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The Supreme Court Rules the PTAB and District Courts Can Continue to Apply Different Standards for Interpreting Patent Claims

Posted in Copyright Law, Patent Law, Trademark Law

Patent litigators and prosecutors have been waiting to hear whether the U.S. Supreme Court would require the United States Patent and Trademark Office (“USPTO”) to apply the same claim construction standard as the district courts.  The answer is “No.”JDC-Portrait-20141222-07e

For over 100 years, the USPTO has used the “broadest reasonable construction” standard to interpret patent claims.  But the district courts apply a different standard, which gives claims their ordinary meaning as understood by a person of skill in the art.  Questions have arisen to whether it makes sense for these standards to be different.  In its ruling on June 20, 2016, the U.S. Supreme Court addressed this question as it relates to an inter partes review (“IPR”), which is a procedure created by the America Invents Act, 35 U.S.C. §100 et seq.   The IPR procedure allows someone other than the patent owner to petition the USPTO to review claims of an issued patent and cancel claims that are found to be unpatentable in light of prior art.  The Patent Trial and Appeal Board (“PTAB”) handles IPR petitions and reviews at the USPTO.

In 2012, Garmin International, Inc., and Garmin USA, Inc., filed an IPR petition seeking to invalidate the claims of Cuozzo Speed Technologies, LLC’s patent relating to speedometers that alert drivers when they exceed the speed limit.  Among other requests, Garmin asked the USPTO to review claim 17 in light of three prior art patents.  Claim 17 depended from claims 10 and 14.  While Garmin had not expressly challenged claims 10 and 14, the USPTO granted the petition as to all three claims explaining that claims 10 and 14 were implicitly challenged.  The PTAB concluded that these claims were obvious in light of the prior art, denied Cuozzo’s motion to amend the claims as futile, and cancelled the claims.  Cuozzo appealed to the Court of Appeals for the Federal Circuit arguing 1) the PTAB improperly applied the “broadest reasonable construction” standard instead of the district courts’ standard, and 2) the USPTO improperly instituted review of claims 10 and 14 because Garmin had not challenged those claims “with articularity.”  The Federal Circuit rejected both arguments.  The Supreme Court granted certiorari and affirmed.  The Court found that the USPTO has the authority to issue a reasonable rule specifying the standard for claim construction and that the broadest reasonable construction standard is a reasonable rule.  Further, the Court found that 35 U.S.C. §314(d) precludes appeal of the USPTO’s decision to institute review of claims 10 and 14.

In considering the claim construction standard, the Court considered Cuozzo’s argument that the USPTO did not have the authority to issue a regulation instructing that in inter partes review, the PTAB “shall [construe a patent claim according to] its broad­est reasonable construction in light of the specification of the patent in which it appears” 37 CFR §42.100(b)(2015).  Cuozzo argued that the PTAB should be required to apply the same claim construction standard used by the district courts.  The Supreme Court, however, disagreed citing §316(a)(4) of the statute, which grants the USPTO authority to issue “regulations … establish­ing and governing inter partes review.”  The Court explained that the statute contains a gap because it does not unambiguously tell the USPTO what claim construction standard to use.  Where a statute is ambiguous or leaves a gap, the Court pointed out that it typ­ically interprets the statute “as giv­ing the agency leeway to enact rules that are reasonable in light of the text, nature, and purpose of the statute.”

The Court was not persuaded by Cuozzo’s argument that Congress must have designed IPR proceedings as a “surrogate for court proceedings,” and thus must have intended the USPTO to use the same standard as the district courts.  The Court reasoned that in other ways IPR proceedings are more like a specialized agency proceeding than a judicial proceeding.  For example, parties initiating the proceedings do not have to have a stake in the outcome, petitioners may lack constitutional standing and need not remain in the proceeding, and the Patent Office may intervene in a later judicial proceeding to defend its decision.  In addition, the burden of proof to cancel claims in an IPR is preponderance of the evidence, whereas in district court, a challenger must prove invalidity by clear and convincing evidence, which is a higher standard.  Further, “neither the statutory language, its purpose, or its history suggest that Congress considered what standard the [USPTO] should apply … in inter partes review.”  Therefore, the Court found that the USPTO has the authority to enact reasonable rules specifying the claim construction standard to fill this gap in the statute.

The Court then turned to the question of whether the rule is a reasonable exercise of that authority.  The Court noted that “the broadest reasonable construction helps to protect the public.”  It encourages patent applicants to draft claims narrowly, which promotes “precision while avoiding overly broad claims” and “helps prevent a patent from tying up too much knowledge” while helping the public “draw useful information from the disclosed invention and better understand the lawful limits of the claim.”  The Court also noted that past practice at the USPTO supports use of the broadest reasonable construction.

Cuozzo argued that there is a critical difference between the initial examination of a patent and the examination during an IPR that supports use of the district courts’ standard.  In an initial examination, the examiner applies the broadest reasonable construction, and if claims are rejected, the applicant can amend them as a matter of right.  In contrast, there is no absolute right to amend claims during an IPR.  Instead, amendment requires a motion, which has rarely been granted.  But the Court did not find this argument persuasive.  Instead, the Court found that use of the broadest reasonable construction was not unfair in any obvious way because there is an opportunity to amend during an IPR, albeit rarely granted, and the “original application process may have presented several additional opportunities to amend” the patent claims.

Cuozzo also argued that the use of one standard in IPR proceedings before the PTAB and a different standard in district courts “may produce inconsistent results and cause added confusion.” A district court could find a patent claim valid, and then the USPTO could later cancel the claim in its review.  The Court noted that that possibility “has long been present in our patent system, which provides different tracks … for the review and adjudication of patent claims.”  Given that inter partes review imposes a different burden of proof than that of the district courts, “the possibility of inconsistent results is inherent to Congress’ regulatory design.”  Further, the USPTO uses the broadest reasonable construction in other proceedings, which may be consolidated with inter partes review.  Thus, the Court could not find it unreasonable that the patent office prefers “a degree of inconsistency between the courts and the [USPTO] rather than among [USPTO] proceedings.”

Therefore, according to the Supreme Court, the PTAB and district courts can continue to apply different standards for interpreting patent claims.  Thus, when seeking to invalidate claims, patent challengers will likely continue to favor IPRs because of the broadest reasonable construction standard and the lower burden of proof.

Google’s Fair Use Defense Thwarts Oracle’s Attempt to Recover $9 Billion in Copyright Case

Posted in Copyright Law, Patent Law

In a high-profile case, a jury recently found that Google’s use of portions of Oracle’s Java software code was allowable under the fair use doctrine and thus did not constitute copyright infringement.  Oracle sought as much as $9 billion in damages from Google for incorporating approximately 11,000 lines of Oracle’s Java software code into Google’s Android software.  Not only were billions of dollars in monetary damages at stake in this dispute, but also a controversial legal concept that could have repercussions for the entire software industry.01-Caliguri-Er-15EX-web

The issue is whether Oracle can claim a copyright on Java APIs and, if so, whether Google infringes these copyrights by implementing them into their Android software.  APIs, or Application Programming Interfaces, are a set of routines, functions, specifications, etc., that allow software programs to communicate or interact with each other.  APIs are one of the most common ways technology companies integrate software and applications with each other and allow for third-party developers to write programs (i.e. Apps) to run on their products.  Google, and those on its side, said an Oracle victory would stifle software innovation by discouraging third-party programmers and developers from using APIs.  Oracle, and those on its side, said a Google victory hurts innovation by weakening intellectual-property protections for software and discouraging companies from creating new software platforms.

The dispute itself traces back to 2010 when Oracle sued Google in United States District Court for the Northern District of California, case number 3:10-cv-03561, for both patent infringement and copyright infringement.  Oracle alleged that Google’s Android software illegally used key pieces from Java that related to 37 APIs created to help programmers more easily write in Java.  Java was originally developed by Sun Microsystems beginning in 1991.  Oracle purchased Sun in January 2010, and continued the Java platform.  Google first released a beta version of its Android mobile phone operating system in 2007, and noted from the beginning that it would incorporate some Java pieces.  Google wrote its own version of Java for Android, but in order to allow third-party developers to write programs for Android, Google also used the same names, organization, and functionality as the Java APIs.

In May 2012, a jury found that Google did not infringe any asserted claim of Oracle’s two patents-in-suit, but the jury did find that Google had copied the “structure, sequence and organization” of parts of the 37 Java APIs.  “Structure, sequence and organization” is a legal term used to define a basis for comparing one software work to another in order to determine if copyright infringement has occurred when one software code is not a literal copy of the other.  However, District Court Judge William Alsup overturned the jury finding on copyright infringement and ruled that the structure of the Java APIs used by Google was not copyrightable.  Judge Alsup reasoned that “so long as the specific code used to implement a method is different, anyone is free under the Copyright Act to write his or her own code to carry out exactly the same function or specification of any methods used in the Java API.”

Oracle appealed Judge Alsup’s copyright ruling to the Court of Appeals for the Federal Circuit, which had appellate jurisdiction instead of the Ninth Circuit Court of Appeals because the District Court case also contained patent claims.  The Federal Circuit reversed the District Court on the copyright issue, holding that the “structure, sequence and organization” of an API could be copyrightable. The Federal Circuit acknowledged that Oracle’s APIs were somewhat functional, but that does not “automatically” put them beyond the scope of copyright law.  Google petitioned for review from the United States Supreme Court, but the Supreme Court denied Google’s request in June 2015, and the case was remanded back to the district court for the current proceedings on the fair use defense and damages.

Trial in the current case began on May 9, again in front of Judge Alsup in the Northern District of California, on whether Google’s use of the APIs was protected by the fair use doctrine and therefore exempt from copyright infringement.  The fair use doctrine is a defense or exemption to copyright infringement that allows the incorporation of copyrighted material in another’s work if a four-factor balancing test is met.  In determining whether the use made of a work in any particular case is a fair use, the factors to be consider are: (1) the purpose and character of the use, including whether the use is commercial or for nonprofit/educational purposes and whether it is transformative; (2) the nature of the copyrighted work; (3) the amount used in relation to the copyrighted work as a whole; and (4) the effect of the use on the potential market for or value of the copyrighted work.  Per the jury instructions, Google had the burden of proof to show fair use.

During the trial, Google argued that its use of the Java APIs was transformative under the first factor because it used the Java APIs as part of a new platform for mobile devices.  Google argued under the second factor, the nature of the work, that APIs rank low on the creativity scale because they are more functional in nature.  Under the third prong, Google argued that it used only a small amount of the overall code that was necessary to effectively use the open-source Java language, and that the 11,000 lines of Java code it used was less than 0.1% of Android’s 15 million lines of code.  Finally, under the fourth prong, Google argued there was little market harm to Oracle because no one was using the APIs for mobile devices at the time.

Oracle argued under the first prong that the Java APIs were already being licensed and adapted by Sun at the time for mobile devices, and that the use by Google was commercial anyway. As to the second and third factor, Oracle argued the APIs represent a lot of skill and creativity, and that Google did not have a right to use exact lines of Java code or the overall structure, sequence, and organization of the 37 APIs.  In addition, Oracle argued, 11,000 lines of code is still a significant amount of code.  For the fourth factor, Oracle argued that the success of Android shows harm to the market because Oracle would have been able to license its Java code in the mobile space if Google had not copied its APIs without permission.

On May 26, after three days of deliberations, the jury came back with a unanimous verdict in favor of Google, finding Google’s use of the Java APIs in Android to constitute fair use.  Regardless, the case is still far from over as Oracle has already said it will appeal to the Federal Circuit.  Oracle’s appeal will likely focus on the District Court’s jury instructions and how closely those instructions capture the Federal Circuit and Ninth Circuit’s application and analysis of fair use.  Moreover, no matter which way the Federal Circuit goes, we can expect the losing party to ask the Supreme Court to review the issue.  So, while the current result is a big win for Google and other supporters of open-source software, the road to final resolution of this issue is still a long one.

Pennsylvania’s New Medical Marijuana Law And The Workplace

Posted in Discrimination, Labor & Employment

Employers in Pennsylvania may or may not be enjoying high times as that state’s Medical Marijuana Act (“MMA”) went into effect on May 17, 2016.  This new law allows patients to use marijuana to treat autism, cancer, HIV/AIDS, and post-traumatic stress disorder, among other ailments.  Governor Tom Wolf signed the MMA into law on April 17, 2016, just three days before one of the most important dates on the calendar for marijuana enthusiasts.

The MMA does not allow all Pennsylvania citizens who feel under the weather to ingest marijuana however they like.  On the contrary, the MMA allows medical marijuana to be dispensed only to individuals who both have been issued an identification card from the Pennsylvania Department of Health and obtained a certification from a medical provider.  Nonetheless, Pennsylvania employers (like those in other states that have enacted similar laws) now will face some hazy dilemmas in terms of their drug-free workplace policies.Brenden Begley 05_final

That is because the MMA contains some potent anti-discrimination provisions but also creates some cloudy ambiguities.  For instance, the new law makes it illegal for an employer to refuse to hire, threaten, or discharge a prospective or current employee “solely on the basis of such employee’s status as an individual who is certified to use medical marijuana.”  On the other hand, the MMA does not specify whether employers may rely upon a positive drug test to impose an adverse employment action.

Meanwhile, the MMA does not require employers to refrain from imposing discipline “when the employee’s conduct falls below the standard of care normally accepted for that position.” The MMA also allows employers to discipline an employee who is “under the influence” of medical marijuana at work, yet it does not clarify whether a positive drug test could be used as evidence of impairment on the job.

This new law gives some latitude to employers with safety-sensitive work environments.  In particular, employers may prohibit employees from performing a number of tasks while under the influence of marijuana.  Such tasks include operating or controlling certain chemicals or high-voltage electricity, performing duties in dangerous places, or performing tasks that may put the life of the employee or the lives of others in jeopardy.  The law also states that employees in certain safety-sensitive positions may not have more than ten nanograms of active tetrahydrocannabis per milliliter of blood in serum.

Still, this list of exceptions could be interpreted as barring employers from restricting employees covered by the MMA in other common-sense ways.  Another budding problem stems from the lack of clarity as to how employers can ascertain whether an employee is impaired by the influence of marijuana while on the job.  Some observations may be helpful, but few appear to offer anything conclusive.  For instance, an employee who reeks of marijuana smoke might be subject to discipline.  That is because smoking marijuana in Pennsylvania will remain illegal; the MMA allows marijuana to be ingested only through alternative delivery systems such as pills or ointments.

Other observations might be helpful, such as the tell-tale red or glassy eyes or some level of confusion or distraction on the part of the employee.  But such circumstances may not conclusively identify the presence or cause of impairment.  And while blood-alcohol tests may be helpful in confirming how inebriated a worker is at the time of the test, drug tests for marijuana are not so precise in measuring the individual’s level of impairment at the time of the test.

For example, urine testing may reveal that the employee used marijuana at some point in the weeks prior to the test, but such tests typically cannot pinpoint whether such use occurred on a specific day.  Similarly, saliva testing may be able to detect more recent use – albeit without providing a absolute confirmation as to whether the employee was under the “influence of marijuana” on the job.

Beyond the ambiguities created by the MMA, its very enforceability may be subject to challenge – since it appears to be in direct conflict with federal laws that illegalize the use of marijuana.  Until the tension between federal law and Pennsylvania law is resolved by the courts, employers in the Keystone State should take some steps to keep their worksites from going up in smoke.

The first step would be to review and, if necessary, revise applicable handbooks and employment policies to make sure that they are compliant with both federal and Pennsylvania law.  At the same time, employers should consider reviewing their job descriptions for safety-sensitive positions.  Likewise, it would be advisable for employers to determine how positive marijuana tests will be handled.  In that regard, when an employee tests positive for marijuana, it might be wise to have appropriate managers designated and trained to communicate with the employee to ascertain whether he or she has the necessary documentation to be covered by the MMA.  Of course, it also would be prudent to consult with legal counsel to ensure that workplace policies and contemplated disciplinary actions do not run afoul of this new law.

Ninth Circuit Rejects Current Status of Music Sampling Copyright Infringement And Sets Circuit Split For The Supreme Court

Posted in Copyright Law

On June 2, 2016 the Ninth Circuit issued an opinion in a music sampling Copyright infringement case that sets up a split between the Ninth Scott-Hervey-10-webCircuit and the Sixth Circuit which will likely send the issue to the Supreme Court.   At issue in the Ninth Circuit case was a claim of infringement based on Madonna’s use of horn samples from the song “Love Break” in her hit song “Vogue”.  The first horn sample is a “single” horn hit comprised of a quarter-note chord with lasts for 0.23 seconds, and the second horn sample is a “double” horn hit consisting of an eighth-note chord of roughly the same length as the first.  In the various commercial versions of “Vogue”, the single horn hit is used once and the second is used a varying number of times but not more than 5.  The plaintiff claimed that the unapproved use of these samples infringes the plaintiff’s rights in both the master recording and composition of “Love Break.”

Under Ninth Circuit precedent, the de minimis exception – where a use is of such a small amount that the average audience would not recognize the appropriation – applies to claims of infringement of a copyrighted composition, but it is an open question whether the exception applies to claims of infringement of a copyrighted sound recording.

Under the 2005 Sixth Circuit ruling in Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792 (6th Cir. 2005), for copyrighted sound recordings, any unauthorized copying – no matter how trivial – constitutes infringement.  In Bridgeport, the rap group N.W.A. sampled a two-second guitar chord from a Funkadelic tune and used it five times in their the song “100 Miles and Runnin’”. In its opinion, the Sixth Circuit wrote: “Get a license or do not sample.”   The decision effectively eliminated the de minimis doctrine for sampling recorded music in the Sixth Circuit.

Bridgeport was an incredibly controversial ruling that had a huge impact on the music industry and what was standard industry practice. And while Bridgeport provided very clear guidelines on music sampling usage (get a license for everything), artists and music producers vehemently claimed that the ruling hindered creativity.

Addressing the application of the de minimis defense to copyright infringement of sound recordings, the Ninth Circuit rejected the holding of Bridgeport and held that the de minimis defense “applies throughout the law of copyright, including cases of music sampling.” The court continued:

Because we conclude that Congress intended to maintain the “de minimis” exception for copyrights to sound recordings, we take the unusual step of creating a circuit split by disagreeing with the Sixth Circuit’s contrary holding in Bridgeport… We acknowledge that our decision has consequences.  But the goal of avoiding a circuit split cannot override our independent duty to determine congressional intent.  Otherwise, we would have no choice but to blindly follow the rule announced by whichever circuit court decided an issue first, even if we were convinced, as we are here, that our sister circuit erred.

While this split between the Ninth Circuit and Sixth Circuit will likely be resolved at the Supreme Court, during the interim we will likely see artists and producers emboldened by the Ninth Circuit decision and sound recording owners race to a district court within the Sixth Circuit whenever they believe a sample may infringe their rights.

New Federal Trade Secret Law Takes Effect!

Posted in IP Law Blog Lawyers In The News, Legal Info, Trade Secrets

So what is a trade secret?  Generally, a trade secret is information that the owner has taken reasonable measures to keep secret, derives independent economic value from not being generally known, and cannot be readily ascertainable by proper means, such as reverse engineering or independent development.  Many businesses rely on trade secret protection rather than patent protection for confidential information such as product recipes (e.g., the recipe for Coca-Cola), software algorithms (e.g., Google’s search engine), customer lists, business plans, wholesale price lists, and manufacturing processes for semiconductor chips.  Trade secrets have the advantage that they are protected indefinitely as long as they remain a secret, unlike patents and copyrights that expire after a specific time period.  Of course, a disadvantage of trade secrets is that they can be lost instantly and forever if they are disclosed or independently developed by another.  But, unlike other forms of intellectual property, such as patents and copyrights, until now federal law applied only to criminal prosecution for trade secret misappropriation.  As a civil matter, trade secrets were only protected under state law.  That all changed on May 11, 2016, when President Obama signed the Defend Trade Secrets Act (“DTSA”), which amends the Economic Espionage Act to create a federal civil cause of action for trade secret misappropriation.  The DTSA, codified as 18 U.S.C. §1836(b), went into effect when it was signed and applies to any misappropriation that occurs on or after that date.

Trade secret misappropriation can occur in a variety of circumstances.  One of the most common is when an employee leaves one company to a join competitor or a start-up and impermissibly takes protected business or technical information belonging to their former employer to the new company.  As another example, hackers capitalizing on computer security weaknesses pose a threat for the misappropriation of a company’s trade secrets.  To protect against such misappropriation, 48 states (all except New York and Massachusetts, which still rely on common law) have adopted some version of the Uniform Trade Secrets Act (“UTSA”), providing some uniformity in trade secret law.  But there are still a number of significant differences between the states’ laws as adopted, and it can be difficult, if not impossible, to enforce state laws when misappropriators flee the state or country with the trade secrets.  For example, it can be difficult or impossible to effect service of process and obtain discovery to prove misappropriation outside of a state’s jurisdiction.  One goal of the DTSA, which in many aspects mirrors the UTSA, is to provide a harmonized federal trade secret law, which will allow businesses that operate across multiple states to have uniform policies for protection and enforcement of trade secrets.

It, however, is important to note that the DTSA does not preempt state laws, but instead it provides an additional layer of potential protection on top of the state laws.
This complication has led some to argue that the DTSA will increase legal costs and increase the number of trade secret lawsuits.  For example, we can expect plaintiffs to bring both state and federal claims because differences between the state and federal laws may make it possible for a plaintiff to win under one law but not the other.  More claims implicating differing state and federal laws will likely lead to higher costs for litigation.  Further, more plaintiffs may be willing to pursue trade secret claims because it will be easier to file the claims in federal court, and some plaintiffs prefer federal court for complex lawsuits such as trade secret cases.  The volume of trade secret lawsuits may also increase because plaintiffs will effectively be given two bites at the apple (state claims and federal claims in the same lawsuit), which likely gives them a higher probability of success.

Unlike the UTSA, the DTSA includes a seizure provision that allows a court to issue an order to seize the allegedly stolen trade secret items (e.g., hard drives and flash drives containing trade secrets, software, hardware, and lists) in the defendant’s possession.  The plaintiff can request and receive an order for this seizure ex parte, which means without having to inform the defendant.  The goal is to allow recovery of the misappropriated items before the defendant can move, hide or destroy them.  Early recovery also can minimize the harm caused by the misappropriation.  The DTSA has numerous safeguards designed to avoid abuses of this seizure provision.  It also provides a cause of action for wrongful or excessive seizure.

Once misappropriation is proven, the DTSA provides for damages.  The Court can grant an injunction.  But if exceptional circumstances render an injunction inequitable, a court can order a reasonable royalty for the continued use of the trade secret.  The DTSA also provides for compensatory damages for either 1) actual loss of the trade secret and any unjust enrichment not compensated as part of the actual loss or 2) a reasonable royalty.  Exemplary damages up to two times the actual damages can be awarded for willful and malicious misappropriation.  For cases involving bad faith or willful misappropriation, a party can also recover attorneys’ fees.  It is important to note that under the DTSA, injunctive relief cannot be used to prevent a person from entering into an employment relationship merely based on the information the person knows.  Rather, an injunction must be based on evidence of actual or threatened misappropriation.  Further, an injunction preventing or limiting employment cannot conflict with an applicable state law prohibiting restraints on the practice of a lawful profession, trade, or business.  This limitation appears to recognize that certain states place limits on the applicability of non-compete agreements.  It is interesting to note that the White House also recently released a report criticizing certain types of non-compete agreements and state laws that broadly enforce them.

The DTSA also provides whistleblower immunity from liability for confidential disclosure of a trade secret to the government for the purpose of reporting or investigating a suspected violation of law or in a sealed court filing in a lawsuit.  The DTSA places the burden on employers to notify employees, including any individuals such as contractors and consultants, of these whistleblower immunity provisions.  Failure to do so comes with a penalty.  If an employer sues an employee for trade secret misappropriation, unless the employer has provided the employee with notice of the whistleblower immunity, the employer is prohibited from recovering attorneys’ fees and exemplary damages.  The notice must be in writing in any agreement governing the employee’s use of trade secrets or confidential information.

The DTSA will have an immediate impact on all businesses.  Every new or modified employment agreement and contract with a non-disclosure or confidentiality clause will need to be revised.  Further, trade secret protection only exists to the extent that reasonable efforts have been made to keep the information secret.  Don’t risk losing valuable intellectual property because you didn’t take the time to enter into a non-disclosure agreement, password protect accounts, encrypt data, train employees, mark documents as confidential, etc.  Take this opportunity to evaluate whether your company’s trade secrets are adequately protected and put into place additional safeguards as necessary.  While trade secrets can be extremely valuable, that value can evaporate instantly if the secret is disclosed.

Tattoo Infringement Case Against NBA 2K Game Publisher Shows Misunderstanding of Applicability of Statutory Damages

Posted in Copyright Law

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This isn’t just another tattoo-copyright infringement case.  This case raises an important lesson for all copyright claimants.

The backstory: Solid Oak is a licensing firm that represents the go to tattoo artists for NBA royalty, including LeBron James.  Solid Oak filed a lawsuit against Take-Two Interactive Software, the game publisher behind the popular “NBA 2K” basketball video game.  The lawsuit alleges that Take-Two  infringes the copyrights in six tattoos appearing on LeBron and other NBA players by depicting those players – tattoos and all – in the video game.   Early commentators on the case questioned the validity of Solid Oak’s case and commented on the applicability of fair use and other defenses.  Interestingly, Take-Two’s motion to dismiss does not focus on the merits of Solid Oak’s case, but rather focuses on Solid Oak’s damages claim; the motion attacks Solid Oak’s claim that it is entitled to statutory damages and attorney fees.

Section 412 of the Copyright Act addresses how and where an award of statutory damages and attorney fees are applicable. The section provides as follows:

In any action under this title…. no award of statutory damages or of attorney’s fees, as provided by sections 504 and 505, shall be made for….any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work.

This means that where a work has been published, a copyright owner must have filed an application to register the work prior to an act of infringement or, if infringement occurs after publication,   within three months of its first publication in order to avail itself of statutory damages and attorney fees.   Where a work is infringed, if registration occurs later than three months after publication , the plaintiff may not collect statutory damages or attorney fees.

In the instant case, in its motion to dismiss Solid Oak’s damages and attorney fee claims, Take-Two claims that the alleged infringement occurred before the June/July 2015 registration dates. Take-Two notes that it depicted the NBA players and their tattoos in its NBA video games since at least 2013.   In opposing the motion, Solid Oak argues that its claims for statutory damages and attorney fees are properly pleaded since it filed its infringement claim within the three-year limitation period.  Solid Oak also contends that the infringement which occurred in Take-Two’s NBA 2K16 is a separate and discrete infringement.  Solid Oak alleges “Because Plaintiff is only suing for the wrong of the Defendants through their creation and release of the NBA 2K16 video game, well within the time afforded under the Copyright Act, and not for any earlier infringing acts, it is thus entirely proper for Plaintiff to seek statutory damages and/or attorneys’ fees based on Defendants’ infringement of properly registered copyrights”.

What Take-Two didn’t raise in its motion is that Solid Oak would still not be entitled to statutory damages or attorney fees because the infringement occurred after publication and registration was not made within 3 months of first publication.   The Copyright registration certificates attached to Solid Oak’s Complaint lists the date of first publication for each work.  These dates are years prior to the June/July 2015 registration dates.  Because registration was not made before infringement or within three months after the dates of first publication of each tattoo (as required by Section 412 of the Copyright Act), Solid Oak is clearly not entitled to either statutory damages or attorney fees.

The lesson to be learned here is that statutory damages and attorney fees are not available just because they are asked for; they must be earned by the timely filing of a registration certificate.  The failure to timely file (before infringement or if infringed, within three months of first publication) prevents a claimant from seeking statutory damages and attorney fees which may (as is likely the case here) strip a case of the majority of its value.

Federal Circuit Applies Broadened Test For Divided Infringement

Posted in Copyright Law

Audrey-Millemann-03_webOn April 18, 2016, the Supreme Court denied certiorari in Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir., August 2015) (“Akamai IV”), cert. denied, 2016 U.S. LEXIS 2768.  The Court declined Limelight’s petition for review of a $46 million jury verdict against Limelight for patent infringement.  The jury had found Limelight liable for direct infringement of Akamai’s method patent, but the Federal Circuit Court of Appeals had reversed that judgment, ruling for Limelight.  In Akamai IV, however, the Federal Circuit had reinstated the jury’s verdict, establishing a new rule for direct infringement by “divided” (or “joint”) infringement.

The new rule of Akamai IV is that a defendant can be liable for direct infringement of a method claim when another party performs some of the steps of the method as long as the steps performed by others are attributable to the defendant.  According to the court, a defendant can be liable for direct infringement if the acts of the other party or parties can be attributed to the defendant through a joint enterprise or “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner for timing of that performance.”  Akamai IV, supra, at 1023.  The court emphasized that its new rule is flexible and should be applied on a case-by-case basis, stating “other factual scenarios may arise” that would support a finding of attribution.  Id.  With its new rule, the Federal Circuit expressly overruled its prior cases and turned Limelight’s victory into a loss.

Limelight’s petition for certiorari argued that the Federal Circuit’s Akamai IV rule was too broad.  Many agreed with Limelight, but obviously the Supreme Court did not.

On April 22, 2016, within days after the Supreme Court denied certiorari in Akamai IV, the Federal Circuit used Akamai IV to vacate a district court’s decision in favor of the defendants in another case involving divided infringement, Mankes v. Vivid Seats Ltd., 2016 U.S. App. LEXIS 7924.  In Mankes, the Federal Circuit remanded the case to the district court based on the “broadened divided-infringement standard articulated by the en banc court in Akamai IV.”  Id. at *16.

In Mankes, the plaintiff owned a method patent for a reservation system in which the inventory was split between a local server and a remote Internet server.  Mankes sued Vivid Seats Ltd. and Fandango, LLC in the Eastern District of North Carolina for patent infringement.  The defendants’ business offered movie ticket reservations and used both an Internet system and local movie theaters’ systems.  Fandango and Vivid Seats did not perform all of the steps of Mankes’ claimed method, but together with the local movie theaters, all of the steps of the method claim were performed.

The Federal Circuit explained that Mankes had gotten caught in the changing law of divided patent infringement, as both the Federal Circuit and Supreme Court issued multiple decisions in Akamai v. Limelight.  In early 2015, the Mankes district court had granted judgment on the pleadings for Fandango and Vivid Seats on the grounds that Mankes had not sufficiently alleged direct infringement under 35 U.S.C. §271(a).

On appeal, the Federal Circuit held that the district court’s judgment on the pleadings against Mankes was based on the prior, narrower rule of divided infringement that had been superseded by the new rule of Akamai IVMankes, supra, at *18.  The appellate court vacated the district court’s decision and remanded the case.  The court noted that Mankes had alleged that some of the method steps (the Internet server) were performed by Fandango and Vivid Seats, while other steps (the local server) were performed by local movie theaters.  The defendants had not disputed that all of the method steps were performed; rather, they contended that the local theaters’ actions could not be attributed to them.  Id. at *16.

The Federal Circuit held that Mankes should have a chance to prove his case under the new rule of divided infringement, stating that Mankes may be able to allege facts that fall within Akamai IV’s new rule “or might otherwise justify finding direct-infringement liability for divided infringement.”  Id. at *20.  The court emphasized that it is not “appropriate to rule out at this stage any particular theory of direct infringement, including the joint-enterprise theory and the possibility of other bases of attribution recognized in Akamai IV.”  Id.  Thus, the court left the door wide open for Mankes to argue that his case falls within a flexible application of the Akamai IV rule.  After all, if Akamai could win after three tries, Mankes might win on his second time around.

Court Orders Plaintiff to Pay Defendants’ $8 Million in Attorney’s Fees in Patent Row

Posted in Patent Law

01-Caliguri-Er-15EX-webSince the U.S. Supreme Court’s twin 2014 decisions in Highmark Inc. v. Allcare Health Management System, Inc. and Octane Fitness, LLC v. ICON Health & Fitness, Inc. attorney’s fees awards are becoming more common in patent cases. 35 U.S.C. § 285 allows attorney fees “in exceptional cases.” Before 2014, this meant a court awarded attorney’s fees only if a party’s litigation position was objectively baseless. This standard proved to be a high bar, and courts rarely awarded fees. However, the aforementioned Supreme Court cases liberalized the standards for finding a patent case to be “exceptional” and instituted an abuse-of-discretion review standard. Specifically, the Supreme Court: (1) defined an exceptional case in which reasonable attorney fees may be awarded to the prevailing party to be “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;” (2) reduced the evidence required from clear and convincing to a preponderance of evidence; and (3) increased the deference given the trial court during appellate review of such awards from de novo to abuse of discretion.
A recent attorney’s fees award in Alzheimer’s Institute of America v. Eli Lilly & Co. et al., case number 3:10-cv-00482, in the U.S. District Court for the Northern District of California included pre-suit attorney’s fees, which illustrates the impact of the recent Supreme Court holdings. In Alzheimer’s Institute of America, the Court awarded almost $8,000,000 in attorneys’ fees, including $235,780 in pre-suit fees, to the defendants after findings that plaintiff Alzheimer’s Institute of America’s (“AI”) patent infringement lawsuit misrepresented the true owner of patents covering Alzheimer’s detection. Specifically, the court awarded defendant Eli Lilly & Co. (“Eli Lilly”) $4,445,492 and defendant Elan Pharmaceuticals Inc. (“Elan”) $3,435,130. This recent ruling concerned only the amount of attorneys’ fees the Court would award the defendants because the Court had already ruled last summer that AI’s patent infringement suit was “exceptional” under 35 U.S.C. § 285 and the recent Supreme Court precedent.
The lawsuit traces back to February 2010 when AI filed its patent infringement complaint against Eli Lilly and Elan. The complaint alleges that Eli Lilly and Elan infringe U.S. Patent Numbers 5,455,169 (the “’ 169 Patent”) and 7,538,258 (the “’258 Patent”), which involve technology related to “the Swedish mutation,” one of the known genetic causes of Alzheimer’s disease. AI filed a second patent infringement lawsuit in November 2010 in the Eastern District of Pennsylvania, alleging the University of Pennsylvania (“Penn”) and Eli Lilly subsidiary Avid Radiopharmaceuticals Inc. (“Avid”) also infringe the ’169 and ’258 Patents. AI contended that Penn and Avid had infringed the two asserted patents by relying on a protected type of transgenic mice to develop breakthrough Alzheimer’s imaging technology.
In the Eastern District of Pennsylvania action, an issue arose as to whether AI was in fact the proper owner by assignment of the two patents in suit. AI asserted it was assigned the rights to the patents by Michael Mullan, the sole listed inventor on both patents, who was employed by the University of South Florida (“USF”) at the time. Thus, there was an issue as to whether the patents were owned by USF because of Mr. Mullan’s employment status. In addition, there was an issue as to whether Mr. Mullan was actually the sole inventor, or whether his collaborator, John Hardy, had also made a substantial contribution to the innovation.
In August 2011, the Court in the Eastern District of Pennsylvania found that under Florida law the patents were owned by USF, but the issue was further complicated because there was a factual dispute as to whether USF had waived its ownership rights. The Court thus ordered a jury trial on the waiver issue. In May 2012, the jury found that USF had not in fact waived its right to the asserted patents and that Mr. Mullan was not the sole inventor of the technology covered by the two patents. The Federal Circuit later affirmed the jury verdict on appeal, and when remanded back to the Eastern District of Pennsylvania, the District Court found the case to be “exceptional” on a motion for attorney’s fees. The Court found the evidence at trial showed that AI’s principal conspired with two other individuals to misrepresent the true owner of the Swedish mutation inventions and to defraud two universities, and that this “conduct was rare and beyond common decency . . . . [and] motivated by ego and greed . . . . [and] [b]ringing this action was nothing more than a perpetuation of the conspiracy.”
In the meantime, the suit against Eli Lilly and Elan in the Northern District of California had been stayed in December 2011 pending the outcome of the jury trial in the Eastern District of Pennsylvania. In August 2012, after the jury finding that AI was not the true owner of the asserted patents, the Court dismissed the suit against Lilly and Elan, applying collateral estoppel that AI lacked standing to pursue its patent claims. Then, in June 2015, after the Federal Circuit appeal and the exceptional finding in the Eastern District of Pennsylvania action, the Court in the Northern District granted the defendants’ motions for attorneys’ fees, finding that, as in the Eastern District of Pennsylvania case, the suit was exceptional and attorneys’ fees were justified.
Therefore, the only issue outstanding was the amount of attorney’s fees to award defendants in the Northern District action. Although the Court considered many issues, including reasonableness of hourly rates, adequacy of documentation, overlapping counsel, standard fees for patent litigation, the effect of multiple litigations, and recovery for paralegal time, one issue of particular note is the Court’s awarding of pre-suit fees to defendants. In reaching its ruling, the Court noted that defendants’ billing entries reflected that it engaged counsel during its pre-suit investigation “to perform an analysis of Plaintiff’s patents and of potential damages.” Specifically, the Court noted, “Elan states that it ‘foresaw litigation’ based on a letter from [AI] indicating that ‘[AI] believes that it is now appropriate for licensing discussion with Elan to re-commence’ and that ‘it appears that a substantial portion of Elan’s drug discovery efforts for Alzheimer’s Disease are entirely reliant on the unauthorized use of [AI’s] patented technology.’” Therefore, the Court reasoned, “as Elan reasonably anticipated that this litigation would occur, its reasonable fees incurred prior to the initiation of this case are recoverable.”
This case illustrates that the courts will take strong action when faced with baseless claims, hidden or altered evidence, and misleading statements made to the court or opponents. It also serves as a strong reminder to consider your counsel carefully, and the advice that they provide, or a plaintiff may have to pay its own fees and those of the defendant, which in this case amounted to another $8 million.

Supreme Court Battle Set Over Prohibition of Disparaging Trademarks

Posted in Patent Law, Trademark Law

Section 2(a) of the Lanham act bars the registration of “scandalous, immoral or disparaging trademarks.” The USPTO has used this applied this provision to refuse the registration of marks such as F**K PROJECT, PORNO JESUS, ASSJACKED and NO $#!+. The USPTO also invoked this provision when it upheld an examiner’s refusal to register the mark THE SLANTS for a musical band on the grounds that it was Scott-Hervey-10-weboffensive to Asian-Americans. The band appealed the refusal to register to the Federal Circuit.

The question on appeal was whether Section 2(a)’s prohibition on scandalous, immoral or disparaging trademarks is constitutional. The government defended the prohibition on the grounds that it disapproves of the messages conveyed by disparaging marks. The Federal Circuit noted that this prohibition does not further the Lanham Act’s purpose and preventing consumers from being deceived. This reason for denial of registration is for “reasons quite separate from any ability of the mark to serve the consumer and investment interest underlying trademark protection.”

The Federal Circuit found that Section 2(a)’s prohibition on registering disparaging marks is a content-based regulation which is presumptively invalid. Content-based laws – those laws that target speech based on its communicative content – are presumptively unconstitutional and maybe justified only if the government proves that the laws are narrowly tailored to serve a compelling state interest. The refusal to register a trademark because it is disparaging results from the government making a moral judgment based solely on the mark’s expressive content. The Federal Circuit found that the government’s desire to prohibit disparaging marks and the messages they convey is not a legitimate and compelling state interest. Based on this analysis, the Federal Circuit found this provision of Section 2(a) to be unconstitutional.

Subsequent to the Federal Circuit’s opinion, the band pushed the USPTO to immediately register its mark. In response, the USPTO said that it would suspend the registrations of all disparaging trademarks while it considered appealing the Federal Circuit’s ruling to the United States Supreme Court. Commentators believe that the US PTO will likely appeal the Federal Circuit’s ruling to the Supreme Court.

The Federal Circuit’s opinion may open the door for the registration of marks that may be potentially disparaging and new applications for marks previously refused registration based on Section 2(a). Further, the Federal Circuit’s opinion may have an impact on the case of Washington Redskins football team which is appealing the 2014 revocation of its REDSKINS trademark on the grounds that it was offensive to Native Americans.

Are Pins, Posts, Tweets and Likes Appropriate for Use in Selecting Jurors?

Posted in Privacy

When you hear the name of someone you can’t place or don’t know much about, what do you do?  Chances are, you “Google” them.  Well that is what attorneys are doing to learn more about prospective jurors too!  But they are not stopping there.  They are looking at a number of social media sites, such as Facebook, Twitter, and LinkedIn to learn about the profiles, likes, dislikes, friends, hobbies, biases, religion, and preferences of individuals in the jury pool.  This practice has raised a number of issues related to ethics, privacy, and responsibility.  To date, courts have taken positions ranging from banning these searches to practically requiring them.

Ironically, the use of social media to screen jurors is a key issue in current litigation where Oracle is suing Google in the Northern District of California for allegedly violating the copyright on its Java API code.  Originally, the parties wanted potential jurors to fill out a two-page questionnaire.  Then the parties would spend a day or two evaluating the questionnaires before actually selecting a jury.  But Judge Alsup was suspicious as to why it would take so long to evaluate two-page forms, so he asked the parties if they were planning to use social media to investigate potential jurors based on the information provided.  Bingo!  That is exactly what they were planning to do.  As a result, the questionnaire was scrapped, but that still left open the question of what Internet searches would be permitted during jury selection and the trial.

Judge Alsup addressed these issues in his order last week noting that the “American Bar Association issued an opinion that, within limits, it is ethical for counsel to conduct Internet searches on prospective jurors.”   But the ABA cautioned that judges may limit the scope of searches if necessary under certain circumstances.  California has not issued a rule on the ethical scope of such Internet searches, and the California State Bar has not issued an opinion.

While Judge Alsup stopped short of banning social media searches during jury selection, he expressed misgivings and implored Oracle and Google to voluntarily refrain from scouring the jurors’ social media activity before and during the trial.  Judge Alsup cited three primary arguments against the searches.  “The first reason is anchored in the danger that upon learning of counsel’s own searches directed at them, our jurors would stray from the Court’s admonition to refrain from conducting Internet searches on the lawyers and the case.”  Second, the parties may use information about the jurors to create analogies or make arguments that are targeted at specific jurors.  Judge Alsup noted that “if a search found that a juror’s favorite book is To Kill A Mockingbird, it wouldn’t be hard for counsel to construct a copyright jury argument (or a line of expert questions) based on an analogy to that work and to play upon the recent death of Harper Lee, all in an effort to ingratiate himself or herself into the heartstrings of the juror.  The same could be done with a favorite quote or with any number of other juror attitudes on free trade, innovation, politics, or history.”  Third, Judge Alsup acknowledged the need to protect the privacy of the potential jurors, who “are not celebrities or public figures.”

If Oracle and Google agree to the voluntary ban, then they will be given more time to question the potential jurors during jury selection.  If they do not agree, then each side will have to explain to the potential jurors the “specific extent to which it (including jury consultants, clients, and other agents) will use Internet searches to investigate and to monitor jurors, including specifically searches on Facebook, LinkedIn, Twitter, and so on, including the extent to which they will log onto their own social media accounts to conduct searches and the extent to which they will perform ongoing searches while the trial is underway.”  The potential jurors “will then be given a few minutes to use their mobile devices to adjust their privacy settings, if they wish.”  Then until the trial is over, each side will be permitted to view online only what it told the potential jurors it would review and nothing more.

But, is looking at someone’s public presence on social media really any different than driving by their house on a public street or asking them questions about likes and dislikes during jury selection?  It could be.  For example, do the potential jurors know that their social media posts and profiles are publicly accessible, or do they think that only their “friends” can see them?  Do they even know how to limit access to their social media accounts so that only their friends can see them?  What if their account allows friends of a friend to see their posts?  Who knows, one of the lawyers could fortuitously be a friend of a friend of a potential juror.  Also, will there be a chilling effect that causes large numbers of jurors to avoid jury service for fear that something in their social media accounts will be revealed in court?

On the other hand, failure to perform social media searches raises the risk of seating a juror who lied during voir dire or of failing to identify online juror misconduct during a trial.  For example, in Sluss v. Commonwealth, 381 S.W.3d 215, 226-227 (Ky. 2012), two jurors lied about their relationships to the victim’s mother.  A later review of their Facebook profiles revealed that both jurors were “friends” with her.  As another example, review of online posts during a trial can reveal instances where jurors are improperly talking about or researching the case.

In addition, some court have penalized parties who did not timely use searches to ferret out jury bias.  For example, after the trial in Burden v. CSX Transp., Inc., No. 08-cv-04-DRH, 2011 WL 3793664 (S.D. Ill. Aug. 24, 2011), the defendant’s online searches revealed that certain jurors failed to disclose relevant information on questionnaires and during voir dire.  But the Court said it was too late stating “defendant’s motion for a new trial based on juror dishonesty must be dismissed because the basis of defendant’s objections might have been known or discovered through the exercise of reasonable diligence.”  In another case, Johnson v. McCullough, 306 S.W.3d 551 (Mo. banc 2010), the Missouri Supreme Court suggested that competent representation in light of advances in technologies imposes a duty to conduct certain types of online searches during voir dire. Specifically, the court stated that “[l]itigants should not be allowed to wait until a verdict has been rendered to perform a Case.net search for jurors’ prior litigation history when, in many instances, the search also could have been done in the final stages of jury selection or after the jury was selected but prior to the jury being empanelled.”

Given the variation in rules across jurisdictions and judges, attorneys need to be keenly aware of the applicable rules for investigating potential and actual jurors in their cases and the risks associated with failure to perform the allowable searches.