By Audrey Millemann

#160 #160#160 #160#160 #160#160 #160The “peanut butter and jelly sandwich patent” has been a hot topic lately, from television news broadcasters to intellectual property commentators.#160 The triggering event was a Wall Street Journal article on April 5, 2005 concerning a hearing to be held that day by the Federal Circuit Court of Appeals.#160 The case was an appeal by the J. M. Smucker Company of an earlier decision by the Board of Patent Appeals and Interferences.#160 The Board had upheld the Patent and Trademark Office examiner’s rejection on obviousness grounds of two patent applications filed by Smucker’s for its crustless peanut butter and jelly sandwich (sold as the “Uncrustable”), a product that apparently generated $27.5 million in sales in 2004.

#160 #160#160 #160#160 #160#160 #160One of the claims at issue in these applications states:

#160 #160#160 #160#160 #160#160 #160″A method of creating a hermetically sealed crustless sandwich, said method comprising:

#160 #160#160 #160#160 #160#160 #160(a)#160 #160#160 #160#160 providing a first slices of bread with an edge crust;

#160 #160#160 #160#160 #160#160 #160(b)#160 #160#160 #160#160 applying a layer of peanut butter onto said first slice in an area inside said crust and defining a substance free outer periphery of said first slice;

#160 #160#160 #160#160 #160#160 #160(c)#160 #160#160 #160#160 applying a layer of fruit spread over said peanut butter layer leaving a perimeter of uncovered peanut butter;

#160 #160#160 #160#160 #160#160 #160(d)#160 #160#160 #160#160 covering said layer of fruit spread by a second layer of peanut butter contacting said first layer of peanut butter to encapsulate said fruit spread;

#160 #160#160 #160#160 #160#160 #160(e)#160 #160#160 #160#160 applying a second slice of bread over said first slice of bread with an edge crust matching said the edge crust of said first slice;

#160 #160#160 #160#160 #160#160 #160(f)#160 #160#160 #160#160 #160providing a cutter with a continuous cutting edge having a desired cut shape larger than said periphery;

#160 #160#160 #160#160 #160#160 #160(g)#160 #160#160 #160#160 positively forcing said cutting edge through said slices in unison with said cut shape outside said area to cut two matching cut portions of bread with an outer periphery outside side area and a contour matching said cut shape and surrounding said area;

#160 #160#160 #160#160 #160#160 #160(h)#160 #160#160 #160#160 compressing said bread completely around said outer periphery to seal said bread around said contour with said peanut butter and encapsulated first spread captured between said bread portions, wherein said compressing operation also crimps said substance free periphery at spaced pressure points to give space locations of greater sealing force at said outer periphery of said bread portions; and,

#160 #160#160 #160#160 #160#160 #160(i)#160 #160#160 #160#160 #160placing said crustless sandwich into an airtight package for long term storage.”

#160 #160#160 #160#160 #160#160 #160The key issue before the Board was whether Smucker’s method of crimping the edge of the Uncrustable sandwich was unique.#160 The Board had adopted the examiner’s reasoning, finding that Smucker’s claims were obvious based on existing methods used to make ravioli and pie crust.#160 The Board cited prior art including an international tart cookbook and related device and a newspaper article telling parents how to make peanut butter and jelly sandwiches that didn’t get soggy in school children’s lunch boxes.#160 The Board was not persuaded by the commercial success of the Uncrustable product, stating that there was no “nexus between the claimed invention and the evidence of commercial success.”#160 The Board affirmed the examiner’s rejection.#160 2003 WL 23507730 (Dec. 10, 2003).

#160 #160#160 #160#160 #160#160 #160On appeal to the Federal Circuit, Smucker’s argued that the prior art disclosed a “smashed edge,” not a “surface-to-surface-seal” as was used in Smucker’s method.#160 According to Smucker’s, the prior art was “the antithesis” of Smucker’s method; Smucker’s method preserved the integrity of the two separate slices of bread at the edge while the prior art method crushed the edge into one mass.#160

#160 #160#160 #160#160 #160#160 #160Things did not go well for Smucker’s at the Court of Appeals hearing.#160 One judge stated that he and his wife had used a crimping method when making peanut butter and jelly sandwiches for their child (presumably many years before Smucker’s patent application was filed).#160 Two days later, on April 8, 2005, the Court of Appeals affirmed the Board’s decision without an opinion.#160 In re Kretchman, Case No. 04-144849 (Fed. Cir. April 8, 2005).#160

#160 #160#160 #160#160 #160#160 #160This is not the first venture of Smucker’s into the world of patenting peanut butter and jelly sandwiches.#160 The original Uncrustable product was developed in 1995 by two dads in the Midwest who filed a patent application in 1997 and were selling the sandwiches to schools.#160 Smucker’s bought the dads’ business, and on December 21, 1999, the patent issued as United States patent no. 6,004,596.#160 The two patent applications before the Federal Circuit were continuations of continuations of the ‘596 patent.

#160 #160#160 #160#160 #160#160 #160Smucker’s takes the peanut butter and jelly sandwich business very seriously.#160 In 2001, it filed a patent infringement suit against a Michigan grocery/catering business, Albie’s Foods, alleging that Albie’s crustless peanut butter and jelly sandwiches infringed the ‘596 patent.#160 That case was eventually dismissed, but the ‘596 patent is now under reexamination.#160

#160 #160#160 #160#160 #160#160 #160As happened a few years back with Amazon.com’s “one-click” business#160 method patent, Smucker’s peanut butter and jelly sandwich patent has caused a flurry of criticism of the United States patent system and (yet another) demand for patent reform.#160 These critics argue that the patent system must be broken because it resulted in the ‘596 patent being allowed.#160 They believe that it is too easy to get a patent allowed and too difficult to invalidate a patent, all of which stifles competition.#160 They also feel that the costs of obtaining a patent and enforcing it in litigation (or defending against a bogus patent infringement claim) are too high.#160

#160 #160#160 #160#160 #160#160 #160All of this is well and good, but, at least at this time, with respect to Smucker’s two pending applications, the patent system appears to be working.#160 When the decision in the reexamination is made, we will know for sure.

By Scott Hervey

Podcasting is a way of publishing sound files to the Internet, and delivering the files to users who subscribe to a feed.#160 Podcasting uses a distinct content delivery protocal that has enabled many producers to create self-published “radio shows” that users can subscribe to and have delivered directly to their computer via one of a number of content aggregators.#160

Podcasts are technologically unlike webcasting or streaming. Webcasting is an Internet stream of a live broadcast, or an online simulcast of a broadcast signal.#160 Streaming is a technological means for accessing a stream of electronic information at the same time it is delivered to a user’s computer.#160 Neither webcasting nor streaming result in the creation of an audio file on the Internet user’s computer.#160 Podcasting however, involves the downloading of a single complete audio file to a user’s computer to be listened to at a later time.

Like blogs, podcasting has been adopted both by amatures who want to host their own “radio show” and by professionals who see podcasting as an inexpensive way to distribute content.#160 Podcasting is not the realm of techno geeks or Internet extremists.#160 Mainstream broadcasting and media companies have realized the benefit of podcasting.#160 National Public Radio offers podcasts of most of its shows, and Infinity broadcasting network announced plans to launch a pure podcast radio station.#160 ABC is even offering podcasts of Nightline and Good Morning America.#160 Despite Corporate America quickly embracing this new technology, the majority of podcasts being offered today are from individuals and small businesses.

One of the quickest ways for a podcaster to get into hot water is to infringe a third party’s copyright.#160 #160A number of music podcasts are produced by DJ’s or independent record labels that use their podcast programs as a means of promoting other artists.#160 Most of these podcasts have a “mixed tape” quality to them, especially in the dance, hip-hop and rap genres.#160 Other podcasts are produced by music fans who may be interested in a certain style or type of music.#160 For example, one more popular podcast, Coverville, focuses entirely on covers songs.#160 If a podcast includes music and the podcaster has not obtained all the necessary rights, copyright infringement will result.#160 The real problem is for podcasters who want to stay out of the RIAA’s crosshairs, determining exactly what type of license to get can be challenging.

Copyright law implications in music can become very confusing, very quickly.#160 Copyright law provides the copyright owner with the following rights:#160 the right to control the public performance of its copyrighted work; the right to control the production and distribution of a sound recording embodying a copyrighted work; and the right to create a copy of a sound recording.#160 Each of these rights may be implicated in podcasting.#160

Performance right organizations (PRO), such as BMI, ASCAP and SESAC license the public performance of copyrighted work.#160 Usually a license from all three is recommended because each organization represents different publishers of musical works.#160 #160Performance rights organizations have staked a claim to the right to license music for podcasting.#160 On its website, BMI claims that it has “been licensing podcasters for nearly a year covering the public performance rights to the BMI repertoire” and lists Coverville as one of its licensees.

The right to produce and distribute a sound recording which embodies a copyrighted composition is controlled by music publishers, who have abdicated the responsibility to the Harry Fox Agency.#160 HFA collects mechanical license fees (a mechanical license covers the right to reproduce and distribute copyrighted musical compositions [i.e. songs], including uses on CDs, records, tapes, and certain digital configurations) on behalf of publishers.#160 This includes full permanent downloads, whether or not charged for.#160 Since podcasting technology results in the creation of a single digital audio file to a user’s computer, HFA could rightfully claim that it is the proper agency to control licensing for podcasts.#160 While HFA has yet to make this claim, given what occurred when PROs and HFA were trying to determine who controlled the right to issue licenses for webcasting and streaming, it is only a matter of time.

It is important to note that HFA licenses cover the right to make and distribute recordings of musical compositions, and not the use of existing sound recordings.#160 In order to clear those rights, a podcaster would have to obtain permission from the owners of each sound recording, which in most cases are record labels.#160

In 1995 and again in 1999, the Copyright Act was amended to create a statutory license mechanism for the digital transmission of sound recordings and musical works.#160 The 1995 legislation covered uses like the commercial sale of MP3s, while the 1999 amendment covered webcasting and streaming.#160 The 1999 amendments allowed webcasters the right to webcast or stream copyrighted music, and required them to pay certain pre-set royalties to SoundExchange, a performance rights organization that was designated by the U.S. Copyright Office to collect and distribute statutory royalties.#160

The 1999 amendments to the Copyright Act do not provide coverage for podcasting because the statutory license only covers the transmission of a sound recording, not the distribution of a copy of it.#160 Podcasting involves the reproduction of a sound recording and results in the creation of an audio file on a user’s computer.#160 As stated above, clearing the right to create a reproduction of a sound recording, not just the musical composition, necessitates approval from the record label that owns the sound recording.#160

Although BMI and ASCAP are offering performance licenses, podcasters who want to remain on the right side of the law may also need to clear rights from other parties.#160 Because there is no industry wide standard and no central clearance mechanism like SoundExchange, clearing rights to the sound recording can be rather expensive and time consuming.#160 The music industry and our lawmakers need to devise a mechanism that allows podcasters to easily comply with the law and a licensing scheme that is not financially daunting.#160 Most non-corporate podcasters, such as Coverville, fund their operation entirely out of their own pocket, or by donations from listeners.#160 There is a desire for this type of alternative music programming; a desire that is not being fulfilled by commercial radio.#160 It would be shame if red tape and licensing costs silenced these unique and interesting programs emanating from the left of the radio dial.

By Scott Hervey

Wired reports that the French judiciary has been issuing lenient sentences and penalties to individuals involved in criminal proceedings involving illegal file trading.#160 The president of the French magistrate union, Judge Dominique Barella, has openly taken the position that the harsh criminal penalties imposed under French copyright law are inappropriate under the circumstances.#160 Wired reports#160 the Barella has insisted that a more appropriate policy needs to be adopted in France and in Europe that protects what he says are mostly young people of the MP3 generation who are weak targets against the machinations of the entertainment industry’s legal agenda.

The French entertainment industry is not taking Barella’s position lightly.#160 In a letter to the French Minister of Justice, representatives of France’s entertainment, film, music associations stated “[w]e are surprised and shocked that the president of the magistrates union, given the level of influence he has on his colleagues, can publish in the press a call to not criminally sanction criminal acts, which contradicts the intentions of government bodies.”

Barella defends his position, stating that the government’s resources would be better spent focusing on large scale, international counterfeiting rings instead of targeting young Parisians who just want fill their ipod.

By Pamela Winston Bertani

Last month in a patent infringement suit involving SmithKline Beecham’s patent for the active ingredient in its antidpressent drug Paxil��, the Federal Circuit affirmed judgment in defendant’s favor where SmithKline Beecham’s patent was held invalid as anticipated under 35 U.S.C. Section 102 – for being inherently disclosed in a prior part patent. (SmithKline Beecham Corp. v. Apotex Corp., 403 F.3d 1331 (Fed. Cir. April 8, 2005).)

In 1980, SmithKline licensed from the British company Ferrosan, U.S. Patent No. 4,007,196 (‘196 Patent) and related technology for a compound called paroxetine hydrochloride (“PHC”). PHC is the active ingredient in SmithKline’s Paxil�� product. At issue in this case are two forms of PHC, namely the anhydrous form (“PHC anhydrate”) and the hemihydrous form (“PHC hemihydrate”). The ‘196 Patent disclosed PHC anhydrate. In 1985, a SmithKline Beecham scientist discovered PHC hemihydrate, which proved to be more stable, and thus more easily packaged and preserved than PHC anhydrate.

On October 25, 1985, SmithKline Beecham filed a patent application in the British Patent Office for crystalline PHC, its preparation and its uses as a therapeutic agent. The British application identified the invention as covering PHC anhydrate, PHC hemihydrate, and mixtures containing a major portion of either form. One year later, on October 23, 1986, SmithKline filed a United States patent application claiming priority to the British application filing date – for the PHC invention that ultimately issued as U.S. Patent No. 4,721,723 (‘723 Patent), which is at issue in this case. The ‘723 Patent does not claim PHC anhydrate and does not claim mixtures of the two PHC forms – but rather claims only PHC hemihydrate.

After obtaining FDA approval, in 1993 SmithKline placed Paxil�� on the market, containing the active ingredient PHC hemihydrate. In 1998, an Apotex affiliate filed an Abbreviated New Drug Application (“ANDA”) with the FDA, seeking approval to market its own generic PHC antidepressant drug, containing the active ingredient PHC anhydrate. Apotex’s application stated the company’s intent to market the generic drug before SmithKline’s ‘723 Patent expired because the generic drug would not infringe the ‘723 Patent, since it would not contain PHC hemihydrate, but rather PHC anhydrate, which was covered by the soon to be expired ‘197 Patent.

Later in 1998, SmithKline filed this patent infringement suit against Apotex. Interestingly, SmithKline did not allege that the ‘723 Patent covers PHC anhydrate (Apotex’s active ingredient), since PHC anhydrate – the Ferrosan technology – constituted prior art for the ‘723 Patent. Rather, SmithKline argued that the Apotex antidepressant drug would infringe the ‘723 Patent because Apotex’s PHC anhydrate tablets necessarily contain, by a conversion process, at least trace amounts of PHC hemihydrate – SmithKline’s invention. The District Court ruled that, based on its construction of SmithKline’s ‘723 Patent claim at issue, the claim must be construed only to cover products containing “commercially significant amounts” of hemihydrate – and that Apotex’s generic drug would not infringe the ‘723 Patent, because Apotex’s drug would contain only trace amounts – but not “commercially significant amounts” – of PHC hemihydrate. In other words, the District Court limited and narrowed the ‘723 Patent claim to cover only products containing “commercially significant amounts” of PHC hemihydrate in finding noninfringement.

Not surprisingly, the Federal Circuit disagreed with the District Court’s claim interpretation, and held that the claim was not limited to “commercially significant amounts” of PHC hemihydrate, but encompassed – without limitation – any amount of the compound. Under this broad construction of SmithKline’s ‘723 claim, Apotex’s drug, which by conversion would ultimately contain trace amounts of PHC hemihydrate, would indeed infringe the ‘723 Patent.

In an interesting twist, however, the Federal Circuit ruled that the ‘723 Patent claim, while infringed by Apotex’s product, was nonetheless invalid. Why? Because based on SmithKline’s own argument, Apotex’s product, containing the active ingredient PHC anhydrate, undergoes conversion and ultimately contains trace amounts of PHC hemihydrate, which is covered by SmithKline’s ‘723 Patent. But the prior art – the licensed ‘196 Ferrosan Patent – covered PHC anhydrate – which by SmithKline’s own admission, ultimately converts to include at least trace amounts of PHC hemihydrate – the ‘723 patented invention. In other words, the prior art invention ultimately converted into SmithKline’s PHC hemihydate invention, albeit unknowingly at the time of the ‘196 Patent, and therefore anticipated SmithKline’s ‘723 Patent invention. Put another way, the ‘196 Patent inherently disclosed PHC hemihydrate, rendering the ‘723 Patent invalid and anticipated under 35 U.S.C. 102, which precludes patentability for inventions that have already been patented our published more than one year before the patent application filing date for a new invention. In fact, SmithKline’s PHC hemihydrate was serendipitously made while SmithKline’s chemist was actually attempting to make the licensed PHC anhydrate under the ‘196 Ferrosan Patent – the prior art. Thus, while the ‘196 Patent did not literally disclose PHC hemihydrate – it inherently disclosed the compound because the compound is naturally and necessarily present as a result of the conversion process SmithKline explained in detail to the District Court.

The Federal Circuit identified the real bottom line of this case, and unequivocally stated that SmithKline sued Apotex for infringement of the’723 Patent in an express attempt to prevent Apotex from practicing the ‘196 Patent upon its expiration. However, this doctrine of inherent anticipation served its function here, which, according to the Court, is:

[T]o ensure that the public remains free to make, use or sell prior art compositions or processes, regardless of whether or not they understand their complete makeup or the underlying scientific principles which allow them to operate. Invalidating claim 1 of the ‘723 Patent furthers this policy of allowing the public to practice expired patents.

This case represents a significant win for generic drug manufacturers, which rely on the opportunity to practice expired inventions in the production and sale of previously patented pharmaceutical products. Consumers, and the market in general, benefit from product diversity resulting from generic drug availability.

From a practitioner’s point of view, the take home message here is to be careful of what you ask for in court – because you just might get it. Here, SmithKline aggressively pursued its “compound conversion” theory in the District Court to argue that Apotex’s product ultimately converted into a product containing SmithKline’s patented compound. This came back to haunt SmithKline on appeal, since the Federal Circuit relied on that very argument to show that not only Apotex’s product – but the ‘196 Patent prior art invention as well – underwent the asserted conversion, which inherently anticipated SmithKline’s ‘723 Patent. There was simply no credible way for SmithKline to neutralize this argument on appeal. The fall-out from this case may be considerable, given the value of SmithKline’s Paxil�� product – which may very well now be subject to generic manufacture. We will keep an eye on related developments as the market adjusts to the Federal Court’s ruling.

By Julie Garcia

#160 #160#160 #160#160 #160#160 #160The path from original idea to market launch of a product can be a long and arduous road. There are many hurdles that must overcome prior to the launch and distribution of a product. The path usually begins in the mind of a few creative individuals or a scientist or engineer. Extracting the idea and turning it into a viable product or service upon which a company can grow to profitability is fraught with challenges, pitfalls and plenty of mountains to climb and the path generally includes: (i) determining if the idea is viable as either a product or service; (ii) determining the form of entity to be created from which business will be conducted; (iii) financing the endeavor; (iv) product development; and finally (v) market launch.

#160 #160#160 #160#160 #160#160 #160An idea can be a very powerful and important basis from which a product or service can be derived; however, initial research should be conducted to determine if the idea has already been protected by a patent or if the idea is viable from a technological standpoint. Although many ideas sound good in principle, the execution of the idea may not be feasible or even possible. In some cases, the idea has already been developed to a certain point and not marketed for a variety of reasons. Generally, an initial search through the patent office filings may provide enough information to determine whether or not the idea is worth pursuing. If the initial search is negative, further in-depth research should be conducted through more formal patent search methods. Services exist that will conduct searches that reach beyond the initial patent and trademark website search. Although the search may be costly, it may ultimately save money if the search returns positive results and further development of the product or service would ultimately be futile.

#160 #160#160 #160#160 #160#160 #160After the initial determination that the idea is feasible or at least worth pursuing, it is generally advisable to form an entity which will own or license the idea or invention and through which the product may ultimately be launched. The choice of entity is often a decision that requires some thought and consideration, particularly in light of the circumstances surrounding the founders and the future intent regarding financing for the entity. Generally, most technology companies will take the form of a corporation, either a C corporation or an S corporation or a limited liability company. There are various reasons that one entity is chosen over the other, including tax issues. Certain types of entities may not be feasible depending on the type of shareholders or members contemplated. For example, an S corporation is limited to a certain type of shareholder, which generally excludes other corporations or entities and the number of shareholders in an S corporation is limited. A consideration worth noting on the use of a limited liability company in California is the gross receipts fee. The fee due to the State of California is based on the gross receipts received by the entity for the year. In addition to the type of entity chosen, the jurisdiction of the entity may be important. Each state has adopted different rules and regulations regarding entities making some jurisdictions more company friendly than others. Case law in certain jurisdictions may make certain states more appealing than others and the filing fees may also create situations that are more favorable than others.

#160 #160#160 #160#160 #160#160 #160Generally, technology companies are not ready to launch a product or service upon formation of the entity. A significant amount of research and product development is important and requires funding. Unless the founders are independently wealthy and can manage financing the endeavor on their own, outside investors will be needed until a revenue stream is generated from the product or service. Although there are a number of investors that are looking for the next big technology, money is not as readily available as it had been at the peak of the “dot com” boom. During that time, investment money was free-flowing and available to most companies. Currently, investors are much more cautious about the companies in which they invest their money and are not as willing to fund small startup companies with unlimited funds. A significant amount of due diligence regarding the technology held by the company and the business plan are standard practice and very important. An investor will want reassurance that the technology has been protected, is owned by the company and is being developed in an efficient manner. In addition, the investors will want to see formation documents and review the business documents which show that the business has been conducted in pursuant to corporate and securities regulations.

#160 #160#160 #160#160 #160#160 #160Upon receiving funding, at least enough to move forward with the process, product development will follow. The successful launch of the product will depend on the proper market research and development of the product or service. In many cases, beta testing of the product will allow the company to test the product in a typical user setting and will provide valuable feedback from actual users of the product. Although beta testing may be useful, it is important that the company take proper steps to protect the intellectual property that will be released. Entering into a beta test agreement will assist in setting the parameters of the review and use of the product and establish expectations of both parties.

#160 #160#160 #160#160 #160#160 #160Once the product has successfully been developed and tested, market launch is the next step. Determining the most effective manner to distribute products will generally require a network of manufacturers, distributors and/or resellers. Most small technology companies will not have the internal resources available to manufacture and distribute the product and will need to look to third parties to provide such services. Establishing relationships with manufacturers, distributors and resellers will be important to the success of the company and the relationships should be properly documented.

#160 #160#160 #160#160 #160#160 #160Product development and distribution can be a time consuming process. Taking an idea from the mind of the inventor to market launch is a process that should be undertaken with great care and planning. Research regarding the viability of the product or service and proper planning will help make the process a little less traumatic.

Julie A. Garcia is an associate in Weintraub Genshlea Chediak Tobin & Tobin Sproul’s Corporate, Securities and Financial Institutions group.#160 Ms. Garcia has broad experience working with technology companies in a wide range of software and technology license transactions.#160 Her practice also focuses on private and public companies’ business planning scenarios including corporate formations, protection of intellectual property, licensing intellectual property, corporate financings, employee equity incentive plans and mergers and acquisitions.