct were subject to an exception—one for a patentee who “has engaged in affirmative acts of egregious conduct.” Slip op. at 29. Little else was said about the exception, leaving it largely unbounded in its structure and standards.
The opinion had a four-judge dissent written by Judge Bryson and joined by Judges Gajarsa, Dyk, and Prost, but it dissented as to materiality alone. It would have retained the PTO standards of Rule 56.
In an interesting third opinion, Judge O’Malley, who was until recently a district court judge, joined the majority as to intent but dissented from the majority—and dissented from the dissent—as to materiality. Judge O’Malley said both the majority and dissent “eschew[ed] flexibility in favor of rigidity.” Slip. op. concurrence at 4.
Of course, the opinion today may not be the final word, as the Supreme Court has not spoken to patent inequitable conduct since the 1940s.
Keywords: litigation, intellectual property, inequitable conduct, Federal Circuit
— Charles W. Shifley, Banner & Witcoff, Ltd.
May 10, 2011
Judge Finds Joinder of Divergent Accused Infringers Improper
In multi-defendant patent cases, a defendant may use a motion to sever strategically to show the court the lack of connectedness between the actions of the various defendants, to show why a joint trial would be inappropriate, and even to ensure that co-defendants, which are often direct competitors, will not have the ability to access documents produced during the case, even on an attorneys’-eyes-only basis.
In Interval Licensing, LLC v. AOL, Inc., Case No. C10-1385 MJP (W.D. Wash. Apr. 29, 2011), the plaintiff alleged that 11 separate defendants each infringed four patents. Several of the defendants moved to sever or dismiss the actions under Federal Rule of Civil Procedure 20(a), which “allows a plaintiff to join several defendants in one action if ‘(A) any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and (B) any question of law or fact common to all defendants will arise in the action.’” Slip op. at 2. Because there were “no allegations that the Defendants have operated together or acted in concert to infringe on the patents” and “[e]ach Defendant operates differently and offers products that often compete with those of other Defendants,” the court found that joinder was improper under Rule 20(a) and severed the actions. Slip op. at 4. The court found severing and not dismissal to be the proper remedy.
However, there may be little or no practical effect from the court’s decision to sever the actions in this specific instance because the court further decided to consolidate all 11 actions for pretrial and trial purposes and apply a common scheduling order. Slip op. at 4. The court cited Rule 42(a) as the source of its power to consolidate the actions. Rule 42(a) allows consolidation at the court’s discretion where there are common issues of law or fact. Here, there would be a common issue of law relating to the overlapping patents.
The court relied on Ninth Circuit case law to support its decision, noting that the interpretation of joinder rules in the Fifth Circuit is different and may allow joinder in cases such as this, thus distinguishing cases from the Eastern District of Texas that found joinder proper under Fifth Circuit precedent. So, make sure to check the precedent in your circuit court of appeals before moving to sever.
Keywords: litigation, intellectual property, motion to sever, joinder
— Chad S.C. Stover, Connolly Bove Lodge & Hutz, LLP, Wilmington, Delaware
April 28, 2011
Federal Circuit to Review Divided Infringement En Banc
Inventors define their own property rights by drafting their own patent claims. They contemplate the potential infringers. They contemplate what those potential infringers are excluded from doing. An inventor should also know how and by whom the invention might be infringed. When an inventor chooses claims that may require more than one infringer, a divided infringement situation arises. The Federal Circuit recently addressed such claims in McKesson Technologies Inc. v. Epic Systems Corp. [PDF], No. 2010-1291 (Fed. Cir. Apr. 12, 2011).
A divided panel found no infringement—no single party was responsible for infringing all claim elements. Judge Bryson concurred with Judge Linn’s opinion, writing separately to note that en banc review might be appropriate. Judge Newman dissented, arguing that the court was departing from the “prior panel rule” that requires appellate panels to conform to the earlier of conflicting panel precedent.
Keywords: litigation, intellectual property, Federal Circuit, divided patent infringement
— David G. Barker, Snell & Wilmer, LLP.
April 19, 2011
Supreme Court Hears Arguments in Microsoft v. i4i
On April 18, 2011, the U.S. Supreme Court heard oral arguments in the closely watched case of Microsoft Corp. v. i4i Limited Partnership, et al. At issue in this case is the proper standard for challenging the validity of a U.S. patent.
The Patent Act, at 35 U.S.C. § 282, states in relevant part that
A patent shall be presumed valid. . . . The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.
Microsoft challenged the validity of i4i’s patent when it was accused of infringement, alleging that the patent was invalid in view of an i4i software product that was developed and released before the critical date of the asserted patent. During discovery, i4i was unable to produce the underlying source code for this product on the grounds that the product was old and that the records and code had been destroyed during the ordinary course of business. Microsoft proceeded with its invalidity challenge using the evidence it was able to obtain, but the jury ultimately concluded that the evidence was insufficient to meet the clear and convincing standard of proof required by the Federal Circuit and found in favor of i4i. Microsoft had sought a jury instruction that only required a preponderance of the evidence to prove invalidity, and Microsoft appealed the denial of that instruction.
The Federal Circuit affirmed, citing its line of precedent requiring that invalidity be proven by clear and convincing evidence.
During oral arguments, the historical underpinnings of the clear and convincing standard took center stage. Justice Ginsburg began with a question to Microsoft’s counsel regarding what it was asking the Court to do with Justice Cardozo’s analysis in its RCA decision (Radio Corp. of America v. Radio Engineering Laboratories, Inc., 293 U.S. 1 (1934)), referring to that decision’s statement that one asserting the invalidity of a patent “bears a heavy burden of persuasion.” Justice Kagan also asked if the RCA analysis can be read as broadly establishing the heightened standard. Microsoft’s counsel responded that the reference to a “heavy burden” was made in the context of a dispute over who was the true inventor of a patent in question and that it had more to do with the reliability of oral testimony than it did with creating a higher overall burden of proof.
Microsoft’s primary point was that the language of the Patent Act itself did not expressly recite a standard of proof needed for overcoming the presumption of validity and that the pre-1952 body of case law was too inconsistent to conclude that a pre-1952 “clear and convincing” standard existed and was codified into the act. For example, Microsoft argued that before the act, some courts reduced (or removed) the presumption if the prior art in question was not considered by the PTO, while other courts had even reversed the presumption—requiring the patentee to demonstrate the validity of the patent. Microsoft asserted that the 1952 act clarified the matter by establishing a presumption of validity without defining a standard of proof for overcoming that presumption and that in the absence of such a defined standard, the preponderance standard is the one that should have been used.
Justice Alito appeared to agree on the statutory interpretation issue. In questioning i4i’s counsel, Justice Alito noted that he could not see where the Patent Act’s language articulated the clear and convincing standard for overcoming the presumption of validity. i4i responded by noting that the phrase “presumed valid” carries its pre-1952 understanding, which (following RCA) i4i asserted included a heavy burden on the one asserting invalidity. The deputy U.S. solicitor general gave an example from the criminal law context on this point—the phrase “presumption of innocence” does not expressly state that it can only be overcome if there is proof beyond a reasonable doubt, but that standard is nevertheless understood from the phrase. i4i asserted that this understanding was “solidified and unanimous” at the time of the 1952 act’s passage. i4i also noted that a committee report in the legislative history of the 1952 act stated that it was codifying existing law on the presumption of validity and that the heightened standard was this existing law.
Another i4i point, and one that drew chuckles in the courtroom, was what its counsel referred to as Congress’s “active acquiescence” to the Federal Circuit’s clear and convincing standard. i4i noted that Congress has been actively paying attention to and revising the Patent Act with an eye toward helping ensure quality patents, but so far, there has been no Congressional effort to legislate away from the clear and convincing standard. i4i asserted that this inaction represents a tacit endorsement of the Federal Circuit’s approach.
Justice Breyer asked whether changes were needed at all for addressing “bad” patents. For example, he wondered whether the existing options of reexamination at the PTO, district court stays pending reexamination, and the ability to narrowly instruct juries on their findings (i.e., only the “brute facts” of what features were found in the prior art, leaving the ultimate question to the judge), could be sufficient such that further changes to the standard are unnecessary. Microsoft’s counsel noted that reexamination options are limited to certain kinds of validity challenges and cannot address other issues, such as the question of whether a patent satisfies the requirements under 35 U.S.C. § 112 for describing and enabling the claimed invention. It also noted that stays are not always granted, alluding to an argument from the briefs that noted that under the current practice, a court’s decision on the stay could determine the standard of proof of invalidity (preponderance at the PTO in a reexamination, but clear and convincing in a district court).
Justice Breyer also stated he was unsure as to which was the worse risk to take: the risk of being too strict on proving invalidity (in which case there is the risk of “undeserving” patents surviving litigation) or the risk of being too lenient on providing invalidity (in which case there is the risk of a “deserving” patent being unjustly found to be invalid). i4i’s counsel asserted that the latter risk is much greater than the former because a district court finding of invalidity collaterally estops the patentee from any further assertions, while a district court finding of validity leaves the patent open to further validity challenges. The deputy solicitor general also argued that because the patent system represents a bargain between the inventor and the public, and the inventor has already performed his/her end of the bargain by coming forward and describing the invention in an application, then the inventor deserves a bit of credit, and the former risk would be the better one to take.
It is difficult to predict an outcome from the justice’s questions and discussion, but from the attendance today and the dozens of amici briefs that were filed in this case, it is clear that much of the patent community will be eagerly awaiting the Supreme Court’s decision, which should arrive by this summer.
Keywords: litigation, intellectual property, Supreme Court, validity
— Steve S. Chang, Banner & Witcoff, Ltd.
April 4, 2011
Federal Circuit Discusses Jurisdiction in DNA case
On April 4, 2011, before a filled courtroom, the Court of Appeals for the Federal Circuit heard arguments in the Myriad case. The case could potentially reach the issue of subject matter patentability of claims to isolated DNA under Section 101 of the patent statute.
Before reaching the merits of the arguments, however, there was an in-depth inquiry into the critical procedural question: Did the district court have jurisdiction to hear the case? In particular, did the plaintiffs demonstrate that they had standing to sue?
The Association for Molecular Pathology (AMP) urged that several individuals and groups had demonstrated sufficient likelihood of injury to confer standing. The panel appeared skeptical, however, that there was enough evidence of particularized harm for any one of the plaintiffs. The panel also expressed concern that if it found standing on the facts before them in this case, a whole new category of litigants would be created to challenge existing patents.
Turning to the merits, the panel appeared skeptical of the arguments of both the U.S. government as represented by the Department of Justice and of the large group of plaintiffs, which Judge Lourie referred to as a large “et al.” The panel’s questioning indicated that the theories of the plaintiffs and the government ran contrary to established case law on chemical entities in general, as well as contrary to longstanding U.S. Patent and Trademark Office policy on nucleic acids.
The judges struggled to identify a way to differentiate between genomic DNA and isolated DNA, spending several minutes debating with counsel whether there was a difference between mining a metal stuck in a rock and processing it to obtain the pure metal versus isolating the DNA from a cell and purifying a gene from a genome. The Department of Justice urged using a “magical microscope” as a helpful analytic tool. If such a microscope could see into the human body and determine that the claimed invention was present, then it would be a product of nature and not patent-eligible. AMP posited a pair of tweezers to be invented in the future that could pluck genes out of a genome. The judges maintained their focus on whether chemical bonds are formed or broken as the touchstone for whether a product is a product of nature or a product of human intervention. Judge Lourie commented, “This isn’t just research by tweezers.”
Overall, the judges appeared concerned about creating a sweeping change that would undermine the settled expectations of the biotech industry. Such a sweeping change as was urged by AMP, Judge Moore suggested, should be the province of Congress and not of either the judiciary or the executive branch.
Keywords: litigation, intellectual property, Federal Circuit, jurisdiction, DNA
— Fraser D. Brown, Sarah A. Kagan, and Paul M. Rivard, Banner & Witcoff, Ltd.
March 16, 2011
Federal Circuit Makes It Harder to Claim False Marking
In In re BP Lubricants USA, Inc., Misc. No. 10-906 (Fed. Cir. Mar. 15, 2011), the Federal Circuit held that “Rule 9(b)’s particularity requirement applies to false marking claims and that a complaint alleging false marking is insufficient when it only asserts conclusory allegations that a defendant is a ‘sophisticated company’ and ‘knew or should have known’ that the patent expired.” Slip op. at 2. The question now will be whether potential false-marking plaintiffs can meet this higher pleading standard and whether this decision might result in a significant reduction in the number of new false-marking actions.
The court looked to another qui tam statute, the False Claims Act, for guidance, noting that “false claims complaints must meet the requirements of Rule 9(b) because the False Claims Act condemns fraud ‘but not negligent errors or omissions.’”
In view of Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009), “a complaint must in the § 292 context provide some objective indication to reasonably infer that the defendant was aware that the patent expired.” The original complaint did not meet this standard because it contained “only generalized allegations rather than specific underlying facts from which we can reasonably infer the requisite intent.”
Keywords: litigation, intellectual property, Federal Circuit, false marking, False Claims Act
— Chad S.C. Stover, Connolly Bove Lodge & Hutz, LLP, Wilmington, Delaware
March 7, 2011
Ninth Circuit Case Highlights Risks of Naked Licenses
The Ninth Circuit recently highlighted the severe risks faced by trademark owners who enter into a license agreement without including appropriate provisions for quality control. If a trademark license does not provide for appropriate control over a licensee’s use of a trademark, a court may deem the license to be a “naked license,” resulting in a loss of trademark rights. See FreecycleSunnyvale v. The Freecycle Network, 626 F.3d 509 (9th Cir. 2010).
This decision is a useful reminder of the risks faced by trademark owners when licensing trademarks. The issue is not often litigated. See id. at 515 (the issue of “naked licensing” “has seldom arisen in this circuit or in our sister circuits”). Without express provisions for quality control and the actual exercise of quality control, trademark owners may unknowingly risk their trademark rights.
Keywords: litigation, intellectual property, naked license, Ninth Circuit
—Joseph G. Adams, Snell & Wilmer, LLP.
March 1, 2011
Supreme Court Hears Arguments in Stanford v. Roche
On February 28, 2011, the U.S. Supreme Court heard oral arguments in Stanford v. Roche Molecular Systems, Inc. At issue in this case is whether an inventor of an invention that arose from federally sponsored research has the right to separately assign rights to the invention or if ownership of those rights is automatically determined by the Bayh-Dole Act, 35 U.S.C. § 200.
The Bayh-Dole Act was enacted by Congress in 1980 to promote the commercialization of inventions that arise from federally sponsored research. Prior to the act, the government owned many patents on such inventions but did not do an effective job of commercializing them, and the sponsors of the act sought to nurture and commercialize further innovation. Under the act, the government has the right to take title to federally supported inventions under certain circumstances, with contractor universities and inventors having secondary (and tertiary) rights to retain ownership if the government does not elect to take title. Id., § 202(a), (b), and (d).
During oral arguments, the counsel for Stanford argued that the Bayh-Dole Act should be interpreted as a vesting statute in which ownership of federally sponsored inventions automatically vests according to the act’s hierarchy (government, then contractor, then inventor). According to Stanford, the Federal Circuit’s decision turns this hierarchy upside down, frustrating the act’s purpose. Stanford also argued that by giving the inventors this right of first refusal, the predictability in the research industry would be eroded as one can no longer be certain whether ownership is trumped by a “hidden” agreement like the Cetus Visitor's Confidentiality Agreement (VCA). Stanford also cautioned that under the Federal Circuit’s reading, contracting universities and inventors can easily contract around the Bayh-Dole Act’s provisions and cut the government out of the patent rights by simply agreeing to let the inventors retain title to the patents.
The U.S. deputy solicitor general supported Stanford’s position, arguing that the act’s framework provided a clear disposition of the patent rights and that ownership of patents is already subject to situations in which assignments are not necessary (referring to the ability of an assignee to take action on a patent application if an inventor refuses or is unavailable to execute an assignment and to the existence of other vesting statutes in which patent rights automatically revert to the government).
Roche asserted that the need for an assignment is fundamental U.S. patent practice and that there is nothing in the act’s language or history to indicate that Congress had intended to alter the assignment requirements for federally funded inventions. Roche argued that there are already other avenues of recourse for inventors who assign away rights in contravention of an earlier obligation (e.g., a court order requiring reassignment) such that there is no need to interpret the act as a vesting statute, and that the Federal Circuit properly resolved the matter on the basis of executed assignments.
Questions from the justices suggest a concern for disturbing the traditional requirement for an assignment. Justice Scalia noted that vesting without an assignment would be a significant change from traditional patent practice, Justice Sotomayor wondered why an assignment should not be needed here when it is generally required for other transfers of ownership, and Justice Alito remarked that the historical notion that patent rights originate with the inventor was one of his primary concerns he had with Stanford’s position. The counsel for Stanford responded by noting that the concept of automatic vesting is already used elsewhere in the laws, that its inclusion here would not be such a drastic change, and that it would be necessary to carry out Congress’s intent in passing the act. Roche’s position was to agree that automatic vesting would be a dramatic change and to note that other vesting statutes were clearer on their face that rights were to automatically transfer.
Several Justices asked about options that would avoid the need for automatic vesting, Justice Roberts asked whether the government can simply require contractors to secure assignments from their employees, and Justice Scalia agreed that the government could simply withhold funding if there was a problem getting the assignment. Justice Alito asked what other universities have been doing all this time, and the counsel for Stanford remarked that other universities generally also have policies requiring employees to sign assignments.
Justice Breyer appeared to favor the option of still requiring an assignment but deeming certain assignments void as against public policy in situations where the inventor fails to honor a prior obligation to assign to a Bayh-Dole contractor. This would allow the rights to be disposed in accordance with the act, but without reading the act as an automatic vesting act. Justice Kennedy also appeared to like this approach, asking the counsel for Stanford if this argument had been preserved.
Justices Ginsberg and Kennedy also appeared interested in resolving the matter on contract grounds. Justice Ginsberg remarked that the case appeared to turn on the fact that the Cetus VCA was an actual assignment (“hereby assign”), whereas the earlier-executed Stanford CPA was merely a promise to assign (“will assign”), making the Cetus VCA the first actual assignment. Justice Kennedy agreed that resolving the issue on this contractual basis appeared simpler.
Justice Kagan asked why the act did not expressly address the execution of assignments from inventors, as that appeared to be a huge omission in an act that dealt with ownership of patents. The counsel for Roche responded that, at the time the act was passed, there was no need to separately mandate that in the legislation, as universities had already proven to be well-suited to extracting the necessary assignments from their employees, and the laws had provisions for dealing with employees who refused to execute assignments. According to Roche, the focus of the act was on the relationship between the government and the contractor, not on the relationship between the contractor and its employees.
The questions from the bench suggest that the justices are hesitant to read the Bayh-Dole Act as a vesting statute. However, this hesitance does not automatically mean a win for Roche, as the justices may well change their mind, and they also appeared willing to consider alternative grounds.
Keywords: litigation, intellectual property, Bayh-Dole Act, ownership, Supreme Court
—Steve S. Chang, Banner & Witcoff, Ltd.
February 28, 2011
Supreme Court Hears Arguments in Global-Tech Case
On February 23, 2011, the U.S. Supreme Court heard oral arguments in Global-Tech Appliances Inc. and Pentalpha Enterprises, Ltd. v. SEB S.A. At issue in this case is whether liability for inducing patent infringement requires the defendant to have actual knowledge of the patent or whether under some circumstances a defendant may be charged with constructive knowledge of the patent.
During oral arguments, counsel for the petitioner, Global-Tech, argued the purpose of 35 U.S.C. § 271(b) is to punish third parties who know their actions will cause infringement and that the third party must have the purpose of causing the underlying offense of infringement. Counsel urged that the Federal Circuit’s test of “deliberate indifference” went too far. Not only does the Federal Circuit test not require actual knowledge of the patent, according to counsel, but it is even more broad than the traditional standard for willful blindness—which would require that a party act in disregard of a high probability of the existence of a patent.
Counsel for SEB argued that the central objective of 35 U.S.C. § 271(b) is to separate bad actors from those engaging in innocent business activities. SEB argued that although the Federal Circuit couched its decision in terms of “deliberate indifference,” the argument presented to the jury was effectively one of willful blindness, and the jury was instructed to find liability if Global-Tech actively and knowingly aided and abetted infringement.
Several questions from the justices inquired into whether the Court should adopt the same knowledge requirement for inducement under 35 U.S.C. § 271(b) that is used in the context of contributory infringement under 35 U.S.C. § 271(c). Both sides appeared to agree that the sections have different objectives and different requirement for knowledge of the patent. Counsel for Global-Tech argued that inducement has an even higher standard than contributory infringement for knowledge and intent, while counsel for SEB urged that inducement should not require that the defendant have actual knowledge of the patent when there are other indicia establishing culpable conduct.
Justice Breyer expressed concern that a constructive knowledge standard not based on willful blindness could introduce uncertainty and have far-reaching consequences, as there is almost always some risk of patent infringement when a company brings a product to market. Justice Kennedy likewise appeared concerned that creating a “duty to inquire” could impose a heavy burden on businesses, especially those supplying staple goods or raw materials used in many different products.
While the case at hand involves deep fryers, the Court was not unmindful of the implications its decision will have in other industries—most notably electronics, where tens and even hundreds of thousands of patents can come into play for a new product. Laughter erupted from the audience when Justice Alito informed counsel that the Court would not fashion a special rule for the deep fryer industry.
Counsel for SEB offered three possible approaches to the standard for inducing infringement that the Court could adopt. The first approach would be to implement the standard announced in Metro-Goldwynn-Mayer Studios, Inc. v. Grokster, Ltd., which dealt with the inducement of copyright infringement. Under Grokster, inducement can be established by showing “clear expression or other affirmative steps taken to foster infringement,” even in the absence of actual knowledge of specific copyrights. The second approach is one of willful blindness, which would require the defendant to act in disregard of a high probability of the existence of a patent. The third approach offered by SEB would be to require a defendant who copies a commercial product to investigate whether that product is covered by a patent.
It is difficult to predict how the Court will rule, but several of the Justices appeared concerned that an actual knowledge requirement was too narrow and would effectively encourage willful blindness. At the same time, the Court seemed sensitive to the need to tread carefully because its decision will have an even greater impact in other industries, particularly those that have dense patent landscapes.
Keywords: litigation, intellectual property, Supreme Court, inducing patent infringement
— Paul Rivard, Banner & Witcoff, Ltd.
February 9, 2011
Federal Circuit Rules Against 25 Percent Rule
In patent cases, the infringer of a valid patent is liable to the patentee for damages that shall “in no event [be] less than a reasonable royalty.” A reasonable royalty is the royalty rate to which two hypothetical, arms-length parties would agree after a negotiation. One common method of quantifying this hypothetical negotiation has been to use the 25 percent rule of thumb, which assumes a 25 percent royalty rate as a starting point for the hypothetical negotiations.
In Uniloc USA, Inc. v. Microsoft Corp., a three-judge panel of judges, including Judge Linn, Rader, and Moore, with Judge Linn writing the opinion, held that the 25 Percent Rule “is a fundamentally flawed tool for determining a baseline royalty rate . . . [and] is thus inadmissible under Daubert and the Federal Rules of Evidence.” No. 2010-1035, -1055, slip op. at 41 (Fed. Cir. Jan. 4, 2011). According to the court, the 25 Percent Rule is so flawed that even if the 25 percent base is adjusted for legitimate, case-specific factual considerations, the end result is still fundamentally flawed. Id. at 46.
The court reasoned that the 25 Percent Rule—which assigns a 25 percent royalty rate to any transaction regardless of the value of the technology or the strength of the intellectual property—failed to satisfy the “fundamental requirement” for expert testimony regarding royalties to have a “basis in fact to associate the royalty rate . . . to the particular hypothetical negotiation in the case.” Id. at 45. Although the court provided some discussion of the types of hypothetical starting points that were not robust enough to satisfy the court’s new requirements, it provided little insight as to acceptable starting points for calculating reasonable hypothetical royalty rates.
In light of Uniloc, damages experts in patent cases will be required to provide a more detailed damages analysis that will likely result in more discovery and greater expense to the client. Uniloc emphasizes the Federal Circuit’s trend regarding expert testimony in general—to survive a Daubert challenge, expert reports must be tied to the specific facts of the case.
— Daniel M. Attaway, Connolly Bove Lodge & Hutz, LLP, Wilmington, Delaware
January 31, 2011
Notable Decisions in Patent Law in 2010
With the start of the first quarter of 2011 in full swing, be sure that you are up to date on 2010’s notable developments in patent law. Click here to read a comprehensive summary of the notable court decisions issued from December 2009 to December 2010.
— Bradley C. Wright, Banner & Witcoff, Ltd.
January 12, 2011
Federal Circuit Reverses District Court Decision in Prometheus Case
On December 17, 2010, the Court of Appeals for the Federal Circuit (CAFC) issued a decision in Prometheus Laboratories, Inc. v. Mayo Collaborative Services. This case was remanded to the CAFC from the Supreme Court for further consideration in light of the Court’s decision in Bilski v. Kappos. Following the remand, the CAFC affirmed its original decision in the case, reversing a district court decision that found Prometheus’s diagnostic method to be patent-ineligible. The Federal Circuit once again ruled that Prometheus’s diagnostic method is patent-eligible subject matter under 35 USC § 101.
— Jason S. Shull, Banner & Witcoff, Ltd.
January 12, 2011
Supreme Court Decides Costco v. Omega
On December 13, 2010, the Supreme Court issued its highly anticipated decision in Costco v. Omega, but the decision was probably not what most were anticipating. In a one-line per curiam affirmance, the Court ruled that “[t]he judgment is affirmed by an equally divided Court” (Justice Kagan recused herself from hearing the case).
The affirmance means that Omega’s extraterritorial sale of its watches did not exhaust its U.S. copyright in the same watches, so Costco cannot successfully defend against Omega’s copyright infringement claims on exhaustion grounds.
— Jason S. Shull, Banner & Witcoff, Ltd.
October 14, 2010
Supreme Court Grants Writ of Certiorari in Global-Tech v. SEB
On October 12, 2010, the Supreme Court granted writ of certiorari in Global-Tech v. SEB to decide the level of intent required for inducing infringement under 35 U.S.C. § 271(b).
Section 271(b) says, “Whoever actively induces infringement of a patent shall be liable as an infringer.” Federal courts have struggled to define the level of intent necessary to satisfy the statutory guidelines.
The issue to be decided by the Supreme Court in Global-Tech v. SEB is whether the legal standard for the “state of mind” element of a claim for actively inducing infringement under § 271(b) is “deliberate indifference of a known risk” that an infringement may occur or instead “purposeful, culpable expression and conduct” to encourage an infringement.
— Jason S. Shull, Banner & Witcoff, Ltd.
September 17, 2010
Federal Circuit Passes Up an Opportunity to Curb False Marking
The ever-evolving area of false patent marking litigation under 35 U.S.C. § 292 took its next step as the Court of Appeals for the Federal Circuit passed on an opportunity to undo damage done by way of its decisions in Clontech Labs., Inc. v. Invitrogen Corp. and Forest Group v. Bon Tool Co. for the second time. It upheld the standing of a disinterested qui tam plaintiff to bring suit under 35 U.S.C. § 292 for false patent marking without alleging any concrete injury in fact. Stauffer v. Brooks Bros., Inc., ___ F.3d ___, 2009-1428, -1430, -1453 (Fed. Cir. Aug. 31, 2010).
The principle issue in Stauffer was whether, under the false marking statute, a third-party qui tam plaintiff has standing to bring suit without alleging a concrete injury in fact. In Stauffer, a third-party qui tam plaintiff sued Brooks Brothers, Inc. under § 292 for the false marking of expired patent numbers on bowties. See Stauffer v. Brooks Bros., Inc., 615 F.Supp.2d 248 (S.D.N.Y. 2009). Stauffer alleged only that Brooks Brothers knew that the patent numbers being marked were expired, and never alleged an injury to himself, to the United States, or to any particular person or industry. Id.at 254. The Southern District of New York held that Stauffer’s pleadings were insufficient to demonstrate standing. Id. The Federal Circuit held that by enacting § 292, Congress effectively created an injury in fact. Stauffer, 2009-1428 at p. 9. Per the court, this interest is assignable to “any person” under § 292, regardless of whether that person has suffered or indicated any injury to him- or herself, or any companies, industries, or entities. Id.
In making this holding, the Federal Circuit effectively turned down an opportunity to eradicate the current wave of false marking cases, which have been plaguing the U.S. court system since the Federal Circuit determined that false marking fines should be assessed on a “per article” basis as opposed to the previously used “per decision” basis in Forest Group v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009).
The Federal Circuit had already passed up one opportunity to curb the tide of false marking litigation in deciding the case of Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. June 10, 2010). One of the principle issues on appeal in that case was whether the mere marking of an expired patent number could be false marking under 35 U.S.C. § 292. A second principle issue was whether, to demonstrate “purposes of deceiving the public,” demonstration of knowledge of the false marking was enough, in light of the Federal Circuit’s 2005 opinion in Clontech Labs., Inc. v. Invitrogen Corp. Clontech seemingly established a rule whereby simply showing that the defendant knew of false marking was sufficient to meet the “purposes of deceiving” standard set forth in the statute. Clontech Labs., Inc. v. Invitrogen Corp., 406 F.3d 1347 (Fed. Cir. 2005). The Federal Circuit’s decision in Clontech, in combination with the Forest Group case, led to a drastic increase in the number of false marking litigations, with more than 300 false marking cases filed between December 2009 and the present. As most of the recently brought cases were based on the marking of expired patents, Pequignot was a chance for the Federal Circuit to greatly reduce the number of these cases. Instead, the Federal Circuit held that the marking of an expired patent number is false marking. Pequignot, 608 F.3d at 1362. Further, instead of completely overruling Clontech, the court did not disturb that case’s presumption of intent upon demonstration of knowledge. Id. at 1362–1363.
While the opinion of the court in Stauffer did little to stifle the current flow of false marking cases, two possible windows were left open for future challenges. The court cited to Ciba’s amicus brief and its argument that Section 292 fails under the “take care” clause of Article II of the Constitution, as the United States does not retain any control over resulting litigation under the false marking statute. Stauffer, 2009-1428 at p. 12. While acknowledging that Ciba raised “relevant points,” the court did not address the constitutionality of the false marking statute, as it was not an issue up on appeal. Id. The court also noted, in remanding the case back to the district court, that it was up to that court to determine the merits of Brooks Brothers’ motion to dismiss for failure to meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). Id.at 14.
It may, however, ultimately be up to Congress to find a way to lessen the impact of the Federal Circuit’s recent decisions. Both houses of Congress have identical propositions. While the Senate proposal is incorporated into the overarching Patent Reform Act currently in a perpetual state of change, the House proposal is a standalone bill, H.R. 4954. See S.515 and H.R. 4954. Both of them eliminate the private enforcement of the false marking statute and allow for private parties to only recover damages, instead of half of the fine currently prescribed by the statute. As a result, both bills would effectively eradicate false marking complaints filed by disinterested third parties.
— Geoffrey A. Zelley, Connolly Bove Lodge & Hutz, LLP, Wilmington, Delaware
August 20, 2010
Federal Circuit Hears Case on False Patent Marking
The recently hot area of false patent marking was again on the docket at the Federal Circuit as Chief Judge Rader and Judges Lourie and Moore heard arguments in Stauffer v. Brooks Brothers, Inc. At issue was the fundamental question of who may bring a claim for false marking under section 292.
Based on the questions from the bench (bearing in mind, of course, the usual caveats about not reading too much into oral argument), it appeared likely that the court would reverse and hold that a plaintiff need not show an injury-in-fact to competition or the government to maintain standing.
Raymond Stauffer, a patent attorney appearing prose, kicked off the argument by citing the statutory language permitting “any person” to bring suit. The panel identified this as Stauffer’s best argument for reversing the district court’s dismissal of his complaint. Stauffer’s argument received backing from the government, which had been permitted leave to intervene in the appeal.
Stephen Baker, appearing for Brooks Brothers, focused on the district court’s finding that Brooks Brothers was not the “marker” of the product at issue (bow ties) because another company made the labels, and argued that the court could simply rely on this factual finding in holding that Stauffer lacked standing. The panel’s questioning seemed to indicate that they may view that particular fact as relating to the merits rather than standing.
The Federal Circuit’s opinion, which is expected within the next 90 days, is likely to have implications on the hundreds of false marking cases brought since the court’s Forest Group, Inc. v. Bon Tool Co. decision last December.
— Bill Sigler, Kaye Scholer, LLP
April 28 , 2010
The Federal Circuit Takes Inequitable Conduct Case for En Banc Review
The Federal Circuit granted rehearing en banc in Therasense v. Beckton, Dickinson, & Co. The court asked the parties to brief the following issues:
- Should the materiality-intent-balancing framework for inequitable conduct be modified or replaced?
- If so, how? In particular, should the standard be tied directly to fraud or unclean hands? See Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944), overruled on other grounds by Standard Oil Co. v. United States, 429 U.S. 17 (1976); Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240 (1933). If so, what is the appropriate standard for fraud or unclean hands?
- What is the proper standard for materiality? What role should the U.S. Patent and Trademark Office’s (PTO) rules play in defining materiality? Should a finding of materiality require that but for the alleged misconduct, one or more claims wouldn’t have issued?
- Under what circumstances is it proper to infer intent from materiality? See Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867 (Fed. Cir. 1988) (en banc).
- Should the balancing inquiry (balancing materiality and intent) be abandoned?
- Do the standards for materiality and intent in other federal agency contexts or at common law shed light on the appropriate standards to be applied in the patent context?
A copy of the order granting rehearing en banc can be found here.
— Jason Shull, Banner & Witcoff, Ltd.
March 24 , 2010
Federal Circuit Reaffirms 35 U.S.C. § 112
On March 22, 2010, the U.S. Court of Appeals for the Federal Circuit issued its en banc decision in Ariad v. Eli Lilly, reaffirming that 35 U.S.C. § 112, ¶1 contains a written description requirement separate from an enablement requirement. The court ruled that claims to a method of treating diseases by regulating a protein in human cells were invalid for lack of written description.
The question of whether a claimed invention is adequately described in a specification often arises when claims are amended or presented after a patent application is filed. The question may also arise, as it did in Ariad, in the context of originally filed claims. As the court noted, questions of this latter type are “particularly acute in the biological arts,” where claims often identify a function or result while the specification may not recite sufficient materials to accomplish that function or result.
Prior to the rehearing en banc, the Federal Circuit panel of three of its judges held the specification did not demonstrate that the inventors “possessed” the invention by “sufficiently disclosing molecules capable of reducing [protein] activity.” The panel determined the patent contains no working examples, or even “prophetic” examples, of reducing protein activity, or a description of the synthesis of hypothetical molecules that could be used for this purpose. The panel noted the patentee “chose to assert claims that are broad far beyond the scope of the disclosure provided in the specification.”
Though agreeing with the panel’s conclusion, the en banc court acknowledged that “[t]he term ‘possession’ . . . has never been very enlightening.” The court emphasized that the inquiry must focus on “the four corners of the specification from the perspective of a person of ordinary skill in the art” and that “the specification must describe an invention understandable to that skilled artisan and show that the inventor actually invented the invention claimed.”
Much of the opinion focused on the statutory language and whether Supreme Court precedent had recognized a separate written description requirement. The court found it significant that the language of the statute was not significantly changed from that in existence prior to the 1836 Act, which required claims for the first time. In other words, the statutory requirement for claims did not replace the statutory requirement that the specification contain a written description of the invention. Also, as recently as in Festo, the Supreme Court reiterated that § 112, first paragraph requires that the specification “describe, enable, and set forth the best mode.”
The case attracted several amici curiae, some of whom argued that the court’s written description jurisprudence amounts to a “super enablement” standard for chemical and biotechnology inventions. The Federal Circuit rejected this argument, explaining that this “doctrine never created a heightened requirement to provide a nucleotide-by-nucleotide recitation of the entire genus of claimed genetic material; it has always expressly permitted the disclosure of structural features common to the members of the genus.”
The court reasoned that the written description requirement also serves the policy goal of maintaining a balance in the quid pro quo of granting exclusive patent rights in exchange for public disclosure of the invention. The Federal Circuit seemed particularly concerned with patents imposing additional costs on downstream research and discouraging further invention. The court was not persuaded that maintaining the separate written description requirement would adversely impact the pace of innovation or the number of patents obtained by universities.
Judges Linn and Rader filed dissenting opinions, arguing that the statute does not contain a written description requirement separate from the enablement requirement.
— Paul Rivard, Banner & Witcoff, Ltd.
March 4 , 2010
Federal Circuit and Eastern District of Texas Judges to Speak on Claim Construction at Section Annual Conference
Chief Judge Paul Michel of the Federal Circuit and Judge Chad Everingham of the Eastern District of Texas have committed to participate on the panel for the program "Winning Your Patent Infringement Case at Claim Construction" at the Section Annual Conference in New York City. The panel will also include Clinton Hallman Jr., chief counsel for Intellectual Property of Kraft Foods Inc. and the moderator, Alan M. Fisch, cochair of Kaye Scholer LLP's Patent Litigation Group.
Chief Judge Michel, Judge Everingham, and the other panelists will offer their thoughts on many of the key strategic issues relating to Markman hearings, including
- the timing of claim construction hearings
- issues inherent to multi-party litigation
- using special masters, expert testimony, and technology tutorials
- referring to the accused product and the prior art at claim construction
- case disposition at or shortly after the claim construction hearing
The program thus will provide members with insights on winning strategies for the claim construction process from a 22-year member of the Federal Circuit bench, a trial judge in one of the hottest jurisdictions in the United States for patent litigation, in-house intellectual property counsel for a Fortune 100 company, and a prominent patent litigator who has presented at scores of claim construction hearings.
Registration for the program, which is scheduled for April 23, 2010 at 11:15 a.m., is available at www.abanet.org/litigation/sectionannual.
March 4, 2010
Keep It Simple: Presenting IP Cases To A Jury
Intellectual Property trials, as much or even more so than any other type of trial, require presenting complicated concepts and issues to juries in as straightforward and persuasive a manner as possible. But it’s surprisingly difficult to come up with effective ways to communicate with juries.
The Intellectual Property Litigation Committee invites you to participate in the “Keep It Simple: Presenting IP Cases to a Jury” CLE program at the upcoming 2010 Litigation Section Annual Conference in New York City. The program will take place on Friday, April 23, 2010, from 4:00–5:15 p.m. at the Hilton New York, and will feature a distinguished panel of trial experts, including a renowned United States District Court Judge, who will discuss how to present complex issues to a jury; Honorable Joseph J. Farnan Jr., United States District Court for the District of Delaware; Samuel F. Baxter from McKool Smith, P.C.; Leora Ben-Ami from Kaye Scholer LLP; Ahmed J. Davis from Fish & Richardson P.C.; and Philip K. Anthony, Ph.D., Chief Executive Officer of Decision Quest.
This program will discuss trial strategies for presenting complex topics to a jury in a straightforward, persuasive manner to empower the jury and build credibility through education by using simple language, visual aids, teaching techniques, and story telling. The program will include sample opening and closing arguments, witness examinations demonstrating the importance of using simple terms that jurors can understand, and the use of visual aids, experts, and the “Four Cs” (clarity, conciseness, consistency and creativity), all for the purpose of empowering the jury and building credibility through education
March 4, 2010
Hot Topics in Intellectual Property
The field of intellectual property is constantly changing, making it imperative for IP litigators to keep up-to-date on the most recent changes in the law as well as best practices and strategies.
The Intellectual Property Litigation Committee invites you to participate in the “Hot Topics in Intellectual Property” CLE program at the upcoming 2010 Litigation Section Annual Conference in New York City. The program will take place on Friday, April 23, 2010, from 2:30–3:45 pm at the Hilton New York, and will feature a distinguished panel of experts addressing the hot issues in each of the four main IP practice areas, including Andrew P. Bridges (Copyright Law), Victoria A. Cundiff (Trade Secrets Law), Christopher A. Hughes (Patent Law), and Susan Progoff (Trademark Law).
The Copyright Law portion of the program will cover recent developments on fair use, particularly as to news aggregation and searching, secondary liability in copyright law, DMCA safe harbors, and statutory damages. The Trade Secrets Law portion of the program will address a number of current issues, including the increasing importance courts place on specifically identifying the trade secrets at issue early on in a case, proving irreparable injury in trade secrets cases, and the need for clear evidence of imminent risk to support claims of “inevitable” or “threatened” disclosure of trade secrets.
The Patent Law portion of the program will cover recent developments in patent damages law, including Federal Circuit decisions on ongoing royalties (Paice v. Toyota), comparable licenses and the entire market value rule (Lucent v. Gateway), and patent reform proposals currently before Congress. Recent cases dealing with the interaction between patent licensing and bankruptcy law will also be discussed. The Trademark Law portion of the program will cover a number of recent trademark cases of relevance to trademark litigators. The program will also feature a discussion of similarities between the four practice areas and what litigators in one area can learn from developments in the others.
February 16 , 2010
Developments in Patent Law 2009
A year end review and summary of the important patent law decisions for 2009 is now available.
— Bradley Wright, Banner & Witcoff, Ltd.
February 16 , 2010
Federal Circuit Vacates Damages Award for District Court's Improper Reliance on Licenses
On February 5, 2010, the Federal Circuit vacated a damages award for infringement on the basis that plaintiff’s expert relied on existing licenses that were not linked to the patent-in-suit. In ResQNet.com v. Lansa, Inc., plaintiff’s expert relied on the first factor of Georgia-Pacific to arrive at 12.5 percent of defendant’s revenues for the sale of infringing software as a reasonable royalty rate. According to the majority’s opinion, authored by Judges Newman, Lourie, and Rader, plaintiff’s expert reached the 12.5 percent royalty rate by relying on existing patent licenses that did not mention the patents-in-suit or show any discernible link to the claimed technology. Citing its 2009 decision in Lucent Techs., Inc. v. Gateway, the federal circuit determined that the expert’s reliance on these licenses was improper because “the first Georgia-Pacific factor considers only past and present licenses to the actual patent and the actual claims in litigation.” Vacating the damages award, the majority determined that the expert relied on “speculative and unreliable evidence divorced from proof of economic harm linked to the claimed invention.” The Federal Circuit’s full opinion can be found here.
— Jason Shull, Banner & Witcoff, Ltd.
January 8, 2010
Federal Circuit Holds that PTO Has Been Shortchanging on Patent Term Adjustments
Owners of patents that issued more than three years after filing should check to see if they are entitled to a greater patent term adjustment than was calculated by the Patent and Trademark Office (PTO) at the time of issuance. On January 7, 2010, the Federal Circuit held that the PTO has been misinterpreting the patent term adjustment statute, 35 U.S.C. § 154. Wyeth v. Kappos, Appeal No. 09-1120, aff’g, Wyeth v. Dudas, 580 F. Supp. 2d 138 (D.D.C. 2008). A copy of the Federal Circuit opinion can be found here.
The adjustment statute provides guarantees of patent term by providing adjustments due to periods of delay by the PTO. A patent is entitled to a one-day extension of its term for every day that issuance of a patent is delayed by a failure of the PTO to comply with deadlines under § 154(b)(1)(A), e.g., the deadline of 14 months for a first office action. Delays of this type are called “A delays.” A patent is also entitled to a one-day extension for every day greater than three years after the filing date that it takes the patent to issue, with certain exclusions, under § 154(b)(1)(B). Delays of this second type are called “B delays.”
The extensions for A delays and B delays are subject to a limitation concerning “overlap”—that “[t]o the extent that periods of delay attributable to grounds specified in paragraph (1) overlap, the period of any adjustment granted under this statute shall not exceed the actual number of days the issuance of the patent was delayed.” §154(b)(2)(A). The PTO has been granting adjustments for the greater of the A delays or the B delays but not A + B delays. In the PTO’s view, the entire period during which an application is pending is the “B period” for purposes of identifying “overlap.”
— Robert Resis, Banner & Witcoff, Ltd.
December 17, 2009
Federal Circuit Shifts Its Declaratory Judgment Jurisprudence
Federal law provides businesses with the ability to sue a patent holder to obtain a declaratory judgment that their products are not infringing the patent holder’s patent. The ability to bring these declaratory judgment suits is important to many businesses, especially to those businesses that receive threats from patent holders that can be classified as “patent holding companies,” “non-practicing entities” or “patent trolls.” The freedom to sue, however, is not absolute. Rather, it is limited by a jurisdictional bar. In its most recent decision on the subject, Hewlett-Packard Co. v. Acceleron LLC, No. 2009-1283, __ F.3d __, 2009 WL 4432580 (Fed. Cir. Dec. 4, 2009) (Acceleron), the Federal Circuit arguably lowered that bar—at least in cases wherein the patent holder is a holding company. In doing so, the court explained that its decision “marks a shift from past declaratory judgment cases.”
Declaratory Judgment Generally
Under the Declaratory Judgment Act, “any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration” where there exists “a case of actual controversy.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126 (2007) (citing 28 U.S.C. § 2201(a)). In the patent litigation context, a declaratory judgment action typically arises where a potential patent infringer brings suit against the relevant patent holder seeking a declaration of non-infringement or patent invalidity. The potential patent infringer, however, cannot simply file a lawsuit out of the blue. Rather, before a potential infringer can enter the doors to the courthouse, there must be a “definite and concrete” dispute between the parties. In other words, there must be “a case of actual controversy.”
In MedImmune, the Supreme Court acknowledged that there is no bright-line rule for distinguishing cases that satisfy the actual controversy requirement and those that do not. Id. According to the Court, “the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient reality to warrant the issuance of a declaratory judgment.” Id. (emphasis added).
The Federal Circuit’s Decision in Acceleron
In Acceleron, the Federal Circuit applied the Supreme Court’s “all the circumstances” test and reversed the district court’s dismissal of the plaintiff’s declaratory judgment suit. In doing so, the court first detailed “all the circumstances” that lead to the plaintiff, Hewlett-Packard Company (HP), filing its declaratory judgment suit against the defendant, Acceleron LLC (Acceleron).
To that end, the court explained that Acceleron is a patent holding company that had acquired ownership of the patent at issue on May 31, 2007. Less than four months later, Acceleron wrote to HP “to call [HP’s] attention to the [patent at issue],” to inform HP that the patent at issue related to Blade Servers—a product sold by HP—and to inform HP that Acceleron would expect a response in two weeks. In response, HP’s litigation counsel wrote back to Acceleron stating that HP wanted more information from Acceleron and that HP wanted both companies to agree to refrain from taking any legal action for a period of 120 days. Four days later, Acceleron wrote back to HP explaining that Acceleron did not believe there was any basis for HP to file a declaratory judgment action, that Acceleron would not promise to refrain from filing suit, and that Acceleron would give HP two weeks in which to respond.
Two weeks later, HP filed a declaratory judgment suit against Acceleron in the District of Delaware, seeking a declaratory judgment of non-infringement and invalidity of the patent at issue. The district court dismissed the case, however, finding that, at the time HP filed suit, the potential for litigation was still “too speculative a prospect to support declaratory judgment jurisdiction.”
On appeal, the Federal Circuit disagreed and reversed. Acceleron, 2009 WL 4432580, at *5. After explaining that MedImmune had lowered the bar for determining declaratory judgment jurisdiction, the court cautioned that nevertheless, “a communication from a patent owner to another party, merely identifying its patent and the other party’s product line, without more, cannot establish adverse legal interests between the parties, let alone the existence of a ‘definite and concrete’ dispute.” Id. at *2. According to the court, “[m]ore is required to establish declaratory judgment jurisdiction.” Id.
Given this statement, one might have expected the court to have adopted Acceleron’s argument that because Acceleron never explicitly asserted its rights under the patent at issue in correspondence with HP—by way of, for example, threatening to sue for infringement or demanding a license—there was simply no controversy to support HP’s suit. The court, however, rejected this argument.
The court explained that the test for declaratory judgment jurisdiction in patent cases is objective and that the “purpose of a declaratory judgment action cannot be defeated simply by the stratagem of a correspondence that avoids the magic words such as ‘litigation’ or ‘infringement.’” Id. at *3–4. The court further observed that Acceleron was solely a licensing entity and that, unlike a practicing entity, only receives benefits from its patent through enforcement of that patent. Id. at *4. This, according to the court, added significance to the fact that Acceleron refused HP’s request to refrain from filing suit for 120 days. Id.
In the end, the court held that “[u]nder the totality of the circumstances . . . it was not unreasonable for HP to interpret Acceleron’s letters as implicitly asserting its rights under the [patent at issue],” and that “conduct that can be reasonably inferred as demonstrating intent to enforce a patent can create declaratory judgment jurisdiction.” Id. Thus, the court found that an actual controversy existed to support declaratory judgment jurisdiction. Id. at *5.
In light of the Federal Circuit’s decision in Acceleron, both inside and outside counsel should think twice before sending letters to another entity identifying their client’s patent and the other entity’s relevant product line. This is especially true if counsel represents a patent holding company. Under the totality of the circumstances, this type of letter—despite the lack of an explicit threat of litigation or infringement—may create the foundation for declaratory judgment jurisdiction.
On the other hand, inside and outside counsel receiving letters on behalf of their clients from patent holders—and especially patent holding companies—that contain an implicit assertion of rights under a patent against an identified product, may now feel more confident that if they file a declaratory judgment suit to protect their client, that suit will not be dismissed for lack of jurisdiction.
— Timothy J. Rechtien, Banner & Witcoff, Ltd.
December 8, 2009
Federal Circuit Hears Oral Arguments in Ariad v. Eli Lilly on Written Description Requirement
It has been standard practice since the 1952 Patent Act for patent lawyers across all technology disciplines to include in patent applications an adequate written description to show that the inventors were in possession of the invention and a teaching of the skills needed in making and using the invention. Each of these separate aspects was commonly understood to be statutorily mandated by 35 U.S.C. § 112, ¶1. Likewise, failure to provide an adequate written description is a common defense to patent infringement allegations. If the patent fails to provide an adequate written description, the patent is invalid and therefore unenforceable.
On December 7, 2009, the U.S. Court of Appeals for the Federal Circuit, sitting en banc, i.e., with all its 12 judges sitting as a group, heard oral arguments in Ariad v. Eli Lilly, a case that questions “whether 35 U.S.C. § 112, ¶1, contains a written description requirement separate from an enablement requirement” and, “if so, what is the scope and purpose of the written description requirement.” The Federal Circuit took up the question in the context of a method of treating diseases by regulating a protein in human cells. Although the invention is in the bio/pharma technology field, and specifically lowering the activity of a protein, the Federal Circuit’s decision in this case could cut across all technology fields.
Prior to the rehearing en banc, a Federal Circuit panel of three of its judges held that the specification did not demonstrate that the inventors “possessed” the invention by “sufficiently disclosing molecules capable of reducing [protein] activity.” The panel determined the patent contains no working examples, or even “prophetic” examples, of reducing protein activity, or a description of the synthesis of hypothetical molecules that could be used for this purpose. The panel noted the patentee “chose to assert claims that are broad far beyond the scope of the disclosure provided in the specification.”
The rehearing en banc has attracted some 25 amicus briefs, mostly supporting Ariad’s opposition to the separate written description requirement. Some amici characterized the requirement as a “super-enablement requirement” that is prejudicial to research universities and small biotechnology companies.
Although framed as a subsidiary issue by the court, much of the oral argument on December 7 focused on policy considerations underlying the written description requirement, as well as its historical treatment by the courts. Eli Lilly described the requirement as “corroboration” of what a particular inventor actually invented. In response to questions from Chief Judge-elect Rader on whether courts have previously limited the application of the requirement to first-to-invent disputes, Lilly maintained that the requirement should be available to challenge patent validity in whatever context the challenge may arise.
Ariad criticized the Federal Circuit’s “possession” requirement as lacking any support in the Patent Act. Ariad urged that the patent law requires only that the specification “identify” the invention and teach how to make and use it. According to Ariad, policy considerations are satisfied as long as persons skilled in the art are able to actually practice inventions based on the guidance provided in patent specifications, as he asserted was true in the specific case at issue. Ariad agreed, however, that a specification disclosing a single embodiment would not provide an adequate written description for a broad claim when other embodiments were inoperable.
The U.S. government, as amicus curie, argued that the court should maintain the separate written description requirement. The government explained the requirement is an important tool for patent examiners to reject excessively broad patent application claims during patent examination. In its brief, the government described the requirement as “crucial to” and “essential to the operation of” the patent system.
During the oral arguments, several of the judges seemed skeptical that the statute contains a written description requirement separate from the enablement requirement. Judge Moore, on the other hand, questioned whether stare decisis alone justified maintaining existing law. As all patents and patent applications are required to meet the statutory mandate of 35 U.S.C. § 112, ¶1, this case will be closely watched to see whether the Federal Circuit makes a sweeping change in how patent applications are obtained and enforced or whether the Federal Circuit will limit its decision to the narrow bio/pharma nature of the case.
— Paul Rivard, Banner & Witcoff, Ltd.
November 18, 2009
Supreme Court Hears Argument in Bilski Case
The courtroom at the U.S. Supreme Court was overflowing with patent attorneys, many having waited in line for more than three hours to get in. Following the oral argument on November 9, 2009, in Bilski v. Kappos, one thing seems certain—Mr. Bilski is not likely to get a patent on his method of hedging consumption risk. Originally filed in 1997, the patent application had been rejected by the U.S. Patent and Trademark Office (PTO), a decision that was affirmed in 2008 by the U.S. Court of Appeals for the Federal Circuit. In affirming the decision, the Federal Circuit ruled that a process is not patentable unless it is either tied to a particular machine or transforms something tangible. Bilski’s claims did not meet either prong of this “machine or transformation” test.
The afternoon argument, which began promptly at 1:00 p.m., evoked numerous questions from the Court. None of the Justices seemed sympathetic to Bilski’s case. Several of the Justices pressed Bilski’s counsel to explain why a method of conducting business is the type of invention that was intended to be covered under the patent laws. The Justices struggled, however, with whether the Federal Circuit’s “machine or transformation” test was the appropriate test for process patents, and prodded both sides to propose alternatives.
Justice Scalia asked why the “useful arts” mentioned in the U.S. Constitution didn’t indicate an intention to limit inventions to manufacturing arts involving workers. Justice Ginsberg asked why, in view of Europe’s prohibition on patenting business methods, the United States should not adopt a similar rule. Justice Breyer asked whether the framers of the Constitution would have intended to force competitors to search for and avoid patents covering methods of doing business, and asked whether he could have patented his method of teaching antitrust law. (Bilski’s response: Yes, if it was new and not obvious). Justice Sotomayor seemed concerned that the “machine or transformation” test was too rigid and might foreclose patenting future areas of technology.
Chief Justice Roberts pressed Bilski’s counsel several times to explain why his three-step method involving “initiating transactions” among various parties was not merely an unpatentable abstract idea, and debated with Bilski’s counsel whether any of the steps involved physical steps. At one point, Chief Justice Roberts challenged Bilski’s counsel to explain why picking up the phone and calling somebody to sell a commodity involved anything “physical.” Justice Scalia asked why, if the framers of the Constitution intended to cover business methods, hadn’t inventors patented methods of training horses back in the early days of the country.
Bilski’s attorney argued that the test for patentability should focus on whether there was a practical application of a useful result, a test that was met by Bilski’s claims. He also argued that by enacting Section 273 of the patent statute, which provides a defense for infringement of “business method” patents, Congress clearly intended for business method inventions to be covered under the patent laws. The Justices seemed concerned that Bilski’s proposed test was overly broad.
After-Effects of State Street Bank
Several of the Justices asked whether the State Street Bank case—thought by some to have given rise to “business method” patents after it was decided in 1998—would have reached the same outcome today under the Federal Circuit’s “machine or transformation” test. Malcolm Stewart, arguing on behalf of the PTO, said that it would, given that State Street Bank involved only a claim to a machine, not any process claims, so the “machine or transformation” test would not be applicable. Some of the Justices seemed puzzled by this distinction, and pressed Stewart to explain why the test would not apply. It is unclear whether their concerns were adequately addressed.
Wrong Case for Supreme Court?
Justice Alito asked whether the Supreme Court should have agreed to hear the case at all, given that it could have been decided on the narrower grounds that Bilski was claiming an abstract idea. Mr. Stewart, arguing on behalf of the PTO, responded that the PTO wanted to win on the primary ground advanced—the “machine or transformation” test. He also defended that test as leaving some flexibility for future decisions. Deciding the case on the alternate ground would leave a hole in the law, he said, creating uncertainty for the PTO and patent applicants. The Supreme Court has not issued a decision on this issue for nearly 30 years.
In the end, the Supreme Court may adopt a variant of the Federal Circuit’s “machine or transformation” test that leaves open the possibility for patenting future forms of technology that would not satisfy the current Federal Circuit test. Or, as suggested by some of the Justices, it is possible the Court might affirm the decision on the alternative ground that Bilski’s process claims are a mere “abstract idea” and, therefore, precluded under existing Supreme Court precedent. What seems unlikely is that Bilski will end up with a patent on his method of hedging consumption risk.
Patent Rules Adopted by the Northern District of Illiniois Became Effective
On October 1, 2009, new local patent rules adopted by the Northern District of Illiniois became effective. The new local patent rules are now on the court’s website (NDIL website). A press release announcing the adoption of the new rules can be found here.
Importantly, Chief Judge Holderman of the Northern District indicated at a recent bar conference that these rules will affect pending cases. These patent rules are similar to those in the N.D. of California and the E.D. of Texas, but differ in two significant aspects: the N.D. of Illinois patent rules are designed to promote uniformity within the district, not speed (the estimated patent schedule under the new rules is about two years from service of the complaint to the case being ready for trial); and the parties opposing infringement open and close the Markman briefing, which in most cases will be toward the end of fact discovery (see LPR 4.1 through 4.3).
Federal Circuit Clarifies Patent Application Standard
The Federal Circuit has clarified that in patent application filings, to protect against double patenting rejections, patent applications must be true divisional applications—filed in response to restriction requirements. Continuation and continuation-in-part applications are not divisional applications. The court recognized that the Manual of Patent Examining Procedure (MPEP) states the United States Patent and Trademark Office (USPTO) might recognize a continuation application as a divisional application—but concluded this recognition does not justify departing from a strict application of the plain language of the patent law, insofar as it affords benefits to divisional applications.
The clarification came in Amgen v. Roche litigation over the recombinant anemia drug erythropoietin (EPO). This litigation has been going on since 2005 when Amgen filed a declaratory judgment action against Roche in the United States District Court for the District of Massachusetts, alleging that Roche’s product, Mircera, if imported into the United States, would infringe five of Amgen’s patents to EPO. Roche asserted that Amgen’s patents were invalid and not infringed. One of the defenses raised by Roche was obviousness-type double patenting of the asserted claims of the ’933, ’422, and ’349 patents over the claims of an earlier issued and now expired patent—U.S. Patent No. 4,703,008.
Federal Circuit Rejects “Should Have Known” Standard for Proving Intent to Deceive in Trademark Fraud Cases
In re Bose Corp. (Appeal No. 2008-1448)
On August 31, 2009, the Federal Circuit overturned a decision by the USPTO’s Trademark Trial and Appeal Board (TTAB or Board) ordering cancellation of Bose’s WAVE trademark registration for fraud.
Bose filed a renewal application for the WAVE trademark claiming that the mark was in use in commerce on all of the goods recited in the registration—including audio tape recorders and players that were no longer being manufactured or sold by Bose. Instead, these goods were being repaired by Bose under warranty. Bose filed an opposition against an application for the HEXAWAVE trademark, and the applicant counterclaimed for cancellation of the BOSE registration due to fraud committed in the renewal application. The TTAB found that Bose had committed fraud in the renewal application by virtue of the false statement that the mark was in use in commerce with all of the goods and cancelled the WAVE registration.
Rescuecom Corp. v. Google, Inc., 2009 WL 875447
(2d Cir. Apr. 3, 2009)
Various courts have grappled with the issue of whether a search engine’s promotion/sale, or a competitor’ purchase, of a plaintiff’s trademark as a keyword ad trigger qualifies as a “use in commerce” under the Lanham Act. The vast majority of courts facing this issue have found such conduct constitutes “use in commerce.” Many had considered the Second Circuit to be the lone hold-out on the “use in commerce” debate based upon its 2005 decision in the 1-800 Contracts v. WhenU.com, Inc. 414 F.3d 400 (2d Cir. 2005) pop-up advertising case. In its recent decision in Rescuecom, however, the Second Circuit reversed the Rule 12(b)(6) dismissal on the “use in commerce” issue and found Rescuecom’s allegations of keyword infringement sufficient to move forward.
Supreme Court Grants Cert In Bilski Case
On June 1, 2009, the U.S. Supreme Court granted certiorari in an important patent case involving the patentability of business methods. The case, In re Bilski, originated in the U.S. Patent and Trademark Office (PTO) and was the subject of an en banc 2008 decision rendered by the U.S. Court of Appeals for the Federal Circuit. Bilski sought to patent a series of transactions between a commodity provider and market participants in a way that balanced risk. The PTO rejected the patent application on the basis that it was not a “process” as that term is understood in patent law.
House of Representatives Passes a Bill Establishing a Pilot Program for Patent Litigation
The U.S. House of Representatives recently passed a bill that would establish a pilot program designed to enhance the expertise of federal judges in patent cases and improve the efficiency of patent litigation in the federal courts by steering cases to more experienced judges. Under H.R. 628, passed on March 17, 2009 by a vote of 409 to 7, six district courts would be selected from those courts with the largest number of patent cases or that have adopted patent local rules.
Appellate Court Affirms Sanction for Violating Protective Order
John Hutchins, co-chair of the Intellectual Property Litigation Committee, discusses the impact of the Walls v. PHL Associates, Inc. decision on protective order issues in intellectual property cases, in the Litigation News article.
Patent Reform Update
April 30, 2009 – The House Committee on the Judiciary held a hearing on H.R. 1260. The video webcast of the hearing can be accessed here.
April 2, 2009 – The Patent Reform Act of 2009 (S.515) was placed on the Senate Legislative Calendar. A redline of S.515 showing the April 2, 2009 amendments that were approved by the Senate Judiciary Committee can be accessed here [PDF].
March 6, 2009 – And their off... The Patent Reform Act of 2009 was introduced by the Senate and House Judiciary Committees early last week. We will see if the third time is truly the charm. Once again, damages, a first-to-file framework, and expanded reexamination provisions will figure prominently in the upcoming debate. Notably, in its current form, the legislation does not address inequitable conduct. Don't be left behind; S.515 and H.R.1260 are available for viewing at http://thomas.loc.gov.
February 26, 2009 – Senate Judiciary Committee Chairman Patrick Leahy recently relayed his intention to introduce a patent reform bill this year. As the patent reform debate heats back up, interested parties are starting to weigh in. Stay tuned for further developments.
Deep Linking: Everyone Does It, but Is It Legal?
By now, users of the World Wide Web are very familiar with the common practice of “deep linking,” which involves providing a link on one website to a specific page or content on another website by bypassing the other website’s home page or main page. Despite the ubiquity of this practice, however, there is still some controversy over its universal legality, as illustrated by two recently filed cases: GateHouse Media v. New York Times Company, and Jones Day v. BlockShopper LLC.
Federal Circuit Grants Mandamus Relief in In re TS Tech USA Corp. et al. for Refusal to Transfer Case from the Eastern District of Texas
On December 27, 2008, the U.S. Court of Appeals for the Federal Circuit issued its decision in In re TS Tech USA Corporation, TS Tech North America, Inc., and TS Tech Canada, Inc [PDF]. In this decision, the Federal Circuit held that the district court “clearly abused its discretion in denying transfer of venue [from the Eastern District of Texas] to the Southern District of Ohio.”
Major Victory for Open Source Software Industry
The remedies available to software licensors are often a make or break issue in litigation over rights to software. A federal court ruling on August 13, 2008 has expanded the scope of copyright infringement remedies for open source software licensors.
Court Limits Patents on Business Methods
On October 30, 2008, the U.S. Court of Appeals for the Federal Circuit issued a rare full-court opinion that may limit the ability of companies to obtain patents on methods of doing business. The appeal was from the U.S. Patent and Trademark Office (PTO), which had rejected Bernard Bilski’s patent application for a method of managing consumption risk. Bilski sought to patent a series of transactions between a commodity provider and market participants in a way that balanced risk. The PTO rejected the patent application on the basis that it was not a “process” as that term is understood in patent law. According to the PTO, in order to be patentable, a process must either be tied to a particular machine or it must transform something tangible. Because Bilski’s invention did neither, it did not meet the definition of a “process.”
Federal Circuit Determines That the "Point of Novelty" Test Should No Longer Be Used in Design Patent Infringement Cases
The Court of Appeals for the Federal Circuit, en banc, held in Egyptian Goddess v. Swisa, that the point of novelty test should no longer be used in the analysis for determining design patent infringement. In support of its decision, the Federal Circuit noted that the point of novelty test as a separate requirement is inconsistent with the ordinary observer test laid down in Gorham, is not mandated precedent, and is not needed to protect against unduly broad assertions of design patent rights.
The Federal Circuit indicated that it is permissible under the Gorham test to compare the patented design and the accused design in the context of similar designs found in the prior art. Specifically, it noted that in some cases, when the claimed design and the accused design are not plainly dissimilar, resolution of the question whether the ordinary observer would consider the two designs to be substantially the same will benefit from a comparison of the claimed and accused designs with the prior art.
If an accused infringer elects to rely on comparison with prior art as part of its defense against the claim of infringement, the burden of production of that prior art is on the accused infringer. Regardless of whether the accused infringer elects to present prior art it considers pertinent to this comparison, the ultimate burden of proof to demonstrate infringement by a preponderance remains with the patentee. The Federal Circuit indicated it will leave it to future cases to further develop the application of this standard.
Quanta Computer, Inc. v. LG Elec., Inc.
On June 9, 2008, the U.S. Supreme Court issued its decision in Quanta Computer, Inc. v. LG Electronics, Inc. In reversing the Federal Circuit, the Supreme Court held that patent exhaustion (1) can apply to method patents and (2) can apply to the sale of components of a patented system that must be combined with additional components in order to practice the patented methods.
Patent Reform Legislation Update
Patent Reform Attempt Seems To Be Running Out of Time
Dispute Over Key Damages Provision May Doom Patent Reform -- The Patent Reform Act (S.1145) was recently pulled from the floor schedule by Senate Majority Leader Harry Reid (D-AZ). While not a mortal blow to patent reform, this move, which was a clear reaction to ranking committee members' inability to bridge the gap on the issue of damages, will embolden opponents of patent reform legislation as the debate among interested parties continues.
On February 15, 2008, the Congressional Budget Office ("CBO") released its Cost Estimate for S. 1145, Patent Reform Act of 2007. The following excerpts are taken from the Summary section of the report:
- CBO estimates that enacting the bill would increase direct spending by $26.9 billion and revenues by $25.5 billion over the 2009-2018 period.…In total, those changes would increase budget deficits (or decrease surpluses) by $1.4 billion over the 2009-2018 period.
- CBO estimates that changes in direct spending and revenues from enacting the bill would not cause an increase in the deficit of more than $5 billion in any of the 10-year periods between 2018 and 2057.
- CBO estimates that implementing the bill would increase net discretionary spending by $0.5 billion over the 2009-2018 period, assuming appropriation of the necessary amounts.
The Patent Office Professional Association (POPA), which includes patent examiners, voiced its opposition to S.1145 by joining 13 other unions in a February 6, 2008 letter to legislators.
All indications are that the patent reform bill, S. 1145, will not be taken up until after Congress's Easter recess, which ends on March 30.
The Biotechnology Industry Organization recently released a study conducted by noted economist Robert J. Shapiro and health care policy expert Aparna Mathur entitled "The Economic Implications of Patent Reform: The Deficiencies and Costs of Proposals Regarding the Apportionment of Damages, Post-Grant Opposition and Inequitable Conduct." The study concludes that the three proposals would make patents "harder to secure, easier to invalidate, and cheaper to infringe" and that "[t]he net effects will reduce the value of patents and the intellectual property they represent, dampening R&D and the consequent pace of innovation in the United States." See Study, p. 2.
On January 24, 2008, Senate bill S. 1145: Patent Reform Act of 2007 was placed on the Senate Legislative Calendar. (Calendar No. 563). The bill, which is sponsored by Sen. Patrick Leahy (D-VT) and co-sponsored by 9 other Senators (7 Republicans; 2 Democrats) promises significant changes to the patent system and patent litigation. Though there is no date certain for a vote on the bill, ranking Judiciary Committee members have indicated a desire to take up the bill as soon as possible in 2008. (See Cong. Rec. 12/18/07, pp. S15898-S15899).
Among the proposed changes in the bill are a number of provisions sure to have a significant impact on patent litigation. Notably, the bill contains, inter alia, the following revisions: (1) a shift to a first-to-file policy for determining the effective filing date of an invention; (2) a requirement that courts consider a patent’s specific contribution over the prior art in determining damages – an entire market value rule; (3) an expansion of the prior user defense; (4) an increased role for third parties in patent examination and post-grant review procedures; and (5) a change to the venue requirements, which would allow civil patent cases to be brought only in the district where either party resides or where a corporate defendant was incorporated or has its principal place of business.
While most pundits believe a revised version of S. 1145 will be passed as early as February, particularly given the majority party’s control over the order in which bills are considered and its leaders’ public statements, others caution that the Senate may not have the votes or stomach to pass such sweeping legislation. It is worth noting that the House passed H.R. 1908, which is identical to the Senate bill, in September 2007 with 73 percent of Democrats supporting and 67 percent of Republicans opposing. See GovTrack.us. H. Res. 636--110th Congress (2007): Providing for consideration of the bill (H.R. 1908) to amend title 35, United States Code, to provide for patent reform, GovTrack.us (database of federal legislation) (accessed Jan 31, 2008).
Considerable forces have been mobilized on each side of this debate - the tech industry supporting the reforms and the pharma and bio-tech industries opposing major portions of the bill. On February 4, 2008, the Administration relayed its opposition to certain aspects of the current version of the bill to the Judiciary Committee. Similarly, comments contained within the Judiciary Committee’s Report on the bill indicate an unwillingness to pass the legislation in its current form.
The Committee will post updates as additional developments as they occur.
In re: Seagate Technologies, LLC
JUNE 7, 2007 – The Federal Circuit heard oral arguments in In re: Seagate Technologies on whether the assertion of an advice of counsel defense to a willful infringement claim should cause a waiver of the attorney-client privilege for communications with trial counsel. Recognizing the impact of the statutory duty of care standard announced in Underwater Devices on the issue of the waiver of the attorney-client privilege, the Court also invited argument on whether the decision in Underwater Devices and the duty of care standard itself should be reconsidered. The result was a lively debate of one of the most nettlesome issues facing patent litigators today.
Federal Circuit decision may have significant impact on the attorney-client privilege and work-product immunity in patent litigation cases
Over the past several years, courts have been split over what exactly is waived when companies attempt to rely upon an opinion of counsel in defense of a charge of willful infringement in patent cases. On January 26, 2007, the Federal Circuit announced that it will give an en banc review of a writ of mandamus filed by Seagate Technology, Inc pertaining to this important issue. The court invited briefing on the following issues:
- Should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel? See In re EchoStar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).
- What is the effect of any such waiver on work-product immunity?
- Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983), on the issue of waiver of attorney-client privilege, should this court reconsider the decision in Underwater Devices and the duty of care standard itself?