Apple just escaped a $533 million jury verdict by invalidating the plaintiff’s patents on the grounds that the patents cover abstract ideas.

The case is Smartflash, LLC v. Apple Inc., decided by the Federal Circuit Court of Appeals on March 1, 2017.  Smartflash owned three patents for technology that limited Internet access to data (video, audio, text, and software) to users who had paid for access.  In 2013, Smartflash sued Apple in a Texas district court for infringement of the three patents.  In 2015, the jury returned a verdict of infringement against Apple, finding Apple liable to Smartflash for $533 million in damages.Audrey Millemann 03_web

Apple moved for judgment as a matter of law on the grounds that the patents were invalid under 35 U.S.C. §101 as directed to abstract ideas.  The district court denied Apple’s motion, and Apple appealed to the Federal Circuit.

On March 1, 2017, the Federal Circuit reversed the district court’s ruling and held the three patents invalid.  The Federal Circuit relied on the Supreme Court’s two-step test set forth in Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014) to determine the validity of the patents.

Under 35 U.S.C. §101, any new and useful process, machine, article of manufacture, or composition of matter is patent-eligible subject matter.  The Supreme Court has long held that there are three exceptions: laws of nature, natural phenomena, and abstract ideas.  These three categories of inventions are not patent-eligible.

In Alice, the Supreme Court established a two-step test to determine if a patent’s claims are patent-eligible.  In the first step, the court determines whether the claim is directed to one of the patent-ineligible exceptions (laws of nature, natural phenomena, or abstract ideas).  If the first step is met, then the court performs the second step, determining whether the claim elements add sufficient limitations to “transform the nature of the claim” into subject matter that is patent eligible.  In step two, the court must find more than routine or conventional activity that has already been practiced.

In applying step one of the Alice test, the Federal Circuit agreed with the district court that Smartflash’s patent’s claims pertained to “conditioning and controlling access to data based on payment.”  The court held that this was an abstract idea, basing its conclusion on Supreme Court decisions holding that “fundamental economic practices” are abstract ideas.  The court explained that claims directed to computer functionality must be analyzed to determine whether they relate to a “specific asserted improvement in computer capabilities” or to an abstract idea in which a computer is simply used as a tool.  The court found that, in this case, the claims were directed to limiting access to data based on the user’s payment.  Thus, the claims pertained to computers being used as tools to perform fundamental economic practices.  As such, the court held that the first step of the Alice test was met.

The court then considered the second step of the Alice test – whether the claims contained limitations that “transform the nature of the claim” into patent-eligible subject matter.  The district court had determined that the claims did contain limitations that transformed them into patent-eligible subject matter, finding that the claims described “specific ways of managing access to digital content data based on payment validation through storage and retrieval of use status data and use rules in distinct memory types.”  The Federal Circuit noted that the Supreme Court had long held that routine computer activities do not establish patent-eligibility.  The court held that storing, transmitting, retrieving, and writing data on a computer was not sufficient to transform Smartflash’s claims into something other than an abstract idea.  The court further found that Smartflash’s hardware components were generic computer components and did not transform the claims into patent-eligible subject matter.

 

In SCA Hygiene Products AB et al. v. First Quality Baby Products LLC et al., the United States Supreme Court held that laches cannot be invoked as a defense against a claim for patent infringement damages brought within U.S.C §286’s 6-year limitations period.  The U.S. Court of Appeals for the Federal Circuit had previously held in a 6-5 en banc decision that laches should apply in patent cases because U.S.C. §282 of the Patent Act passed in 1952 codified a pre-1952 practice of permitting laches to be asserted against damages claims.  However, in a 2014 copyright decision, Petrella v. Metro-Goldwyn-Mayer Inc., the Supreme Court had previously held that laches cannot be used as a defense in a copyright infringement action brought within the Copyright Act’s three-year statute of limitations period.  Thus, prior to the Supreme Court’s SCA Hygiene Products decision there had been a variation between copyright and patent laws in terms of the availability of a copyright defense.

The patent-in-suit in SCA Hygiene Products is U.S. Patent Number 6,375,646, entitled “Absorbent pants-type diaper,” and relates an absorbent pants-type diaper intended for one-time use which lies sealingly against and shape conformingly to the wearer’s body, while enabling the diapers to support an absorbent pad even when the pad is full of liquid.  In 2004, plaintiff SCA sought reexamination of its patent in light of defendant First Quality’s patent, and in 2007, the Patent and Trademark Office confirmed the SCA patent’s validity.  SCA then sued First Quality for patent infringement in 2010. The District Court granted summary judgment to First Quality on the grounds of equitable estoppel and laches based on the six year delay in filing suit from 2004 to 2010. The Federal Circuit later affirmed the holding en banc, even in light of the Supreme Court’s Petrella’s laches holding for copyright law.  The Supreme Court then took the case on appeal.eric_caliguiri_web

In considering the issue, the Supreme Court first stated laches is “a defense developed by courts of equity” to protect defendants against “unreasonable, prejudicial delay in commencing suit.”  The “principal application” of laches “was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation.”  Laches “is a gap-filling doctrine, and where there is a statute of limitations, there is no gap to fill.”

Moving to Section 286 of the Patent Act the Supreme Court noted the Statute provides: “Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.”  Applying Petrella, the Court “infer[ed] that this provision represents a judgment by Congress that a patentee may recover damages for any infringement committed within six years of the filing of the claim.”  The Court continued reasoning “the enactment of a statute of limitations necessarily reflects a congressional decision that the timeliness of covered claims is better judged on the basis of a generally hard and fast rule rather than the sort of case-specific judicial determination that occurs when a laches defense is asserted.  Therefore, applying laches within a limitations period specified by Congress would give judges a legislation-overriding role that is beyond the judiciary’s power.”   Thus, the Court held “laches cannot be interposed as a defense against damages where the infringement occurred within the period prescribed by §286.”

In reaching its holding, the Court considered and rejected a number of arguments put forth by defendant First Quality, and some of the reasoning the Federal Circuit had previously used.  First, the Court rejected First Quality’s argument that §286 of the Patent Act is not a true statute of limitations because §286 “runs backward from the time of suit.”  The Court reasoned “Petrella cannot be dismissed as applicable only to what First Quality regards as true statutes of limitations.”  While some claims are subject to a “discovery rule” under which the limitations period begins when the plaintiff discovers or should have discovered the injury giving rise to the claim, that is not a universal feature of statutes of limitations.  Instead, “[a] claim ordinarily accrues when [a] plaintiff has a complete and present cause of action.”

Next, the Court considered the Federal Circuit’s reasoning that §282 creates an exception to §286 by codifying laches as a defense to all patent infringement claims, including claims for damages suffered within §286’s 6-year period.  However, the Court again rejected this position, reasoning §282 on its face does not specifically codify a laches defense.  Regardless, the Court continued, “it does not necessarily follow that [a laches] defense may be invoked to bar a claim for damages incurred within the period set out in” a different section of the Statute.  Moreover, the Court reasoned “it would be exceedingly unusual, if not unprecedented” to include both a statute of limitation for damages and a laches defense, and no single federal statute has been identified “that provides such dual protection against untimely claims.”

The Court then moved to the Federal Circuit’s conclusion, and similar argument put forth by First Quality, that by 1952 there was a well established practice of applying laches to such damages claims and that Congress, in adopting §282, must have chosen to codify such a defense.  The Court again rejected this position, finding the case law insufficient to support the suggested interpretation of the Patent Act.  Instead, the Court found the case law stood for “the well-established general rule, often repeated by this Court, that laches cannot be invoked to bar a claim for damages incurred within a limitations period specified by Congress.”

In a lone dissent, Justice Stephen Breyer disagreed, arguing the case law “shows with crystal clarity that Congress intended the statute to keep laches as a defense” and that the language of the statute suggests that as well.  The dissent was concerned that without a laches defense available “a patentee has considerable incentive to delay suit until the costs of switching—and accordingly the settlement value of a claim—are high.”  Justice Breyer also added that he “believe[s] that Petrella too was wrongly decided,” and that this case helps illustrate why he thinks “that Petrella started [the Court] down the wrong track.”

I’ve written on numerous occasions in the past about celebrities who registered their own names as trademarks with the United States Patent and Trademark Office. Just the other week, I wrote about how UFC superstar Conor McGregor had filed an application to register his name as a trademark, and in that same article, I mentioned that undefeated Floyd “Money” Mayweather also has his name registered with the USPTO. Other celebrities who have trademarked their monikers include rapper 50 Cent, pop queen Kylie Minogue (whose trademark KYLIE resulted in Kylie Jenner being unable to register the mark herself), and reality television star Kim Kardashian West. It’s hardly uncommon for celebrities to protect their own names as intellectual property these days. With that said, a federal district court judge’s recent order on a motion to dismiss involving the Estate of Marilyn Monroe has sparked some panic in the media.transparent

On Monday, March 13, 2017, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York issued a ruling on the Estate of Marilyn Monroe’s motion to dismiss the counterclaim of AVELA (short for Art & Vintage Entertainment Licensing Agency) which attempts, in part, to cancel the Estate’s trademark rights in MARILYN MONROE. In issuing its ruling and permitting AVELA’s attempt to cancel the MARILYN MONROE trademark on the ground that it is generic, Judge Failla stated “To be clear, the court harbors serious doubts that V. International will be able to establish that the contested marks are generic….Reaching that conclusion at this state, however, would be premature.” Since Judge Failla issued this ruling, the web has been buzzing with articles and posts claiming that Judge Failla has left open the possibility that a celebrity name is too generic to register or enforce as a trademark. Unfortunately, while these articles may make for an interesting read, they fail to adequately explain the significance of the case’s procedural posture.

Judge Failla has issued her ruling in response to a motion to dismiss filed by the Estate of Marilyn Monroe. When such a motion is filed, the court is required to accept all properly pleaded facts as true. Then the court must ask itself, assuming all of the alleged facts are true, does the party state a claim to relief. Here, specifically, Judge Failla must ask herself if AVELA has stated an appropriate ground for cancellation of the Estate’s trademark assuming it can prove the facts it alleged. According to Judge Failla’s ruling, AVELA asserted a few facts to suggest that the Estate’s mark should be cancelled because it has become generic, and generic marks are never entitled to trademark protection. In order to be protectable as a trademark, a mark must have at least some level of distinctiveness. Thus, Judge Failla has permitted AVELA’s claim to go forward.

Now, what does this really mean? Not a lot. Although Judge Failla has stated that the possibility exists that the Estate’s mark has lost its distinctiveness, she was clear that the Court “harbors serious doubts” about AVELA’s ability to prove its claim, but that the law is clear that “whether a mark is, or has become, generic” is a decision for the finder of fact, and premature at this juncture. So, when you give the procedural aspect of this case due consideration, it is clear that Judge Failla’s ruling is not groundbreaking. It is highly unlikely that she will find the Estate’s mark to have lost its distinctiveness and enforceability, but the procedural posture and the fact that AVELA has stated facts that, if true, could result in a trier of fact declaring the mark generic and cancelling its registration, means that AVELA’s claim lives to fight another day. Beyond that, Judge Failla’s ruling does nothing more than refuse to prematurely foreclose AVELA’s claim. So, celebrities and their intellectual property consiglieres should not fear a shift in the law, their intellectual property rights are likely just as safe today as they ever have been.

The City of New York has reignited the battle over the trademark TAVERN ON THE GREEN. Last month the City of New York filed a lawsuit for trademark infringement against Tavern on the Green International LLC, the successor-in-interest to Tavern on the Green operator, LeRoy Adventures, Inc. LeRoy Adventures operated Tavern on the Green from 1976 until approximately 2009 under a license from New York City.Scott-Hervey-10-web

In 1973 New York City and LeRoy entered into a license agreement for the operation of Tavern on the Green as a “restaurant and cabaret.” The license agreement provided that New York City had various rights over the operation of the facility, including approval of the manager, approval of employee uniforms, approval of use of signs or any other means of soliciting business, and the right to regulate the times and manner of operation. The City maintained the right of inspection at all times, and the City retained the right to terminate the license under numerous conditions, including unsatisfactory operations.

In 2009 when LeRoy and Tavern on the Green, LP lost a bid to renew the restaurant lease, they filed for bankruptcy protection and ceased operations. A fight over trademark rights quickly erupted. In 1978, LeRoy registered TAVERN ON THE GREEN with the United States Patent and Trademark Office for restaurant services. New York City filed suit seeking a declaration of its prior right under New York law to use the mark for its restaurant facility in Central Park, and to cancel LeRoy’s Federal trademark registration due to fraud on the USPTO.

In the lawsuit, the City established its own independent, common law right to the TAVERN ON THE GREEN trademark. Further, the City was able to show that LeRoy’s application to register the mark contained numerous misstatements and omissions of material facts, including the claim that 1973 was the date of first use when the City had used the mark for over three decades prior, and based thereon was able to cancel LeRoy’s registration on the grounds it was obtained fraudulently.

Ultimately, the City of New York, the bankruptcy trustee and Tavern on the Green International, LP entered into various agreements regarding the City’s ownership of the trademark and Federal registration and International’s right to use the mark. Specifically, the City and International entered into a “Use Agreement” in connection with International’s use of the mark for both products and restaurants outside of the City of New York. The Use Agreement restricted International’s use of the mark for restaurants within New York City and certain counties within the State of New Jersey. The Use Agreement included other restrictions on International’s use of the mark for products and services and included the requirement of a disclaimer.

On February 24, 2017 the City of New York sued International claiming that it breached the Use Agreement. Specifically, the City claimed that franchising material and other materials distributed by International failed “to use the disclaimers required by the [Use Agreement] on all products and promotional materials, by improperly trading on the goodwill associated with the City’s Tavern on the Green restaurant in direct violation of the [Use Agreement] and by falsely stating in promotional materials that it was a licensee of the City.” In the complaint, the City alleged trademark infringement and other related causes of action.

If the City can establish that International beached the Use Agreement, that such breach was not de minimis and the City complied with all applicable notice provisions, the City would be entitled to withdraw its consent to use the TAVERN ON THE GREEN trademark and pursue claims against International for infringement.

It is ironic that the impetus of the 2010 litigation is what provides the City with significant leverage in this current case. In the 2011 settlement with the bankruptcy trustee for Tavern on the Green LP, the City was assigned the Federal registration for TAVERN ON THE GREEN which was filed by LeRoy in 1978. With ownership of the Federal registration, the City has presumptive nationwide rights as of the date the application was filed in 1978. Had LeRoy not filed for Federal registration in 1978, the City’s trademark rights would have been based on common law and potentially geographically limited. As such, LeRoy or International’s use of TAVERN ON THE GREEN for a restaurant in Las Vegas might not be infringing.

Jo-Dale-Carothers-015_webIn Life Technologies v. Promega Corporation, the U.S. Supreme Court addressed whether supplying a single component from the United States of a multicomponent invention assembled abroad constitutes patent infringement under 35 U.S.C. §271(f)(1).    Under §271(f)(1), a party can be liable for patent infringement if it supplies from the United States “all or a substantial portion of the components of a patented invention.”  Interpreting this statute in Promega, the Court determined that supplying one component is not enough to constitute infringement of a multicomponent invention because a single component is not “a substantial portion” within the meaning of this statute.

In this case, Promega was the exclusive licensee of the Tautz patent, which claims a toolkit for genetic testing that can be used in law enforcement as well as in clinical and research work.   Promega sublicensed the Tautz patent to Life Technologies.  Under the sublicense, Life Technologies’ patent rights were limited to manufacturing and selling kits for use in certain law enforcement fields.  Life Technologies was not given a license to manufacture or sell kits for use in clinical or research work.

The patented kit consists of five components.   Life Technologies manufactured four of the five components in the United Kingdom.  It manufactured the fifth component, an enzyme called Taq polymerase, in the United States and shipped it to the United Kingdom where it was combined with the other four components to form the kit.

This dispute arose when Promega alleged that Life Technologies began selling these kits in the clinical and research markets, which was outside the scope of Life Technologies’ license.  As a result, Promega sued Life Technologies alleging patent infringement under §271(f)(1), which prohibits the supply from the United States of “all or a substantial portion of the components of a patented invention” for combination abroad.

The jury found that Life Technologies had infringed the patent, but the district court granted judgment as a matter of law for Life Technologies, holding that §271(f)(1)’s phrase “all or a substantial portion” did not encompass the supply of a single component of a multicomponent invention.  The Federal Circuit reversed finding that a single important component could constitute a “substantial portion” of the components of an invention and that the Taq polymerase met that standard.  The Supreme Court, however, reversed the Federal Circuit holding that the supply of a single component of a multicomponent invention assembled abroad does not constitute patent infringement under §271(f)(1) because a single component of a multicomponent invention cannot be a “substantial portion.”   The Court found that the importance of the single component is irrelevant.

In reaching its conclusion the Supreme Court considered 1) whether the term “substantial portion” refers to a qualitative or quantitative measure, 2) whether a single component can ever constitute a “substantial portion,” and 3) whether the history of §271(f) supports the Court’s conclusion.

The Court first had to determine whether “substantial portion” refers to a qualitative or quantitative measure.  The Court acknowledged that the term “substantial” in isolation is ambiguous because in some instances it “might refer to an important portion” whereas in other instances it might refer “to a large portion.”  Promega argued that a quantitative approach would be too narrow and invited the Court to adopt a “‘case-specific approach’ that would require a factfinder to decipher whether the components at issue are ‘a substantial portion’ under either a qualitative or quantitative test.” The Court, however, declined to adopt Promega’s approach noting that it would compound the ambiguity rather than resolve it.  Instead, the Court looked to the text of the statute, including the language surrounding the word “substantial,” for clarification.  The Court pointed out that the surrounding words “‘all’ and ‘portion’ convey a quantitative meaning” rather than relative importance.  Further, the phrase “substantial portion” is modified by the phrase “of the components of a patented invention,” which according to the Court would be an unnecessary phrase if the intent had been a qualitative rather than quantitative meaning.  Therefore, in the context of this statute, the Court determined that the term “substantial portion” should be interpreted as a quantitative measure.

Applying the quantitative measure, the Court next had to determine, as a matter of law, whether a single component can be “a substantial portion” of a multicomponent invention.  Looking again to the text of the statute, the Court noted that §271(f)(1) “consistently refers to ‘components’ in the plural.”  For example, the Court explained that additional language in §271(f)(1) shows the statute “is targeted toward the supply of all or a substantial portion ‘of the components,’ where ‘such components’ are uncombined, in a manner that actively induces the combination of ‘such components’ outside of the United States.”

The Court further noted that the overall “structure of §271(f) reinforces this reading.”  Section §271(f)(2), the companion provision to §271(f)(1), prohibits supplying from the United States “any component of a patented invention that is especially made or especially adapted for use in the invention.”  The Court noted that the two provisions work in tandem under the Court’s interpretation because a party would be liable under §271(f)(1) for supplying more than one component whereas a party would be liable under §271(f)(2) for providing a single component if it was especially made or adapted for use in the invention.  Therefore, the Court found that only supplying a single component from the United States of a multicomponent invention cannot infringe under §271(f)(1).

Finally, the Court stated that “[t]he history of §271(f) bolsters” its conclusion.  Congress enacted 35 U.S.C. §271(f) in response to the U.S. Supreme Court’s ruling in Deepsouth Packing Co. v. Laitram Corp.  Under the law applicable in Deepsouth, the Court determined that making or using a patented product outside of the United States did not constitute patent infringement.  But with the subsequent enactment of §271(f), Congress expanded patent protection to cover certain instances where components of a patented invention are made in the United States but assembled in another country.  The Court found that its ruling in Promega “comports with Congress’ intent” because “[a] supplier may be liable under §271(f)(1) for supplying from the United States all or a substantial portion of the components (plural) of the invention, even when the components are combined abroad” and liable under §271(f)(2) for supplying even a single component “if it is especially made or especially adapted for use in the invention.”  The Court was persuaded that when “all components but a single commodity [rather than especially made or adapted] article are supplied from abroad, this activity is outside the scope of the statute.”

The Court expressly declined to decide “how close to ‘all’ of the components ‘a substantial portion’ must be” but rather held “only that one component does not constitute ‘all or a substantial portion’ of a multicomponent invention under §271(f)(1).”  Thus the Court left several questions open.  For example, how do you determine how many components are in a claimed invention?  And once you determine the number of components, how many must be supplied from the United States to constitute infringement under §271(f)(1)?   Is it a percentage of the total number of components?  Will courts look to the relative importance of the various components or will it be purely a numbers-based analysis?  What if the invention only has two components?  In that instance, are the terms “all” and “a substantial portion” synonymous?  The only certainty is that these unanswered questions will give rise to future litigation disputes.