The IP Law Blog

Focusing on legal trends in data security, cloud computing, data privacy, and anything E

Patent Myths Corrected – Part One

Posted in IP Law Blog Lawyers In The News, Patent Law

Patent law is a complicated area of law governed by a confusing set of statutes and regulations that are interpreted by the United States Patent and Trademark Office (PTO) and the federal courts.  Patents themselves are sometimes almost unintelligible and, if intelligible, may require many hours of reading to understand.  It is no wonder that there are a lot of misconceptions about patents.

 

This is the first of two columns in which I will discuss a few of the most common aspects of patent law that are misunderstood.

 

  1. Ideas Are Not Patentable.

Clients often want to patent an idea.  Ideas are not patentable – inventions are patentable.

To be patentable, an invention must fall within one of four categories, referred to as statutory subject matter.  Those categories are:  processes (also referred to as methods), machines, articles of manufacture, and compositions of matter.

Process patents include patents for methods of doing just about anything, including some computer software and some methods of doing business (although business method patents are now under increasing scrutiny both in the PTO and in the courts).  Machine or apparatus patents include traditional types of machines as well as computer systems.  Articles of manufacture are devices such as tools or just about any non-machine.  Compositions of matter include chemical compositions, genes, and genetically engineered (non-natural) living organisms, including bacteria, plants, and animals.

The above four categories are the categories of inventions for which a utility patent can be obtained.  There are two additional types of patents:  design patents and plant patents.

Design patents protect ornamental designs for articles of manufacture, such as chairs, dishes, and glassware.  A design patent protects only the appearance of the article, not any aspect of its functionality.  An article may be the subject of both a design patent and a utility patent, however, if it has both ornamental design and function.

Plant patents protect distinct, new varieties of asexually reproducible plants (i.e., plants that can be reproduced without seeds, such as by budding or grafting).  They include such plants as certain types of roses, nuts, flowering plants, and fruit trees.

There are several things that are specifically not patentable.  They are:  abstract ideas and mental processes, laws of nature, natural phenomena, and mathematical algorithms.

Even if a client’s idea fits within one of the four categories of statutory subject matter, it still is not patentable if it is in its infancy.  The idea must be an invention.  The inventor need not have actually made the invention (reduced it to practice), but must have a complete and operative understanding of the invention.  The patent application must contain a detailed written description of the invention and must describe how to make and use the invention without undue experimentation.  Thus, an idea that is not fully fleshed out, even if it is patentable subject matter, is not ready to patent.  The inventor must be able to describe what the invention actually is.

  1. The Inventor Cannot Withhold Details of the Invention to Prevent the Public from Copying.

In addition to a detailed description of how to make and use the invention, a patent application must also include the “best mode” of carrying out the invention.  The best mode is the best way of using the invention known to the inventor at the time the application is filed.

This requirement prevents the inventor from keeping the best way of using the invention a secret.  A patent is a trade-off:  in exchange for the Government giving the inventor the rights to exclude others from making, using, selling, or offering to sell the invention, the inventor must fully disclose the invention to the public in the patent.  This is so that the public may practice the invention after the patent expires.

If an invention is easy to reverse-engineer, trade secret protection is essentially useless and patent protection is the better choice.  This is because patents, unlike a trade secret, protect against reverse engineering.  On the other hand, if an invention is difficult to reverse-engineer, trade secret protection may be preferable to obtaining a patent because, unlike a patent, a trade secret does not expire.

  1. You Cannot Tell What a Patent Protects by Looking Only at the Text or the Drawings.

A utility patent contains several parts:  a specification or disclosure, a drawing if necessary, and at least one claim.  The specification is a detailed description of the invention that tells a person of ordinary skill in the art how to make and use the invention and describes the best mode of carrying out the invention.  The drawings (which may include flow charts) must illustrate all essential elements of the invention.  Drawings are typically necessary for inventions that fall within the subject matter categories of machines, articles of manufacture, and processes; drawings are usually not necessary for compositions of matter.

The specification and drawings describe the different versions (embodiments) of the invention or examples of the invention.  They do not define what the patent owner may enforce with the patent.  This is determined by the claims.

The claims must contain the patentable elements of the invention.  It is the claims that are used to determine whether there is infringement.  The claims must be read in light of the specification and the drawings, but the claims define what the patent protects.  Sometimes the claims are broader than what is described in the specification and the drawings, so one must read and interpret the claims to know what the patent protects.

  1. A Provisional Patent Application is Not a Quicker, Cheaper Way of Getting a Patent.

A provisional patent application cannot become a patent.  Despite its name, a provisional patent application is not really a patent application at all because it cannot mature into a patent.  Rather, a provisional patent application acts as a placeholder for a utility application – it is a mechanism for allowing an inventor to obtain an earlier filing date for a utility application.

A provisional patent application requires a specification and a drawing if necessary, and should contain at least one claim.  It must satisfy the same requirements as a utility application (written description, enablement, and best mode).  A provisional application is not ever examined by the PTO and no patent ever issues directly from it.  An inventor has one year from the filing date of the provisional application in which to file a non-provisional utility patent application for the same invention, claiming the benefit of the filing date of the provisional application.    Because a provisional application requires the same level of detail as a utility application, it is typically not much quicker or less costly than a utility application.

If a client has limited time or funds, however, filing a provisional application may be better than filing no patent application.  For example, a provisional application may be advantageous if the inventor needs to disclose the invention on short notice and does not have enough time to have a utility application prepared.  In that situation, the provisional application may provide the inventor with an earlier filing date than might otherwise be obtained, as long as what is later claimed in the utility application was disclosed in the provisional application.

How To Protect Your Clients’ IP

Posted in IP Law Blog Lawyers In The News

A business’s intellectual property may be its most valuable asset.  Whether it is biotechnology, trade names, business methods, or computer software, intellectual property should be protected to the greatest extent possible in order to maximize the value of the business.  This article summarizes the types of intellectual property protection that are available

What Is Intellectual Property Protection?

There are four types of intellectual property protection:  patent, copyright, trademark, and trade secrets.

Patents protect inventions.  A patent is a grant by the United States Government to the inventor of the rights to exclude others from making, using, or selling the invention in the United States, or importing the invention into the United States.  There are three kinds of patents:  utility, design, and plant.  A utility patent protects five classes of inventions:  a process or method, a machine, an article of manufacture, a composition of matter (including chemical compositions, genes, and genetically engineered bacteria, plants, and animals), and an improvement of an invention in one of the other four classes.  Subject matter that is not patentable includes pure mathematical algorithms that do not have steps, printed matter, natural compounds, and scientific principles.  In order to be patentable, the invention must be useful, new (novel), and nonobvious.

A design patent protects new, original, ornamental designs for articles of manufacture.  The patent protects only the appearance of the article, not any aspect of functionality.

Plant patents protect distinct, new varieties of a asexually reproducing plants (i.e. plants that can be reproduced without seeds, such as by budding or grafting), including certain types of roses, nuts, and fruit trees.

Copyrights protect original works of authorship fixed in a tangible medium.  Original works of authorship include books, musical compositions, multimedia works, dramatic productions, motion pictures, and computer programs and databases.  Functional works such as ideas, procedures, processes, and methods are not protectable by copyright.  A copyright entitles its owner to the exclusive rights to reproduce the work, prepare derivative works, distribute copies of the work, and perform and display the work publicly.

Trademarks and service marks protect words, symbols, phrases, and logos used to indicate the source of goods or services.  The strongest marks are those that are coined (made up words) or arbitrary (words that do not have any connection to the product or service).  Suggestive marks, which suggest a characteristic of the product or service, are less strong than coined or arbitrary marks.  Descriptive marks, which describe the product or service, are not protectable unless they have achieved secondary meaning (a strong association with the source of the product or service).  Generic marks are not protectable at all because they are simply words that have become used to identify the product itself.

Trade dress protection is similar to trademark protection and protects the overall look of a product, as long as it is inherently distinctive and nonfunctional.

Trade secret law protects information such as formulas, compilations, programs, devices, or methods, which derives independent economic value from not being generally known to others and is the subject of reasonable efforts to maintain its secrecy.

 

Which Type of Protection Is Best?

A business may obtain all four types of intellectual property protection.  For example, the product itself may be patentable, the name or brand may be a trademark, the literature or other written materials may be copyrightable, and the details of the manufacturing process for the product may be maintained as a trade secret.

In some cases, however, a decision must be made between the types of protection that will be used.  One cannot obtain both patent and trade secret protection for the same thing.  In order to obtain a patent, the invention must be disclosed to the public, while trade secret protection can be obtained only if the invention is kept secret.  Patent and trade secret law offer different kinds of protection.  A patent protects against the independent creation or reverse engineering of the device, while trade secret law does not protect against these acts.  Patent and trade secret law have different requirements.  An invention must be useful, novel, and nonobvious to be patentable, while there are no such requirements for trade secret protection.

In general, if both patent and trade secret protection are available, one should seek a patent if the invention is easily reverse-engineered or if it is disclosed when it is used (e.g. Amazon.com’s 1-Click method of accepting purchase orders over the Internet).  If the invention is not easily reverse-engineered and not disclosed when it is used (e.g. the formula for Coca-Cola™), trade secret protection may be the better choice.

How Long Does the Protection Last?

A utility patent is valid for 20 years from the filing date of the patent application.  A copyright lasts for the life of its author plus either 70 or 95 years, depending on the date of creation, unless it is a work-for-hire, which lasts for the shorter of either 95 years from the first publication or 120 years from creation.  A trademark does not expire, as long as it is used.  Trade secret protection lasts as long as the information is maintained as secret.

How Does One Obtain Protection?

A patent is obtained by filing, with the United States Patent and Trademark Office (“PTO”), a patent application containing claims (which set forth the scope and limits of the invention).  The PTO conducts a search of the prior art, including U. S. and foreign patents and other publications, and issues a written opinion on whether the invention is patentable.  The claims may be allowed or rejected.  The applicant then has the opportunity to respond to the PTO and to explain why the claims should be allowed.  After this process, called patent prosecution, the PTO either issues a patent or rejects the application.  The process usually takes two to three years or so, depending on the type of invention and amount of prior art.

A copyright is obtained by filing an application with the United States Copyright Office.  There is no examination process; it is simply a registration process.

A federal trademark is obtained by filing an application with the PTO.  The PTO conducts an examination of other marks in use and determines whether there are similar marks and whether a likelihood of confusion could occur.  If the PTO approves the mark, it is then registered.  There is also protection for trademarks available under state law.

Trade secrets are governed by state law, in particular the Uniform Trade Secrets Act, which most states, including California, have adopted.  There is no registration or examination procedure; a trade secret exists if the requirements set forth above are met.

 


What Advice Should a Client Be Given?

Clients should be advised to identify their intellectual property.  This can be done through a formal audit by an intellectual property lawyer or informally by the company’s management.  Once the intellectual property has been identified, the client should verify that it owns the intellectual property and, if not, take steps to secure ownership from employees or independent contractors.  Then, an analysis should be made of the value of the intellectual property and a determination made of which items need to be protected and how they should be protected.  If it is not economically feasible to protect all of the company’s intellectual property, management should prioritize the intellectual property and begin the effort necessary to obtain protection.

LegalZoom Allegedly Engages in the Unauthorized Practice of Trademark Law

Posted in IP Law Blog Lawyers In The News, Trademark Law

According to a complaint filed in the United States District Court for the Northern District of California by California law firm LegalForce RAPC Worldwide, LegalZoom engages in the unauthorized practice of law when its non-attorneys instruct customers on how to register trademarks. The lawsuit names various other defendants, including the Patent and Trademark Office and several bar associations, as alleged conspirators in LegalZoom’s attempt to restrain trade.

 

According to the Complaint, LegalZoom has helped filed over 250,000 trademark applications for its customers. Accordingly, LegalForce took it upon itself to register two trademarks through LegalZoom’s website. During the process, LegalZoom’s “trademark document specialists” assisted LegalForce in preparing the application, including selecting the international classification and preparing the goods and services description. According to the Complaint, LegalZoom also advised LegalForce about how potentially conflicting marks could reduce the chances of obtaining federal registration, which, according to LegalForce, constituted legal advice provided by non-attorneys.

 

Compounding the problem, the advice given by the trademark specialists was allegedly incorrect. Specifically, the specialists allegedly advised LegalForce that only similar marks in the same international class could prevent registration despite the fact that marks outside of the same international class can, in fact, prevent registration.

 

In addition to alleging that LegalZoom engages in the unauthorized practice of law, LegalForce alleges that LegalZoom is unfairly competing because it is not required to run conflict checks, maintain malpractice insurance, or employ U.S. licensed attorneys “to review and sign off on trademark matters filed before the USPTO like similarly situated law firms are required to do. Accordingly, LegalZoom has allegedly gained an unfair competitive advantage because it does not have to pay to follow federal and state laws regarding the practice of law. And although “LegalZoom represents on its website that it does not practice law, this representation is false and/or misleading,” according to the complaint.

 

LegalForce also claims that LegalZoom is using Google and related search engines to compete with law firms, and spends more than $100,000 each month to do so. According to LegalForce, LegalZoom is outspending its competitors for certain keywords used by consumers, such as “trademark lawyer,” further exacerbating the unfair competition. Perhaps more concerning, LegalForce alleges that LegalZoom has used search terms such as LegalForce and Trademarkia to misdirect customers to its own ads, despite those terms being directly related to LegalForce.

 

According to LegalForce, LegalZoom’s conduct demonstrates an “intentional, willful and malicious intent to deceive consumers and unfairly compete with plaintiffs.” It will be interesting to see the outcome of this litigation. On the one hand, competition is competition, but on the other hand, unlicensed individuals cannot be permitted to practice law, and therefore should not be allowed to compete.

Hall v. Swift: Nothing Original About a Player Hater

Posted in Entertainment Law, IP Law Blog Lawyers In The News

“Cause the players gonna play, play, play, play, play

 

 And the haters gonna hate, hate, hate, hate, hate
Baby I’m just gonna shake, shake, shake, shake, shake

Shake it off / Shake it off

 

Heartbreakers gonna break, break, break, break, break

 

And the fakers gonna fake, fake, fake, fake, fake

Baby I’m just gonna shake, shake, shake, shake, shake

Shake it off / Shake it off.”

-Taylor Swift

 

In the early 2000’s, an all girl band called 3LW performed a song called Playas Gon’ Play,  which was written by Sean Hall and Nathan Butler.  Playas Gon’ Play was initially released in May, 2001 and rose to number 81 on the Billboard’s Hot 100 chart.  The album on which Playas Gon’ Play appeared sold over One Million copies and 3LW performed the song numerous times on national television.  The chorus of Playas Gon’ Play consists of the following lyrics:

 

Playas, they  gonna play
And haters, they gonna hate
Ballers, they gonna ball

Shot callers, they gonna call

That ain’t got nothin’ to do

With me and you

That’s the way it is

That’s the way it is.

 

Hall and Butler sued Swift, her co-authors on Shake It Off, as well as various other parties related to Shake It Off and the album on which it was included.  Hall and Butler alleged a single claim of copyright infringement premised upon the lyrical similarities between Playas Gon’ Play and Shake It Off. 

 

On Swift’s motion to dismiss, the sole issue before the court was whether any elements of Shake It Off are substantially similar to protectable elements of Playas Gon’ Play.  All federal courts falling under the 9th Circuit employ the extrinsic vs intrinsic test in determining likelihood of confusion.  The “extrinsic test” is an objective comparison of specific expressive elements. The “intrinsic test” is a subjective comparison that focuses on whether the ordinary, reasonable audience would find the works substantially similar in the total concept and feel of the works.  The 9th Circuit has not established a set of factors to consider when analyzing musical compositions under the extrinsic test.  So long as the plaintiff can demonstrate that one or more musical elements such as the rhythm, pitch, cadence, melody, tempo, harmony or lyrics are similar to protected elements of the copyrighted work and that such similarity was “substantial”, the extrinsic test is satisfied.

 

Unlike most music cases, here the court was not called upon to consider the relevant songs’ sound.  Here the court was to focus on similarities between portions of the songs’ lyrics.  The court noted that the only obvious similarities between the two works is that Playas Gon’ Play contains the lyrics “Playas, they gonna play / And haters, they gonna hate,” and Shake It Off contains the lyrics “Cause the players gonna play, play, play, play, play / And the haters gonna hate, hate, hate, hate, hate.” Before considering whether this satisfied substantial similarity, the court considered whether the allegedly infringed elements of Hall and Butler’s song – the lyrics “Playas, they gonna play / And haters, they gonna hate” are eligible for protection under the Copyright Act.

 

The Copyright Act protects “original” works of authorship fixed in any tangible medium of expression. The court noted that songs or a portion of a song “must be sufficiently original and creative to warrant copyright protection.”  Originality signifies “that the work originates in the author rather than having been copied from past sources” and creativity signifies “that the work has a spark that goes beyond the banal or trivial.”

 

Swift and the other defendants argued that the phrase “Playas, they gonna play/And haters, they gonna hate” is not entitled to copyright protection because it is merely a short phrase and short phrases are not afforded protection under the Copyright Act.  However, on occasion courts have recognized that there may be exceptions to the general rule that short phrases are not protectable where a short phrase is sufficiently creative.  For example, in the 1979 Federal district case, Brilliant v. W.B. Productions, Inc., in finding the two phrases, “I may not be totally perfect, but parts of me are excellent” and “I have abandoned my search for truth and am now looking for a good fantasy” protectable under copyright, the court noted these phrases were concise, clever and culturally relevant, thereby satisfying the “creative” component of originality.   Hall and Butler argued that their short phrase – “Playas, they gonna play/And haters, they gonna hate” – is sufficiently creative to warrant protection.

 

In an effort to show that the phrase in question was not sufficiently creative to warrant protection under the Copyright Act, Swift introduced evidence showing the use of the words “Player” and “Hater” in numerous songs and other creative works.  This evidence, the court said, established that in 2001, American culture “was heavily steeped in the concept of players, haters and player haters.”  As for Hall and Butler’s argument that they “originated the linguistic combination of [players playing and haters hating]” the court said that the concept of people behaving in accordance with their essential nature is not at all creative.
The court found the allegedly infringed phrases to be “too brief, unoriginal and uncreative to warrant protection under the Copyright Act” and provided Hall and Butler leave to amend their complaint “just in case there are more similarities between Playas Gon’ Play and Shake It Off than [Hall and Butler] have alleged thus far.”

U.S. District Court for the Eastern District of Texas Finds Defendants Have Not Committed Acts of Infringement Sufficient to Establish Venue

Posted in Copyright Law

The U.S. Supreme Court’s May 22, 2017 ruling in TC Heartland v. Kraft Foods held that personal jurisdiction alone does not convey venue for patent cases under the patent venue statute. Previously, the Court of Appeals for the Federal Circuit and the United States district courts had interpreted the patent venue statute, 28 U.S.C. §1400(b), to allow plaintiffs to bring a patent infringement case against a domestic corporation in any district court where there is personal jurisdiction over that corporate defendant. Specifically, the patent venue statute provides that “[a]ny civil action for patent infringement may be brought in either 1) the judicial district where the defendant resides” or 2) “where the defendant has committed acts of infringement and has a regular and established place of business.” But, TC Heartland, held that a domestic corporation resides only in its state of incorporation for purposes of the patent venue statute, and not just anywhere it is subject to personal jurisdiction as had previously been the case. 

However, TC Heartland did not address the second prong of § 1400(b), which makes venue proper in any judicial district where: (1) the defendant has a regular and established place of business, and (2) has committed acts of infringement. Post TC Heartland, a number of district courts and the Federal Circuit have weighed in on what constitutes a regular and established place of business under the second prong of § 1400(b). But, few courts have considered what is required to satisfy the second requirement, namely committing acts of infringement sufficient to establish venue.

Thus, it is notable that the U.S. District Court for the Eastern District of Texas, in Snyders Heart Valve LLC v. St. Jude Medical SC, Inc. et al, 4-16-cv-00812 (TXED March 7, 2018, Order), recently had to determine whether, under the second prong of § 1400(b), sufficient infringement occurred in the District to establish venue. The specific issue in the case turned on whether all sales of the accused products in the District were subject to the safe harbor provided in 35 USC § 271(e)(1). The safe harbor provided by § 271(e)(1) extends to all uses of patented inventions that are reasonably related to the development and submission of any information under the Federal Food, Drug, and Cosmetic Act of 1938. In other words, if all of Defendants’ challenged activities in the District are covered by the safe harbor, there can be no acts of infringement in the District, and venue is thus improper.

The Plaintiff argued that the safe harbor under § 271(e)(1) is irrelevant for purposes of determining whether venue is proper, and that its allegations of infringing activity in the District—as required under §1400(b)—are sufficient. Plaintiff also argued that because the clinical trial safe harbor is all or nothing, Defendants’ commercial activity outside this District effectively revokes the safe harbor protection for activities inside the District.

The District Court first considered Plaintiff’s argument that the safe harbor defense is irrelevant to venue under § 1400(b). Plaintiff argued its mere allegation of infringing acts in the District make venue proper under § 1400(b). The Court rejected this argument, reasoning both the venue statute and the safe harbor statute speak of “acts of infringement,” not acts of “alleged” infringement. The Court continued, “if Plaintiff were right, any venue limitation could be overcome by simply making infringement accusations in the forum of the plaintiff’s choice, regardless of the defendant’s actual activities in that particular forum. This is contrary to law. Once the defendant comes forward with evidence that venue is improper, the plaintiff cannot rely on mere venue allegations in its complaint to maintain its chosen venue.” The Court then found the Plaintiff has not alleged any facts showing activities in this District other than those statutorily exempted from infringement by safe harbor under § 271(e)(1).

Next, the Plaintiff argued the safe harbor defense is “all or nothing” and to the extent Defendants make and sell accused products elsewhere in the United States for commercial purposes, such uses are not “solely for uses reasonably related” to seeking FDA approval and Defendants are not entitled to any exemption at all under § 271(e)(1). The Court also rejected this argument, reasoning the Federal Circuit has made clear that for purposes of the safe harbor, each accused activity must be analyzed separately. The Court noted a two-part test under the safe-harbor analysis: “(1) whether the activity at issue is a potentially infringing one; and (2) whether the exemption applies to that activity.” Therefore, some of the accused products could fall within the safe harbor, while some of could not, even though the accused products were all of the same group. Thus, the Court found all acts of infringement in the Eastern District of Texas are solely clinical, and therefore, the § 271(e)(1) safe harbor applies despite purported nonexempt activity in Minnesota. The Court concluded that since there are no material factual questions on challenged activities remaining, summary judgment on the safe harbor issue is proper, and this renders venue in the District deficient.

Although this case concerned a specific statutory exemption to infringement, namely the safe harbor under § 271(e)(1), its reasoning could have broader implications in the on-going evolution of venue in patent litigation cases post TC Heartland. In addition to challenging whether it has a regular and established place of business in the District, defendants may also begin challenging a plaintiff’s bare-bones allegations that the defendant has committed acts of infringement in the District. And, District Courts may begin to require plaintiffs to show actual acts of infringement in the District by Defendant in order to maintain venue.

Do Secret Sales Bar Patents?

Posted in Patent Law

There is some confusion about what constitutes an “on-sale bar” in patent law. The on-sale bar, set forth in 35 U.S.C §102, prohibits a patent if the invention sought to be patented was offered for sale or sold more than one year before the patent application was filed. In other words, there is a one-year grace period after an offer for sale or sale in which a patent application may be filed. The earliest date of an offer of sale or sale is the critical date, often referred to as the “statutory bar date.” The reason for the on-sale bar is that once an invention is offered for sale, it is in the public domain, and no one should be able to patent something in the public domain. 

If a patent issues and it is later found that there was an offer for sale or sale of the invention more than one year before the patent application was filed, the patent can be invalidated. The on-sale bar can be raised as a defense in patent infringement litigation to challenge the validity of the patent and it can be raised in a separate challenge to a patent’s validity.

Both the 2013 America Invents ACT (AIA) and the pre-AIA law include the on-sale bar in §102. Under pre-AIA §102(b), a patent is barred if the invention was on sale in the United States more than one year before the filing date of the patent application. The statutory bar applies regardless of whether the sale was public or secret. Under AIA §102(a)(1), the language of the statutory bar is different; a patent is barred if the invention was on-sale “or otherwise available to the public…” more than one year before the filing date of the patent application. Thus, the AIA broadened the scope of the on-sale bar to cover offers for sale and sales anywhere in the world, rather than just in the United States. However, the phrase “or otherwise available to the public…” created an ambiguity by implying that the on-sale bar only applies to public sales.

In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. (Fed. Cir. 2017), the Federal Circuit Court of Appeals considered the on-sale bar, but did not resolve the ambiguity. Helsinn owned four patents covering a drug used to prevent nausea in patients undergoing chemotherapy. In 2001, Helsinn entered into a supply and purchase agreement with a pharmaceutical company, MGI. The parties announced the agreement in a press release and MGI filed a redacted copy of the agreement (excluding the price and the dosage terms) with the SEC. At the time the agreement was entered into, the drug was undergoing clinical trials and had not yet been approved by the FDA. In 2003, Helsinn filed a provisional patent application for the drug. In 2005 and 2006, Helsinn filed three utility applications claiming priority to the provisional, and, in 2013 filed one utility application claiming priority to the provisional. In 2011, Teva, a competitor of Helsinn, filed a new drug application in the FDA seeking approval of a generic version of Helsinn’s drug.

Helsinn sued Teva for patent infringement. Teva argued that all four patents were invalid based on the on-sale bar because Helsinn had entered into the supply and purchase agreement with MGI in 2001, over one year before the provisional application’s filing date in 2003. The trail court ruled in favor of Helsinn, holding that the on-sale bar did not apply. Teva appealed to the Federal Circuit.

The Federal Circuit explained that there is a two-part test for whether the on-sale bar applies. First, there must be a commercial offer for sale or a sale of the invention sought to be patented. Second, the invention must be “ready for patenting.” Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998).

The court analyzed whether the Pfaff on-sale bar test was met. Three of the patents were governed by pre-AIA §102(b); one patent was governed by AIA §102(a)(1).

The court addressed whether the first part of the Pfaff test was met: whether there was a commercial offer for sale or sale more than one year before the patent application was filed. As for the three patents governed by pre-AIA §102(b), the court found that there was an offer for sale to MGI and that Helsinn had also marketed its drug to others. The court rejected Helsinn’s argument that there was no sale because FDA approval was a condition precedent to the actual sale, and there was no FDA approval at the time of the agreement with MGI. The court held that the need for regulatory approval or the existence of other conditions precedent do not mean that there is no contract for sale.

As to the one patent governed by the AIA, the court acknowledged that in enacting AIA §102(a)(1), members of Congress stated that the new §102 on-sale bar would apply only to sales in which the invention was made public, not to confidential sales as does pre-AIA §102. However, the court found that MGI’s filing of the supply and purchase agreement with the SEC was a public sale. The court held that it was irrelevant that certain specific terms of the agreement were not publicly disclosed.

The court did not address the key question of whether a confidential offer for sale or sale is an on-sale bar. Because most of the terms of Helsinn’s supply and purchase agreement were publicly disclosed, the court did not have to reach that question.

Next, the court addressed the second requirement of the Pfaff test: whether the invention was ready for patenting more than one year before the patent application was filed. This requirement is met if the invention has been reduced to practice (i.e., actually made and shown to work for its intended purpose) or if the invention has been described in writing in such detail that a person skilled in the art could make the invention.

Helsinn argued that its drug was not reduced to practice more than one year before it filed its patent application because it had not yet obtained FDA approval. The court stated the standard to obtain FDA approval is higher than the standard to show that a drug works for its intended purpose under patent law. The fact that more testing is required for an invention does not mean that the invention has not been reduced to practice. The court held that Helsinn knew that its drug worked for its intended purpose and therefore had reduced its invention to practice more than one year before it filed its patent application.

Because the Pfaff test was met for all four patents, the court held that the four patents were invalid based on the on-sale bar, reversing the district court.

After this decision, Helsinn filed a petition with the Federal Circuit seeking an en banc rehearing of the case. The Federal Circuit denied Helsinn’s petition. Helsinn has just filed a petition to the United States Supreme Court for writ of certiorari, asking the Court to answer the question of whether confidential sales fall within the on-sale bar. If the Court grants the petition, it will then have to decide whether Congressional intent was clear enough to change the approach of longstanding patent law.

Federal Circuit Weighs in on Reasonable Royalties as Patent Infringement Damages

Posted in Patent Law

In Exmark Manufacturing Company v. Briggs & Stratton Power Products, 2018 U.S. App. LEXIS 783 (Fed. Cir. 2018), the Federal Court of Appeals addressed patent infringement damages based on a reasonable royalty. Exmark Manufacturing Company owned a patent for a lawn mower with an improved flow control baffle (the part that controls the flow of air and cut grass underneath the mower). Exmark sued Briggs & Stratton Power Products for patent infringement. The jury returned a verdict of infringement against Briggs and found the infringement willful. The jury awarded Exmark $24 million in damages. The district court doubled the amount of damages for willfulness. 

Briggs appealled to the Federal Circuit on multiple grounds, including the district court’s denial of Briggs’ motion for a new trial on damages.

Damages for patent infringement can be determined in several ways. At a minimum, a successful plaintiff is entitled to a reasonable royalty for the defendant’s sale of the invention. The royalty is calculated by multiplying a royalty rate by the royalty base (the defendant’s sales of the infringing invention). However, if the patent only covers a component of the product that the defendant has sold, the plaintiff must apportion damages between the patented component and the whole product. The plaintiff is only entitled to a reasonable royalty on the patented component, not on the whole product.

On appeal, Briggs contended that Exmark’s expert should have determined damages by apportioning the royalty base, not the royalty rate. The appellate court rejected Briggs’ argument and held that damages can be apportioned by apportioning the royalty rate, apportioning the royalty base, or a combination of the two.
The court stated, at *29:

“So long as Exmark adequately and reliably apportions between the improved in conventional features of the accused mower, using the accused mower as a royalty base and apportioning through the royalty rate is an acceptable methodology….The essential requirement is that the ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product.”

The court explained that apportioning damages using the sales revenue from the lawn mower was proper for two reasons. First, Exmark’s patent included claims to the mower as a whole, not just the component baffle. Second, parties who negotiate licenses often use sales revenue for the whole product as the royalty base for a patented component. Id. at *29-31.

Briggs also argued on appeal that Exmark’s damage number was not admissible because its expert did not connect the royalty rate to the facts of the case. The Federal Circuit agreed with Briggs and held the district court’s denial of Briggs’ motion for a new trial on damages was an abuse of discretion. Id. at *31.

The court found that Exmark’s expert’s use of 5% as the royalty rate was not connected to the evidence in the case. Under Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), several specific factors may be considered in determining damages for patent infringement based on a reasonable royalty. These factors are referred to as the “Georgia-Pacific factors.” Exmark’s expert had analyzed certain of the Georgia-Pacific factors (including the advantages of the patented baffle to customers) and had determined that, in a hypothetical licensing negotiation, the parties would have agreed to a 5% royalty rate on the sales of the lawn mower. The expert did not tie the Georgia-Pacific factors to the 5% rate. Because the court held that Exmark’s expert had not connected the 5% rate to the Georgia-Pacific factors or the facts of the case, the expert’s opinion was inadmissible. The court remanded the case for a new trial on damages.

Some commentators believe that the Exmark court’s decision may increase plaintiffs’ ability to argue that a reasonable royalty should be based on the sales revenue from the whole product, not just the patented component. The court clearly held that apportioning damages between the whole product and the patented component can be accomplished by using the sales revenue for the whole product and apportioning the royalty rate. However, because the court rejected Exmark’s 5% royalty rate as not connected to the facts of the case, the court’s decision is also a warning that if a plaintiff chooses to use the sales revenue from the whole product and apportion with the royalty rate, they must clearly tie the royalty rate to the facts of the case.

Given this decision, it is likely that in the future, plaintiffs will use the sales revenue from the whole product, as it will be a larger amount than the sales revenue from the patented component, and apportion with the royalty rate.

Surviving Alice Challenges to Patent Claims

Posted in Patent Law

The Court of Appeals for the Federal Circuit just highlighted another approach plaintiffs can use to overcome early challenges to the validity of patent claims under 35 U.S.C. §101.   What is that approach?  It is a classic one:  show there is a genuine issue of fact.  That approach saved a subset of claims from summary judgment in Berkheimer v. HP

Berkheimer sued HP for infringement of its patent “relat[ing] to digitally processing and archiving files in a digital asset management system.”  The system parses files into objects and “tags objects to create relationships between them.”  “The objects are analyzed and compared … to archived objects” to find variations.  “The system then eliminates redundant storage of common text and graphical elements” improving efficiency and reducing storage costs.

In an Alice challenge, HP moved for summary judgment that certain claims are not patentable under 35 U.S.C. §101.  In Alice v. CLS Bank, the Supreme Court recognized that “laws of nature, natural phenomena, and abstract ideas” are not patent-eligible subject matter under §101. To determine whether claims are patent eligible the Supreme Court set forth a two-part test in Mayo v. Prometheus as further explained in Alice.  This test consists of the following steps:

Step 1:  The court determines whether the claims are directed to an abstract idea.

Step 2:  If the claims are directed to an abstract idea, then the court determines whether the claims include elements showing an inventive concept that transforms the idea into a patent-eligible invention.  Step 2 is satisfied when the claim limitations “involve more than performance of ‘well-understood, routine, [and] conventional activities previously known to the industry.’”

“[W[hether a claim recites patent eligible subject matter is a question of law which may contain underlying facts.”  Any fact, however, “that is pertinent to the invalidity conclusion must be proven by clear and convincing evidence.”

The district court granted summary judgment that a number of claims of Berkheimer’s patent were invalid under §101.  On appeal, the Federal Court found the patent is directed to an abstract idea (Step 1) and then focused on Step 2 of the two-part test.  While the patent-at-issue relates to a technique for archiving files, Berkheimer argued that “portions of the specification referring to reducing redundancy and enabling one-to-many editing contradict the district court’s finding that the claims describe well-understood, routine, and conventional activities.” Berkheimer thus argued there was a fact question to which HP had offered no evidence.  The Federal Circuit agreed the validity of some of the claims turned on whether they cover “well-understood, routine and conventional” technology.  “Whether something is well-understood, routine, and conventional to a skilled artisan at the time of the patent is a factual determination.” Therefore, the Court found there was a genuine issue of fact as to whether the disclosed system archives files in an inventive manner that transforms the abstract idea into a patent-eligible invention.

Given the genuine issue of material fact, the Federal Circuit found that it was inappropriate to invalidate the claims at the summary judgment stage.  Note the Federal Circuit did not find the claims are directed to patent-eligible subject matter, but rather the district court judge should not have granted summary judgment given to the factual issue.

Therefore, a plaintiff’s patent can survive an Alice challenge in a motion to dismiss or motion for  summary judgment if the plaintiff can show a genuine issue of fact as to whether the invention is well-understood, routine, and conventional to a skilled artisan at the time of the patent.  Importantly, the Federal Circuit indicated not all cases involving Alice implicate questions of fact stating “not every §101 determination contains genuine disputes over the underlying facts…”  Thus “[p]atent eligibility has in many cases been resolved on motions to dismiss or summary judgment.”

In light of Berkheimer, it will be interesting to see whether district courts are now more hesitant to invalidate claims as patent-ineligible in early stages of litigation.

 

Stone Brewing Fires the Shot Heard Round the Brewing World

Posted in Patent Law, Trademark Law

The fight between craft brewers and Big Beer (i.e. MillerCoors & Budweiser) has been ongoing for years. Ever since craft beer came to prominence in the late ‘90s, it has been stealing Big Beer’s share of the marketplace. In fact, craft beer has celebrated double-digit growth each year since then. In response, Big Beer has embarked on a course of action to recapture its share of the market.

In order to do so, certain members of Big Beer have acquired certain independent craft breweries, seemingly adopting the old adage, “if you can’t beat ‘em, join ‘em,” or in this case, “buy ‘em.” Now, by all means, mergers and acquisitions are part of business, and that’s fair play. But MillerCoors may have crossed the line when it decided to rebrand its Keystone brand as STONE, quickly catching the attention of craft brew powerhouse Stone Brewing, prompting Stone to file a complaint against MillerCoors in the United States District Court for the Southern District of California.

The complaint, which alleges trademark infringement, false designation of origin, trademark dilution, unfair competition, and declaratory relief, asserts that Stone Brewing has the exclusive right to utilize STONE in the brewing space. In fact, Stone has been utilizing STONE in conjunction with beer since as early as 1996, and subsequently registered the mark with the United States Patent and Trademark Office in 1998. Stone is one of the most well-known craft breweries in the industry and the ninth-largest independent craft brewer in the United States. It has even been recognized as the “All-Time Top Brewery on Planet Earth.”

MillerCoors, on the other hand, is a multinational beer conglomerate formed after a series of mergers involving Miller, Coors, and Canadian brewing conglomerate Molson. Keystone and Keystone Light is just one of many brands in MillerCoors portfolio. In general, the Keystone brand is regarded as sub-premium beer, which was formerly marketed in conjunction with the mark KEYSTONE and generally featuring imagery of the Colorado Rocky Mountains in the background. However, after Keystone’s sales dropped by approximately 25% from 2011 to 2016, and was named by USA Today as one of the “Beers Americans No Longer Drink,” MillerCoors opted to rebrand Keystone as STONE. Stone refers to the rebranding as an “aggressive second phase of the company’s pincer move against craft beer and Stone in particular.”

According to Stone, since the rebranding, which includes new cans, boxes, and logos emphasizing STONE as its primary mark, MillerCoors has launched a “viral marketing campaign that touts Keystone’s self-proclaimed new name,” and which “strategically plac[es] Keystone beer cans so that only ‘STONE’ is prominently displayed to viewers.” And if those allegations aren’t bad enough, Stone points out that MillerCoors encountered these same issues over a decade ago when it attempted to register STONES as a trademark and the USPTO refused the application because the examining attorney concluded the mark was confusingly similar to STONE. Still, MillerCoors has revived its attempt to rebrand Keystone with complete disregard of the USPTO’s prior conclusion. Although it’s almost certain that MillerCoors will have an explanation, whether believable or not, regarding the foregoing matters, this is highly favorable evidence for Stone. 

Stone has not hidden behind its attorneys regarding this lawsuit. Just the other day Stone co-founder, Greg Koch, released a video on the internet expressing Stone’s frustration with the conduct of MillerCoors and indicating that Stone intends to vindicate its rights. Stone’s counsel also indicated that unless an immediate resolution is reached between the parties, Stone intends to pursue a preliminary injunction that would preclude MillerCoors from utilizing any of its new STONE branding until the case has concluded. Frankly, for all intents and purposes, that motion could be dispositive of the case, as the Court will be forced to make a determination regarding whether the Keystone rebranding is likely to cause consumer confusion. Regardless of which direction the Court comes out on that issue, it seems unlikely that the losing party will be able to sway the Court the other direction at trial, which would likely result in the parties negotiating a resolution.

We will be keeping a close eye on this matter as it progresses and will provide periodic updates. In the meantime, check out Greg Koch’s YouTube video where Koch represents that MillerCoors can “end all of this right here and now” if it just puts “the KEY back in KEYSTONE.” In my opinion, MillerCoors should probably listen to Koch as it seems they have a heavy burden to bear.

Copyright Infringement and Third Party Software Support

Posted in Copyright Law

A recent case out of the Ninth Circuit, Oracle USA, Inc. v. Rimini Street, Inc. (July 13, 2017), illustrates some of the risks third party software vendors run concerning copyright issues.  Oracle develops and licenses proprietary “enterprise software” for business around the world.  A business using Oracle’s enterprise software would pay a one-time licensing fee to download the software and then can elect to buy a license maintenance contract that provides for periodic software updates. 

Rimini provides third party support for Oracle’s enterprise software in lawful competition with Oracle’s own maintenance services. In the course of providing third party services, Rimini also is required to provide software updates to its customers.  It appears that between 2006 and 2007, Rimini obtained software and/or updates from Oracle’s website with automated downloading tools on behalf of several of its customers.

Oracle sued Rimini in 2010 and obtained partial summary judgment on parts of its copyright infringement claim.  After trial, the jury found in favor of Oracle on other claims (including computer abuse claims which are not discussed in this article) and awarded Oracle damages that totaled more than $120 million after interest, attorney’s fees and costs were added.  Rimini appealed the Court’s decision to the Ninth Circuit.

One of the primary issues addressed by the Ninth Circuit was whether Rimini copied Oracle software in a manner that gave rise to copyright infringement.  The evidence was undisputed that Rimini used Oracle’s enterprise software to help develop and test updates that it would then push out to its customers.  It appears that Rimini, while using the license for one of its customers to obtain the Oracle download, would then use the software to provide updates to other customers who either had Oracle licenses or were considering obtaining them.

Rimini argued that it should have prevailed on the copyright infringement claims by asserting two affirmative defenses, express license and copyright misuse.  As to the express license defense, the U.S. Supreme Court has long recognized that “anyone who is authorized by the copyright owner to use the copyrighted work in a way specified in the statute … is not an infringer of the copyright with respect to such use.”  However, a person could be liable for copyright infringement to the extent they exceed the scope of the license granted by the copyright holder.  Thus, the Ninth Circuit’s inquiry focused on whether Rimini was acting in excess of the scope of the licenses held by its customers.

The District Court had instructed the jury that it would not necessarily be copyright infringement by Rimini if it had used a customer’s license to develop updates for that particular customer.  However, it would be unlawful if Rimini was to use the license from one particular customer to develop updates to be used by others.    The Ninth Circuit reasoned that Rimini’s use of one customer’s license to develop updates for other of its customers amounted to “cross use” and rejected Rimini’s claims that “cross use” is not infringement.  The Court found it significant that Rimini acknowledged that “cross use“ allows it to reduce expense to its customers by essentially “reusing work” performed for one customer.  The Ninth Circuit rejected this argument and agreed with Oracle by focusing on the language of the licenses that limited the scope of any authorized use to be done on behalf of that particular licensee.  By performing work for other customers, Rimini was exceeding the scope of any license and therefore was liable for copyright infringement.

Next, the Ninth Circuit turned to Rimini’s claim that Oracle was guilty of “copyright misuse.”  The copyright misuse doctrine prohibits copyright holders “from leveraging their limited monopoly to allow them control of areas outside the monopoly.”  In essence, the doctrine is intended to prevent copyright holders from stifling competition; however, it is not intended to prohibit the copyright holder from using conditions “to control use of copyrighted material.”  As a result, the copyright misuse defense should only be used “sparingly.”

Rimini argued that in essence, Oracle was “misusing” its copyright to prevent competition in the “aftermarket for third party maintenance.”  The Ninth Circuit rejected this argument finding that there was nothing wrong with requiring third party maintenance vendors to respect and comply with Oracle’s copyrights.

The Ninth Circuit’s decision in Oracle is a reminder that third party software vendors relying on their customer’s licensing of software or other computer programs need to be careful of running afoul of copyright laws.  Such vendors should obtain legal advice as to whether any of their proposed services run afoul of the software owners’/developers’ copyright interests.

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