IP Update, Vol. 15, No. 9, -- September 2012

In a case that attracted 35 amici and resulted in a 6–5 en banc decision loosening the rules for proving liability under the doctrine of inducing infringement for method claims, the U.S. Court of Appeals for the Federal Circuit addressed the “doctrinal problems” in the relationship between direct infringement under sec. 271(a) and active inducement under sec. 271(b) under prior Federal Circuit case law. The majority, in a per curiam decision (joined by Chief Judge Rader as well as Judges Lourie, Bryson, Moore, Reyna and Wallach), rejected the prior rule that inducement requires proof of a single actor directly infringing the patent and instead ruled that the underlying direct “infringement” of a process claim by multiple independent actors can still lead to inducement liability so long as all of the steps of the method were actually performed. “[W]e hold that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity.” Akamai Tech. v. Limelight Networks (en banc) Case Nos. 09-1372, -1380, -1416, - 1417; McKesson Tech. v. Epic Systems (en banc) Case No. 10-1291, (Fed Cir , Aug. 31, 2012) (Newman, J., dissenting) (Linn, J., dissenting, joined by Dyk, J., Prost, J. and O’Malley, J.).

Active inducement is defined in 35 U.S.C. 271(b): “whoever actively induces infringement of a patent shall be liable as an infringer.” Before this en banc decision, the Federal Circuit rule was that inducement requires both the act of knowing inducement to infringe (with knowledge of the patent) and actual direct infringement of the patent as defined by Section 271(a). BMC v. Paymentech (Fed. Cir., 2007). In both of the cases at bar, the patentees had a problem proving infringement because the accused infringer had allegedly knowingly encouraged different parties to perform different steps of the patented method. The Akamai case involved a patent directed to a method of delivering web content in which the defendant was the proprietor of network servers that delivered content to customers who performed one or more of the claimed steps. In the McKesson case, the patent was directed to method of electronic communications between a health care provider and its patients—and the defendant was neither a health care provider nor a patient—but was a software company that licensed its software to health care providers.

In both of these cases, the respective district courts, citing BMC v. Paymentech, found no infringement since direct infringement under sec. 271(a), the acknowledged predicate for inducement, requires proof that a single-actor (or plural actors acting under the accused infringer’s direction and control) performed all of the claimed steps. In both cases the patentees were unable to satisfy the second prong of the inducement test (classical direct infringement under sec. 271(a)). According to the majority, the new decision does not rely on any change in the law of direct infringement (or of direct divided infringement). Rather, under the new rule articulated by the en banc majority, inducement liability exists if the accused infringer knew of the patent, induced performance of the steps of the method and those steps were actually performed. The accused infringer will also be liable if it performs some of the steps of the method and then actively induces performance of the other steps. Under the Akamai/McKesson rule, inducement still requires that the accused infringer have knowingly induced the infringement—that is with knowledge that the steps it is encouraging are covered by the patent—but does not require a classical direct (271(a)) infringer as a predicate.

Although the majority overruled the BMC v. Paymentech single actor rule, it held that an active inducer will only be held liable if one or more parties are induced to practice all the steps of a claimed method. The majority explained that innocent actors who were “induced” by someone else to perform one or more (but not all) of the claimed steps will not be individually liable. In other words, under this decision, innocent third parties (who are not direct infringers and who do not have culpable intent) will not be held strictly liable for infringement. In note 1 the majority explains that “[b]ecause liability for inducement, unlike liability for direct infringement, requires specific intent to cause infringement, using inducement to reach joint infringement does not present the risk of extending liability to persons who may not be aware of the existence of the patent or even unaware that others are practicing some of the steps claimed in the patent.”

The theme of the majority opinion goes to balancing the tension created by the sometimes competing objectives of protecting patentees from intentional infringement while also protecting innocent parties who are not intentionally involved in any infringing activity.

Judge Newman, in dissent, argued that the majority opinion creates “dramatic changes in the law of infringement” and warned that the “greatly enlarged grounds” for proving inducement “contains vast potential for abuse” that “imposes disruption, uncertainty and disincentives upon the innovation [read: design around] communities.” She wondered aloud about the wisdom of the majority in imposing liability under the inducement statute for acts such as “urging or encouraging” while “exonerating direct infringers from liability when the patented method is ‘collectively practiced.’”

Judge Linn also penned a vigorous dissent, his rooted in what he perceives to be the majority’s improper use of this case as a vehicle to make policy rather than interpret statutory text: “The majority opinion is rooted in its conception of what Congress ought to have done rather than what it did. It is also an abdication of this court’s obligation to interpret Congressional policy rather than alter it. When this court convenes en banc, it frees itself of the obligation to follow its own prior precedential decisions. But it is beyond our power to rewrite Congress’s laws. Similarly, we are obliged to follow the pronouncements of the Supreme Court concerning the proper interpretation of those acts.”

Practice Note: It remains to be seen how future decisions will sharpen the test in terms of exactly how much knowledge will be required to prove inducement under the Akamai/McKesson case and the impact (if any) of the “knowledge” requirement for willful infringement knowledge (as set forth in Bard Peripheral Vascular v. W. L. Gore & Assoc. (Fed. Cir., 2012) and In re Seagate (Fed. Cir., 2007) (en banc) (see IP Update, Vol. 10, No. 8) or the inducement knowledge standard as explained by the Supreme Court in its 2011 decision in Global-Tech Appliances v. SEB (in the context of apparatus claims), that while knowledge of a patent is required to prove inducement, one cannot escape liability through “willful blindness” that a copied product is patented.

It appears that the dissenting opinions (especially that of Judge Linn), were written with an eye toward identifying a serious intra circuit split that requires Supreme Court attention. In the meantime the takeaway here is that there is now additional value to method claims, especially those that recites steps involving interaction among multiple individuals.

Patents / Damages

Entire Market Value Rule–R.I.P.?
by Robert J. Walters and Michael V. Sardina

In an opinion that addresses the proper framework for evaluating reasonable royalty damages in the patent infringement context, the U.S. Court of Appeals for the Federal Circuit overturned a jury award of an $8.5 million lump sum and remanded the case for a new trial on damages. LaserDynamics v. Quanta Computer, Case No. 11-1440 (Fed. Cir., Aug. 30, 2012) (Reyna, J.).

LaserDynamics sued Quanta Computer, Inc. (QCI) for patent infringement, alleging that QCI actively induced infringement by selling laptop computers containing LaserDynamics’ patented optical disc drive technology. In the first trial, LaserDynamics used the entire market value rule to seek damages based on QCI’s revenues from the laptop computers, although its patented technology was directed to only one component, the optical disc drives. The jury awarded LaserDynamics a $52 million verdict, but the district court granted QCI’s motion for new trial, finding that LaserDynamics’ damages case improperly relied on the entire market value rule. At the second trial, LaserDynamics’ damages case relied heavily on its 2006 litigation settlement agreement with BenQ, which included a lump sum license for $6 million and was based on an August 2006 date for the hypothetical negotiation. This time, the jury awarded $8.5 million in damages. Both sides appealed.

On appeal, the Federal Circuit addressed numerous damages-related issues, including use of the entire market value rule, the date of the hypothetical negotiation under a Georgia-Pacific analysis and use of litigation settlement agreements as evidence to support a reasonable royalty.

The Entire Market Value Rule

The Federal Circuit reiterated that the entire market value rule is a narrow exception to the general damages rules. The threshold requirement for a plaintiff seeking to apply the entire market value rule is substantial—in cases involving products with multiple components, “patentees may not calculate damages based on the sales of the entire product, as opposed to the smallest salable patentee-practicing unit, without showing the demand for the entire product is attributable to the patented feature.”

In this case, the Federal Circuit concluded that LaserDynamics’ argument was not sufficient to justify use of the entire market value rule—“proof that consumers would not want a laptop without such features is not tantamount to proof that any one of those features alone drives the market for laptop computers.” Instead, LaserDynamics’ burden was to show that “the presence of [optical disc drive] functionality is what motivates consumers to buy a laptop computer in the first place.”

The Hypothetical Negotiation Date

The Georgia-Pacific royalty damages calculation is based on what two willing parties would agree to pay for a license under a hypothetical negotiation generally set on “the date that the infringement began.” The district court reasoned that August 2006, the date of filing of the complaint and notice of infringement to QCI, was the proper hypothetical negotiation date—when QCI first met all the elements of inducement infringement.

The Federal Circuit, explaining that in the active inducement infringement context, the “hypothetical negotiation is deemed to take place on the date of the first direct infringement traceable to [the inducing party’s] first instance of inducement conduct” (emphasis added), reversed that ruling. Thus, the Court explained, the correct hypothetical negotiation date was 2003, given that QCI’s first act of inducing conduct (resulting in direct infringement) occurred that year, when it began selling the accused computers in the United States.

Litigation Settlement Agreements and Evidentiary Proof Regarding a Reasonable Royalty

The Federal Circuit also addressed the use of litigation settlement agreements as evidence for establishing a reasonable royalty, noting that the “propriety of using prior settlement agreements to prove the amount of a reasonable royalty is questionable.” The coercive environment of a patent litigation settlement is unsuitable to a Georgia-Pacific analysis that is premised on assuming a voluntary agreement between willing parties.

The Federal Circuit determined that a 2006 litigation settlement agreement with BenQ could not be relied upon by LaserDynamics. This agreement was executed shortly before a trial at which BenQ faced several strategic disadvantages resulting from court sanctions. Further, the BenQ settlement was for a lump sum payment of $6 million, six times larger than the 28 additional licenses in evidence. As the court explained, “[A]ctual licenses to the patents-in-suit are probative not only for the proper amount of a reasonable royalty, but also for the proper form of the royalty structure.” Therefore, in this case it was improper for LaserDynamics’ expert to ignore the amount and form of the royalties in the 28 lump sum “actual licenses.”

Patents / Claim Construction

Lack of Enablement Snares Patent’s Open-Ended Claim Scope
by Joseph H. Paquin

Emphasizing that the full claim scope must be enabled, the U.S. Court of Appeals for the Federal Circuit recently affirmed a ruling invalidating a patent for failure to enable the full extent of a claimed open-ended range. MagSil v. Hitachi Global Storage Techs., Inc., Case No. 11-1221 (Fed. Cir., Aug. 14, 2012) (Rader, C.J.).

The patent-at-issue claimed a read-write sensor for computer hard disk drive storage systems. In particular, the claims called for a tunneling junction wherein applying a small electromagnetic field causes “a change in the resistance [of the junction] by at least 10 percent at room temperature.”

At the district court, the patentee, MagSil, advocated for a broad construction and the lower court found that the claims cover resistance changes from 10 percent “up to infinity.” The specification of the patent, however, taught a maximum change in resistance of only 11.8 percent at room temperature. One of the named inventors testified that before the application was filed, he did not know how to achieve a tunnel junction with greater than 20 percent change in resistance. Further, a year after the filing of the application the inventors were still unable to achieve even a 20 percent change. MagSil’s expert testified that a person of ordinary skill in the art could work from the specification and make tunneling junctions with a resistive change between 100 percent and 120 percent without undue experimentation. Even accepting the accuracy of the expert’s testimony, the district court found the specification did not enable one skilled in the art to practice the full “change of resistance” range. As a result, the district court found the patent invalid for lack of enablement.

On appeal, the Federal Circuit found that the trial court’s lack of enablement finding fell squarely within the Court’s precedent. The Court first explained that “[e]nablement serves the dual function in the patent system of ensuring adequate disclosure of the claimed invention and of preventing claims broader than the disclosed invention.” This not only prevents inadequate disclosure of an invention, but also “overbroad claiming that might otherwise attempt to cover more than was actually invented.”

The Court adopted the broad construction advocated by MagSil and entered by the district court, finding that the range of the “at least 10% resistance change” limitation extended from 10 percent to infinity. Turning to the specification, the Court noted that reference was made to a 1975 article that predicted an ideal tunnel junction could yield around a 24 percent change in resistance; however, 20 years later, when the application was filed, the specification taught that the highest achieved change was only 11.8 percent. This was insufficient disclosure to enable a resistance change up to infinity.

In the end, “[t]he scope of the claims must be less than or equal to the scope of the enablement to ensure that the public knowledge is enriched by the patent specification to a degree at least commensurate with the scope of the claims.” In attempting to use broad claim language, the patentee risks “losing any claim that cannot be enabled across its full scope of coverage.”

Practice Note: Claimed ranges should be carefully drafted to correspond to the range enabled by the specification. Open-ended ranges, in particular, should be avoided, as they will be closely scrutinized.

Patents/ Obviousness

Concentration Range Claims Cannot Be Narrowly Construed to Preserve Validity
by Shon Lo

Addressing the validity of patent claims reciting concentration ranges, the U.S. Court of Appeals for the Federal Circuit reversed in part a district court decision that patent claims were not obvious. Alcon Research, Ltd. v. Apotex Inc., Case No. 11-1455 (Fed. Cir., Aug. 8, 2012) (Moore, J.).

The patent at-issue was directed to the use of a composition to treat allergies that includes olopatadine, the active ingredient in Alcon’s anti-allergy eye drop Patanol™. The first independent claim of the asserted patent covered a treatment of “allergic eye diseases in humans comprising stabilizing conjunctival mast cells by topically administering to the eye a composition comprising a therapeutically effective amount of [olopatadine].” That independent claim did not specify what a “therapeutically effective amount” of olopatadine was, but dependent claims recited a range from about 0.001 percent to about 5 percent, including two dependent claims that specifically recited 0.1 percent. The accused product Patanol contained 0.1 percent olopatadine.

At the time of invention, it was known that olopatadine was an effective antihistamine, and methods of treating allergies using olopatadine were already patented. A prior art reference to Kamei disclosed testing of ophthalmic formulations of 0.0001-0.01 percent olopatadine in guinea pig eyes at concentrations that overlap with the range recited in most of the asserted patent claims. Nevertheless, the district court held the patent was non-obvious and that Apotex infringed.

On appeal, to avoid the Kamei reference, Alcon argued that olopatadine concentrations at the low end of the claimed 0.001-0.5 percent range do not stabilize mast cells to a clinically relevant extent, and should be excluded from the scope of the independent claim based on the “therapeutically effective amount” limitation. The Federal Circuit rejected Alcon’s argument that the claims “would be operative, just at a narrower concentration than the claimed range,” stating “courts do not rewrite the claims to narrow them for the patentee to cover only the valid portions” of the range. Thus, stated the Court, if a concentration within the recited range is “admittedly not enabled, then the entire claim is invalid.” The Federal Circuit stated further that, “if the prior art discloses a portion of the claimed range, the entire claim is invalid.” Moreover, because the olopatadine concentrations disclosed in the Kamei reference overlapped the claimed concentrations, the “therapeutically effective” and “stabilizing conjunctival mast cells” claim limitation were met by Kamei.

The Federal Circuit found that several claims were invalid in view of the Kamei reference. However, because the olopatadine concentrations tested in Kamei were substantially lower than the 0.1 percent recited in two of the dependent claims, and in view of evidence regarding Patanol’s commercial success, the Federal Circuit affirmed the district court’s finding that the two dependent claims were not obvious.

Patents / Patentable Subject Matter

Prometheus Redux: Patentability of Isolated DNA Sequences Are Patentable Subject Matter
by William (Bill) Gaede and Bhanu K. Sadasivan

Isolated DNA molecules are patent-eligible, reaffirmed the U.S. Court of Appeals for the Federal Circuit, lifting a cloud of uncertainty over DNA composition patents—at least for now. Ass’n for Molecular Pathology et al. v. Myriad Genetics, Inc. et al., Case No. 10-1406 (Fed. Cir., Aug. 16, 2012) (Lourie, J.) (Moore, J., concurring-in-part) (Bryson, J., concurring-in-part and dissenting-in-part).

“The isolated DNA molecules before us are not found in nature. They are obtained in laboratory and are man-made, the product of human ingenuity,” stated the Federal Circuit, in a case on remand from the U. S. Supreme Court for further consideration in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., (see IP Update, Vol. 15, No. 3).

In an opinion that essentially tracked the Federal Circuit’s prior analysis in 2011, i.e., before appeal to the Supreme Court, the panel majority re-staked their positions. All three judges on the panel agreed that cDNAs and screening methods involving transformed cells are patent-eligible and method claims comparing or analyzing DNA sequences are not.

The judges varied, however, regarding isolated genomic DNA molecules with sequences identical to those found in nature. Judges Lourie and Moore agreed that such isolated DNA molecules were patent eligible, but for different reasons.

Judge Lourie found the isolated genomic DNA molecules to be patent eligible because they are “markedly different … from those found in nature.” Passing on the Mayo decision, Judge Lourie instead relied on the Supreme Court’s Chakrabarty and Funk Brothers decisions. “Mayo does not control the question of patent-eligibility of [isolated DNA molecules] claims. They are claims to compositions of matter, expressly authorized as suitable patent-eligible subject matter in §101,” Judge Lourie penned.

Judge Moore agreed that smaller genomic DNA molecules are patent-eligible, but would have found long genomic DNA molecules that include most or all of a gene patent-ineligible if she “were deciding this case on a blank canvas. … But we do not decide this case on a blank canvas,” wrote Judge Moore. “Congress has, for centuries, authorized an expansive scope of patentable subject matter. Likewise, the United States Patent Office has allowed patents on isolated DNA sequences for decades. […] I will not strip an entire industry of the property rights it has invested in, earned and owned for decades unchallenged under the facts of this case,” she wrote in affirming the patent eligibility of isolated genomic DNA molecules.

Judge Bryson dissented. In his opinion, the native gene and claimed genomic DNA molecules were “the same, structurally and functionally,” making them patent-ineligible. The principle disagreement between Judges Lourie and Bryson was whether the structural differences between the native genes and the isolated genomic DNA molecules were respectively “markedly different” or merely “necessarily incidental to the extraction of the genes.” This difference of opinion underscores the need for “why the exceptions to patentability apply only to the clearest cases,” noted Judge Moore, cautioning against “an arbitrary decision based on a judge-made exception.”

As to the method claims, the panel unanimously found that Myriad’s claims of comparing gene sequences did not constitute patentable subject matter. Indeed, the court found the claims “indistinguishable” from the method claims struck down in Mayo v. Prometheus, stating that the Supreme Court “made clear that such diagnostic methods in that case essentially claim natural laws not eligible for patent.”

It is noteworthy, however, that the Federal Circuit focused again on a method for screening potential cancer therapeutics via changes in cell growth rates of transformed cells. The Court maintained its previous rejection of the plaintiffs’ argument that the method constituted an abstract idea which preempted the basic scientific principle that a slower growth rate in the presence of a potential therapeutic compound suggests that the compound is a cancer therapeutic. Instead, the Court found that the cells were transformed, which reflected the “hand of man,” and thus constituted patentable subject matter. Performing operations on those transformed cells, even if the operations were known, did not change the underlying analysis that the subject matter was patentable. “Thus, once one has determined that a claimed composition of matter is patent-eligible subject matter, applying various known types of procedures to it is not merely applying conventional steps to a law of nature.”

Practice Note: This case further ratifies the trend toward narrowing the scope of patent-eligible method claims that compare or analyze naturally occurring molecules or phenomenon. While the appellant, led by the American Civil Liberties Union, is likely to appeal the decision to the Supreme Court, the technological thicket underpinning patent eligibility in this case—namely, is an isolated genomic DNA molecule structurally the same or different—may caution the Supreme Court against taking it up. Moreover, patentability analyses under §§ 102, 103 and/or 112 may render moot the need for the Supreme Court to reach a decision on patent eligibility of genomic DNA sequences.

Patents / Exceptional Case Doctrine

Exceptional Case: All or Nothing At All?
by John C. Low and Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit, finding that at least one of the infringement claims of a non-practicing patent owner was not baseless, reversed a ruling finding the entire case qualified as “exceptional” and overturned an attorneys’ fee award, pending an allocation between frivolous and non-frivolous claims. Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc. Case No. 11-1219 (Fed. Cir., Aug. 7, 2012) (Dyk, J.) (Mayer, J., dissenting-in-part).

The patent in issue was directed to a method for managing health care systems including communications among and between doctors, patients, medical facilities and insurance providers—the objective being a way to determine whether a particular treatment should be approved for coverage. After Highmark filed for a declaratory judgment that the patent in issue was invalid and not enforceable, Allcare responded with counterclaims of infringement. Highmark prevailed on a summary judgment motion for non-infringement, which was affirmed on appeal. Highmark then sought a ruling that the case was exceptional (arguing that Allcare’s claims were frivolous) and sought a ruling that Allcare be ordered to pay its attorneys’ fees and expenses. The district court agreed and awarded the declaratory judgment plaintiff almost $5 million in attorneys’ fees under § 285. Allcare appealed.

On appeal, the Federal Circuit explained that under § 285, “sanctions may be imposed against the patentee only if two separate criteria are satisfied: (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” The “objectively baseless” requirement “does not depend on the state of mind of the party at the time the action was commenced, but rather requires an objective assessment of the merits.” The Court continued, “[t]o be objectively baseless, the infringement allegations must be such that no reasonable litigant could reasonably expect success on the merits.”

The Federal Circuit rejected the patentee’s assertion that the objective prong is assessed only at the time legal claims are first filed. Rather, the Court explained that “the objective prong is a single backwards-looking inquiry into the reasonableness of the claims in light of the full record. […] Unlike the objective prong, which is a single retrospective look at the entire litigation, the subjective prong may suggest that a case initially brought in good faith may be continued in bad faith depending on developments during discovery and otherwise.” Further, over the dissent, the majority noted that the “objective prong … is a question of law based on underlying mixed questions of law and fact and is subject to de novo review” and is a determination that must be made by the court rather than by the jury. In contrast, the subjective prong must be established by clear and convincing evidence because “there is an assumption that an assertion of infringement of a duly granted patent is made in good faith.”

The majority noted “the objective reasonableness standard does not require fact finding. The question is simply whether the record established in the proceeding supports a reasonable argument as to facts and law.”

Here the Court concluded that as to one of the patent owner’s claims, the district court did not err in concluding the claim was frivolous and the case exceptional. However, as to another of the infringement claims, the majority concluded that “Allcare’s position was not objectively unreasonable.” Since there had been no apportionment of the award (in terms of the Allcare claims), the Federal Circuit ordered the case remanded for a calculation of the fees and expenses attributable to the frivolous claim.

The dissent would have applied a highly deferential standard of review and affirmed the exceptional case award in its entirety

Practice Note: House Bill H.R. 6245, introducing the “Saving High-Tech Innovators from Egregious Legal Disputes” (SHIELD) Act, was proposed on July 31, 2012 and, according to its sponsors, was aimed at deterring the class of litigants the sponsors call “patent trolls.” The bill proposes to amend 35 U.S.C. § 285 to include a new section 285A, which provides, in part: “[n]otwithstanding section 285, in an action disputing the validity or alleging the infringement of a computer hardware or software patent, upon making a determination that the party alleging the infringement of the patent did not have a reasonable likelihood of succeeding, the court may award the recovery of full costs to the prevailing party, including reasonable attorney’s fees, other than the United States.” As the bill defines “Computer hardware patent” and “Software patent” broadly, the apparent aim of the sponsors is to create a technology-specific “loser pays” rule by removing the subjective prong inquiry, one of the judicially-mandated legal hurdles required to establish entitlement (by prevailing accused infringers) to attorneys’ fees under § 285. As a consequence, the proposed SHIELD Act would remove the “fact finding” associated with the subjective prong.

In other words, under the bill, there would be no inquiry into whether “the lack of objective foundation for the claim ‘was either known or so obvious that it should have been known’ by the party asserting the claim.’” Thus, patent holders could face substantial financial risk when asserting patent claims.

In the technology area targeted by the bill, it is often the case that allegedly-infringing computer hardware and software is effectively a “black box.” Thus, even a patentee operating in good faith in anticipation of receiving further details of the accused instrumentalities through discovery could be subject to sanctions if it is later determined that the facts, as viewed at the end of the case, do not support infringement. The holding in Highmark that claimants are entitled to de novo review of the “objectively baseless” standard may also incentivize prevailing defendants to routinely appeal a sanctions motion if it is denied.

Patents / §271(e)(1)

The Scope of Safe Harbor Provision Under § 271(e)(1) Expands
by Daniel Bucca, Ph.D.

Addressing the scope of the Hatch-Waxman safe harbor provision of 35 U.S.C. § 271(e)(1), the U.S. Court of Appeals for the Federal Circuit found that practicing a patented method in the commercial manufacture of a drug was not an act of infringement. Momenta Pharm., Inc. v. Amphastar Pharm., Inc.., Case Nos. 12-1062, -1103, -1104 (Fed. Cir., Aug. 3, 2012) (Moore, J.) (Rader, C.J., dissenting).

The Momenta patents at-issue contained claims directed to manufacturing methods for analyzing the anticoagulant drug enoxaparin. Amphastar received approval by the U.S. Food and Drug Administration (FDA) to market enoxaparin and subsequently began to manufacture and market the drug. Momenta alleged that Amphastar, as part of its commercial manufacturing processes, practiced Momenta’s patented manufacturing methods.

The Federal Circuit found that Amphastar’s activity fell within the safe harbor provision of § 271(e)(1) and was, thus, not an act of infringement. The Court explained that “post approval studies that are ‘reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs’ fall within the scope of the § 271(e)(1) safe harbor.” The Court further explained that the FDA requirement that information from Amphastar’s testing be retained for FDA inspection “satisfies the requirement that the uses be reasonably related to the development and submission of information to the FDA.” According to the majority, “we think that the requirement to maintain records for FDA inspection satisfies the requirement that the uses be reasonably related to the development and submission of information to the FDA.”

Chief Judge Rader dissented, arguing that the majority opinion conflicted with the Court’s prior decision in Classen Immunotherapies, Inc. v. Biogen IDEC. Chief Judge Rader wrote “[t]his court’s interpretation of § 271(e)(1) would essentially render manufacturing method patents worthless.” Momenta has filed a petition for rehearing en banc.

Patents / Domestic Industry

Total Investments in Entire Licensing Program Cannot Establish Domestic Industry Absent Evidence Establishing Portion of Investments that Have a Nexus to Asserted Patents
by Christopher G. Paulraj

Addressing the “substantial investment” aspect of the domestic industry requirement under § 337, the U.S. International Trade Commission (ITC) issued a public version of a final opinion, reversing an administrative law judge’s (ALJ’s) initial determination concerning domestic industry, and finding that the Complainant Rambus did not meet its burden under 19 U.S.C. 1337(a)(3)(C). In re Certain Semiconductor Chips and Products Containing Same, Inv. No. 337-TA-753 (ITC, Aug. 17, 2012).

In this investigation, Rambus relied on its total investments in its entire patent licensing program pursuant to 1337(a)(3)(C). The ITC found that Rambus did not provide “sufficient evidence for us to identify or reasonably estimate the portion of its overall investments in licensing that have a nexus to the asserted patents, and, accordingly, that there is also insufficient evidence for the Commission to determine whether Rambus's relevant licensing investments are ‘substantial.’” The ITC opinion noted that “[t]he total amount of licensing expenditures and total number of licensing-related employees … does not allow the Commission to qualitatively or quantitatively determine what portion of the [dollar amount] expended by Rambus, or what portion of the expenses associated with the activities of the 30 Rambus employees that work on the overall licensing program, could be allocated in some fashion to licensing the [asserted] patents.”

The ITC rejected the ALJ’s approach of using the royalty revenues derived from the licensed portfolios that included the asserted patents as circumstantial evidence of Rambus’ investments. In particular, the ITC declined to adopt the reasoning set forth in the ALJ’s determination, which relied entirely on the relative amount of Rambus’s licensing revenues and the number of licenses executed as an adequate proxy for the “investments” made in licensing the asserted patents. Although the ITC recognized that licensing revenues can indeed be circumstantial evidence used to support a domestic industry, the ITC noted that Rambus’ licensing revenues for the asserted patents “do not constitute the investment[s]” themselves. Furthermore, while mathematical precision was not required, “only Rambus was in a position to come forth with some analysis of its own licensing operations from which its investments could be apportioned to the [asserted] patents,” and the ITC found that Rambus did not meet its burden.

The Commission acknowledged that “Rambus was not required to provide a precise allocation of its licensing investments on a patent-by-patent basis in this investigation in order to make a sufficient evidentiary showing,” but nonetheless found that it could not determine “what portion of the [amount] in total licensing expenditures incurred by Rambus, or what portion of time or expenses incurred by the 30 Rambus employees, might be allocated to the [asserted] patents.”

Practice Note: In a prior investigation involving Rambus (337-TA-661), the Commission chose not to review the ALJ’s determination finding that Rambus had satisfied the domestic industry requirement.

Patents / Domestic Industry

Domestic Industry Based on Licensing Exists Independently of Domestic Industry Based on Articles Protected by Patent Made in the United States
by Christopher G. Paulraj

Addressing the domestic industry requirement of § 337 in the context of licensing activities, the U.S. Court of Appeals for the Federal Circuit found that there is no need to establish that the articles that are the objects of the licensing activities are made in this country. InterDigital Communications, LLC v. Int’l Trade Comm’n, Case No. 10-1093 (Fed. Cir., Aug. 1, 2012) (Bryson, J.) (Newman, J., dissenting).

This case addresses the issue of whether satisfaction of the so-called “technical prong” is required for a licensing-based domestic industry. Traditionally, the ITC has required proof that a domestic article practices at least one claim of the asserted patent to satisfy product-based domestic industry allegations, but has not required that proof when a complainant is relying solely upon licensing activities. In the underlying investigation, the ITC held that complainant InterDigital satisfied the domestic industry requirement, but found no violation of § 337 because respondent Nokia did not infringe the asserted patents.

On appeal, the Federal Circuit found that the ITC erred in construing certain claim terms and reversed the ITC’s order finding no infringement and remanded the case for further proceedings.

The Federal Circuit also rejected Nokia’s argument that the ITC’s finding of no violation can be upheld on the alternative ground that InterDigital failed to satisfy the domestic industry requirement. The Court acknowledged that the statute permits barring the importation of infringing articles “only if an industry in the United States, relating to articles protected by the patent . . . exists or is in the process of being established.” Nonetheless, the Federal Circuit rejected Nokia’s argument there must always be a domestic industry relating to articles protected by the patent, noting that “section 337(a)(3) makes clear that the required United States industry can be based on patent licensing alone.”

In support of this interpretation, the Court looked to the legislative history and found that the Senate report of the bill that amended the domestic industry requirement recognized that the “third factor,” which permitted reliance upon investments in licensing, “does not require actual production of the article in the United States if it can be demonstrated that substantial investment and activities of the type enumerated are taking place in the United States.” The Court also noted that in the years since the enactment of that amendment, the Commission has consistently ruled that a domestic industry can be found based on licensing activities alone. As such, “[i]f there were any ambiguity as to whether the statute could be applied to a domestic industry consisting purely of licensing activities, the Commission’s consistent interpretation of the statute to reach such an industry would be entitled to deference under the principles of Chevron U.S.A.”

Judge Newman dissented with respect to claim construction issues, but did not address the domestic industry requirement.

Patents / Prior Art

A Range of Possible Dates for Alleged Prior Art Does Not Satisfy Standard of Clear and Convincing Evidence for Proving Invalidity
by Christopher D. Bright

Addressing the standard for providing prior art by prior invention under 35 U.S.C. § 102(g), the U.S. Court of Appeals for the Federal Circuit reiterated that that the standard is clear and convincing evidence and held that a range of possible dates for prior invention did not meet this standard. Amkor Technology, Inc. v. International Trade Commission, Case No. 10-1550 (Fed. Cir., Aug. 22, 2012) (Linn, J.).

Amkor initiated an ITC investigation, alleging that certain respondents violated section 337 of the Tariff Act of 1930 based on the importation of certain encapsulated integrated circuit devices that allegedly infringed Amkor’s patent. The administrative law judge issued an initial determination finding that a third party (ASAT) conceived of the invention in a foreign country sometime during April or May and that Amkor’s patented technology was conceived sometime during May through August, or on December 10, of that same year. The ALJ went on to conclude, however, that ASAT’s alleged prior invention was not prior art under § 102(g)(2) because there was a failure of proof “by clear and convincing evidence that the April/May date of invention [for the ASAT invention] . . . is prior to the [May through August] date of invention accorded the asserted claims.”

The Commission reversed and determined that Amkor’s patent was invalid under § 102(g)(2). The Commission held that the ASAT invention is prior art under § 102(g)(2) because, according to the Oka rule, the patent must be accorded the last date in the range of possible conception dates, or December 10, which falls after the April/May date of invention for the ASAT invention. Amkor appealed.

The Federal Circuit reversed, explaining that the Commission applied an erroneous legal standard. The Federal Circuit noted that the Oka rule, applied in the context of interferences, does not apply to patents entitled to a presumption of validity in litigation, which can only be overcome by clear and convincing evidence. The Federal Circuit went on to find that the range of dates of possible prior invention “at best, establishes that the ASAT inventor might have conceived of the invention first. Evidence establishing that there might have been a prior conception is not sufficient to meet the clear and convincing burden needed to invalidate a patent.”

Practice Note: A party trying to prove prior art, and in particular prior invention, would be better served in terms of persuasion by presenting—and is essentially legally required to present—a consistent story on the date of the prior art, rather than a range of possible dates for the prior art, particularly if part of that date range is after the conception of the patented invention.

Patents / Jury Findings

Implicit Jury Findings Are Binding
by Daniel Bucca, Ph.D.

In explaining the weight of a jury’s factual findings, the U. S. Court of Appeals for the Federal Circuit explained that a jury’s implicit factual findings (on obviousness) are binding on a district court and supported their verdict of non-obviousness. Further, the Federal Circuit explained that by granting judgment as a matter of law that the patents were invalid, the district court erred. Kinetic Concepts, Inc. v. Smith & Nephew, Case No. 11-1105 (Fed. Cir., Aug. 13, 2012) (O’Malley, J.) (Dyk, J., concurring in the result).

This case is noteworthy for the Court’s explanation that implicit factual findings of a jury are binding and should be considered in determining whether there was substantial evidence in reaching the verdict of obviousness. The patents at issue in this case were directed to methods and apparatuses for treating wounds by applying suction. The jury was asked to make several factual findings as to whether the defendant had proven the asserted claims were obvious. The jury determined that the claims and the prior art exhibited differences, that there were objective considerations favoring non-obviousness and that obviousness was not established by clear and convincing evidence. The jury also found that the defendant infringed the asserted claims.

Pursuant to Rule 50(b), Smith and Nephew (S&N) moved for judgment as a matter of law (JMOL), arguing that all of the asserted claims of the patents were obvious. In its motion, S&N asserted that substantial evidence did not support the jury’s explicit findings that additional differences between the prior art and the asserted claims existed and also that multiple objective indicia of non-obviousness were present.

KCI argued that, in addition to the explicit jury findings, the jury’s implicit findings necessary to determine the ultimate question of obviousness should be presumed to have been found in KCI’s favor. Further, KCI argued that these findings, both explicit and implicit, should not be disturbed by the trial court unless they are not supported by substantial evidence.

S&N’s position was that the jury’s verdict of non-obviousness was advisory only and that there were no implicit factual findings in support of the advisory verdict on non-obviousness to which the court should defer. KCI, on the other hand, argued that a jury’s verdict on the ultimate question of obviousness is always advisory because, as a question of law, obviousness must be determined by the court; but the court has to assume that the jury found the appropriate underlying facts, and the verdict should only be disturbed applying the substantial evidence test

Ultimately, the district court concluded that, contrary to the jury’s explicit findings, “the differences between the claimed invention and the prior art, if any, are minimal,” that “such minimal variations would have been apparent to one having ordinary skill in the art” and that “the evidence is clear and convincing that there is no legally sufficient basis on the record to conclude that all asserted claims of the patents in suit were not obvious.” KCI appealed

The Federal Circuit reversed. According to the Federal Circuit, the jury’s explicit and implicit factual finds are binding and reviewed under the substantial evidence test. As the Court explained, in this instance, since the district court included the ultimate question of obviousness on the special verdict form, all of the factual determinations underlying the ultimate question were implicitly put to the jury for resolution, and the district court was required to accept all implicit factual findings supporting the jury’s conclusion with respect to the ultimate conclusion of obviousness that were supported by substantial evidence.

Similarly, the Court explained that it must review all of the jury’s explicit and implicit factual findings for substantial evidence and then examine the legal conclusion of obviousness de novo to determine whether it is correct in light of the factual findings that it finds adequately supported.

Practice Note: When seeking a trial by jury, if a jury is asked to determine the question of obviousness, the jury’s implicit factual findings are binding on the court and the parties if supported by substantial evidence.

Patents / Claim Construction

Same Claim Terms Used In Related Patents Have the Same Meaning
by Vinu Raj

Having vacated a district court’s finding of infringement by Hynix Semiconductor, Inc. in Hynix v. Rambus, (see IP Update, Vol. 14, No. 6), the U.S. Court of Appeals for the Federal Circuit affirmed a decision of the U.S. Patent and Trademark Office Board of Patent Appeals and Interferences (the Board) in a reexamination proceeding, finding one of the patents asserted in the prior Hynix case invalid as anticipated based upon the construction of a disputed claim term. In re Rambus, Case No. 11-1247 (Fed. Cir., Aug. 15, 2012) (Linn, J.).

During ex parte reexamination of the asserted claim (of the then expired Rambus patent), the examiner applied what he believed to be the appropriate construction to the term “memory device” to mean a “device that allows for the electronic storage and retrieval of information.” Relying on this construction, the examiner rejected the claim as anticipated by a prior art manual published by Intel Corp. in 1982. The manual disclosed a “memory module” having an array of chips and a memory control unit (MCU). The Board affirmed the examiner’s rejection based on this construction of “memory device” in the claim. Rambus appealed.

Rambus argued at the Federal Circuit that the stated goals of the invention required a single chip memory device without a memory controller or control functions, citing to portions of the specification describing a “memory device” in such a way. The Federal Circuit rejected this argument, finding that the use of the term “memory device” in the specification to describe embodiments of single-chip devices does not necessarily restrict the invention to single-chip memory devices. The Court explained that language in the specification describing “only preferred embodiments” does not exclude other embodiments that are also described in the specification. The Federal Circuit also refused to limit the memory device term to a single chip device when Rambus could have expressly done so itself during prosecution of the application for the patent, but chose not to.

According to the Federal Circuit, the Board’s construction is consistent with the use of the term in other patents in the same family where Rambus used the term “memory device” in the independent claim and included a dependent claim covering memory devices formed on a single chip component. Quoting from Omega Eng’g, Inc., the Court noted that “unless otherwise compelled … the same claim term in the same patent or related patents carries the same construed meaning.”

The Court also found that nothing in the claim or specification limits the control functionality of the memory device and explained that “excluding more complex controllers does not eliminate all control functionality.” The Court distinguished its prior decision in Lisle by noting that the “general speed and efficiency goals” of Rambus’s invention do not require a different construction of “memory device” that excludes all control functions including the claimed functions of receiving and outputting data.

The Court concluded that “[b]y not restricting a memory device to a single chip or otherwise restricting the necessary interface control logic function within the claims, there is simply no principled way to distinguish” the memory module disclosed in the prior art reference manual from the memory device in Rambus’s patent.

Patents / Reissue Recapture

Broadening Reissue Cannot Be Used to Remove Claimed Features Relied Upon in Prosecution Arguments
by Gregory S. Rabin

Addressing whether, in a broadening reissue application, a patentee can remove claimed features that were relied upon during prosecution of the parent patent to distinguish prior art, the U.S. Court of Appeals for the Federal Circuit found that a patentee cannot use a reissue to broaden a claim to include subject matter that was intentionally disclaimed during prosecution of the parent patent for purposes of having the parent patent granted. Greenliant Systems, Inc. v. Xicor LLC, Case No. 11-1514 (Fed. Cir., Aug. 22, 2012) (Dyk, J.).

Xicor filed a parent patent application for a device containing a deposited electron tunnel layer. During prosecution, Xicor amended the independent claims to require the use of tetraethyl orthosilicate (TEOS) and argued that using TEOS to form the electron tunnel layer was the feature that distinguished the claimed invention from the prior art.

Subsequently, Xicor filed a reissue application, which excluded the use of TEOS that was claimed in the parent patent. The examiner found that the reissue claims “did not include and were not broader than the surrendered subject matter, and thus were not barred by the recapture rule,” and the reissue patent issued. Later, a dispute arose between Xicor and Greenliant, and Greenliant sought to invalidate the reissue patent under the recapture rule.

The recapture rule states that a patentee cannot regain through reissue subject matter that he or she surrendered in order to obtain allowance of the original claims. Here, Xicor argued that the TEOS features could not have been effective in overcoming the prior art, and, therefore, Xicor did not surrender non-TEOS implementations because the structure of the tunneling layer does not depend on the material used for the process but depends on conditions present during the process, such as temperature and pressure.

The Federal Circuit rejected Xicor’s arguments explaining, “Xicor is bound by the arguments that it made before the examiner … the sole question is whether the argument was made,” not whether the argument was technologically accurate. Thus, Xicor could not obtain a reissue patent that did not include the TEOS features because Xicor explicitly relied on the TEOS features to obtain the parent patent.

The Federal Circuit likened reissue recapture to prosecution history estoppel. Under prosecution history estoppel, a patentee who surrenders subject matter during prosecution of a patent cannot later reclaim the surrendered subject matter under the doctrine of equivalents. Similarly, under reissue recapture, a patentee who surrenders subject matter during prosecution of a parent case cannot later reclaim the surrendered subject matter in a reissue application.

Patents / Personal Jurisdiction

Stream of Commerce Contacts Insufficient to Maintain Personal Jurisdiction
by Cary Chien

Addressing a stream-of-commerce argument on personal jurisdiction, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s decision that it lacked jurisdiction over a patent infringement action in which the plaintiff failed to show sufficient contacts with the forum state. AFTG-TG, LLC v. Nuvoton Tech. Corp. et al., Case Nos. 11-1306, -1307 (Fed. Cir., Aug. 24, 2012) (per curiam) (Rader, C.J., concurring).

Non-practicing entity AFTG filed its patent infringement suit against multiple defendants in federal district court in Wyoming. While it did not claim that defendants engaged in direct sales in Wyoming, AFTG argued for jurisdiction under a “stream-of-commerce” theory, contending that defendants sold their products to various companies, who in turn sold them to consumers in Wyoming. The district court found AFTG’s accusations insufficient to establish personal jurisdiction, noting that there was “no evidence or allegation that the infringing technologies or products actually reached Wyoming.”

The Federal Circuit upheld the district court’s decision, by employing a fact-driven approach found in its own precedent interpreting the Supreme Court’s stream-of-commerce precedent. The Federal Circuit concluded that AFTG’s “bare formulaic accusation” that the defendants maintain sufficient contacts with Wyoming were not supported by any allegations, facts or declarations identifying sales in Wyoming.

The Court noted that the Supreme Court has yet to address its long-standing split on the stream-of-commerce theory; questions that have remained since Asahi. In Asahi, members of the Supreme Court disagreed about whether a defendant could be subject to personal jurisdiction in a forum merely because the defendant had placed a product in the stream of commerce. Justice Brennan, writing for four justices, articulated a stream-of-commerce theory based on foreseeability, concluding that as long as the participant is aware that the final product is being marketed in the forum, the possibility of a lawsuit there cannot be a surprise. Justice O’Connor and three other justices rejected this approach, instead concluding that the party’s action must be purposefully directed toward the forum.

Despite urging by Chief Judge Rader in the concurring opinion to clarify the Federal Circuit’s precedent on personal jurisdiction in stream-of-commerce cases, the Court did not stake its position in either Justice Brennan’s or Justice O’Connor’s articulations.

Patents / Future Infringement

Court Must Consider Patent Owner’s Remedies in Terms of Future Infringements
by Hasan Rashid

Criticizing the denial of a prevailing patentee’s requests for relief from future infringement, the U.S. Court of Appeals for the Federal Circuit listed possible equitable relief available to patentees to be considered. WhitServe, LLC v. Computer Packages, Inc., Case Nos. 11-1206; -1261 (Fed. Cir., Aug. 7, 2012) (O’Malley, J.) (Mayer, J., dissenting).

WhitServe sued Computer Packages Inc. (CPi) for patent infringement, alleging that CPi’s IP docketing software for annuity and maintenance fees infringed certain patent claims. Finding no anticipation and willful infringement, a jury awarded WhitServe more than $8 million in damages. The trial court denied WhitServe’s motions for a permanent injunction, compulsory license, prejudgment interest and enhanced damages. The district court reasoned that the verdict adequately addressed all legal and equitable considerations. WhitServe appealed.

The Federal Circuit vacated the denial of WhitServe’s motions and remanded the case for an analysis of the patent owner’s remedies for future infringements. It listed four possible remedies for addressing future infringement: a permanent injunction, an order for the parties to negotiate terms for future use, an ongoing royalty or a conclusion that no forward-looking relief is appropriate in the circumstances. The Federal Circuit found that the district court abused its discretion by inadequately considering WhitServe’s request for relief from future infringements, stating that a damages award remedies past, not future, infringement. Similarly, the Federal Circuit found that because the jury award did not include punitive damages for willful infringement or account for prejudgment interest, the trial court abused its discretion when denying those motions on the same grounds.

The Federal Circuit also overturned the damages award. At the Federal Circuit WhitServe argued that the $8 million award was based either on a proper royalty analysis or alternatively that the jury, acting within its discretion, included “other damages.” The Court found that the only support for the damage award was “based on fiction,” and that WhitServe’s expert testimony was “conclusory, speculative, and, frankly, out of line with economic reality.” The Federal Circuit also noted that, although a jury is free to award “other damages,” i.e., above the reasonable royalty floor, such an award must be supported by the patentee’s evidence, which WhitServe did not introduce.

Patent / Plant Patents

Plants Found in the Wild Are Not Patentable
by Lauren Martin

Addressing whether a plant found in the wild and asexually reproduced is patentable under 35 U.S.C. § 161, the U.S. Court of Appeals for the Federal Circuit upheld the decision of the U.S. Patent and Trademark Office, Board of Patent Appeals and Interferences (the Board) rejecting two plant patent applications on the grounds that the claimed oak trees had not been “cultivated” as required by 35 U.S.C. § 161. In re Beineke, Case Nos. 11-1459, -1460 (Fed. Cir., Aug. 6 2012) (Dyk , J.).

Beineke filed two plant patent applications, each directed to a particular oak tree. In 1980, Beineke had observed two oak trees that appeared to display superior genetic traits in comparison with other oak trees. At that time, both trees were more than 100 years old. Beineke planted acorns from the two trees, observed the resulting offspring and concluded that these progeny trees exhibited the same superior traits. Beineke asexually reproduced the trees and once again observed the same superior traits. Beineke then filed patent applications.

The patent examiner rejected both applications on the grounds that Beineke failed to show that the claimed trees were in a “cultivated state” as required by §161, and the Board affirmed the rejection. Beineke appealed.

In affirming the Board’s decision, the Federal Circuit interpreted the 1930 Plant Patent Act as providing “patent protection to only those plants … that were created as a result of plant breeding or other agricultural and horticultural efforts and that were created by the inventor, that is, the one applying for the patent.” The Federal Circuit held that Beineke met neither of these requirements because he did not create the oak trees but merely found them. The Federal Circuit further held that the 1954 amendments to the Plant Patent Act provided Beineke no relief because those amendments only extended patent protection to “newly found seedlings,” and the oak trees at issue were not seedlings. Thus, the Federal Circuit concluded that §161 did not provide patent protection for plants discovered or found in the wild, but only those that were created by the inventor.

Patents / Evidence

A Casebook Example of Evidentiary Rulings that Cause “Wasteful Litigation”
by Brett Bachtell

Addressing evidentiary rulings from a lower court, the U. S Court of Appeals for the Federal Circuit reversed a district court’s summary judgment finding of infringement and validity and remanded the case for a new trial on both issues. Meyer Intellectual Properties Ltd. v. Bodum, Inc., Case No. 11-1329 (Fed. Cir., Aug. 15, 2012) (O’Malley, J.) (Dyk, J., concurring).

Frank Brady worked for Bodum, Inc. when he conceived of a milk frother that used simple aeration instead of steam. Brady began selling his frothers through his company BonJour, Inc. and eventually sold BonJour and his patents to Meyer Intellectual Properties Limited. Meyer subsequently sued Bodum for patent infringement. Following a jury trial where the jury found the patents to be valid and willfully infringed and awarded $50,000 in damages, the district court trebled the damages, declared the case exceptional and awarded Meyer its attorneys’ fees of $756,487.56. Bodum appealed.

On appeal, the Federal Circuit concluded that the district court erred in granting summary judgment of infringement because the record was inadequate to support such a conclusion. Meyer’s only evidence of direct infringement was the activities of Meyer’s own expert. In reviewing the evidence, the Federal Circuit found it “troubling” that the district court “based its direct infringement analysis on what it assumed happened, rather than on actual evidence of record.”

The Federal Circuit also found that the district court abused its discretion in three evidentiary rulings. First, the district court improperly limited the scope of prior art to only two references even though additional references were sufficiently disclosed. Second, the district court improperly excluded Bodum’s expert from testifying that the asserted patents were invalid as being obvious even though the expert submitted a sufficiently detailed report. Third, the district court improperly erred in precluding a lay witness from testifying to authenticate one of the prior art references. These evidentiary errors, according the Federal Circuit, had the cumulative effect of preventing Bodum from presenting the substance of its obviousness defense which resulted in a “one-sided” trial.

The Federal Circuit also ruled that the district court improperly dismissed Bodum’s claim of inequitable conduct on a motion in limine, finding that “a motion in limine is not the appropriate vehicle for weighing the sufficiency of the evidence.” The Federal Circuit vacated the willfulness verdict and the award of attorney fees’ in view of the evidentiary and procedural rulings.

In a concurring opinion, Judge Dyk stated “one cannot help but conclude that this case is an example of what is wrong with our patent system.” He believes it would have been reasonable to expect that the claims would have been found obvious on summary judgment by the district court, but instead, the parties spent hundreds of thousands of dollars thus far and are invited by the Federal Circuit to “have another go of it.” Judge Dyk stated that “[s]uch wasteful litigation does not serve the interests of inventorship community, nor does it fulfill the purposes of the patent system.”

Patents / America Invents Act

USPTO Releases Final Rules for Declarations and Derivation Procedures and Proposed Fee Schedule
by Bernard P. Codd

Oaths or Declarations

Effective September 16, 2012, the inventor’s oath or declaration must include the following three statements: (1) the person executing the oath or declaration believes the named inventor or joint inventor to be the original inventor or an original inventor of a claimed invention in the application for which the oath or declaration is being submitted; (2) the application was made or was authorized to be made by the person executing the oath or declaration; and (3) any willful false statement made in the declaration is punishable under 18 U.S.C. § 1001 by fine or imprisonment of not more than five years, or both. The final rules no longer require the inventor to include the “without deceptive intention” statement in the declaration. Although, the inventors still have a duty to disclose relevant information under 37 C.F.R. § 1.56, it is no longer necessary for the inventors to acknowledge this duty in the declaration. In addition, under the final rules, the inventors do not have to acknowledge the claim for domestic or foreign priority in the declaration. However, to claim priority to or benefit of a prior-filed application under 35 U.S.C. §§ 119, 120, 121, or 365, the claim must be made in an Application Data Sheet (ADS).

Under the final rules, the U.S. Patent and Trademark Office (USPTO) will issue patents to the applicant, who may be someone other than the inventor, such as assignee, but the inventors names will still be on the face of the patent. If an inventor is unable or unwilling to sign an oath or declaration, an applicant may file a substitute statement in lieu of an oath or declaration stating the reason why the inventor did not execute the oath or declaration. A petition accompanied with evidence showing that the applicant exercised diligence in trying to procure the inventor’s signature is no longer required, although applicant is still required to use diligent effort to obtain the inventor’s signature.

The new wording is required in declarations for all new applications, continuations, and divisional applications filed after September 15, 2012, except National Phase Applications filed under 35 U.S.C. § 371 (’371 Applications) claiming priority to an International Application filed before September 16, 2012. Declarations for ’371 Applications claiming priority to an International Application filed prior to September 16, 2012 must use the previously required declaration wording.

In the discussion accompanying the final rules, the USPTO discouraged the use of a combined declaration/power of attorney and encouraged the use of a combined declaration/assignment. The USPTO has examples of a new declaration form on its website. The USPTO, however, will not provide forms with combined declaration and power of attorney or combined declaration and assignment.

Derivation Proceedings

Derivation proceedings essentially replace interference proceedings for patents and applications filed on or after March 16, 2013. Derivation, unlike interference, is limited to situations in which a petitioner can show that the earlier filed application was derived from the petitioner’s invention.

Under the final rules, an inventor seeking a derivation proceeding must file a patent application. The inventor, however, may copy the alleged deriver’s application, making any changes necessary to reflect accurately what the inventor invented. A petition for a derivation proceeding must be supported by substantial evidence that the earlier filer derived the invention from the petitioner and the petitioner did not authorize the earlier filing. The petitioner has to show why the petitioner’s claim is patentably indistinct from the earlier-filed claim and identify how each claim at issue is to be construed. If the construed claim is a means-plus-function or step-plus-function claim, the portions of the specification that describe the structure must be identified. The petition must be filed within a year of the first publication of a claim to the same or substantially the same invention as that of the petitioner. The first publication includes a World Intellectual Property Organization publication of an international application designating the United States.

As explained in the discussion of the final rules, a derivation proceeding would be conducted before the Patent Trial and Appeal Board in a manner similar to inter partes review and post grant review. In accordance with the final rules, the parties to a derivation may terminate the proceeding by filing a written statement reflecting the agreement of the parties as to the correct inventors of the claimed invention unless the Board finds the agreement inconsistent with the evidence of record. The final rules also provide that the parties to a derivation proceeding may agree to arbitration to settle the dispute, except nothing shall preclude the UPSTO from determining the patentability of the claimed inventions involved in the proceedings.

Setting and Adjusting Patent Fees

The USPTO issued proposed changes in patent prosecution fees in accordance with the authority granted to the USPTO under section 10 of the America Invents Act (AIA). The proposed rules include the micro entity fees set at 25 percent of the large entity fees, as authorized by the AIA. The USPTO explained that the proposed fee schedule would recover the aggregate estimated costs of the USPTO while achieving strategic and operational goals, such as implementing a sustainable funding model, reducing the current patent application backlog, decreasing patent pendency, improving patent quality, and updating the patent IT business capability and infrastructure.

Some of the proposed fees are set at levels to recover USPTO costs, while others are set below cost recovery and others, such as maintenance and issue fees, are set above cost recovery.

Some notable proposed fees include increasing the combined basic filing fee, search and examination fee to $1,600; first RCE to $1,200; second and subsequent RCE to $1,700. The 3.5 year, 7.5 year and 11.5 year maintenance fees would be increased to $1,600, $3,600 and $7,400, respectively. Further, each independent claim in excess of three would cost $420, each dependent claim in excess of 20 would be $80, and the multiple dependent claim fee would be $780. In addition, extension of time fees would rise to $200 (one month), $600 (two months), $1,400 (three months), $2,200 (four months) and $3,000 (five months). On the other hand, fees would be lowered for prioritized examination ($4,000), combined publication/issue fee ($960); ex parte reexamination ($15,000) and combined supplemental examination/reexamination ($18,000). The proposed small entity and micro entity fees would be one-half and one-quarter of the above fees, respectively.

The USPTO proposed new schemes for charging fees for appeals, inter partes review, post grant review and assignments. Under the proposed rules, the fee for filing a notice of appeal would increase to $1,000 and there would be no fee for filing an appeal brief, but the USPTO would charge $2,000 once the appeal is forwarded to the Board. In an inter partes review, the proposed fee would be $9,000 for filing a request for review of up to 20 claims and $200 for each additional claim, and if inter partes review was granted there would be an additional fee of $14,000 for up to 15 claims and $400 for each claim over 15. In a similar manner, the fee for requesting post grant review would be $12,000 for requesting review of up to 20 claims, and if post grant review is granted an additional fee of $18,000 for review of up to 15 claims and $550 for each claim in excess of 15. Finally, while the fee for recordation of assignments would remain at $40, there will be no recordation fee charged to applicants who electronically record assignments.

Comments on the proposed fees should be emailed to fee.setting@uspto.gov by November 4, 2012. A complete listing of the proposed fees can be found in the Notice of Proposed Rulemaking at http://www.uspto.gov/aia_implementation/Proposed_Fee_Schedule.pdf.

Trademarks / Functionality

Trademark Protects “Color of Passion” Used on Soles of Women’s High-Fashion Designer Footwear, Except if Shoe Itself Is Red
by Rita Weeks

In a case captivating the fashion world, the U.S. Court of Appeals for the Second Circuit has issued an important trademark ruling in a case involving high-end luxury women’s shoes. Holding that the district court erred in resting its denial of the plaintiffs’ requested preliminary injunction on the ground that a single color cannot serve as a trademark in the fashion industry, the Second Circuit determined that French shoe designer Christian Louboutin is entitled to trademark protection for its red lacquered sole on footwear, except where the remainder of the shoe itself is red. Christian Louboutin S.A. v. Yves Saint Laurent Am. Holding, Inc., Case No. 11-3303-cv (2d Cir., Sept. 5, 2012) (Cabranes, J.).

French shoe designer Christian Louboutin sells high-fashion women’s footwear that cost anywhere from about $700 to several thousands of dollars a pair. Predominantly focused on sky-high, high heels, Louboutin has stated that, “I would hate for someone to look at my shoe and say, ‘Oh my God! That looks so comfortable!’ That’s not what I want to project … comfort is not part of my creative process.” For 20 years, the brand has used a high-gloss, red-colored bottom (outsole) for the majority of its shoes, which fashionistas and others worldwide have come to associate exclusively with Louboutin. The eye-grabbing cherry red finish easily captures the attention of those viewing a woman in coveted Louboutin heels. Louboutin has explained, “The shiny red color of the soles has no function other than to identify to the public that they are mine. I selected the color because it is engaging, flirtatious, memorable, and the color of passion.” Louboutin obtained a federal trademark registration for a red lacquered sole on “women’s high fashion designer footwear” in 2008.

In 2011, fashion atelier Yves Saint Laurent (YSL) prepared to market a line of monochromatic women’s shoes in the colors of purple, green, yellow and red, where each portion of a particular shoe would use the exact same color. Four different styles used a monochromatic red theme, using a red insole, outsole, upper and heel. Believing that YSL’s monochromatic red shoes would infringe the Louboutin red-sole trademark, Louboutin requested YSL remove them from the market. After informal negotiations failed, Louboutin filed an action in the U.S. District Court for the Southern District of New York alleging claims for trademark infringement and counterfeiting; false designation of origin and unfair competition; and trademark dilution, as well as related state law claims. Louboutin also sought a preliminary injunction preventing YSL from marketing, during the pendency of the lawsuit, any shoes, including red monochromatic shoes, in a shade of red identical or confusingly similar to Louboutin’s red sole mark. YSL counterclaimed, in part to cancel Louboutin’s federal trademark registration covering a red lacquered sole, alleging that the mark was invalid as merely ornamental and functional based on the doctrine of aesthetic functionality.

The district court denied Louboutin’s requested injunction, holding that in the fashion industry single-color marks are inherently “functional” and adopted a per se rule that a single color can never serve as a trademark in the fashion industry. Under the district court’s per se rule, Louboutin was unlikely to prove that its red sole mark was eligible for trademark protection. The district court opined that Louboutin’s claim to the color red was overly broad, explaining that “Louboutin’s claim would cast a red cloud over the whole industry, cramping what other designers could do, while allowing Louboutin to paint with a full palette,” and reasoned that “there is something unique about the fashion world that militates against extending trademark protection to a single color.” Further, the district court issued an order to show cause why the court should not cancel Louboutin’s federal trademark registration.

On appeal, the 2d Circuit found that the district court erred by holding that a single color can never serve as a trademark in the fashion industry, based on a misunderstanding of the aesthetic functionality doctrine. The doctrines of “utilitarian” functionality and “aesthetic” functionality both serve as an affirmative defense to trademark infringement. A product feature is considered to be “functional” in the utilitarian sense and thus not eligible for trademark protection of it is “essential to the use or purpose of the article” or if it “affects the cost or quality of the article.” The 2d Circuit explained that a mark is aesthetically functional, and thus ineligible for trademark protection, “where protection of the mark significantly undermines competitors’ ability to compete in the relevant market.” Acknowledging that special concerns exist in the fashion industry concerning trademark protection given that color can be used both as a branding tool as well as for mere ornamentation, the 2d Circuit nonetheless reasoned that Supreme Court precedent did not support a per se rule that would deny protection for the use of a single color as a trademark in the fashion industry or any other industry. “The functionality defense does not guarantee a competitor the greatest range for his creative outlet,” the court explained, “but only the ability to fairly compete within a given market.”

Rejecting the district court’s finding that Louboutin’s red sole mark was not entitled to trademark protection based on its erroneous per se rule, the court determined that Louboutin’s mark did in fact merit protection. The evidence showed that Louboutin’s lacquered red sole, as applied to a shoe with an upper portion in a different color, had come to identify and distinguish the Louboutin brand and is therefore a distinctive symbol qualifying for trademark protection. The court determined that the evidence did not show, however, that the secondary meaning of Louboutin’s red sole mark extends to uses on shoes where the red sole does not contrast with the upper portion of the shoe—i.e., Louboutin was not entitled to trademark protection for uses of a red sole mark on a monochromatic red shoe like it sought to enjoin YSL from producing.

Accordingly, the court directed the U.S. Patent and Trademark Office (USPTO) to limit Louboutin’s trademark registration to only those situations in which the red lacquered outsole is used with an adjoining upper of the shoe that contrasts in color and held Louboutin’s mark to be valid and enforceable as so modified. Its holding disposed of both parties’ Lanham Act claims, the court explained, because “the red sole on YSL’s monochrome shoes is neither a use of, nor confusingly similar to, [Louboutin’s] Red Sole Mark.” The court also affirmed the district court’s refusal to enjoin YSL from selling its monochromatic red shoe because the shoe was not a use of Louboutin’s mark, as modified. Due to that finding, the court did address whether Louboutin’s mark, as modified, was functional, or whether YSL’s use of a red outsole causes impermissible consumer confusion with Louboutin’s modified mark. The court remanded the case for the district court to consider YSL’s counterclaims.

Trademarks / Use in Commerce

Service Mark Cancelled Because Services Listed in the Registration Were Not “Good in Trade”
by Ulrika E. Mattsson

The U.S. Court of Appeals for the Federal Circuit affirmed the cancellation by the Trademark Trial and Appeal Board (TTAB) of the U.S. Patent and Trademark Office (USPTO) of the LENS trademark registration, for use in connection with “computer software featuring programs used for electronic ordering of contact lenses in the field of ophthalmology, optometry and opticianry,” holding that the software in question was merely incidental to sale of contact lenses and that the software was not a “good in trade,” solicited or purchased in the market for its intrinsic value. Lens.com v. 1-800 Contacts, Case No. 11-1258 (Fed. Cir., Aug 3, 2012) (Linn, J.).

Lens.com is an online retailer of contact lenses and related products. In 2008, 1-800 Contacts, a competitor, instituted a cancellation proceeding at the USPTO, arguing that Lens.com fraudulently obtained or alternatively abandoned the mark because it never sold or engaged in the trade of computer software featuring programs for use in the field of optometry. Lens.com had earlier unsuccessfully applied for the mark LENS for use in connection with “retail store services featuring contacts through a global computer network,” but the examiner determined that the mark was descriptive for the services listed in the application, and the application was refused registration.

After the TTAB granted 1-800 Contacts’ motion for summary judgment on the abandonment claim, holding that Lens.com’s software was “merely incidental” to its contact lens sales and was not a “good in trade,” Lens.com appealed.

The Federal Circuit affirmed the TTAB decision, focusing on whether the software was a good that was transported in commerce, because an article does not qualify as a “good in trade” when it is simply the conduit through which one renders its services, and there was no dispute that Lens.com did not sell software. In determining whether the LENS mark had ever been “used in commerce,” the Federal Circuit stated that a “good in trade” must have a viable existence on its own (instead of being inextricably tied to another service) and should have an independent value apart from other goods or services.

The Court further held that when determining whether consumers associate a given mark with software, as opposed to other services, courts should consider whether the software is just a conduit for the applicant’s services, whether it is so inextricably tied to a service that it was “no viable existence” apart from it and whether the software is sold separately from or has independent value apart from other services.

The Federal Circuit concluded that Lens.com did not use the LENS trademark in commerce for the software services listed in the service mark registration and that the TTAB properly determined that the mark LENS did not meet the “use in commerce” requirement for its software, thus affirming the cancellation order.

Copyrights / Infringement

Web-Linking Is Not Necessarily Copying
by Ryan N. Phelan

The U.S. Court of Appeals for the Seventh Circuit has determined that an entity that provides a link to copyrighted material should not be held liable as a contributory copyright infringer if users of the site bookmarked, but did not upload, the copyrighted material to the site servers. Flava Works v. Marques Rondale Gunter, Case No. 11-3190 (7th Cir., Aug. 2, 2012) (Posner, J.).

Flava is a producer and distributer of internet video content. Flava provided its video content on its website for a fee. After signing up, Flava customers could access the video content.

myVidster provides an internet video bookmarking service. Users of myVidster who find videos on the internet can “bookmark” (i.e., link) those videos to make them available to other myVidster users. When other users clicked the bookmark, the videos (e.g., Flava videos) appear in a widow frame of the myVidster website. However, the videos are streamed from the original third-party server, e.g., the Flava server(s) or other servers that Flava’s videos had been uploaded to; they are not streamed from or copied onto myVidster servers.

Flava filed suit, asserting that the myVidster bookmark links allowed users to essentially bypass Flava’s website (i.e., Flava’s “pay wall”) and watch Flava’s videos for free (Flava’s customers would obtain access to and then upload Flava’s videos to third-party servers, which myVidster users would then find and bookmark). Flava contended that this constituted copyright infringement and was granted a preliminary injunction against myVidster by the district court. myVidster appealed.

In reversing the district court, Judge Posner found that “bypassing Flava’s pay wall by viewing the uploaded copy is equivalent to stealing a copyrighted book from a bookstore and reading it. That is a bad thing to do (in either case) but it is not copyright infringement.” Instead, Posner found that “the infringer is the customer of Flava who copied Flava’s copyrighted video by uploading it to the Internet.” Citing to Perfect 10, Judge Posner found that “unless [the myVidster users] copy [Flava’s] videos they are viewing on [myVidster’s] websites, myVidster isn’t increasing the amount of [copyright] infringement.”

Judge Posner found that myVidster merely provided the names and links to already copied Flava videos. The myVidster users that click the bookmark links to “watch a copyrighted video for free is no more a copyright infringer than if he had snuck into a movie theater and watched a copyrighted movie without buying a ticket. The facilitator of conduct [e.g., myVidster] that doesn’t infringe copyright is not a contributory infringer.”

Concluding that myVidster was not the copyright infringer (the individuals who uploaded Flava’s videos to the internet were) and that myVidster was not a contributory infringer (because it did not encourage such uploads), Judge Poser reversed the district court.

For similar reasons, Judge Posner also found no infringement under 17 U.S.C. § 106(4)—the right “to perform the copyrighted work publicly.”

Copyrights/ Federal Jurisdiction

§ 301(a) of Copyright Act Creates Complete Preemption
by Adam Auchter Allgood

Addressing preemption under the Copyright Act for the first time, the U.S. Court of Appeals for the Fifth Circuit joined the Second, Fourth and Sixth Circuits in holding that the preemptive force of the Copyright Act is so “extraordinary” that it converts an ordinary state common-law complaint into one stating a federal claim for the purpose of the well-pleaded complaint rule. GlobeRanger Corp. v. Software AG et al., Case No. 11-10939 (5th Cir., Aug. 17, 2012) (Southwick, J.).

GlobeRanger, a Texas-based software company specializing in radio frequency identification systems, brought suit in state court alleging that the defendants misappropriated GlobeRanger’s trade secrets in developing a radio frequency identification solution for the United States Navy. GlobeRanger asserted only state common-law claims of misappropriation of trade secrets, conversion, unfair competition, conspiracy and tortious interference. The defendants removed the suit to federal court and moved to dismiss on the basis that all of GlobeRanger’s claims were preempted under the Copyright Act. The district court granted the motion to dismiss and directed GlobeRanger to amend its complaint to reflect a Federal Copyright Act claim. GlobeRanger appealed.

Complete Preemption

A case may not normally be removed to federal court based on a preemption defense. However, where Congress has intended the federal cause of action to be the exclusive cause of action for particular claims, the “complete preemption” doctrine converts the state common-law claims into federal causes of action. Following the 4th Circuit’s approach, the 5th Circuit determined that the grant of exclusive jurisdiction to the federal district courts over civil actions arising under the Copyright Act, combined with the preemptive force of § 301(a), compelled the conclusion that Congress intended that state-law actions preempted by § 301(a) of the Copyright Act arose under federal law. As such, state-law claims preempted by § 301(a) are transformed into a federal claim for the purpose of the well-pleaded complaint rule.

Copyright Act May Preempt Some, but Not All, of GlobeRanger’s Claims

On a claim-by-claim basis, the court began to apply the two-factor test discussed in Carson v. Dynegy to determine whether each state-law claim would be preempted by the Copyright Act. First, each claim is examined to determine whether it falls within the subject matter of copyright as defined by 17 U.S.C. § 102. Second, the cause of action is examined to determine if it protects rights that are ‘equivalent’ to any of the exclusive rights of a federal copyright, as provided in 17 U.S.C. § 106.

The court determined that GlobeRanger alleged facts regarding the copying of business practices not wholly limited to the specific expression of the software. Those solutions included types of procedures, processes, systems and methods of operations that are excluded from copyright protection and, thus, are not preempted by the Copyright Act. However, the court also determined that certain clams may be preempted, such as GlobeRanger’s conversion claim. This claim hinges on whether the claim refers to physical property, as under Texas law, or intangible property that may be protected by copyright.

Since some of GlobeRanger’s claim may be preempted, the 5th Circuit determined that the district court has sufficient jurisdiction to keep the case in federal court at the motion to dismiss stage. Due to the limited factual record, the case was remanded for the district court to make a more in-depth analysis of each claim to determine which claims are preempted and whether or not the district court has sufficient jurisdiction.

Copyrights / Architectural Works Copyright Protection Act

Copyright Protection for Architect’s Expression
by Stephen M. Yu

Addressing for the first time whether an architectural drawing may receive copyright protection even if it lacks the level of detail required for architectural works under the 1990 Architectural Works Copyright Protection Act (AWCPA), the U.S. Court of Appeals for the Second Circuit held that such architectural drawings may still be protected as “pictorial, graphic, [or] sculptural works” under 17 U.S.C.§ 102(a)(5) of the 1976 Copyright Act. Scholz Desig. v. Sard Custom Homes, Case No.11-3298 (2d Cir., Aug. 15, 2012) (Sack, J.).

In order to qualify for copyright protection under §102(a)(5), a work must be independent and original, possessing “at least some minimal degree of creativity.” Feist Publ'ns, Inc. v. Rural Tel. Serv. Co. (Supr. Ct., 1991). Historically, however, the scope of an architect’s copyright protection was quite limited. For example, architectural structures depicted in the drawings did not receive copyright protection—only the architectural drawings themselves were protected. This changed in 1990 when Congress created an additional form of copyright protection for the architectural structure (“architectural works”) depicted in the drawings, provided that the drawings are sufficiently detailed to allow for construction.

The district court held that an architectural drawing under § 102(a)(5), even as a pictorial work, required a certain level of detail to receive copyright protection. Here, the district court found that the conceptual nature of the architect’s drawings lacked sufficient details and no copyright protection was provided. As a result, the district court dismissed, inter alia, the claims of copyright infringement which stemmed from the defendants’ alleged use of the architectural drawings in various marketing materials. Scholz appealed.

The 2d Circuit reversed, explaining that notwithstanding that the drawings were architectural, nothing more was required for copyright protection as a pictorial work. The court suggested that the district court had confused the requirements for protection under § 102(a)(5) with that under § 102(a)(8).

The 2d Circuit explained that there is a particular level of detail required, even for architectural drawings, under § 102(a)(5). Further, even if an architect’s expression fails to meet the level of detail required under § 102(a)(8) of the AWCPA, that does not preclude or deprive the architect of general copyright protection under § 102(a)(5). Since the copyright owner is not alleging infringement under the AWCPA, but rather, under the pre-existing copyright provisions for pictorial works, all that is required for copyright protection of the drawing is an author’s independent creation, originality and a modicum of creativity.

Practice Note: Although a detailed architectural schematic may result in two separate copyrights—one for the architectural drawings and the other for the architectural works depicted in the drawings—both copyrights must be registered separately. 37 C.F.R. § 202.11(c)(4).

Copyrights / Infringement

What Doesn’t Kill Me, Makes Me Stronger—Surviving Allegations of Copyright Infringement
by Avani C. Macaluso

Addressing issues of copyright infringement between a struggling artist and a music mogul, the U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s determination that Vincent Peters failed to establish Kanye West’s song “Stronger” meets the 7th Circuit’s standard for establishing copyright infringement that not only requires a showing of defendant’s access to plaintiff’s copyrighted material, but also substantial similarity between the works of plaintiff and defendant. Vincent Peters (p/k/a Vince P.) v. Kanye West, Case No. 11-1708 (7th Cir., Aug. 20, 2012) (Wood, J.).

This case involves Vince P. and Kanye West, two artists in the cutthroat music industry at different stages in their careers, both fighting to protect their original works of creation. Looking to “make it” in the hip-hop industry, Vince P. wrote and recorded a song entitled “Stronger.” The title comes from a key line in the song’s hook (i.e., chorus), which uses German philosopher Friedrich Nietzsche’s aphorism—“what does not kill me, makes me stronger.” Vince P.’s search for a producer led him to John Monopoly, a well-known executive in the hip-hop world, but more importantly a close friend and business manager to West. Vince P. sent Monopoly a copy of his recording and gave him a second copy when he met with him in person. Monopoly agreed to produce for Peters if he was able to secure financing. Unable to secure financial backing, no further communications were made between Peters and Monopoly.

Less than a year after Vince P. and Monopoly met, West released his own song also entitled “Stronger” which earned him the #1 spot in the Billboard charts and a Grammy. Monopoly was listed as the manager on West’s album featuring the “Stronger” song. Believing that West’s song had infringing similarities to his own recording, Vince P. obtained a formal copyright registration for his song and filed an infringement action in federal court. After Vince P.’s complaint failed to survive a motion to dismiss, he appealed.

On appeal, the 7th Circuit reviewed de novo the district court’s determinations regarding the similarity between the two songs and the conclusion of non-infringement. The court acknowledged that the standards for determining whether a party has in fact copied another’s work are “surprisingly muddled.” The court held the 7th Circuit’s standards for proving copyright infringement is met by showing that the defendant had an actual opportunity to copy the original work, as well as that the two works “share enough unique features to give rights to a breach of duty not to copy another’s work.”

The court found there was no question that Vince P.’s allegations supported an inference that West had access to Vince P.’s recording of “Stronger.” Monopoly clearly received two copies of Vince P.’s song, and Monopoly is also credited as the manager on West’s album. Evidence of a close collaboration between Monopoly and West suggested that Monopoly could have passed Vince P.’s song to West during production of his own album, and therefore West had an actual opportunity to copy Vince P.’s original work under the 7th Circuit’s standards.

But proof of access alone is not enough to find infringement. The court next considered whether both works were substantially similar. Although the court found it an “unusual coincidence” that both works used Nietzsche’s phrase, West effectively convinced the court that the notable aphorism has been repeatedly used in song lyrics over the past century, including by renowned artist Kelly Clarkson. The ubiquity of the phrase, in view of its use in numerous other songs, lead the court to conclude West does not infringe.

Vince P. also argued that West’s song infringes on the rhyme pattern he used in his own chorus. However, the Court was quick to decline Vince P.’s expansive interpretation of his copyrights, holding that a copyright protects actual expression, not methods of expression. But even so, the court’s own examination of the rhyme pattern used by Vince P. and West determined them to be different.

Finally, Vince P. argued that both songs contain “incongruous” references to super-model Kate Moss, a person not typically featured in rap or hip-hop lyrics. The Court was once again was unwilling to grant Vince P. protection on the mere use of Kate Moss’ name, particularly when the lines in the song were entirely different and the fact that it is common to refer to models as shorthand for beauty.

Copyrights / Fair Use Doctrine

Gossip Mag’s “Fair Use” Claim in Publishing a Celebrity’s Wedding Photos Rejected
by Sarah Bro

The U. S. Court of Appeals for the Ninth Circuit reversed the district court’s grant of summary judgment in favor of Maya Magazines and Maya Publishing Group (collectively Maya), finding that the media company did not meet its burden of establishing that its publication of previously unpublished photos of a celebrity couple’s wedding constituted fair use. Monge v. Maya Magazines, Case Nos. 10-56710, 11-55483 (9th Cir., Aug. 14, 2012) (McKeown, J.) (Smith, J., dissenting).

Latin American celebrities, Noelia Lorenzo Monge and Jorge Reynoso (the couple), filed an action against Maya in the district court for copyright infringement and misappropriation of likeness based on Maya’s publication of previously unpublished photographs of the couple’s 2007 secret Las Vegas wedding in the Spanish-language celebrity gossip magazine TVNotas.

Maya purchased the six wedding photos at issue from a paparazzo, who was also an occasional driver for the couple. The paparazzo had previously tried to “sell” the photos to the couple to relieve a debt he owed to one of them. The photos were on a memory chip containing hundreds of photos of the couple that were unrelated to the nuptials. In addition to publishing one of the wedding photos on the cover of TVNotas, Maya also published a two-page spread within the magazine showing all six wedding photos interspersed with captions. Due to the privacy of the wedding (to protect Monge’s image as a single pop star), the six photos were the only published images of the nuptials.

Because federal registration of a copyright is required before bringing an infringement action, after learning of Maya’s publication of the photographs, the couple registered copyrights in five of the images. The couple’s lawsuit was filed shortly thereafter.

The district court dismissed the misappropriation of likeness claims and granted Maya’s motion for summary judgment based on its affirmative defense of fair use of the copyrighted photographs. On appeal, the sole issue was whether the district court properly granted summary judgment based on the fair use doctrine. Accordingly, the court analyzed the four fair use factors under copyright law, finding that none of them topped in favor of Maya.

1. The Purpose and Character of the Use of the Copyrighted Work

Although it agreed that the wedding photos were newsworthy, the 9th Circuit reaffirmed that news reporting alone is not “sufficient itself to sustain a per se finding of fair use.” Thus, the commercial nature of the use of the photographs was determined to weigh against a finding of fair use. The Court also found that the reproduction of the photos as a two-page montage with captions was not a sufficient transformation of the original works to allow Maya to properly claim fair use.

2. The Nature of the Copyrighted Work

The 9th Circuit explained that photographs—even those that are not highly artistic in nature—are entitled to copyright protection. Even though the unpublished status of a work does not bar a finding of fair use, the court cited Harper & Row v. Nation Enters., stating that the couple’s right to control the first public appearance of its copyrighted photographs outweighed Maya’s claim of fair use.

3. The Amount and Substantiality of the Portion Used in Relation to the Work as a Whole

With respect to the third fair use factor, the 9th Circuit noted that the only existing photos of the couple’s wedding and wedding night were used in the magazine, and that Maya’s minimal cropping of the photos meant that the “heart” of each copyrighted photograph was published. Because “Maya used far more than was necessary to corroborate its story,” this factor also weighed in favor of the couple.

4. The Effect Upon the Potential Market for the Copyrighted Work

Finally, the court found that Maya’s unauthorized publication of the photos “substantially harmed” and “completely usurped” the couple’s potential market for the photos. The court disagreed with the district court’s claim that there was no potential market for the photographs because the couple did not intend to sell their publication rights in the images.

Instead, the court explained that the potential market for the photos existed independently of the couple’s intent to market the photos. Specifically, the court focused on the fact that the couple was in the business of selling images of themselves and that Maya had previously paid Monge to pose for one of its publications and had also paid Reynoso for pictures of his prior marriage. Therefore, the court determined that Maya’s purchase of the photos from the paparazzo confirmed the potential market for the photographs.

The Dissent

The dissent argued that the decision of the panel majority was inconsistent with Supreme Court precedent and undermined the fair use doctrine and free press. In particular, the dissent stated that it would have affirmed the district court’s ruling with respect to at least three of the photographs that “directly proved” the couple’s marriage. The dissent also noted that the nearly 400 photos on the memory chip (which were unrelated to the couple’s wedding) constituted a “compilation” and that Maya’s use of only five of those 400 photos was not a substantial portion of the work in relation to the whole.

Copyrights / Fair Use

Holy Infringement!—Noncommercial Infringement Is Not Fair Use
by Hasan Rashid

Declining to find fair use for an archbishop’s educational, non-commercial use of copyrighted material the U.S. Court of Appeals for the First Circuit upheld a grant of summary judgment over numerous orthodox (and unorthodox) arguments. Society of the Holy Transfiguration Monastery, Inc., v. Archbishop Gregory of Denver, Colorado, Case No. 11-1262 (1st Cir., Aug. 2, 2012) (Torruella, J.) (Souter, J., sitting by designation).

In the mid-2000s, Archbishop Gregory (the Archbishop) posted seven works (that he helped to create), translated by the Society of the Holy Transfiguration Monastery (the Monastery), on his website. After the Monastery brought suit for copyright infringement, the district court granted summary judgment of infringement by the Archbishop. On the Archbishop’s appeal, the First Circuit affirmed the district court on the infringement issue and declined to recognize a transfer of copyright by operation of law.

Of particular interest are the 1st Circuit’s fair use analysis and the non-commercial and educational nature of the infringement. The 1st Circuit held that a lack of monetary gain does not warrant a finding of fair use. It cited precedent holding that monetary gain is not the question, but rather whether copyrighted material is exploited without payment. It also cited precedent for the proposition that, when considering the economic market, the court does not look at commercial gains or losses, but rather whether the infringement affects the value of the work and denies the copyright holder of a reward Congress intended him to have. For these, among other reasons, the court rejected the Archbishop’s asserted fair use defense.

The Archbishop also attacked the Monastery’s ownership of a valid copyright because of transfer to another, general publication, and unoriginality. First, the court rejected the transfer argument based on the Monastery’s disassociation from another because disassociation did not necessitate reversion. Second, the court rejected the argument that the works were generally published, concluding rather that the targeted distribution to selected congregations is a limited publication, not a general publication. Third, the court rejected the unoriginality argument because, although similar to other works, word usage and structure were different between them.

The court next turned to copying. Conceding that there was actual copying, the Archbishop argued that he did not copy protected elements of the works. The Court disagreed—concluding that the slight textual differences between the two were insufficient to avoid summary judgment. The court also rejected the argument that, by definition, translations are not variable. Applying the merger doctrine, however, the court found that the art of translation involves choosing among several expressions of ideas.

In addition to fair use, the court rejected three other defenses. First, the Archbishop argued he did not directly infringe because he did not himself post the works on the internet. The court found that he nevertheless owned the website and admitted to having authority and responsibility for the site’s contents. Second, he argued that the Digital Millennium Copyright Act (DMCA) immunized him from infringement. The court rejected this argument because he failed to plead it and because the argument was simply a remolding of his direct infringement defense. Third, the Archbishop asserted copyright misuse. Noting that the 1st Circuit does not recognize that defense, it declined to accept the offer to do so in this case.

Practice Note: Be mindful when advising on the fair use defense for activities that are not for profit. Such activities may nevertheless infringe.

Copyrights / Fair Use

Not Every Magazine Use Is Fair
by Paul Devinsky

The U.S. Court of Appeals for the Sixth Circuit sided with a TV news reporter, concluding that the publication, by Hustler magazine, of semi-nude photos of the reporter (which were owned by the reporter) was a copyright infringement and was a commercial use beyond the scope of a fair use defense. Catherine Balsley (a.k.a. Catherine Bosley) v. LFP Inc., Case No. 11-3445 (6th Cir., Aug.16, 2012) (Clay, J.).

Plaintiff Bosley, a TV reporter who (unbeknownst to her) was photographed semi-nude by an amateur photographer covering a “wet T-shirt” contest where she was vacationing, lost her job after certain semi-nude photos of her appeared on the internet. Bosley purchased the photos and the copyright from the photographer and registered her copyright. About two years later, Hustler magazine—a Larry Flint Publications (LFP) magazine—published one of the photographs. Bosley sued for copyright infringement.

LFT did not deny the infringement, but argued its use of the photograph was covered by fair use, and that, moreover, it could not be a willful infringer as it sought an opinion of counsel before publishing the photo. The jury found infringement—but not willful infringement—and awarded Bosley $135, 000 in damages plus attorneys’ fees. The jury also found that Hustler/LFP was not entitled to a fair use defense under copyright law. LFP appealed.

The fair use doctrine, codified in the U.S. Copyright Law, permits the use of protected works under certain circumstances. However, in this instance the 6th Circuit found that jury was not “unreasonable” in concluding Hustler’s publication of the photos was not for fair use purposes.

As presented in the Copyright Law, “[t]he fair use of a copyrighted work, including such use by reproduction in copies, for purposes such as criticism, comment, news reporting, teaching, scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.”

17 U.S.C. § 107.

The 6th Circuit analyzed each of the factors and concluded the jury could reasonably have found each weighed in Bosley’s favor. As for the first factor, the 6th Circuit concluded that “Defendant’s use of the Bosley photograph was clearly for commercial purposes, rather than for noncommercial, educational purposes. Hustler editors admitted that the ‘Hot News Babes’ section of the magazine was added to generate interest, sales, and profits.” Moreover, the court found nothing transformative about the Hustler photo: “Defendant’s use of the photograph was the same as [the photographer’s] original use—to shock, arouse, and amuse.”

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