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.

The U.S. Court of Appeals for the Federal Circuit was recently tasked with reviewing determinations made by the International Trade Commission (“ITC”) relating to trade infringement claims brought by Converse, Inc. with regard to a number of imported shoes that it alleged infringed on one of its trademarks. Although Converse sneakers have had largely the same appearance since the 1930s, Converse registered a trademark in 2013 relating to the design of its midsole and the toe cap/bumpers on its shoes.  The primary issue before the Federal Circuit was the timing of a second meaning inquiry in connection with the trademark infringement claim in light of the actual trademark registration in 2013.    

Section 337 of the Tariff Act of 1930 provides for remedies at the ITC for holders of trademarks against companies and people who import goods that infringe on a valid and enforceable trademark.  Converse brought claims against a number of respondents for trademark violations regarding the importing of various footwear products in 2014.  Although some of the entities defaulted as to the claims, a number contested Converse’s claims to the ITC and received a favorable ruling that they either did not infringe on Converse’s mark, or that the mark was invalid.  Converse appealed that finding to the Federal Circuit which recognized that the primary issue was “whether the mark had acquired secondary meaning” and the timing issues surrounding that determination.

Converse argued that its mark had long ago acquired secondary meaning in that it had been in use since 1932.  The respondents on the other hand contended that Converse did not exclusively use the mark during that time and provided evidence by way of a survey showing that consumers did not necessarily associate the Converse mark with a single source.  The Federal Circuit concluded that the ITC had made several errors in findings against Converse on its trademark infringement claims.

First, the Federal Circuit held that the ITC erred in failing to distinguish those respondents who were alleged to have infringed before Converse obtained its trademark registration in 2013 and those who began afterward.  The Federal Circuit noted that while the Lanham Act does not create trademarks, “it may create some new substantive rights in trademarks unless the trademarks preexist [and] there is nothing to be registered.” Although Converse had secured its trademark registration in September 2013, it claimed that both before registration and after registration acts of infringement violated its rights in the trademark.  The Federal Circuit noted that to establish infringement Converse had to show: “(1) it has a valid and legally protectable mark; (2) it owns the mark; and (3) the defendant’s use of the mark to identify goods or services causes a likelihood of confusion.”  Because Converse was seeking protection for its mark in the form of unregistered product design trade dress, it had to show “that its mark has acquired distinctiveness, i.e., secondary meaning.”  The problem with the ITC’s decision the Federal Circuit found was that it had not determined the relevant date for determining whether secondary meaning existed.  In essence, the ITC was urging an interpretation that the secondary meaning had not attached at any time.  The Federal Circuit disagreed with this approach and found that it needed, “a specific determination of secondary meaning as of the relevant date” so that a court could determine whether or not there had been infringing activity.

The statutory effect of Converse’s registration of its mark in 2013 was to create a “presumption of secondary meaning which would operate only prospectively from the date of registration.”  While Converse argued that this presumption should apply to the use of its mark since its first use in the 1930s, the Federal Circuit rejected this and held that the statute made clear that the presumption only applies to post-registration conduct.  With regard to any possible infringement that predated the registration of the mark, Converse would be required to establish “that its mark had acquired secondary meaning before the first infringing use by each respondent” without any benefit of the statutory presumption.

The Federal Circuit then turned its attention to the standards that the ITC should have applied in determining whether the mark had acquired secondary meaning.  The Federal Circuit then found that the ITC had applied incorrect legal standards in rendering a finding that the mark had not acquired secondary meaning. In clarifying the standard that the ITC should have used in determining whether secondary meaning had been acquired in the mark, the Court held that the following six factors should be considered: “(1) association of the trade dress of the particular source by actual purchasers (typically measured by customer surveys); (2) the length, degree and exclusivity of use; (3) amount and manner of advertising; (4) amount of sales and number of customers; (5) intentionally copying; and (6) unsolicited media coverage of the product embodying the mark.”  The Federal Circuit cautioned that the ITC should consider each of these six factors together in determining the existence of secondary meaning.

The Federal Circuit then turned to the issue of the prior use of the mark by Converse and the alleged infringers.  In reviewing the Lanham Act, the Court found that the most relevant evidence would be the prior use in the five years immediately preceding first use or infringement. Thus, given the importance of looking to a five year period, the Federal Circuit instructed the ITC to “rely principally on uses within the last five years.”  This was because the “critical issue for this factor is whether prior use has impacted the perceptions of the consuming public as of the relevant date.”  The Federal Circuit reasoned that “consumers are more likely to remember and be impacted in their perceptions by third party uses within five years and less likely with respect to older uses.”  Thus, uses that predate the five year period should only be considered if they were likely to have impacted a consumer’s perception of the market as of the relevant date.

The Federal Circuit noted a further error in the ITC’s findings in that in determining prior uses by other third parties, it had considered several instances of shoes that had “at most a passing resemblance to the [Converse] trademark.”  The Court noted that many of these examples were missing at least one of the elements of the trademark and that others had been reproduced in poor resolution that prevented any reasonable comparison. Thus, the Federal Circuit instructed the ITC to limit its analysis only to those uses by Converse and its competitors of the “marks substantially similar to Converse’s registered mark.”  The Federal Circuit noted that there was a similar error by the ITC in applying the similarity in its likelihood of confusion analysis.  The Federal Circuit concluded by vacating the ITC’s findings and remanding it for further proceeding.

The Converse decision reiterates the importance of determining the impact of a mark registration date and whether a presumption of secondary meaning attached when dealing with products that have been in use for years.

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. 

Some things are not patentable: laws of nature, natural phenomena, and abstract ideas.  The Supreme Court has long held that inventions falling within these categories are not patentable; they are patent-ineligible subject matter.  In 2014, the Supreme Court relied on this principle in deciding Alice Corp. Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347.  In that case, the Court invalidated patent for a computerized system for mitigating risks in financial transactions. The Court also established a test for determining patent-eligible subject matter.  Since then, Alice has been used to invalidate many patents, particularly software patents.  Now it has been used to invalidate a patent for ordering pizza.

    Ameranth owned four patents for “an information management system” for transmitting menus from a master database to handheld devices.  In 2011, Ameranth filed suit in the Southern District of California against several defendants, including Pizza Hut, Domino’s Pizza, and others, for infringement of the four patents.  The defendants challenged the validity of three of the patents in the Patent Trial and Appeal Board (PTAB).  The PTAB invalidated many of the claims of the three patents, and, in a subsequent appeal, the Federal Circuit invalidated the remaining claims.  All three patents were held invalid on the grounds that they were directed to patent-ineligible subject matter because the invention was an abstract idea.

The defendants challenged the fourth patent in the PTAB, but the PTAB denied the defendants’ petition, so the infringement litigation proceeded in the district court.

Pizza Hut filed a motion for summary judgement seeking a determination that the patent was invalid as an abstract idea.  However, Pizza Hut then settled the case against it, and Domino’s moved for summary judgement on the same grounds.

On September 27, 2018, the district court granted Domino’s motion and held the patent invalid.  The court applied the two-pronged Alice test.  As set forth in Alice, in the first prong, a court must determine whether the claims of the patent fall within one of the patent-ineligible categories (laws of nature, natural phenomena, and abstract ideas).  The court considers whether the patent’s claims are directed to a specific means or method (which would be patent-eligible) or are directed to a result and use generic processes and machines (which would not be patent-eligible).

If the claims fall within a patent-ineligible category, the court must then proceed to the second prong of the Alice test.  The court must determine whether the elements of the claim transform the claim from patent-ineligible subject matter into patent-eligible subject matter.

In applying the first prong of the Alice test, the court noted that the Federal Circuit had previously held that “collecting, analyzing and displaying information,” without more, and “fundamental economic practices…including longstanding commercial practices and methods of organizing human activity” are abstract ideas.  The court said that the Ameranth claims covered a system that configured the information on large paper menus into a wireless handheld device and allowed the master menu to communicate with the handheld devices in real-time.  The court held that the claims were directed to an abstract idea.

The court then went on to address the second prong of the Alice test.  The court considered the elements of the claims (software, hardware, real-time communications, and configuring information into a wireless device), and found that these elements were based on conventional technology and did not constitute an inventive concept.  The court held that none of these elements transformed the abstract idea of the invention into patent-eligible subject matter.  Therefore, the second prong of the test was met.  The court held the patent invalid as directed to an abstract idea.

Ameranth had filed similar suits against other businesses who use these types of ordering systems, including Papa Johns, Marriott Hotels, Starbucks, Apple and Ticketmaster, and the cases are about to go to trial. Now these cases will be dismissed, thanks to Domino’s. Meanwhile, Ameranth intends to appeal.

In Lexington Luminance LLC v. Service Lighting and Electrical Supplies, Inc. d/b/a 1000bulbs.com, 3-18-cv-01074, the District Court for the Northern District of Texas denied defendant’s motion to dismiss for failure to state a claim, but granted its motion for a more definite statement because of the complexity of the patents-in-suit.

In the case, the Defendant argued that the Plaintiff’s complaint for direct patent infringement should be dismissed because the complaint fails to meet the pleading standards set forth by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009).  Defendant further argued that the complaint only sets forth conclusory statements that the accused devices practice the limitations of the patent claim asserted, that the complaint fails to set forth plausible facts to support those conclusory statements, and that the complaint fails to clearly identify the accused devices.

Under the pleading standards of Twombly and Iqbal, a complaint must at a minimum allege plausible facts that give rise to an entitlement for relief.  Threadbare recitals of the elements of a cause of action supported by conclusory statements are insufficient to meet this pleading standard.  Previously, direct patent infringement causes of action were safe from sufficiency of the pleading motions to dismiss based on the Twombly and Iqbal standard as long as the complaint complied with the pleading example of Form 18 provided in the Federal Rules of Civil Procedure.  However, direct patent infringement causes of action no longer have this protection because Form 18 was abrogated recently, meaning pleadings for direct patent infringement must now conform with the Twombly and Iqbal pleading standards without the benefit of Form 18.

Plaintiff asserted that its complaint complies with the pleading requirements of Twombly and Iqbal as confirmed by the Federal Circuit’s recent opinion in Disc Disease Solutions, Inc. v. VGH Solutions, Inc., 888 F.3d 1256 (Fed. Cir. 2018).  However, in considering Plaintiff’s argument, the District Court noted that in Disc Disease Solutions, the Federal Circuit specifically pointed out that the case involved a simple technology, the complaint specifically accused three products, and photos of the product packaging were attached to the complaint as exhibits.  Thus, the Court reasoned that the holding in Disc Disease Solutions is limited to similar circumstances, where considering the technology at issue, the complexity level of the asserted claims, and the nature of the accused devices, simple pleadings supported by photographs may be sufficient to meet the standards of Twombly and Iqbal.

Therefore, the Court determined that the present case is distinguishable from Disc Disease Solutions.  The patent in suit in this case, U.S. 6,936,851, is titled “Semiconductor Light Emitting Device and Method for Manufacturing the Same.”  The patent discloses a semiconductor light-emitting device having a particular structure and chemical composition.  The asserted claim, claim 1, is directed toward a light emitting device having particular physical and chemical properties including: a textured district comprising “a plurality of etched trenches having a sloped etching profile with a smooth rotation of microfacets without a prescribe angle of inclinations”; a layer that forms a “lattice-mismatched misfit system” with a substrate; a substrate that has at least one particular element or 4 compound; and lower portions of the layer “configured to guide extended lattice defects away from propagating into” an active layer.  Considering the disclosure provided by the ‘851 patent and the limitations of the asserted claim, the Court determined the technology at issue here is not a simple technology.  Instead, the technology at issue is a complicated technology and the claims are directed to an LED light involving a particular structure and chemical composition.

Therefore the Court found a plausible inference that an accused device meets all the limitations of the asserted claims cannot be inferred from the Plaintiff’s bare conclusory allegations.  Additional factual information is required under the standards of Twombly and Iqbal.  However, the Court did note that the additional factual information need not necessarily be as detailed as that disclosed in infringement contentions.  But the Court stated there must at least be some factual support for a plausible inference that the accused devices practice the asserted claim.

Thus, since the complaint failed to set forth factual allegations that meet the pleading requirements of Twombly and Iqbal, the Court found the Plaintiff’s complaint deficient, and ordered the Plaintiff to amend its complaint to add additional factual allegations in compliance with the pleading standards of Twombly and Iqbal.

Defendant also argued that the complaint is deficient in its identification of accused devices. The complaint specifically identifies the “Bulbrite LED T14 Tubular Bulb, model 776511” as an accused device, but Defendant took issue with the remainder of the accused devices which are described as “other similar products, which perform substantially the same function as the devices embodied in one or more claims of the ‘851 Patent in substantially the same way to achieve the same result.”  Defendant asserted that this fails to reasonably inform the Defendant what additional devices are accused devices under this statement.

The Court agreed that the Plaintiff’s identification of additional products was unclear and ambiguous because the statement fails to reasonably inform Defendant as to what additional devices, if any, are accused by this statement.  However, the Court found the Plaintiff did reasonably inform Defendant that the Bulbrite LED T14 Tubular Bulb is an accused device, which is sufficient to survive a challenge to the sufficiency of the pleadings.  Thus, the Court denied this part of Defendant’s motion.

Any work that is entitled to copyright protection automatically receives protection when it is fixed in a tangible medium of expression. However, in order to benefit from the Copyright Act, the owner must “register” his or her work with the United States Copyright Office. Put another way, in order to protect against copyright infringement, the owner must register the work. So, for purposes of the Copyright Act, what does that mean?

To be clear, there is no right answer. Not yet at least. In fact, the definition of “registered” has been debated for years and the federal circuit courts are split on the definition. The Copyright Act describes the registration process as (1) filing an application and paying a fee; (2) depositing a copy of the copyrightable material with the Copyright Office; (3) an examination of the application by the Register of Copyrights; (4) registration or refusal of registration of the application by the Register; and (5) issuance of a certificate of registration. The circuit courts have split on when the mark should be deemed “registered” for purposes of the Copyright Act.

The two approaches are known as the “application” approach and the “registration” approach. The courts following the “application” approach hold that a work is “registered” and the copyright owner can sue an infringer as soon as the applicant files the application, deposits the copy of the work, and pays the fee. The courts following the “registration” approach hold that a work is not “registered” until the Copyright Office has acted on the application by approving or refusing it, and as such, the owner cannot file suit until the Copyright Office has acted.

For years, the split remained intact, but the Supreme Court of the United States will finally resolve the dispute in an action known as Fourth Estate Public Benefit Corporation v. Wall-Street.com, LLC. In that case, Fourth Estate Public Benefit Corporation, a news organization publishing articles online, licensed certain articles to Wall-Street.com. Eventually, Wall-Street.com cancelled its account with Fourth Estate, and under the license agreement, it was required to remove all licensed content from its site. But Wall-Street.com refused to do so, prompting Fourth Estate to file suit for copyright infringement on unregistered works, advocating for the Court to apply the “application” approach. The District Court refused, adopting the “registration” approach and dismissing the action without prejudice.

The Eleventh Circuit affirmed the District Court’s ruling, citing its prior decision in M.G.B. Homes and Kernel Records, where it held, in short, that filing an application does not amount to registration for purposes of the Copyright Act. Registration requires action from both the copyright owner and the Copyright Office. Accordingly, the Eleventh Circuit held that filing for infringement is premature after merely filing the application. Accordingly, Fourth Estate petitioned the Supreme Court for review, which was ultimately granted.

The courts favoring the “application” approach have adopted a more pragmatic and policy-driven position. Those courts have argued that the “application” approach serves justice and judicial economy. After all, if a copyright owner can sue for infringement regardless of the application ultimately being granted or rejected by the Copyright Office, what’s the point of making the party wait to bring suit? It doesn’t seem to make sense. Moreover, these courts point to section 408 of the Copyright Act, which states that registration is not a condition of copyright protection and implies that the only requirement for registration is the delivery of the appropriate documents and fees. Additionally, Section 410 states that the effective date of the registration relates back to the date the Copyright Office receives the filing materials. For these reasons, among a few others, certain circuit courts, including the Fifth and Ninth Circuits, apply the “application” approach.

So, why does the circuit split matter? Generally speaking, the split among the circuit courts results in the courts applying federal law in a dissimilar manner depending upon their location, rather than uniformly throughout the nation. This is problematic because it results in parties bringing, or being prevented from bringing, lawsuits for infringement at different points in the registration process depending on where the action is filed. This can, at times, create statute of limitations problems, and in other instances, permit the infringing party to continue to profit from his or her wrongdoing for a longer period of time. Given that copyright law is exclusively within the jurisdiction of the federal courts, the law should be applied uniformly throughout the nation. Unfortunately, that is not happening, but with the Supreme Court granting certiorari, there will soon be a clear answer regarding what constitutes “registered” for purposes of the Copyright Act.