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Unauthorized Downloading and Copyright Infringement

Posted in Copyright Law, Cyberspace Law, Web/Tech

Liability for copyright infringement can result when one downloads protected software without the copyright owner’s authorization.  The Ninth Circuit was recently tasked with exploring the scope and reach of copyright protection in such cases in Design Data Corp. v. Unigate Enterprise, Inc.

Design Data is the creator of a computer aided design (CAD) software program SDS/2.  SDS/2 is promoted by Design Data as offering a high quality steel in connection design and drawing production for 3D steel detailing. It uses building and engineering codes to produce detailed drawings and models of steel structural components for use in construction.  A user in creating a steel component design on SDS/2 would create what is called a “job file” that would contain all the information and files related to a particular project.

Unigate Enterprise is located in California and offers outsourced steel detailing services by marketing detailed CAD files created by contractors in China.  At least one of its Chinese contractors had used an unauthorized copy of SDS/2 and sent the resulting job files (“output”) to Unigate Enterprise.  Unigate Enterprise then sold those images to clients in the U.S.  Unigate Enterprise advertised on its website that it uses the SDS/2 program “if required;” however, it apparently never purchased a license to use SDS/2 from Design Data.

Unigate Enterprise also claimed that it had downloaded a free demo version of SDS/2.  Design Data does not offer a free demo of its software.  Design Data visited Unigate Enterprise’s California offices after it grew suspicious that Unigate Enterprise was using its SDS/2 software without a license.  Although there was no evidence that Unigate Enterprise had actually installed SDS/2 on the computers that Design Data were allowed to inspect; those computers did contain SDS/2 generated images and job files suggesting that the CAD program had been used in some fashion and that there were installation files for two versions of SDS/2 in addition to patch files that would allow a user to work around the software’s license protection on the Unigate Enterprise computers.

Based on this evidence, Design Data sued Unigate Enterprise for copyright infringement because of its alleged use of the SDS/2 software and its importation and distribution of SDS/2 generated images and files from outside the United States.  The trial court granted summary judgment to Unigate Enterprise on both of these claims and Design Data appealed this decision to the Ninth Circuit.

The Ninth Circuit began by noting that the unauthorized use of copyrighted software does not impose liability unless it is “significant enough to constitute infringement.”  The Ninth Circuit held that the lower court had erred in deciding that no infringement had occurred because the facts surrounding the alleged infringement were disputed.  For instance, Unigate Enterprise claimed that he had downloaded a “free demo” of the SDS/2 software but Design Data had offered evidence that it did not offer any such demos.  Design Gate further argued that the evidence that there had been SDS/2 generated files suggested that Unigate Enterprise had in fact put the SDS/2 software to use.

The Ninth Circuit found that there was a triable issue of fact as to whether infringement had occurred.  For instance, the evidence showed that Unigate Enterprise had intentionally downloaded a complete copy of SDS/2 and three patch files allowing it to circumvent the software’s licensing protection. Unigate Enterprise had also advertised that it would use SDS/2 software on client jobs “if required.”  Finally, there was evidence that Unigate Enterprise’s computers contained SDS/2 generated files and images.  The Ninth Circuit concluded that this evidence “raises a factual question whether [Unigate Enterprise’s] download was more than an ‘insignificant violation’ of Design Data’s copyright.”  Given that there had been numerous cases that have held upheld copyright infringement “under circumstances in which the use of the copyright work is of minimal consequence,” the Ninth Circuit concluded that it was error to grant summary judgment as to Design Data’s claim.

The Ninth Circuit however did affirm the granting of summary judgment as to Design Data’s importation and distribution claim.  The Ninth Circuit focused its inquiry here as to whether the copyright protection of the SDS/2 software program extended to the program’s output of images and job files.  The Ninth Circuit noted that there was a dispute among various courts as to how far the copyright protection should extend but noted that some authorities had suggested “that the copyright protection afforded a computer program may extend to the program’s output if the program `does the lion’s share of the work’ in creating the output and the user’s role is so `marginal’ that the output reflects the program’s contents.”  The Ninth Circuit decided to avoid having to resolve the split among authority because it concluded that, even assuming the most favorable legal authority applied, Design Data had not established that the SDS/2 program did the “lion’s share of the work” in creating the job files and images located on the Unigate Enterprise computers.  Given that, the Ninth Circuit affirmed the summary adjudication as to the importation and distribution claim brought by Design Data.

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com

Divided Infringement – Expanding Patent Infringement Liability

Posted in Patent Law, Web/Tech

By Audrey MillemannAudrey-Millemann-03_web

In 2015, the Federal Circuit Court of Appeals cast the net of patent infringement liability even more broadly, to cover direct infringement by “divided” (or “joint”) infringement.  Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (“Akamai V”).  In that case, the Federal Circuit established that a defendant can be liable for direct infringement of a method claim even when the defendant does not personally perform all of the steps of the method, as long as the steps performed by others are attributable to the defendant.  Id. at 1022.  The court held that the steps performed by another party are attributable to the defendant if: (1) the defendant “directs or controls” the other party’s performance; or (2) the parties form a joint enterprise.  Id.  The court further held that directing or controlling exists if two factors are met.  First, the defendant must “condition” the other party’s participation in an activity or receipt of a benefit on the other party’s performance of a step.  Second, the defendant must “establish the manner or timing” of the other party’s performance of the step.  Id. at 1023.  In Akamai V, the court emphasized that its new rule is flexible and that divided infringement may depend on the particular facts of a case.  Id.

In Eli Lilly & Co. v. Teva Parenteral Medicines, Inc., 845 F.3d 1357 (January 12, 2017), the Federal Circuit put into practice its rule of divided infringement, demonstrating just how broad this theory of liability is.

Eli Lilly owned a patent covering a method of treating cancer patients with a chemotherapy drug after pretreatment with doses of folic acid and vitamin B12.  Teva and several other drug manufacturers prepared to make and market generic versions of the chemotherapy drug.  Eli Lilly sued the drug manufacturers for inducing infringement of the patent.

Inducing infringement is a type of indirect infringement.  In order to be liable for inducing infringement, the defendant must have the intent to cause another party to infringe the patent, and the other party must be a direct infringer.  35 U.S.C. § 271(b).  For example, a party induces infringement if it instructs another how to perform the steps of a patented method.

Eli Lilly contended that the defendant drug manufacturers induced physicians to infringe the patent by instructing them, in their written materials provided with the chemotherapy drug, how to pre-treat cancer patients with the folic acid and vitamin B12, and then treat with the chemotherapy drug.  Eli Lilly further contended that the physicians directly infringed the patent.  Eli Lilly agreed with the defendants that no one person performed all of the steps of the claimed method, but argued that this was a case of divided infringement.  The physicians were the direct infringers because they performed the steps of administering vitamin B12 and the chemotherapy drug, and they directed the performance of the patients in administering the folic acid to themselves.

The case was tried to the district court, who ruled that the defendants had induced infringement of the patent, based upon the physicians’ direct infringement.

The Federal Circuit affirmed the decision.  The court found that the district court had correctly determined that the physicians directed or controlled the patients’ performance in administering the folic acid.  The first prong of the “directed or controlled” test was met.  The physicians conditioned the patients’ participation in the chemotherapy drug treatment on the patients taking the folic acid.  The evidence presented by Eli Lilly showed that the physicians would not go forward with the chemotherapy drug treatment unless the patient had properly taken the folic acid.

The court dismissed the defendants’ arguments that the physicians were merely guiding their patients or that the condition had to be a legal obligation imposed on the patients.  The court emphasized that the analysis of attribution is not so narrow, and is fact-specific.

The court held that the second prong of the “directed or controlled” test was also met.  The physicians specifically instructed the patients on the dose and timing of the folic acid.  The patients carried out the physicians’ instructions in taking the folic acid.

Because the steps performed by the patients were attributable to the physicians, the physicians had directly infringed the patent.  The court then addressed the question of inducement.  The court held that the defendants had the specific intent to induce infringement by the physicians.  The defendants had provided clear directions to the physicians on all of the steps of the claimed method (how the chemotherapy drug should be administered, and the pretreatment with vitamin B12 and folic acid).

This case demonstrates that the doctrine of divided infringement is a very strong tool for patent owners and an unexpected trap for would-be infringers.

Northern District of California Revises Local Patent Rules

Posted in Copyright Law, Legal Info, Patent Law

eric_caliguiri_web_testOn January 17, 2017, the United States District Court for the Northern District of California issued revisions to its Local Patent Rules requiring early disclosure of damages-related discovery and contentions. The revised rules are effective immediately in all patent cases pending in the Northern District.  Local Patent Rules are rules that apply to all civil actions filed in or transferred to the specific District Court which allege infringement of a utility patent or which seek a declaratory judgment that a utility patent is not infringed, is invalid or is unenforceable.  The Local Patent Rules govern the mandatory discovery disclosures that must be given relatively early in a patent case.  Many District Courts across the country have various versions of Local Patent Rules to help govern and streamline often vary complex patent cases.  The Local Patent Rules for the Northern District of California previously had detailed early disclosure requirements for infringement and invalidity positions, but generally not as to damages related issues.

Beginning under new Patent Local Rule 2-1(b)(5), the parties are now to provide the court at the Initial Case Management Conference – in addition to the prior requirements under Rule 2-1 which are still required and in place – with a “non-binding, good faith estimate of the damages range expected for the case along with an explanation for the estimates.”

Under Local Patent Rule 3-1, which relates to a patentee’s initial infringement contentions, patentees are now required to also disclose “the timing of the point of first infringement, the start of claimed damages, and the end of claimed damages,” with their initial contentions and in addition to the prior requirements.  Moreover, under Local Patent Rule 3-2, which governs the document production that must be made concurrent with the initial disclosures under Rule 3-1, the patentee must now also produce:

(1) all licenses and agreements “transferring any interest in any patent-in-suit;”

(2) all license agreements that are “comparable to a license that would result from a hypothetical reasonable royalty negotiation;”

(3) all documents and licenses “comprising or reflecting a F/RAND commitment or agreement with respect to the asserted patent(s);”

(4) documents sufficient to show “sales, revenues, costs and profits” of a patentee’s own products that it asserts practice the assert patent(s) in order “to preserve the right to recover lost profits based on such products;” and

(5) all other agreements that “otherwise may be used to support the party asserting infringement’s damages case.”

The patent’s initial infringement contentions and accompanying document production under Patent Local Rules 3.1 and 3.2 – including the damages related documents and disclosures just mentioned – must all be disclosed, identified, and produced fourteen days after the Initial Case Management Conference.

Local Patent Rule 3-4, governing an accused infringer’s document production accompanying its invalidity contentions, requires an accused infringer, 45 days after receiving the patentee’ initial infringement contentions and production, to now also produce:

  1. “all agreements that the party opposing infringement contends are comparable to a license that would result from a hypothetical reasonable royalty negotiation;
  2. documents sufficient to show the sales, revenue, cost, and profits for accused instrumentalities identified pursuant to Patent L.R. 3-1(b) for any period of alleged infringement; and
  3. all agreements that may be used to support the party denying infringement’s damages case.”

Brand new Local Patent Rule 3-8 requires patentees to then serve “damages contentions” 50 days after the accused infringer’s invalidity contentions and production. The damages contentions must “identify each of the categories of damages it is seeking for the asserted infringement, as well as its theories of recovery, factual support for those theories, and computations of damages within each category.”  The listed damages categories include: lost profits, price erosion, convoyed or collateral sales, reasonable royalty, and any other form of damages.

Under brand new Local Patent Rule 3-9, the accused infringer then must provide responsive damages contentions 30 days after the patentee’s damages contentions. The accused infringers responsive damages contentions must “identify specifically how and why it disagrees with” patentee’s damages contentions and “include the party’s affirmative position on each issue.”

The Northern District’s new Patent Local Rules represent a significant change that could help quicken and streamline litigation by requiring parties to put a definitive dollar figure on disputes early on in the litigation.  The new rules could  also streamline damages related discovery because the rules require parties to self-identify and produce damages documents, theories, and amounts early in the litigation, eliminating the need for later lengthy discussions amongst the parties and their attorneys about what needs to be produced and when it has to be produced.  However, the new rules will also mean more upfront work and cost for parties and their attorneys.  And, it will also require plaintiffs to conduct more damages related investigations before filing suit in ensure they are ready to meet their initial disclosure requirements.

McGregor Files for Trademark for “Conor McGregor” and “The Notorious”

Posted in Copyright Law, Patent Law, Trademark Law

Whether you like him or not, Conor McGregor’s business savvy cannot be disputed. The UFC superstar, in just over year, has become a household name known to people who may not even watch the sport. His quick rise to superstardom is no coincidence. He knows how to market himself and he knows how to sell the events he’s involved in.

In my opinion, McGregor single handedly crippled the UFC’s landmark UFC 200 event when he was removed from the fight card as the result of a contract dispute. Since that time, he’s made amends with the UFC and become the promotion’s first two-weight world champion. So, having risen to such a level of superstardom, I got to transparentwondering what McGregor was doing to protect his intellectual property rights, which undoubtedly have substantial goodwill and value at this point. As such, at the end 2016, I did a search on the USPTO website, but to my surprise, McGregor had not applied to protect his name, or his nickname, the Notorious, in the United States. He already had applications filed abroad, but not in the United States, where he arguably has the bulk of his fans. Having always considered McGregor a business savvy athlete, I was shocked.

But it seems that McGregor recently remedied this problem by filing two trademark with the USPTO through his entity McGregor Sports and Entertainment, Ltd. On January 9, 2017, McGregor filed for registration of THE NOTORIOUS and CONOR MCGREGOR. The marks seek registration for several goods and services, including DVDs, aftershave, books, clothing, footwear, games, health club services, restaurants, and barbershops. It’s a pretty interesting array of goods and services. I would not have expected McGregor to go into the barbershop or aftershave business anytime soon, but then again, with his debonair style and reputation for being a sartorial man, maybe it wouldn’t be such a bad idea.

Before McGregor’s now historic fight at UFC 205 where he became the promotion’s first two-division world champion, there were several articles in legitimate publications comparing McGregor’s level of superstardom to the late Muhammad Ali. Now, it is quite early to start comparing McGregor’s notoriety to one of the most renowned athletes of all time, but the point is, McGregor is already huge star and he should be taking these measures to protect his intellectual property.

Paramount and Star Trek Fan Film Producers Settle

Posted in Copyright Law, Entertainment Law, Patent Law, Trademark Law

Scott Hervey 10 finalParamount and Star Trek Fan Film Producers Settle

The copyright infringement lawsuit between Star Trek fan film producer, Axanar Productions, and Paramount Pictures came to an end less than two weeks before trial.  The settlement was undoubtedly triggered by the court’s early January ruling that the fan fiction film, Prelude to Axanar, is not protected by fair use.

Prelude to Axanar is a documentary style short that tells the story of Garth of Izar, a Starfleet captain and Captain Kirk’s hero, who fought in the Battle of Axanar between the Federation and the Klingons, which took place 21 years before the events of the first episode of the original Star Trek television show.  As a result of it success, Prelude’s producer, Alec Peters, raised over $1 million through Kickstarter and Indegogo in order to produce a full-length, studio quality motion picture about the Garth of Izar and the battle of Axanar.  In addition to releasing Prelude on YouTube, Peters released on YouTube a short clip entitled “Vulcan Scene” (which features Ambassador Soval, a minor character from “Star Trek: Enterprise” and a new Vulcan character) and drafts of the script for the full-length movie.

Paramount sued Axanar Productions and its founder Alec Peters for copyright infringement.  According to the Complaint, Peters and his production company infringed Star Trek’s copyright by utilizing various Star Trek elements, including the concept of the Battle of Axanar, the Klingons, the Starfleet and characters, costumes and props that are unique to Star Trek.  According to Paramount, Prelude and the other Axanar works are substantially similar to Star Trek precisely because they copied characters, settings, plot points, dialogue, themes, pace, mood, races, species, ships, and weapons in order to create an unlicensed, independent Star Trek film.

Peters, on the other hand, argued that Prelude and the other Axanar works were transformative and therefore protected under fair use.

A work is transformative when it adds something new to the work allegedly infringed, with a further purpose or different character, altering the original work with new expression, meaning, or message.  As the Supreme Court noted in Campbell v. Acuff-Rose Music, Inc., “the more transformative the new work, the less will be the significance of other factors, … that may weigh against a finding of fair use.”

Although Prelude features Federation officers, Klingons and Starfleet ships, Peters claimed that the work is transformative because of the way in which it features these elements; in a first-person narrative style, never before used by Paramount, featuring new characters and other elements, with its subject matter being a storyline that was only a footnote in the first episode of the original Star Trek television series.  This, Peters contends, makes Prelude and the other Axanar works transformative.

To the contrary, Paramount argued that Prelude and the other works are not transformative as they “were created to function as another Star Trek work, with a slightly different plot.”  Paramount argues that using copyrighted characters and elements and then placing those elements into a new story or timeline does not create a transformative work but rather an infringing derivative work.

In determining whether Prelude and the other Axanar works are protected by fair use, the court reviewed its four factors: (i) the purpose and character of the infringing use; (ii) the nature of the copyrighted work; (iii) the amount and substantiality of the work used; and (iv) the effect upon the market for the original work.

The first factor explores whether and to what extent the new work is transformative.  Here the court agreed with Paramount, finding Prelude and the other works not transformative.  The court noted that Peters “set out to create a… prequel to The Original [Star Trek] Series” and that they “intentionally use or reference many elements similar to those in [Star Trek] to stay true to Star Trek cannon down to excruciating details.”  The court found that Prelude and the other works do not have a further purpose or different character, and do not alter Star Trek with new expression, meaning or message.  Instead, the court stated, the defendants intended to supplant Star Trek with Prelude and their full-length motion picture.

The court determined that the second factor, the nature of the work, also weighed in favor of Paramount as creative works – such as Star Trek – are given broad copyright protections.

The third factor examines the quantity, quality and importance of the materials used in relation to the copyrighted work in its entirety.  The court did not accept Peters’ argument that, from a quantitative and qualitative standpoint, the elements he used from Star Trek were not significant.  The court remarked that the elements used by Peters “are an indispensable part of what makes Star Trek ‘Star Trek’” and give Prelude the “Star Trek feel.”

The fourth factor examines the effect the infringing work would have on the market and also whether unrestricted and widespread similar conduct would have an adverse impact on the market for derivative works.  In considering the market harm presented by a full-length, professional quality motion picture about the battle of Axanar, the court stated that such a motion picture is the kind of derivative project Paramount would develop.  The court also focused on Peters’ statement that he wanted to create “a whole new way that fans can get the content they want, by funding it themselves.”  If left unrestricted, widespread fan-funded, professional quality motion pictures telling Star Trek stories would have an adverse impact on Paramount’s ability to develop derivative Star Trek properties.

With all four factors weighing in favor of Paramount, the court rejected Peters’ fair use defense, leaving for the jury the determination of whether Prelude is substantially similar to Star Trek and whether Paramount’s copyright in Star Trek was willfully infringed.

However, the key cause for the settlement was undoubtedly the court’s finding that Peters would be personally liable for contributory and vicarious infringement if the jury found substantial similarity between Prelude and the other Axanar works and Star Trek.  The terms of the settlement are unknown with the exception of the fact that “substantial changes” would be made to the Axanar feature film and that any future Star Trek films produced by Peters or his company would follow the Guidelines for Fan Films distributed by CBS and Paramount in June, 2016.

Federal Circuit Requires Standing to Appeal PTAB’s Final Decisions

Posted in Copyright Law, Patent Law, Trademark Law

Although arguably foreshadowed, some may be surprised to learn that a party with the right to challenge the validity of a patent at the United States Patent and Trademark Office (“USPTO”) may not have the right to appeal an unfavorable decision.  In Phigenix v. ImmunoGen, the Federal Circuit clarified that while there is no standing requirement to challenge a patent at the USPTO via an inter partes review (“IPR”), standing is required to appeal the Patent Trial and Appeal Board’s (“PTAB”) final decision to the Federal Circuit.

In 2014 in Consumer Watchdog v. Wis. Alumni Research Fund, the Federal Circuit ruled that there was no standing to appeal the PTAB’s final decision in a re-examination proceeding.  But is standing required to appeal decisions in IPRs and post-grant reviews, which are procedures created by the America Invents Act (“AIA”)?  After all as a result of the AIA, 35 U.S.C. §141(c) states “[a] party to an inter partes review or a post-grant review who is dissatisfied with the final written decision of the Patent Trial and Appeal Board [] may appeal the Board’s decision only to the United States Court of Appeals for the Federal Circuit.”  In Cuozzo Speed Techs., LLC v. Lee, the U.S. Supreme Court noted that a party initiating an IPR “need not have a concrete stake in the outcome,” but it may lack standing to sue in federal court.  Now, erasing any remaining doubt as to whether the standing requirement applies to appeals of PTAB decisions in IPRs, the Federal Circuit in Phigenix found that Jo-Dale-Carothers-015_web35 U.S.C. §141(c)  does not confer standing on IPR petitioners nor does it remove the requirement for standing to appeal final written decisions of the PTAB.

While not manufacturing any of its own products, Phigenix purportedly “has developed, and is developing, an extensive intellectual property portfolio” that it claims includes a patent that covers Genentech’s activities relating to the breast cancer drug Kadcyla.  While refusing to license Phigenix’s patent, Genentech licensed a patent from ImmunoGen, Inc., for use in making Kadcyla.  Phigenix sought redress in various forums.  As part of its strategy, Phigenix challenged the validity of ImmunoGen’s patent in an IPR proceeding.  Apparently, Phigenix felt that invalidating ImmunoGen’s patent would “further [Phigenix’s] commercialization efforts with respect to its patent portfolio” by capturing at least some of the licensing revenue Genentech is paying to ImmunoGen.  However, this challenge failed when the PTAB ruled the Immunogen patent claims were not obvious in light of the prior art.

Phigenix then appealed the PTAB’s decision to the Federal Circuit, but ImmunoGen moved to dismiss the appeal for lack of standing.  The Federal Circuit heard the issue of standing along with the substantive issues of the appeal.

The requirement of standing to sue comes from Article III of the U.S. Constitution, which “confines the judicial power of federal courts to deciding actual ‘Cases’ or Controversies.’” The minimum requirement for standing consists of three elements.  “An appellant ‘must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the [appellee], and (3) that is likely to be redressed by a favorable judicial decision.’”  The party seeking judicial review, Phigenix, “bears the burden of establishing that it has standing.”

Interestingly, however, in the nearly thirty-five years since the inception of the Federal Circuit, the Court had “not established the legal standard for demonstrating standing in an appeal from a final agency action,” such as a final written decision of the PTAB.  Such a “standard must identify the burden of production; the evidence an appellant must produce to meet that burden; and when an appellant must produce that evidence.”  Setting the standard in Phigenix, the Federal circuit determined that the summary judgment burden of production applies.  If standing is not self-evident, this means identifying any record evidence that was before the agency, and relying on evidence, such as affidavits and declarations, typically produced at the summary judgment stage.  The Federal Circuit further explained that an appellant must identify the relevant evidence demonstrating its standing at the earliest possible opportunity.

In its attempt to show standing, Phigenix did not contend that it faced the risk of infringing the patent at issue, that it was an actual or prospective licensee of the patent, or that it otherwise planned to take any action related to the patent.  Rather, first Phigenix argued that it suffered economic injury because of the competition between ImmunoGen’s patent and Phigenix’s similar cancer drug patent.  Phigenix asserted that the mere existence of ImmunoGen’s patent hindered Phigenix’s licensing program “while ImmunoGen receives millions of dollars in licensing revenue,” a portion of which Phigenix contended would inure to it if ImmunoGen’s patent were invalidated.  Phigenix, however, did not substantiate its arguments but instead relied on a conclusory declaration and an attorney letter that the Court found insufficient to demonstrate injury in fact.  The Court noted that if had Phigenix licensed its patents to the same parties to which ImmunoGen had licensed the challenged patent, then invalidation of the ImmunoGen patent could have increased Phigenix’s revenues.  But Phigenix produced no evidence that it had ever licensed its patent to anyone must less to the Immunogen licensees.  Thus, the Federal Circuit found that Phigenix did not establish an injury in fact that could confer standing.

Second, Phigenix argued it suffered an injury in fact because 35 U.S.C. §141(c) “provides a statutory basis for appeal.”  The Federal Circuit, however, found that Phigenix could not “base its injury in fact upon a violation of §141(c) because [Phigenix] has been permitted to file its appeal, and the exercise of its right to appeal does not necessarily establish that it possesses Article III standing.”

Finally, Phigenix asserted injury in fact based on the estoppel effect of the PTAB’s final decision, which means Phigenix “may not request or maintain a proceeding before” the USPTO, the U.S. International Trade Commission, or a federal district court with respect to any ground raised or that reasonably could have been raised during the IPR.  But, as in Consumer Watchdog, the Federal Circuit explained that estoppel “do[es] not constitute an injury in fact” when, as here, the appellant “is not engaged in any activity that would give rise to a possible infringement suit.”  Failing to establish standing, Phigenix’s appeal was dismissed.

Standing issues will not arise in the majority of appeals from IPRs because, as previously reported, around 80% of IPRs are brought by parties involved in underlying patent infringement controversies. But the petitioners in the remainder of IPRs face the real likelihood they may have no ability to appeal unfavorable PTAB decisions.  As a result, public interest groups, hedge funds, patent holding companies, and others looking to invalidate patents owned by other entities may be precluded from challenging an unsuccessful IPR in federal court because they will not be able to show that there is an actual case or controversy that would confer standing.

Therefore, before petitioning for review of a patent at the USPTO, a petitioner should consider whether he or she will have standing to appeal an unfavorable decision.  Of course, if the IPR is successful, there is no need for the appeal.

COVERED BUSINESS METHODS PATENTS — NOT SO BROAD!

Posted in Patent Law, Trademark Law

The Federal Circuit Court of Appeals has reminded the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office in no uncertain terms that covered business method review has limits.  In Unwired Planet, LLC v. Google Inc., 841 F.3d 1376, 2016 U.S. App. LEXIS 20764 (November 21, 2016), the court held that the PTAB had improperly instituted covered business method (“CBM”) review of Unwired’s patent.  CBM review is a procedure enacted in the America Invents Act by which a business method patent can be challenged in the PTAB.

Unwired owned U.S. patent no. 7,203,752 for a system and method to limit access to the location information of wireless devices.  The system allows a cell phone user to set their phones privacy preferences to restrict access to the phone’s location information to specific permitted requesters.

In October 2013, Google filed a petition in the PTAB for CBM review of certain claims of Unwired’s patent.  In April 2014, the PTAB instituted CBM review.  The PTAB determined that the ‘752 patent was a CBM patent, applying the following test: “whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.”  Unwired, supra, at *4.  The PTAB’s rationale was that the ‘752 patent’s specification stated that the requesters of the location information could include business like hotels and restaurants who could send targeted advertising to nearby cell phone users.  Id.  The PTAB found that this discussion in the ‘752 patent satisfied the requirement that the claims be “incidental or complementary to a financial activity.”  Id.

The PTAB instituted CBM review of the ’752 patent on several grounds, including invalidity for unpatentable subject matter under 35 U.S.C. §101, obviousness under 35 U.S.C. §103, and written description under 35 U.S.C. §112.  In April 2015, the PTAB issued its decision invalidating all of the challenged claims under §101.

Unwired appealed to the Federal Circuit, arguing that the PTAB had erroneously applied its own improper test (“claims incidental or complementary to a financial activity”), rather than the test set forth in the America Invents Act, for whether the ‘752 patent was a CBM patent.  Google responded that, because the PTAB’s interpretation was based on comments made during the rulemaking process when the AIA was enacted, the PTAB had correctly interpreted the statutory definition of a CBM patent.  Google also argued that the PTAB properly relied on the ‘752 patent’s discussion of potential advertising uses for the invention.

The Federal Circuit gave a straightforward answer to a straightforward question.  The court disagreed with the PTAB and Google.  The court held that the PTAB must apply the statutory definition of a CBM patent set forth in the AIA and cannot use commentary from the rulemaking process to create a broader definition.  Id. at *7.

Under the AIA, §18(d)(1), a CBM patent is one that “claims 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 . . .”.  The court noted that the PTO had adopted this definition without change.  Id. at *7.  However, the PTAB had applied a different definition (“incidental or complimentary to a financial activity”) to the ‘752 patent, one which is broader than the statutory definition.  The court explained that the PTAB relied on a comment made by Senator Schumer during the Senate’s discussion of the AIA, but the comment, like many of the comments made during the Senate hearings, was not included in the statutory definition.  Id. at *8-9.  The comments made by various legislators are irrelevant; the statute is the “operative legal standard” — the PTAB cannot “expand its authority beyond that granted by Congress.”  Id. at *12-13.

The court emphasized its point, at *13:

“The patent for a novel lightbulb that is found to work particularly well in bank vaults does become a CBM patent because of its incidental or complementary use in banks.  Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service.  All patents, at some level, relate to potential sale of a good or service. . . . It is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur.”

The court did not reach the question of the patentability of the claims of the ‘752 patent under §101.  The court vacated the PTAB’s decision and remanded the case to the PTAB.

This case clearly establishes that there are limits what a CBM patent is.  The statutory definition is not so broad as to encompass any patent that relates to a financial activity.  CBM review can only be used to challenge patents that cover operations used in the practice, administration, or management of a financial product or service.  Any attempt to broaden the application of CBM review is not supported by law.

“It’s In The Game” – Proof Issues In Software Copyright Infringement Cases

Posted in Copyright Law, Entertainment Law, Patent Law, Web/Tech

James Kachmar 08_webA recent Ninth Circuit decision in Antonick v. Electronic Arts, Inc. (filed Nov. 22, 2016), shows some of the proof issues that a plaintiff may encounter in prosecuting claims for copyright infringement in connection with software.  A jury found in favor of plaintiff’s claims of infringement; however, the trial court granted the defendant’s motion for judgment as a matter of law because plaintiff had not offered the “source code” for the software games at issue into evidence during the trial. In affirming the trial court’s decision, the Ninth Circuit illustrated some of the pitfalls a plaintiff may encounter in prosecuting copyright infringement claims.

In 1986, Antonick entered into a contract with EA to develop “a custom computer software program known as John Madden Football,” which was to be designed for Apple II computers.  His contract provided Antonick with a royalty on any derivative work which was defined as “any computer software program or electronic game which … constitutes a derivative work … within the meaning of the United States copyright law.”

EA released Apple II Madden in 1988 and it became an instant best seller.  EA had Antonick subsequently program Madden games for the Commodore 64 and IBM-compatible computers.    In 1989, EA asked Antonick to begin work on Madden games for the Nintendo and Sega Genesis entertainment systems.  However, about one year later, Antonick was told to stop work on those projects since Nintendo was becoming obsolete and EA had decided to take a new direction for the Sega game.  Park Place Productions was hired by EA to create a Sega version of the Madden game, which was released in November 1990.  From 1992 to 1996, EA continued to release Madden games for Sega Genesis.  Antonick did not receive any royalties for the Sega version of the Madden game.  (This article will not address Antonick’s claims with respect to the Super Nintendo Madden version.)

Antonick sued EA in 2011 for breach of contract with regard to the unpaid royalties for the Sega Madden game.  After a jury found that Antonick’s claims were not barred by the statute of limitations, trial proceeded as to the merits of his contract claims for unpaid royalties.  He produced evidence at trial that Park Place had problems developing its own version of the game and may have resorted to copying his code to meet demanding deadlines.  Antonick also produced an expert, Michael Barr, to opine that Sega Madden was “substantially similar to certain elements of Apple II Madden,” in that it had similar formations, plays, play numbering, etc.  For some reason, Antonick did not offer the source code for either Apple II Madden (the “work”) nor the source code for Sega Madden into evidence.  (It is unclear from the opinion whether this was because Antonick did not obtain all of the source code or chose not to offer it.0  In reversing the jury’s verdict in Antonick’s favor, the trial court found that the failure to produce the source code into evidence meant that Antonick could not provide sufficient evidence of copyright infringement that would entitle him to a royalty under his 1986 contract with EA and entered judgment in EA’s favor.

The Ninth Circuit began by concluding that because the contract entitled Antonick to royalties only if he could show a derivative work “within the meaning of the United States copyright law,” Antonick had to establish a copyright infringement claim to prevail on his contract claims.  In essence, Antonick had to prove “that EA `copied protected elements of the work’”.  Given that Antonick apparently had no direct evidence of copying, the Ninth Circuit reasoned that he could only provide infringement by showing: (1) EA’s “access to his work;” and (2) that the two works are “substantially similar.”  As to the “substantially similar” prong, the Ninth Circuit has developed a two-part test which requires a plaintiff to prove both “substantial similarity under the `extrinsic test’ [objective comparison and specific expressive elements] and substantial similarity under the `intrinsic test’ [a subjective comparison that focuses on whether the ordinary reasonable audience would find the work substantially similar].”

The Ninth Circuit agreed with the trial court that the failure to provide the source code for the two versions of the game meant that the jury had no evidence to make a subjective comparison under the intrinsic test.  Antonick’s whole claim was premised on the contention that the “source code” of the Sega version of the Madden game infringed on the source code of his Apple II version.  Without introducing the source codes into evidence, the jury could not compare the two works (i.e., “source code”) to determine substantial similarity.

Antonick tried to argue around this proof issue by claiming that Park Place had both access to his source code for the Apple II version and a motive to copy it; and that his expert and others had testified as to the similarity of the two works. The Ninth Circuit relied on three reasons for rejecting these arguments.

First, the Ninth Circuit assumed that even if the evidence showed access and motive to copy, it still did not establish that the “protected portions of the works are substantially similar.”  The Ninth Circuit has held for more than two decades that “access alone cannot establish copyright infringement.”

Second, the Ninth Circuit has repeatedly found that expert testimony alone cannot satisfy a plaintiff’s burden of proof under the intrinsic test which “depends on the response of the ordinary reasonable person.”  Although the expert’s testimony may have established “substantial similarity under the extrinsic test,” it could not satisfy the plaintiff’s burden of proof under the intrinsic test.

Finally, the testimony given as to how the games “appear” was not relevant to the crucial issue as to whether there was substantial similarity in the source code.  The Ninth Circuit recognized that it was the source code that was the protected work, not the audio visual appearance of the games.

The Ninth Circuit also found that lay witness testimony concerning EA’s “approach” to developing the Sega game could not satisfy plaintiff’s burden of proof as to the underlying source code.  The Ninth Circuit concluded that “an `approach’ is an idea that cannot be copyrighted – only its expression and code is protectable – and Sega Madden could have used Apple II Madden’s `approach’ to football video games without violating the copyright laws.”

The Antonick case is a reminder to plaintiffs prosecuting copyright infringement claims to make sure that they have identified the “work” at issue and make sure they have competent evidence in the record to support a verdict in their favor.  Otherwise, they are at risk of having  defeat snatched from the jaws of victory.

 

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com

Law Firm Survives Disqualification Motion in Florida Patent Infringement Lawsuit

Posted in Patent Law

In Lanard Toys Limited v. Toys “R” Us, Inc. et al, 3-15-cv-00849 (FLMD December 16, 2016, Order) (Barksdale, MJ), a patent infringement matter in Florida District Court, the court denied defendants’ motion to disqualify plaintiff’s new counsel for simultaneously representing defendant in an unrelated case.  Four months after lawyers with Gordon & Rees Scully Mansukhani LLP (“Gordon & Rees”) began representation of Lanard Toys Limited (“Lanard”) against Toys “R” Us-Delaware, Inc. (“TRU”), other lawyers with Gordon & Rees began representation of TRU in a California state case. Upon discovering the conflict of interest, Gordon Rees withdrew from representing TRU in the California matter.  However, Gordon Rees refused to withdraw from the Florida case, so TRU filed a motion seeking disqualification.01-Caliguri-Er-15EX-web

Gordon Rees asserted the dual representation was a result of an “inadvertent input error,” wherein the names of some of the parties where inadvertently omitted from the conflict tracking software during the conflicts check, and not because Gordon & Rees deliberately disregarded the duty of loyalty to a client.  Gordon Rees was only acting as local counsel to TRU in the California matter.  The only activity in which Gordon & Rees participated on behalf of TRU in the California Case was the finalization and filing of TRU’s answer to the complaint at the direction of the Palter Firm, who was TRU’s primary counsel in the California matter. According to the attorneys, Gordon & Rees and TRU never spoke with each other prior to TRU raising the conflict issue; there was no retention agreement entered into between the parties and no confidential information relevant to the Florida case was exchanged, nor was any confidential information relating to TRU’s strategic approach for defending against cases, in general, exchanged.  Gordon & Rees’s sole tasks with respect to TRU in the California Case during the time of the representation, according to them, were to propose edits to a draft Answer for TRU that was prepared by lead counsel, the Palter Firm, and to inform the Palter Firm that a TRU officer had to verify it.

In contrast, in the Florida matter, Gordon Rees is Lanard’s primary counsel, has spent hundreds of hours reviewing documents, has taken depositions in two states, and has represented Lanard in numerous prior cases.  Therefore, according to Lanard and Gordon Rees, it would take substantial effort and cost to bring new counsel up to speed on the Florida case.

In analyzing the issue and ruling on TRU’s disqualification motion, the Court first noted that because a litigant is presumptively entitled to counsel of its choosing, only a compelling reason will justify disqualification.  Disqualification is a “harsh sanction, often working substantial hardship on the client,” so it “should be resorted to sparingly.” And, because a disqualification motion may be used to harass or for tactical advantage, it should be viewed with caution. The Florida Court further noted disqualification is not mandatory, even if a court finds a lawyer is violating a conflict-of-interest rule.  Instead, a “court should be conscious of its responsibility to preserve a reasonable balance between the need to ensure ethical conduct on the part of lawyers appearing before it and other social interests, which include the litigant’s right to freely chosen counsel.”  In undertaking the balancing, pertinent factors may include the nature of the ethical violation, the age of the case, the prejudice to the parties, the effectiveness of counsel in light of the violation, the public’s perception of the profession, whether the attempt to disqualify is a tactical device or a means of harassment, and whether any screening measures have been implemented.

The Florida Court then found that by undertaking representation of TRU in the California case while simultaneously undertaking representation against TRU in the Florida case, Gordon & Rees did violate Florida’s conflict of interest laws.  However, it was an inadvertent input error—not a deliberate disregard of the duty of loyalty—that caused that violation.  In addition, the Florida Court also found Lanard would suffer a substantial hardship by having to retain new counsel to repeat or review work.  As to the California matter, the Florida Court found the Gordon & Rees lawyers did not directly communicate with TRU or, as stated in the declarations, receive any TRU confidences. With no sharing of TRU confidences and able counsel on both sides, the violation will not diminish counsel’s effectiveness.  And Gordon & Rees’s active representation of TRU lasted less than a month, during which it was not TRU’s primary counsel.  Thus, the Florida Court concluded “[b]alancing the interests and mindful that Lanard is presumptively entitled to counsel of its choosing and disqualification is a harsh sanction to be resorted to sparingly, disqualification is unwarranted.”

Although the court denied the disqualification motion, this case is still a strong cautionary warning to consider potential conflict issues when selecting counsel.  Otherwise, at best, a costly disqualification motion can result, and at worst, new counsel may need to be hired in the middle of litigation at substantial additional cost and effort.

From Rogue One to Forces of Destiny: A Star Wars Intellectual Property Story

Posted in Copyright Law, Cyberspace Law, Entertainment Law, Trademark Law

With last weekend’s release of Rogue One: A Star Wars Story, Star Wars is once again living and thriving. Rogue One opened with a most impressive $155 million opening in North America, and $290 million worldwide, making it the 12th largest opening in United States History. Now, this isn’t really related to intellectual property, but in light of this opening,  we thought it would be appropriate to provide an article dealing with Star Wars intellectual property. Luckily for us, just one week ago, some very interesting Star Wars news surfaced.

If you’re an avid Star Wars fan, you are patiently, or not so patiently, awaiting the release of Episode VIII, the next installment in the Star Wars saga, which is due out in December 2017. And if you are awaiting the release of Episode VIII, you likely know that the film still lacks an official title. But a recent trademark filing in the European Union may have provided us with a pretty solid transparentindication of what that title may be. On December 8, 2016, Lucasfilm applied for a European Union trademark for the term “STAR WARS FORCES OF DESTINY.” In the past, Lucasfilm took similar actions with regard to movies such as “Indiana Jones and the Kingdom of the Crystal Skull,” “Revenge of the Sith,” and “The Force Awakens.” So, if the past is any indication of the future, there is a strong argument that Star Wars Episode VIII will be entitled FORCES OF DESTINY.

However, although the trademark filing may be indicative of Episode VIII’s title, it is without certainty. Lucasfilm has taken similar actions in connection with trademarks that were not ultimately related to a feature film. For example, in 2002, Lucasfilm trademarked INDIANA JONES AND THE EMPEROR’S TOMB, which was not a working title for Indiana Jones and the Kingdom of the Crystal Skull, but rather, a videogame. So, Lucasfilm’s filing of a trademark application for FORCES OF DESTINY is not dispositive.

A closer examination of the trademark filing gives additional support to the argument that FORCES OF DESTINY will be Episode VIII’s title. The application contains multiple Nice classifications – an international classification of goods and services established by the 1957 Nice Agreement. These classifications indicate which types of products Lucasfilm will sell in conjunction with the mark. Here, Lucasfilm applied in the International Classes associated with various items, including without limitation, CDs, DVDs, clothing, leather goods, video games, and literary materials. So, it is clear that whatever Star Wars: Forces of Destiny turns out to be, Lucasfilm plans on distributing a wide range of related merchandise. Again, this is not a dispositive indication that FORCES OF DESTINY is the title for Episode VIII, but it seems to be strong evidence. Of course, with the movie just less than a year away, even if the FORCES OF DESTINY is the current working title for Episode VIII, there is plenty of time for Lucasfilm to change its mind. In the words of Master Yoda, “Always in motion is the future.” So for now, “Patience you must have my young padawan.”