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IP Challenges Again Take the Stage at the U.S. Supreme Court

Posted in IP, IP Law Blog Lawyers In The News

Intellectual property disputes will again take their place on stage at the U.S. Supreme Court this term when the court addresses at least two IP questions.  1.  Can the government challenge patents under the America Invents Act (“AIA”)?  2. Do trademark licenses survive Chapter 11 bankruptcy?  These questions are presented in two cases in which the U.S. Supreme Court just granted certiorari:  Return Mail, Inc. v. U.S. Postal Service, et al. and Mission Product Holdings, Inc. v. Tempnology, LLC.  In Return Mail, the Supreme Court is addressing whether the government is a “person” eligible to challenge the validity of patents under the AIA.  In Mission Products, the Court will determine the effect of bankruptcy on trademark licenses.

First, let’s look at the patent issue raised in Return Mail.  Patents are issued by the U.S. government and upon issuance are presumed valid and enforceable.  Return Mail essentially raises the question as to whether the U.S. government can challenge the validity of a patent it issued.  That is exactly what the U.S. government has done in Return Mail after the government was essentially accused of infringing a patent it issued.

Under the AIA, any “person” can petition the Patent Trial and Appeal Board (“PTAB”) for review of the validity of a patent.  Specifically, the AIA states that “a person who is not the owner of a patent” may petition for inter partes review (“IPR”), and any person sued for infringement may petition for covered business method (“CBM”) review.  Everyone from individuals to trade associations, nonprofits, and corporations have availed themselves of this right to challenge the validity of patents.  On a few prior occasions, even the U.S. government has petitioned for review of the validity of patents.

Return Mail, Inc., is the assignee, or owner, of U.S. Patent No. 6,826,548, which is a patent for more efficiently processing mail that is undeliverable and returned due to an inaccurate or obsolete address for the intended recipient.   After unsuccessfully trying to license its patent to the U.S. Postal Service, Return Mail brought suit against the U.S. Postal Service in the Court of Federal Claims under 28 U.S.C. §1498(a) alleging the Postal Service had “engage[d] in the unlicensed and unlawful use and infringement of the invention claimed in the ’548 patent.”  In response, the U.S. Postal Service challenged the validity of claims 39–44 of the patent under the AIA by filing a petition with the PTAB for CBM review.  The PTAB granted the petition and ultimately invalidated the challenged patent claims.

On appeal to the Federal Circuit, Judge Newman concluded in her dissent that the PTAB did not have jurisdiction to consider the government’s CBM petition because “[t]he general statutory definition is that a ‘person’ does not include the United States and its agencies unless expressly provided.”  In other words, Judge Newman concluded the government is not a “person” and therefore is not allowed to challenge the validity of patents under the AIA.  In contrast, Chief Judge Prost stated the majority was not persuaded that the government was excluded from bringing petitions under the AIA.  In support of the majority’s opinion, Judge Prost stated “[t]he AIA does not appear to use the term ‘person’ to exclude the government in other provisions.”

Capitalizing on Judge Newman’s argument in dissent, Return Mail took this dispute to the U.S. Supreme Court.  Return Mail relies on the argument that there is a “longstanding interpretative presumption that ‘person’ does not include the sovereign.”  In fact, Justice Scalia wrote that this presumption is overcome “only upon some affirmative showing of statutory intent to the contrary.”  Return Mail argues “the case is but the latest example of patent-law exceptionalism by the Federal Circuit” and that the Supreme Court has repeatedly reversed the Federal Circuit when it fails to heed the rule that “patent law is governed by the same common-law principles, methods of statutory interpretation, and procedural rules as other areas of civil litigation.”  Return Mail further argues the Federal Circuit’s ruling “jeopardizes billions of dollars in investments in every sector of the economy” by “expand[ing] the [PTAB]’s authority to invalidate issued patents—property protected by the Due Process and Takings Clauses.”

In rebuttal, the U.S. government argues the statute itself demonstrates affirmative intent to include the government in the definition of “person” because Congress used “person” in other parts of the statute in such an inclusive manner.  For example, the patent statute uses the term “person” when referring to those who can obtain and be assigned, or own, patents.  Under §102, the statute states “[a] person shall be entitled to a patent,” and under §118, it states a “person to whom an inventor has assigned” an invention may apply for a patent.  Then under 35 U.S.C. §207(a)(1), Congress has authorized “[e]ach Federal agency” to “apply for, obtain, and maintain patents,” but the government is still subject to §102 and §118 in doing so. Thus, the government argues, it is a “person” in the context of patents and challenges of patents under the AIA.  In fact, the government has a vast portfolio of patents.  In addition, the government points out that when the same words are used in different parts of a statute, they are presumed to have the same meaning.

The government goes on to argue that public policy favors allowing the government to challenge weak patents asserted against it, stating “Congress’s interest in providing an efficient non-judicial mechanism for reconsidering the patent’s validity is no less implicated than when the patent is asserted against a private party.”

Not only does this case raise the question of whether the government can take on the roles of both the sovereign power (i.e., the United States Patent and Trademark Office as issuer of the patent and the USPTO’s PTAB as the tribunal for evaluating the validity of the challenged patent) and essentially a private party (i.e., the U.S. government and its U.S. Postal Service as patent challenger before the PTAB) in the same proceeding, but it also raises questions as to where the boundaries of the government will be drawn in such proceedings.  For example, in arguing that Return Mail is the wrong vehicle for the Court to decide this issue, the government has argued that the Postal Service is fundamentally different than other Federal agencies because it is more like a business than the other governmental agencies.  But the government did not distance itself from the Postal Service in the CBM petition challenging Return Mail’s patent.  In fact, the government specifically names both entities in the petition, captioning it The United States Postal Service (USPS) and The United States of America v. Return Mail, Inc.  Further, while the U.S. government has only filed a few petitions under the AIA, a ruling that the government is not eligible to file such petitions may raise further questions as to whether foreign governments, states, and/or entities affiliated with federal, state, or foreign governments are eligible to file petitions challenging the validity of patents.

In the second IP case currently before the Supreme Court, the Court will address trademark licensing issues in the context of bankruptcy in Mission Products.  In that case, Tempnology filed for bankruptcy protection and cancelled its licensing agreement with Mission Product Holdings (“MPH”).  MPH contested the cancellation arguing that under Bankruptcy Code §365(n), MPH was allowed to continue its use of the licensed trademark.  The Court of Appeals for the First Circuit, however, found that the trademark license did not survive Tempnology’s cancellation.  However, there is currently a split among the circuits on this issue.  While the Fourth Circuit has followed the First Circuit’s approach, the Seventh Circuit has taken the opposite approach.  Instead, the Seventh Circuit has found that a licensor’s cancellation of a trademark license in bankruptcy proceedings is a breach of contract by the licensor, rather than a termination of the licensee’s rights.  In its upcoming decision in Mission Products, we will soon know how the Supreme Court resolves this split among the circuits.