Liability for copyright infringement can result when one downloads protected software without the copyright owner’s authorization.  The Ninth Circuit was recently tasked with exploring the scope and reach of copyright protection in such cases in Design Data Corp. v. Unigate Enterprise, Inc.

Design Data is the creator of a computer aided design (CAD) software program SDS/2.  SDS/2 is promoted by Design Data as offering a high quality steel in connection design and drawing production for 3D steel detailing. It uses building and engineering codes to produce detailed drawings and models of steel structural components for use in construction.  A user in creating a steel component design on SDS/2 would create what is called a “job file” that would contain all the information and files related to a particular project.

Unigate Enterprise is located in California and offers outsourced steel detailing services by marketing detailed CAD files created by contractors in China.  At least one of its Chinese contractors had used an unauthorized copy of SDS/2 and sent the resulting job files (“output”) to Unigate Enterprise.  Unigate Enterprise then sold those images to clients in the U.S.  Unigate Enterprise advertised on its website that it uses the SDS/2 program “if required;” however, it apparently never purchased a license to use SDS/2 from Design Data.

Unigate Enterprise also claimed that it had downloaded a free demo version of SDS/2.  Design Data does not offer a free demo of its software.  Design Data visited Unigate Enterprise’s California offices after it grew suspicious that Unigate Enterprise was using its SDS/2 software without a license.  Although there was no evidence that Unigate Enterprise had actually installed SDS/2 on the computers that Design Data were allowed to inspect; those computers did contain SDS/2 generated images and job files suggesting that the CAD program had been used in some fashion and that there were installation files for two versions of SDS/2 in addition to patch files that would allow a user to work around the software’s license protection on the Unigate Enterprise computers.

Based on this evidence, Design Data sued Unigate Enterprise for copyright infringement because of its alleged use of the SDS/2 software and its importation and distribution of SDS/2 generated images and files from outside the United States.  The trial court granted summary judgment to Unigate Enterprise on both of these claims and Design Data appealed this decision to the Ninth Circuit.

The Ninth Circuit began by noting that the unauthorized use of copyrighted software does not impose liability unless it is “significant enough to constitute infringement.”  The Ninth Circuit held that the lower court had erred in deciding that no infringement had occurred because the facts surrounding the alleged infringement were disputed.  For instance, Unigate Enterprise claimed that he had downloaded a “free demo” of the SDS/2 software but Design Data had offered evidence that it did not offer any such demos.  Design Gate further argued that the evidence that there had been SDS/2 generated files suggested that Unigate Enterprise had in fact put the SDS/2 software to use.

The Ninth Circuit found that there was a triable issue of fact as to whether infringement had occurred.  For instance, the evidence showed that Unigate Enterprise had intentionally downloaded a complete copy of SDS/2 and three patch files allowing it to circumvent the software’s licensing protection. Unigate Enterprise had also advertised that it would use SDS/2 software on client jobs “if required.”  Finally, there was evidence that Unigate Enterprise’s computers contained SDS/2 generated files and images.  The Ninth Circuit concluded that this evidence “raises a factual question whether [Unigate Enterprise’s] download was more than an ‘insignificant violation’ of Design Data’s copyright.”  Given that there had been numerous cases that have held upheld copyright infringement “under circumstances in which the use of the copyright work is of minimal consequence,” the Ninth Circuit concluded that it was error to grant summary judgment as to Design Data’s claim.

The Ninth Circuit however did affirm the granting of summary judgment as to Design Data’s importation and distribution claim.  The Ninth Circuit focused its inquiry here as to whether the copyright protection of the SDS/2 software program extended to the program’s output of images and job files.  The Ninth Circuit noted that there was a dispute among various courts as to how far the copyright protection should extend but noted that some authorities had suggested “that the copyright protection afforded a computer program may extend to the program’s output if the program `does the lion’s share of the work’ in creating the output and the user’s role is so `marginal’ that the output reflects the program’s contents.”  The Ninth Circuit decided to avoid having to resolve the split among authority because it concluded that, even assuming the most favorable legal authority applied, Design Data had not established that the SDS/2 program did the “lion’s share of the work” in creating the job files and images located on the Unigate Enterprise computers.  Given that, the Ninth Circuit affirmed the summary adjudication as to the importation and distribution claim brought by Design Data.

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. 

By Audrey MillemannAudrey-Millemann-03_web

In 2015, the Federal Circuit Court of Appeals cast the net of patent infringement liability even more broadly, to cover direct infringement by “divided” (or “joint”) infringement.  Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (“Akamai V”).  In that case, the Federal Circuit established that a defendant can be liable for direct infringement of a method claim even when the defendant does not personally perform all of the steps of the method, as long as the steps performed by others are attributable to the defendant.  Id. at 1022.  The court held that the steps performed by another party are attributable to the defendant if: (1) the defendant “directs or controls” the other party’s performance; or (2) the parties form a joint enterprise.  Id.  The court further held that directing or controlling exists if two factors are met.  First, the defendant must “condition” the other party’s participation in an activity or receipt of a benefit on the other party’s performance of a step.  Second, the defendant must “establish the manner or timing” of the other party’s performance of the step.  Id. at 1023.  In Akamai V, the court emphasized that its new rule is flexible and that divided infringement may depend on the particular facts of a case.  Id.

In Eli Lilly & Co. v. Teva Parenteral Medicines, Inc., 845 F.3d 1357 (January 12, 2017), the Federal Circuit put into practice its rule of divided infringement, demonstrating just how broad this theory of liability is.

Eli Lilly owned a patent covering a method of treating cancer patients with a chemotherapy drug after pretreatment with doses of folic acid and vitamin B12.  Teva and several other drug manufacturers prepared to make and market generic versions of the chemotherapy drug.  Eli Lilly sued the drug manufacturers for inducing infringement of the patent.

Inducing infringement is a type of indirect infringement.  In order to be liable for inducing infringement, the defendant must have the intent to cause another party to infringe the patent, and the other party must be a direct infringer.  35 U.S.C. § 271(b).  For example, a party induces infringement if it instructs another how to perform the steps of a patented method.

Eli Lilly contended that the defendant drug manufacturers induced physicians to infringe the patent by instructing them, in their written materials provided with the chemotherapy drug, how to pre-treat cancer patients with the folic acid and vitamin B12, and then treat with the chemotherapy drug.  Eli Lilly further contended that the physicians directly infringed the patent.  Eli Lilly agreed with the defendants that no one person performed all of the steps of the claimed method, but argued that this was a case of divided infringement.  The physicians were the direct infringers because they performed the steps of administering vitamin B12 and the chemotherapy drug, and they directed the performance of the patients in administering the folic acid to themselves.

The case was tried to the district court, who ruled that the defendants had induced infringement of the patent, based upon the physicians’ direct infringement.

The Federal Circuit affirmed the decision.  The court found that the district court had correctly determined that the physicians directed or controlled the patients’ performance in administering the folic acid.  The first prong of the “directed or controlled” test was met.  The physicians conditioned the patients’ participation in the chemotherapy drug treatment on the patients taking the folic acid.  The evidence presented by Eli Lilly showed that the physicians would not go forward with the chemotherapy drug treatment unless the patient had properly taken the folic acid.

The court dismissed the defendants’ arguments that the physicians were merely guiding their patients or that the condition had to be a legal obligation imposed on the patients.  The court emphasized that the analysis of attribution is not so narrow, and is fact-specific.

The court held that the second prong of the “directed or controlled” test was also met.  The physicians specifically instructed the patients on the dose and timing of the folic acid.  The patients carried out the physicians’ instructions in taking the folic acid.

Because the steps performed by the patients were attributable to the physicians, the physicians had directly infringed the patent.  The court then addressed the question of inducement.  The court held that the defendants had the specific intent to induce infringement by the physicians.  The defendants had provided clear directions to the physicians on all of the steps of the claimed method (how the chemotherapy drug should be administered, and the pretreatment with vitamin B12 and folic acid).

This case demonstrates that the doctrine of divided infringement is a very strong tool for patent owners and an unexpected trap for would-be infringers.

eric_caliguiri_web_testOn January 17, 2017, the United States District Court for the Northern District of California issued revisions to its Local Patent Rules requiring early disclosure of damages-related discovery and contentions. The revised rules are effective immediately in all patent cases pending in the Northern District.  Local Patent Rules are rules that apply to all civil actions filed in or transferred to the specific District Court which allege infringement of a utility patent or which seek a declaratory judgment that a utility patent is not infringed, is invalid or is unenforceable.  The Local Patent Rules govern the mandatory discovery disclosures that must be given relatively early in a patent case.  Many District Courts across the country have various versions of Local Patent Rules to help govern and streamline often vary complex patent cases.  The Local Patent Rules for the Northern District of California previously had detailed early disclosure requirements for infringement and invalidity positions, but generally not as to damages related issues.

Beginning under new Patent Local Rule 2-1(b)(5), the parties are now to provide the court at the Initial Case Management Conference – in addition to the prior requirements under Rule 2-1 which are still required and in place – with a “non-binding, good faith estimate of the damages range expected for the case along with an explanation for the estimates.”

Under Local Patent Rule 3-1, which relates to a patentee’s initial infringement contentions, patentees are now required to also disclose “the timing of the point of first infringement, the start of claimed damages, and the end of claimed damages,” with their initial contentions and in addition to the prior requirements.  Moreover, under Local Patent Rule 3-2, which governs the document production that must be made concurrent with the initial disclosures under Rule 3-1, the patentee must now also produce:

(1) all licenses and agreements “transferring any interest in any patent-in-suit;”

(2) all license agreements that are “comparable to a license that would result from a hypothetical reasonable royalty negotiation;”

(3) all documents and licenses “comprising or reflecting a F/RAND commitment or agreement with respect to the asserted patent(s);”

(4) documents sufficient to show “sales, revenues, costs and profits” of a patentee’s own products that it asserts practice the assert patent(s) in order “to preserve the right to recover lost profits based on such products;” and

(5) all other agreements that “otherwise may be used to support the party asserting infringement’s damages case.”

The patent’s initial infringement contentions and accompanying document production under Patent Local Rules 3.1 and 3.2 – including the damages related documents and disclosures just mentioned – must all be disclosed, identified, and produced fourteen days after the Initial Case Management Conference.

Local Patent Rule 3-4, governing an accused infringer’s document production accompanying its invalidity contentions, requires an accused infringer, 45 days after receiving the patentee’ initial infringement contentions and production, to now also produce:

  1. “all agreements that the party opposing infringement contends are comparable to a license that would result from a hypothetical reasonable royalty negotiation;
  2. documents sufficient to show the sales, revenue, cost, and profits for accused instrumentalities identified pursuant to Patent L.R. 3-1(b) for any period of alleged infringement; and
  3. all agreements that may be used to support the party denying infringement’s damages case.”

Brand new Local Patent Rule 3-8 requires patentees to then serve “damages contentions” 50 days after the accused infringer’s invalidity contentions and production. The damages contentions must “identify each of the categories of damages it is seeking for the asserted infringement, as well as its theories of recovery, factual support for those theories, and computations of damages within each category.”  The listed damages categories include: lost profits, price erosion, convoyed or collateral sales, reasonable royalty, and any other form of damages.

Under brand new Local Patent Rule 3-9, the accused infringer then must provide responsive damages contentions 30 days after the patentee’s damages contentions. The accused infringers responsive damages contentions must “identify specifically how and why it disagrees with” patentee’s damages contentions and “include the party’s affirmative position on each issue.”

The Northern District’s new Patent Local Rules represent a significant change that could help quicken and streamline litigation by requiring parties to put a definitive dollar figure on disputes early on in the litigation.  The new rules could  also streamline damages related discovery because the rules require parties to self-identify and produce damages documents, theories, and amounts early in the litigation, eliminating the need for later lengthy discussions amongst the parties and their attorneys about what needs to be produced and when it has to be produced.  However, the new rules will also mean more upfront work and cost for parties and their attorneys.  And, it will also require plaintiffs to conduct more damages related investigations before filing suit in ensure they are ready to meet their initial disclosure requirements.

Whether you like him or not, Conor McGregor’s business savvy cannot be disputed. The UFC superstar, in just over year, has become a household name known to people who may not even watch the sport. His quick rise to superstardom is no coincidence. He knows how to market himself and he knows how to sell the events he’s involved in.

In my opinion, McGregor single handedly crippled the UFC’s landmark UFC 200 event when he was removed from the fight card as the result of a contract dispute. Since that time, he’s made amends with the UFC and become the promotion’s first two-weight world champion. So, having risen to such a level of superstardom, I got to transparentwondering what McGregor was doing to protect his intellectual property rights, which undoubtedly have substantial goodwill and value at this point. As such, at the end 2016, I did a search on the USPTO website, but to my surprise, McGregor had not applied to protect his name, or his nickname, the Notorious, in the United States. He already had applications filed abroad, but not in the United States, where he arguably has the bulk of his fans. Having always considered McGregor a business savvy athlete, I was shocked.

But it seems that McGregor recently remedied this problem by filing two trademark with the USPTO through his entity McGregor Sports and Entertainment, Ltd. On January 9, 2017, McGregor filed for registration of THE NOTORIOUS and CONOR MCGREGOR. The marks seek registration for several goods and services, including DVDs, aftershave, books, clothing, footwear, games, health club services, restaurants, and barbershops. It’s a pretty interesting array of goods and services. I would not have expected McGregor to go into the barbershop or aftershave business anytime soon, but then again, with his debonair style and reputation for being a sartorial man, maybe it wouldn’t be such a bad idea.

Before McGregor’s now historic fight at UFC 205 where he became the promotion’s first two-division world champion, there were several articles in legitimate publications comparing McGregor’s level of superstardom to the late Muhammad Ali. Now, it is quite early to start comparing McGregor’s notoriety to one of the most renowned athletes of all time, but the point is, McGregor is already huge star and he should be taking these measures to protect his intellectual property.

Scott Hervey 10 finalParamount and Star Trek Fan Film Producers Settle

The copyright infringement lawsuit between Star Trek fan film producer, Axanar Productions, and Paramount Pictures came to an end less than two weeks before trial.  The settlement was undoubtedly triggered by the court’s early January ruling that the fan fiction film, Prelude to Axanar, is not protected by fair use.

Prelude to Axanar is a documentary style short that tells the story of Garth of Izar, a Starfleet captain and Captain Kirk’s hero, who fought in the Battle of Axanar between the Federation and the Klingons, which took place 21 years before the events of the first episode of the original Star Trek television show.  As a result of it success, Prelude’s producer, Alec Peters, raised over $1 million through Kickstarter and Indegogo in order to produce a full-length, studio quality motion picture about the Garth of Izar and the battle of Axanar.  In addition to releasing Prelude on YouTube, Peters released on YouTube a short clip entitled “Vulcan Scene” (which features Ambassador Soval, a minor character from “Star Trek: Enterprise” and a new Vulcan character) and drafts of the script for the full-length movie.

Paramount sued Axanar Productions and its founder Alec Peters for copyright infringement.  According to the Complaint, Peters and his production company infringed Star Trek’s copyright by utilizing various Star Trek elements, including the concept of the Battle of Axanar, the Klingons, the Starfleet and characters, costumes and props that are unique to Star Trek.  According to Paramount, Prelude and the other Axanar works are substantially similar to Star Trek precisely because they copied characters, settings, plot points, dialogue, themes, pace, mood, races, species, ships, and weapons in order to create an unlicensed, independent Star Trek film.

Peters, on the other hand, argued that Prelude and the other Axanar works were transformative and therefore protected under fair use.

A work is transformative when it adds something new to the work allegedly infringed, with a further purpose or different character, altering the original work with new expression, meaning, or message.  As the Supreme Court noted in Campbell v. Acuff-Rose Music, Inc., “the more transformative the new work, the less will be the significance of other factors, … that may weigh against a finding of fair use.”

Although Prelude features Federation officers, Klingons and Starfleet ships, Peters claimed that the work is transformative because of the way in which it features these elements; in a first-person narrative style, never before used by Paramount, featuring new characters and other elements, with its subject matter being a storyline that was only a footnote in the first episode of the original Star Trek television series.  This, Peters contends, makes Prelude and the other Axanar works transformative.

To the contrary, Paramount argued that Prelude and the other works are not transformative as they “were created to function as another Star Trek work, with a slightly different plot.”  Paramount argues that using copyrighted characters and elements and then placing those elements into a new story or timeline does not create a transformative work but rather an infringing derivative work.

In determining whether Prelude and the other Axanar works are protected by fair use, the court reviewed its four factors: (i) the purpose and character of the infringing use; (ii) the nature of the copyrighted work; (iii) the amount and substantiality of the work used; and (iv) the effect upon the market for the original work.

The first factor explores whether and to what extent the new work is transformative.  Here the court agreed with Paramount, finding Prelude and the other works not transformative.  The court noted that Peters “set out to create a… prequel to The Original [Star Trek] Series” and that they “intentionally use or reference many elements similar to those in [Star Trek] to stay true to Star Trek cannon down to excruciating details.”  The court found that Prelude and the other works do not have a further purpose or different character, and do not alter Star Trek with new expression, meaning or message.  Instead, the court stated, the defendants intended to supplant Star Trek with Prelude and their full-length motion picture.

The court determined that the second factor, the nature of the work, also weighed in favor of Paramount as creative works – such as Star Trek – are given broad copyright protections.

The third factor examines the quantity, quality and importance of the materials used in relation to the copyrighted work in its entirety.  The court did not accept Peters’ argument that, from a quantitative and qualitative standpoint, the elements he used from Star Trek were not significant.  The court remarked that the elements used by Peters “are an indispensable part of what makes Star Trek ‘Star Trek’” and give Prelude the “Star Trek feel.”

The fourth factor examines the effect the infringing work would have on the market and also whether unrestricted and widespread similar conduct would have an adverse impact on the market for derivative works.  In considering the market harm presented by a full-length, professional quality motion picture about the battle of Axanar, the court stated that such a motion picture is the kind of derivative project Paramount would develop.  The court also focused on Peters’ statement that he wanted to create “a whole new way that fans can get the content they want, by funding it themselves.”  If left unrestricted, widespread fan-funded, professional quality motion pictures telling Star Trek stories would have an adverse impact on Paramount’s ability to develop derivative Star Trek properties.

With all four factors weighing in favor of Paramount, the court rejected Peters’ fair use defense, leaving for the jury the determination of whether Prelude is substantially similar to Star Trek and whether Paramount’s copyright in Star Trek was willfully infringed.

However, the key cause for the settlement was undoubtedly the court’s finding that Peters would be personally liable for contributory and vicarious infringement if the jury found substantial similarity between Prelude and the other Axanar works and Star Trek.  The terms of the settlement are unknown with the exception of the fact that “substantial changes” would be made to the Axanar feature film and that any future Star Trek films produced by Peters or his company would follow the Guidelines for Fan Films distributed by CBS and Paramount in June, 2016.