Patent owners can no longer restrict the use of their patented products after the products are sold.  Under the doctrine of patent exhaustion, a patent owner’s rights are “exhausted” once the patent owner sells the product.  In Impression Products v. Lexmark International, Inc., 2017 U.S. LEXIS 3397 (May 30, 2017), the Supreme Court expanded the scope of patent exhaustion, reversing a long-standing rule that a patent owner can control the use of its patented product after the product is sold.  The Supreme Court held that the sale (or license) of a patented product exhausts all of the patent owner’s rights.  The Court also held that exhaustion applies regardless of whether the sale is inside or outside the U.S.

Lexmark owned several patents for toner cartridges for laser printers.  When the toner in the cartridge was used up, the cartridge could be refilled and reused.  Lexmark gave consumers two choices in purchasing its cartridges: the consumer could either pay full price for the cartridges with no restrictions or pay a discounted price with a contract to use the cartridge only once and return the empty cartridge only to Lexmark.  Lexmark installed microchips on the refundable cartridges to prevent their reuse.

Impression Products and other companies bought the used Lexmark cartridges and solved the microchip problem, refilling the cartridges with toner and selling the refilled cartridges at a price  lower than Lexmark’s price.

Lexmark sued Impression Products for patent infringement.  Lexmark claimed that Impression Products infringed Lexmark’s patents by purchasing the used returnable cartridges and reselling them, in violation of the contract Lexmark had with the original purchasers.  Lexmark also claimed that Impression Products infringed Lexmark’s patents by purchasing Lexmark cartridges that Lexmark had sold outside the U.S. and importing them into the U.S. for sale

Impression Products argued that it had not infringed the patents because Lexmark’s sales of the cartridges, in the U.S. or abroad, exhausted Lexmark’s patent rights.  Impression Products moved to dismiss both of Lexmark’s claims.  The district court granted the motion as to the returnable cartridges, but denied it as to the cartridges that were sold abroad.

The Federal Circuit Court of Appeals ruled for Lexmark on both claims.  As to the returnable cartridges, the court held that patent exhaustion did not preclude the patent owner from imposing limits on post-sale use or resale, as long as the restrictions were clearly stated.  As to the cartridges sold abroad, the court held that the patent owner retained the right to sue those who imported into the U.S. the cartridges originally sold abroad.

The Supreme Court reversed the Federal Circuit on both claims.  First, the Court held that patent owners exhaust their rights when they sell the patented product, and it is irrelevant whether the post-sale limitations imposed by the patent owner are clearly stated.  The patent owner relinquishes all rights to the patent when it sells the product.  At that point, the product “becomes ‘the private individual property’ of the purchaser, with the rights and benefits that come along with ownership.”  Id. at *18.  The Court explained that the patent exhaustion doctrine means that “patent rights yield to the common law principle against restraints on alienation.”  Id.  According to the Court, “there is no basis [in the law] for restraining the use and enjoyment of things sold.”  Id. at *19.

The Court explained that sales through licensees are treated the same way as sales by the patent owner.  Such sales exhaust the patent owner’s rights.  Thus, a patent owner cannot impose limits on the ultimate purchaser’s use of the patented product through the use of a license to an intermediary.

Second, the Court held that Lexmark’s sales outside the U.S. are also subject to patent exhaustion.  If a patent owner sells its patented product abroad, it loses all patent rights, just as if it had sold the product in the U.S.  Others are free to import the product that they purchased outside the U.S. for sale in the U.S.

 

In SANDOZ INC. v. AMGEN INC. et al., the United States Supreme Court in a unanimous opinion ruled that biosimilar makers can give their required 180-day statutory notice of sales before their products win approval by the United States Food and Drug Administration (“FDA”).  In short, the Court held a biosimilar maker “may provide notice either before or after receiving FDA approval.”  If biosimilar makers had to await FDA approval before giving notice, this requirement would essentially delay the biosimilar’s lower priced offerings from reaching the market by six months.  In the case of major biologics, when the biosimilar discounted version of a brand-name reaches the market, this completion can significantly reduce sales that can run in the billions of dollars annually.

At issue in the case is 42 U. S. C. §262(l), which was enacted as part of the Biologics Price Competition and Innovation Act of 2009 (BPCIA).  The BPCIA governs a type of drug called a biosimilar, which is a biologicial product that is highly similar to a biologic product that has already been approved by the FDA.  A biologic is type of pharmaceutical drug product manufactured in, extracted from, or semisynthesized from biological sources.  Examples of commercial biologics include vaccines, blood, blood components, allergenics, somatic cells, gene therapies, tissues, recombinant therapeutic protein, and living cells used in cell therapy.  For example, the biologic at issue in this case is filgrastim, which is used to stimulate the production of white blood cells.  Amgen has marketed a filgrastim product called Neupogen since 1991 and claims to hold patents on methods of manufacturing and using filgrastim.eric_caliguiri_web

Most biologics are very large, complex molecules or mixtures of molecules.  Many biologics are produced using recombinant DNA technology.  In comparison, a standard synthetic drug is typically manufactured through chemical synthesis, which means that it is made by combining specific chemical ingredients in an ordered process.  Synthetic drugs generally have well-defined chemical structures, and a finished drug can usually be analyzed to determine all its various components.  By contrast, it is difficult, and sometimes impossible, to characterize a complex biologic by testing methods available in the laboratory, and some of the components of a finished biologic may be unknown.

Thus, to be approved as a biosimilar, a drug must have the same active ingredient, strength, dosage form, and route of administration as the reference drug, and it must also be “bioequivalent.”  This means that generic drugs are the same chemically as their innovator counterparts and that they act the same way in the body.  To gain FDA approval, an applicant must show that its product is “highly similar” to the reference product and that there are no “clinically meaningful differences” between the two in terms of “safety, purity, and potency.”  An applicant may not submit an application until 4 years after the reference product is first licensed, and the FDA may not license a biosimilar until 12 years after the reference product is first licensed.  As a result, the manufacturer of a new biologic enjoys a 12-year period when its biologic may be marketed without competition from biosimilars.

The manufacturer or sponsor may also hold multiple patents covering the biologic, its therapeutic uses, and the processes used to manufacture it.  Those patents may constrain an applicant’s ability to market its biosimilar even after the expiration of the 12-year exclusivity period.  However, the BPCIA facilitates patent litigation during the period preceding FDA approval so that the parties do not have to wait until commercial marketing to resolve their patent disputes.  The BPCIA sets forth a carefully calibrated scheme for preparing to adjudicate, and then adjudicating, claims of patent infringement.

When the FDA accepts a biosimilar application for review, it notifies the applicant, who within 20 days “shall provide” to the sponsor a copy of the application and information about how the biosimilar is manufactured.  The applicant also “may provide” the sponsor with any additional information that it requests.  These disclosures enable the sponsor to evaluate the biosimilar for possible infringement of patents it holds on the reference product (i.e., the corresponding biologic).

After the applicant makes the requisite disclosures, the parties exchange information to identify relevant patents and to flesh out the legal arguments that they might raise in future litigation.  For example, within 60 days of receiving the application and manufacturing information, the sponsor “shall provide” to the applicant “a list of patents” for which it believes it could assert an infringement claim if a person without a license made, used, offered to sell, sold, or imported “the biological product that is the subject of the [biosimilar] application.”  Next, within 60 days of receiving the sponsor’s list, the applicant may provide to the sponsor a list of patents that the applicant believes are relevant but that the sponsor omitted from its own list, and “shall provide” to the sponsor reasons why it could not be held liable for infringing the relevant patents and why the patents may be invalid.

Following this exchange, the BPCIA channels the parties into two phases of patent litigation.  In the first phase, the parties collaborate to identify patents that they would like to litigate immediately. The second phase is triggered by the applicant’s notice of commercial marketing and involves any patents that were included on the parties’ lists but not litigated in the first phase.

As to the issues in the case, the Court first had to decide whether the requirement that an applicant provide its application and manufacturing information to the manufacturer of the biologic is enforceable by injunction.  The Court concluded that an injunction is not available under federal law, but remanded for the court below to decide whether an injunction is available under state law.

The second issue the Court considered is whether the applicant must give notice to the manufacturer after, rather than before, obtaining a license from the FDA for its biosimilar.  In deciding the issue, the Court noted Section 262(l)(8)(A) states that the applicant “shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed under subsection (k).” The Federal Circuit had held that an applicant’s biosimilar must already be “licensed” at the time the applicant gives notice. But, the Supreme Court disagreed.

The Court reasoned the applicant must give “notice” at least 180 days “before the date of the first commercial marketing.” “[C]ommercial marketing,” in turn, must be “of the biological product licensed under subsection (k).”  Because this latter phrase modifies “commercial marketing” rather than “notice,” “commercial marketing” is the point in time by which the biosimilar must be “licensed.”  The statute’s use of the word “licensed” merely reflects the fact that, on the “date of the first commercial marketing,” the product must be “licensed.”  Accordingly, the court held the applicant may provide notice either before or after receiving FDA approval.

 

Recently, Eagles Ltd. (the “Eagles”), the entity in control of legendary rock band The Eagles’ business affairs, filed a lawsuit against Hotel California Baja, LLC for trademark infringement. While I’m sure most of us are familiar with the Eagles’ song Hotel California, it may come as a surprise to most trademark aficionados that the Eagles have never registered HOTEL CALIFORNIA with the USPTO. Although this is shocking, and many intellectual property practitioners might even say reckless, those reactions beg the question: Is federal registration an absolute necessity to enforcement?

Federal registration is undoubtedly beneficial, and most practitioners would advise registration as the prudent course of action, but it is by no means an absolute necessity. The Lanham Act is protective of all trademarks that a proponent can establish having used in the United States, whether registered or not. While I wouldn’t personally advise my clients to proceed without a registration, as there is significant downside, this should come as relief to some entrepreneurs, particularly start-ups, who may not quite have the revenue needed to pursue trademark registration for their marks. But such an election should not be made without first consulting competent counsel to obtain a complete understanding of the disadvantages of proceeding with an unregistered trademark. For example, one such disadvantage is that unregistered trademarks are geographically restricted to the area where the mark is utilized. After all, we don’t all have national and international distribution like the Eagles, giving rise to trademark protection that is equally broad in scope.

In any event, the Eagles have filed their lawsuit in the United States District Court for the Central District of California, which is based in Los Angeles. Interestingly enough, the Hotel California Baja is based, as its name implies, in Baja California, Mexico. Although this could seemingly pose a jurisdictional problem, the Hotel California Baja is a registered California corporation, which, in this instance, makes it subject to the Central District’s jurisdiction. In the lawsuit, the Eagles allege that the Hotel California Baja has engaged in unfair competition and created a false designation of origin to consumers. More specifically, the Eagles allege that through the use of HOTEL CALIFORNIA, the playing of the Eagles’ music in the lobby, and the sale of merchandise self-proclaiming the hotel as “legendary,”[1] the Hotel California Baja has duped consumers into believing that the hotel is somehow associated or otherwise affiliated with the Eagles, or alternatively, that the Eagles sponsor or approve of the hotel’s services and commercial activity. Furthermore, the Eagles have alleged that the Hotel California Baja falsely claims to have served as inspiration for the song. As you might assume from the filing of this action, the Eagles have no such relationship with the Hotel California Baja, and they do not sponsor or approve its activities.

It is also worth noting that there is related litigation pending before the USPTO. Namely, in October 2016, the Eagles opposed the Hotel California Baja’s trademark registration, which was filed in November 2015, on the ground that it creates a likelihood of consumer confusion. Interestingly enough, shortly thereafter, the Eagles finally attempted to register HOTEL CALIFORNIA with the USPTO, but the examining attorney issued an office action refusing registration on the basis of Hotel California Baja’s previously filed application! However, in light of the recently filed federal litigation, both of these matters will likely be stayed.

It will be interesting to see how this dispute is ultimately resolved, whether through settlement or litigation. At this juncture, we do not have enough information to provide an informed analysis of how we believe it may come out, but we will keep an eye on the docket and provide updates when meaningful information becomes available.

[1] The Eagles contend that if the Hotel California is legendary, there can only be one source for that status: the Eagles. Thus, the Eagles contend that this characterization of the Hotel California Baja further exemplifies the false designation of origin.

 

The Copyright Act provides that “Registration” of a copyright is a precondition to filing suit for copyright infringement.  17 U.S.C. § 411(a).  We are still trying to figure out exactly when registration occurs.

While copyright registration is voluntary, the Copyright Act provides several incentives for a copyright owner to register a copyright, one of which is the right to enforce a copyright in an infringement action:  17 USC 411(a) provides:

[N]o civil action for infringement of the copyright in any United States work shall be instituted until … registration of the copyright claim has been made in accordance with this title.  In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement .…”

There are two camps of thought splitting the Federal circuit courts on when “registration” takes place with regard to Section 411(a).  The first is that “registration” occurs when a copyright owner files all necessary application materials to the Copyright Office to register a copyright.  The 5th and 9th Circuits and various district courts in other circuits have adopted this perspective, relying on the fact that the Copyright Act prescribes that the effective date of a registration is the date on which a proper and complete application was filed.  Because an applicant may sue for infringement whether or not a registration is issued as long as a proper application was filed, courts following the application approach believe the “registration” approach is misguided.  Since an applicant can file suit either way, it is immaterial whether registration is ultimately granted. Scott Hervey 10 final

The second camp is that “registration” occurs when the Register of Copyrights registers the copyright or rejects the application.  The 10th Circuit follows the “registration“ approach.  Just this month, the 11th Circuit made clear that it too will follow the registration approach.

In its decision in Fourth Estate v. Wall Street.com, LLC, the 11th Circuit explained the rationale behind its support of the “registration” approach.  That case involved a copyright infringement lawsuit over articles appearing on WallStreet.com.  The Copyright Office had not yet processed the copyright applications and Wall-Street.com, LLC moved to dismiss.  The court stated that “the Copyright Act defines registration in Section 410(a) as a process that requires action by both the copyright owner and the Copyright Office; the filing of the application, the payment of the application fee, the examination of the application by the Register of Copyrights, and then either the issuance of the certificate of the notification of the refusal of registration.

Section 410(a) of the Copyright Act provides in pertinent part:

When, after examination, the Register of Copyrights determines that, in accordance with the provisions of this title, the material deposited constitutes copyrightable subject matter and that the other legal and formal requirements of this title have been met, the Register shall register the claim and issue to the applicant a certificate of registration under the seal of the Copyright Office.

The court argued that the use of the phrase “after examination” in section 410(a) makes explicit that an application alone is insufficient for registration.  Further, the court points out that Section 411(a) allows an applicant whose application has been refused to file an infringement suit.  If registration occurred as soon as an application was filed, how could the application ever be refused the court reasoned.

With two Federal circuits clearly split, it is time for the Supreme Court to resolve this issue.

For over 25 years, the Court of Appeals for the Federal Circuit and the United States district courts have interpreted the patent venue statute 28 U.S.C. §1400(b) to allow plaintiffs to bring patent infringement cases against a corporation in any district court where there is personal jurisdiction over that corporate defendant.  The U.S. Supreme Court just overturned that interpretation in TC Heartland v. Kraft Foods.  In some instances, TC Heartland will greatly limit where patent infringement cases can be filed.  In fact, some are predicting that a significant number of the cases filed in the plaintiff-friendly Eastern District of Texas will be dismissed or transferred and that a substantially smaller number of cases can be filed there in the future.

The patent venue statute 28 U.S.C. §1400(b) provides that “[a]ny civil action for patent infringement may be brought in” either “the judicial district where the defendant resides” or “where the defendant has committed acts of infringement and has a regular and established place of business.”  When the defendant is a corporation, the question arises as to where does the corporation reside?  In Fourco Glass Co. v. Transmirra Products Corp., the Supreme Court previously ruled that for purposes of the patent venue statute “a domestic corporation ‘resides’ only in its State of incorporation.” In Fourco, the Court rejected the argument that §1400(b) is subject to the broader definition of corporate ‘residence’ found in the general venue statute, 38 U.S.C. §1391(c).   However, §1391 has been amended twice since the ruling in Fourco.  As amended, §1391 provides that for purposes of venue, a defendant corporation resides in any judicial district where the corporation is subject to personal jurisdiction.

In 1990, the Federal Circuit concluded in VE Holding Corp. v. Johnson Gas Applicance Co. that §1391(c), as amended in 1988, applies to §1400(b) and redefines the meaning of “resides” in §1400(b) to mean that a defendant corporation resides in any judicial district in which it is subject to personal jurisdiction rather than just in its state of incorporation. In 2011, §1391 was amended again to clarify that the statute applies, “[e]xcept as otherwise provided by law,” to “venue of all civil actions brought in district courts of the United States.”  But in its ruling below, the Federal Circuit reaffirmed VE Holding, finding no basis for a change in interpretation after the 2011 amendment.  The Supreme Court just reversed.Jo-Dale-Carothers-015_web

Now, for patent cases, a plaintiff will need to show that a particular district court has personal jurisdiction over a corporate defendant and separately show that venue is proper in that district.  To show that venue is proper, the plaintiff will have to show that

  • the district court is in the defendant’s state of incorporation or
  • the defendant has committed acts of infringement in the judicial district and has a regular and established place of business in that district.

The impact of this ruling will likely be felt greatest in plaintiff-friendly jurisdictions, such as the Eastern District of Texas where approximately 38% of all patent cases were filed in 2016 and where approximately 45% of all patent cases were filed in 2015.  Of those cases, the Eastern District of Texas would be a proper venue for only a small fraction of those cases today in light of the Supreme Court’s ruling.  In fact, we can expect to see a large number of motions to dismiss or transfer pending cases where venue has not yet been waived.  We are also likely to see a rise in filings in jurisdictions, such as Delaware, where many companies are incorporated.

Another impact of this ruling is that a plaintiff seeking to enforce patents against multiple defendants will likely need to file lawsuits in multiple districts rather than be able to bring all of the defendants to a single venue.  There are pros and cons to this effect.  Plaintiffs likely will give even more careful consideration to the merits of their claims before filing suit, given that the cost of litigating in multiple locales will be higher than litigating in a single venue.  Defendants may feel more emboldened to fight, rather than settle, claims they feel are unmeritorious if the venue is more favorable to them.

But where do foreign corporations reside?  Consider a foreign corporation doing business in the United States, such as over the Internet.  What if it does not have a place of business in the United States?  Where does that foreign corporation reside for purposes of venue?  We will have to leave that question for another day.  This ruling only clarified where domestic corporations reside.