IN THIS ISSUE

Patents

Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies

Okay—Now What?  Fractured Federal Circuit Issues Five Opinions in CLS Bank International Case

Court Determines RAND Rate for Standard-Essential Patents

Iqbal and Twombly Notwithstanding:  Form 18 Is the Standard for Direct Infringement Allegations

No Double Take in Sunglasses Spat

New Uses of Known Compositions/Methods Not Obvious

The Federal Circuit Reverses Summary Judgment that Claims Were Not Obvious

Claim Construction Turns on Patentee Disclaimer

Functional Limitation Saves “Spaced Relationship” from Indefiniteness

Form over Substance?—No Review of Patent Validity on Remand if Accused Infringer Failed to File a Cross-Appeal after a Judgment of Non-Infringement

Large Damages OK, but Injunctive Relief Too Broad

$6.6 Million in Sanctions Awarded to Defendants for an “Exceptional Case” Revoked Due to Admissions and Lack of Competing Evidence at Trial

ITC Issues New Final Rules on Section 337 Practice and Procedure

Cert Alert: Supreme Court to Hear Licensee Standing Case

Trademarks

PTO Decision on Likelihood of Confusion Not Entitled to Preclusive Effect in Infringment Action

Copyrights

The [Appropriation] Artist Is a Prince

Second Circuit Refuses to Enjoin Aereo’s Internet Streaming of Broadcast Television

No Standing by Alleged True Copyright Owner in Infringement Case

No Termination for “False” Affidavit Where Statement Was Made to the Best of Affiant’s Knowledge

Second Circuit Is Not the Place to Judge Claims of Fraud, Negligence, Breach of Contract, Unjust Enrichment and Conversion Against the Holy See

Arbitration

Arbitration Clause Can Result in Amending an Agreement to Realize Its “Essence”

Patents / Exhaustion Defense

Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies
Bowman v. Monsanto Co.
by Paul Devinsky, Cynthia Chen, Ph.D., and Lincoln Mayer

In a narrow ruling that reaffirms the scope of patent protection over seeds, and possibly over other self-replicating technologies, the U.S. Supreme Court held that a purchaser of patented seeds may not reproduce them through planting and harvesting without the patent holder’s permission.  Bowman v. Monsanto Co., Case No. 11-796 (Supr. Ct., May 13, 2013) (Kagan, J.).

In this case, Monsanto asserted two of its patents that cover genetically modified soybean seeds that are resistant to herbicide (Roundup Ready® seeds).  Monsanto broadly licenses its Roundup Ready® soybean seeds under agreements that specify that the farmer “may not save any of the harvested seeds for replanting, nor may he supply them to anyone else for that purpose.”  Bowman, a farmer who purchased Roundup Ready soybean seeds from a grain elevator, replanted those seeds in multiple years without Monsanto’s permission.  The district court granted summary judgment of patent infringement against Bowman, and the U.S. Court of Appeals for the Federal Circuit affirmed.  Bowman appealed to the Supreme Court.

At the Supreme Court, Bowman heavily relied on the “patent exhaustion” doctrine, which provides that the authorized sale of a patented article gives the purchaser or any subsequent owner a right to use or resell that article.  Bowman argued that the authorized sale of the Roundup Ready seeds exhausted Monsanto’s patent rights in the seeds, because “right to use” in the context of seeds includes planting the seeds and reproducing new seeds.

Speaking through Justice Kagan, the Supreme Court unanimously affirmed the Federal Circuit’s decision that Bowman’s activities amounted to making new infringing articles.  The Supreme Court held that “the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission.”  Specifically, the exhaustion doctrine restricts a patentee’s rights only as to the particular article sold, but “leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item.”  The Supreme Court noted that if Bowman’s replanting activities were exempted under the exhaustion doctrine, Monsanto’s patent would provide scant benefit.  After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

In rebuffing Bowman’s argument that he was using the seed he purchased in the manner it was intended to be used, and that therefore exhaustion should apply, the Supreme Court explained that its ruling would not prevent farmers from making appropriate use of the seed they purchase—i.e., to grow a crop of soybeans consistent with the license to do so granted by Monsanto.  Rather, as the Supreme Court explained “[A]pplying our usual rule in this context … will allow farmers to benefit from Roundup Ready, even as it rewards Monsanto for its innovation.”

Tying the Supreme Court’s decision in this case narrowly to seed (as opposed to other self-replicating technologies), Justice Kagan noted that the decision is consistent with the Supreme Court’s 2001 decision in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc. (IP Update, Vol. 4, No. 2), in which the Supreme Court concluded that seeds (as well as plants) may simultaneously be subject to patent protection and to the narrower protection available under the Plant Variety Protection Act (PVPA).  PVPA protection permits farmers who legally purchase protected seed to save harvested seed for replanting.  However, reconciling the two forms of protection, Justice Kagan explained, “[I]f a sale [i.e., of a patented seed] cut off the right to control a patented seed’s progeny, then (contrary to J.E.M.) the patentee could not prevent the buyer from saving harvested seed.” 

Practice Notes:  The Supreme Court’s decision in Monsanto is, of course, important for agricultural industries.  If extended to other self-replicating technologies, it may also prove important for biotechnology companies and others  that rely on self-replicating technologies, including, for example, companies that own patent rights over viral strains, cell lines and self-replicating DNA or RNA molecules.  If subsequent cases extend the “no exhaustion” holding of Monsanto to these technologies, patent protection would extend to copies made from the “first generation” product that is obtained through an authorized sale.

However, the Supreme Court cautioned that its decision is limited to “the situation before us” and is not an overarching pronouncement regarding all self-replicating products.  The Supreme Court suggested that its “no exhaustion” ruling might not apply where an article’s self-replication “occur[s] outside the purchaser’s control” or is “a necessary but incidental step in using the item for another purpose,” citing computer software (and a provision of the Copyright Act) as a possible example.  As explained by Justice Kagan, “We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”  In this regard, the Supreme Court particularly noted that “Bowman was not a passive observer of his soybeans’ multiplication.”  Instead, Bowman “controlled the reproduction” of seeds by repeated planting and harvesting.  Thus, the Supreme Court suggests that a purchaser’s “control” over the reproduction process likely will be a key inquiry in considering the patent exhaustion doctrine as it relates to other self-replicating technologies.  Of course, it remains to be seen how broadly lower courts will interpret the Supreme Court’s ruling.

By holding that Monsanto’s restriction on replanting was within the scope of its patent rights, the Supreme Court effectively immunized that restriction from antitrust scrutiny.  Past court decisions have questioned license restrictions viewed as going beyond the scope of patent protection as potentially susceptible to an antitrust violation or patent misuse challenge.

The Supreme Court highlighted its application of the exhaustion doctrine, last addressed in Quanta (IP Update, Vol. 11, No. 6) which held that “the initial authorized sale of a patented item terminates all patent rights in that article.”  This boundary line conventionally demarcated the end of a patent’s protection and the beginning of a potential antitrust minefield.  Some commentators may interpret the Monsanto decision to push that line further out.  Importantly, however, the Supreme Court deemed the seeds at issue to be a “new product.”  So construed, Monsanto’s restriction on replanting did not affect the product’s use, as in Quanta and Univis Lens, but rather came within the well-settled principle that “the exhaustion doctrine does not extend to the right to ‘make’ a new product.”

Patents / Abstract Ideas (§ 101)

  Okay—Now What?  Fractured Federal Circuit Issues Five Opinions in CLS Bank International Case  
CLS Bank International v. Alice Corporation
by Paul Devinsky and Gregory S. Rabin

A fractured U.S. Court of Appeals for the Federal Circuit published its long-awaited en banc decision in CLS Bank International v. Alice Corporation.  With Judge Taranto sitting on the sideline, the remaining 10 members of the en banc court split, resulting in a per curiam affirmance of the district court holding that method, computer-readable medium and system claims for technology related to “the management of risk relating to specified, yet unknown, future events” were not directed to patentable subject matter under 35 U.S.C. § 101.  CLS Bank International v. Alice Corporation, Case No. 11-1301 (Fed. Cir., May 10,2012) (en banc). However, the court remained divided on the issue of whether the claims drawn to a system of implementing instructions that essentially correspond to those recited in the method claims are patent eligible, notwithstanding that a majority of the en banc court agreed that neither the corresponding method claims or computer-readable media (i.e., Beauregard) claims are patent eligible.

Plainly contemplating the likelihood that, as a consequence of the deadlock in this case, § 101 likely will be considered (once again) by the Supreme Court of the United States, in each of the published opinions the author attempts to divine the likely direction the Supreme Court will turn should it agree to consider § 101 in the context of patent claims drawn to a system for implementing a non-patent-eligible method.

The Statute

The applicable statute, 35 U.S.C. § 101, replicated on few of opinions, states, “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.” 

Procedural History and Posture

Alice Corporation owns several patents, each of which share a common specification and have method, computer-readable medium and system claims directed to “the management of risk relating to specified, yet unknown, future events.”  In particular, the patents relate to a computerized trading platform for using a trusted third party to create a form of an escrow account to ensure the performance of financial obligation by parties to a transaction.

CLS filed suit against Alice, seeking a declaratory judgment of non-infringement, invalidity and unenforceability of Alice’s patents.  CLS moved for summary judgment on the basis of ineligible subject matter under § 101.  For purposes of summary judgment analysis, the district court and the parties agreed that the claims required a computer including a processor and a memory for implementation.  However, the district court still concluded that Alice’s method claims “are directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.”  The district court further held that Alice’s system claims were not directed to patentable subject matter because those claims “would preempt the use of an abstract concept … on any computer.”  Alice appealed.

Judge Lourie’s Concurrence

Judge Lourie, in a concurring opinion joined by Judges Dyk, Prost, Reyna and Wallach, found all three classes of claims presented (method, machine-readable media and system) to be patent-ineligible.  (As pointed out by Judge Lourie, seven of the 10 members of the en banc court agreed that the method and machine-readable media claims were non-statutory).

As with almost all of the opinions published in CLS Bank, Judge Lourie’s analysis starts with an examination of the statute and Supreme Court cases construing it.  Citing Gottschalk v. Benson, Judge Lourie explained that, while § 101 is broad in scope, “laws of nature, natural phenomena, and abstract ideas” are excluded from patent protection.  Under well-settled law, a law of nature, a natural phenomenon or an abstract idea cannot be patented.  However, as Judge Lourie explained, all inventions rely, to some degree, on laws of nature, natural phenomena or abstract ideas.  Thus, in this case, the court must draw a line regarding at what point “laws of nature, natural phenomena, and abstract ideas” morph into a “process, machine, manufacture, or composition of matter.”

In his analysis, Judge Lourie cited the 1948 Supreme Court decision in Funk Bros. Seed Co. v. Kalo Inoculant Co., noting that a concern that runs through the Supreme Court’s jurisprudence on § 101 is that the fundamental tools of discovery—laws of nature, natural phenomena and abstract ideas—must remain “free to all … and reserved exclusively to none,” and thus must be denied patent protection.  Patenting the fundamental tools of discovery preempts the use of those tools in making other discoveries, and thus serves a purpose opposite that which the patent laws are designed to serve—encouraging innovation.  In its analysis of patentability under § 101, the Federal Circuit attempts to “guard … against the wholesale preemption of fundamental principles. … Claims should not be coextensive with a natural law.”  In other words, according to Judge Lourie, to be statutory under § 101, a claim cannot “subsume the full scope of a fundamental concept … [and cover] the concept’s every practical application.”  The threshold question is “whether [the claim] contains additional substantive limitations that narrow, confine or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.”  The abstract idea must be tied down to a particular useful application of the principle that is not well understood or conventional in light of the principle.

Judge Lourie cautioned against an overly “formalistic” approach to the subject matter eligibility analysis or the use of bright line rules that do no more than invite manipulation by clever claim drafters by encouraging “highly stylized language,” “hollow field of use limitations” or “token post solution activity.”

In the instant case, the patents relate to a method of reducing settlement risk by facilitating a trade through third-party intermediation.  As explained by Judge Lourie, third-party intermediation is an abstract idea that was discovered, not invented.  Thus, the question under § 101 becomes whether the inventors added “significantly more” to the abstract idea to make it patentable.

Alice argued that the computer, implied in the method claim, is sufficient to make the idea patentable.  However, Judge Lourie characterized the more use of a computer as “insignificant post solution activity.”  As he explained, for a computer (express or implied) to render the claimed method patent eligible, the claim must involve a “specific or limiting recitation of essential or improved computer technology.”  The computer must perform steps that are not merely accelerated (relative to human processing) calculations.  Thus, Judge Lourie concluded that the method claims are not directed to statutory subject matter.  Similarly, Judge Lourie concluded that the computer-readable medium claims are not patent eligible under § 101 because the computer-readable medium claims have similar (preemptive) scope to the method claims.

Turning to the system claims, Judge Lourie noted that, while the method and computer-readable medium claims recite a series of steps, “The system claims are different … in that they also recite tangible devices as system components, including at least ‘a computer’ and ‘a data storage unit.’”  However, as Judge Lourie explained, the system claims under consideration should not be evaluated differently from the method claims simply because they are directed to a physical object, i.e., reciting such physical objects as a processor and a memory.  Specifically, the court reasoned that “applying a presumptively different approach to system claims generally would reward … clever claim drafting” and thus would allow patentees to obtain patents on ideas or principles, rather than implementations of inventions.  However, Judge Lourie noted that, in some cases, “a system claim that builds on the same abstract idea as a patent-ineligible method claim may well incorporate sufficient additional limitations, computer-based or otherwise, to transform the idea into a patent-eligible application.”  The sufficient additional limitations, however, must extend beyond those found in a typical computer.  In other words, “computers that have routinely been adapted by software consisting of abstract ideas … to do all sorts of tasks [e.g., third-party intermediation via escrow account] that formerly were performed by humans,” are not patent eligible.  While computers per se are patent-eligible machines, “abstract methods coupled with computers adapted to perform those methods” are not necessarily patentable.  In this regard, Judge Lourie distanced the five member concurrence group from In re Alappat, noting that as it relates to patent eligibility, “the Supreme Court has spoken … and we must take note of that change.”

Chief Judge Rader’s and Judge Moore’s Opinions

Chief Judge Rader (joined by Judges Linn, Moore and O’Malley) and Judge Moore (joined by Chief Judge Rader and Judges Linn and O’Malley) cautioned against creating a “free fall” in the patent system by lumping method, media and system claims together and finding that all are directed to no more than an abstract idea and are patent ineligible under § 101.  As explained by Judge Moore, “if all of these claims, including the system claims, are not patent eligible, this case is the death of hundreds of thousands of patents, including all business methods, financial system, and software patents as well as many computer implemented and telecommunications patents.”

Judge Moore directly invited the Supreme Court to consider the system claims, regarding which the Federal Circuit is “irreconcilably fractured,” and to take the opportunity “to distinguish between which claims are and are not directed to patentable subject matter.” (Emphasis in the original.)

Judge Newman’s Dissent

Judge Newman penned a dissent that appears directed more to the Supreme Court more than to the parties.  She argued that § 101 provides an inclusive listing of the “useful arts” for patent purposes that should be used to eliminate claims that are “abstract” or “preemptive.”  In Newman’s belief, the court should not create a new all-purpose definition of “abstractness” and “preemption,” as she believes the Lourie concurrence did here; arguing that these concepts are better covered by the substantive elements of the patent law in §§ 102, 103 and 112.  However, Newman agreed with the Lourie concurrence that patent eligibility should not depend on the form of the claim (e.g., system or method).

Regarding the concept of abstraction, as applied to patent eligibility under § 101, Judge Newman noted that “[W]hile a scientific truth, or the mathematical expression of it, is not a patentable invention, a novel and useful structure created with the aid and knowledge of scientific truth may be.”  Citing Diamond v. Diehr, Newman noted her belief that the court should broadly interpret § 101 to cover “anything under the sun that is made by man.”  Vehemently disagreeing with Judge Lourie’s analysis, Newman wrote, “it cannot be that computer-implemented developments may or may not be eligible under § 101 depending on how broadly they are sought to be claimed … breadth of claiming, and undue breadth, are determined under §§ 102, 103, and 112, not § 101.” 

Practice Note:  System or apparatus claims should be included in every software-based case, pending possible Supreme Court review of CLS Bank.  In fact, one possible prosecution strategy may be to forgo method claims (and almost definitely media claims) entirely, at least until system claims have been secured, as the inclusion of such claims may invite unwanted comparison with the apparatus or system claims.  In CLS Bank, the Lourie concurrence went out of its way to note that patent eligibility should not depend on the ingenuity of the claim draftsperson.  Also, as Judge Moore has warned, in the wake of the CLS Bank decision, many concepts in the business method, finance, software and telecommunications fields may be more challenging to successfully claim.

Patents / FRAND Licensing

Court Determines RAND Rate for Standard-Essential Patents
Microsoft v. Motorola
by Christopher L. May, Stefan M. Meisner and Nick Grimmer

The U.S. District Court for the Western District of Washington became the first U.S. court to set fair, reasonable and non-discriminatory (FRAND or RAND) royalty rates and range for standard-essential patents (SEPs).  Microsoft v. Motorola, 2:10-cv-01823-JLR (W.D. Wash. Apr. 25, 2013) (Robart, J.)  The suit stems from Microsoft’s allegation that Motorola’s offers to license certain Wi-Fi and video compression SEPs violated Motorola’s contractual commitments to license its standard-essential patents on FRAND terms.   

As a matter of first impression, the district court first developed a framework to assess FRAND terms for SEPs.  In terms of basic principles, the court stated that “a RAND commitment should be interpreted to limit a patent holder to a reasonable royalty on the economic value of its patented technology itself, apart from the value associated with incorporation of the patented technology into the standard.”  The court proceeded to employ a modified version of the Georgia-Pacific “reasonable royalty” calculation, which courts have routinely used to calculate damages in patent infringement actions.  The court modified the first Georgia-Pacific factor (royalties received by the patentee for the patent(s) at issue) to include consideration only of royalties “comparable to RAND licensing circumstances,” including both “license agreements where the parties clearly understood the RAND obligation, and [] patent pools,”; ruled the fourth Georgia-Pacific factor (the licensor’s policy and marketing program to maintain its patent monopoly via selective licensing), “is inapplicable in the RAND context because the licensor has made a commitment to license on RAND terms and may no longer maintain a patent monopoly by not licensing to others”; and concluded that for the final factor (a hypothetical negotiation), “reasonable parties in search of a reasonable royalty rate under the RAND commitment would consider the fact that, to induce the creation of valuable standards, the RAND commitment must guarantee that holders of valuable intellectual property will receive reasonable royalties on that property.”

Based on that framework, the court proceeded to analyze the specific factual evidence offered at trial. Concluding that several of Motorola’s patents provided only minimal contribution to the standards and played only minor importance in the overall functionality of some of Microsoft’s products, and that the characteristics of a similar patent pool (of which Microsoft and Google, the later being Motorola’s parent) are members “closely align with all of the purposes of the RAND commitment,” the court set a RAND royalty rate for Motorola’s portfolio of H.264 patents of 0.555 to 16.389 cents per Microsoft product and a RAND rate for Motorola’s portfolio of 802.11 patents of 0.8 to 19.5 cents per Microsoft product.  In particular, the court rejected Motorola’s proposed 1.15 percent 1.73 percent rate of the Microsoft product, finding that such a rate if adopted by all standard-essential patentees would result in a royalty exceeding the cost of the product and that “a royalty rate that implicates such clear stacking concerns cannot be a RAND royalty rate because such a royalty rate does not stand up to the central principle of the RAND commitment—widespread adoption of the standard.”

The case is slated to proceed to trial later this year on the issue of whether Motorola’s offer violated its RAND obligations.

Patents / Sufficiency of Pleadings

Iqbal and Twombly Notwithstanding:  Form 18 Is the Standard for Direct Infringement Allegations
K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc.,
by Charles J. Hawkins

Addressing the pleading standard for alleging direct patent infringement, the U.S. Court of Appeals for the Federal Circuit reversed and remanded a lower court’s dismissal of a complaint, finding that any conflict between the Supreme Court’s decisions in Iqbal and Twombly, on the one hand, and Form 18 on the other, should be resolved in favor of Form 18.  K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc., Case No. 12-1425 (Fed. Cir., Apr. 18, 2013) (O’Malley, J.) (Wallach, J., concurring).

Plaintiff K-Tech filed separate lawsuits against Time Warner Cable and DirecTV for direct infringement of four patents covering systems and methods for modifying a major channel number, a minor channel number and/or a carrier frequency to identify a television program.  The cases were later consolidated.

Time Warner and DirecTV moved to dismiss K-Tech’s original and amended complaints under Rule 12(b)(6).  The district court found that K-Tech’s complaints failed to allege facts sufficient to state a plausible claim under the standards articulated in Iqbal and Twombly.  K-Tech appealed. 

On appeal, K-Tech argued that its amended complaints comply with Form 18, and that the district court applied the incorrect pleading standard.  DirecTV and Time Warner argued that sufficiency of a complaint with respect to Form 18 must be interpreted consistently with Iqbal and Twombly.

The Federal Circuit analyzed the sufficiency of K-Tech’s pleadings under the standard of Rule 8, which “generally requires only a plausible ‘short and plan’ statement of the plaintiff’s claim,” and considered Form 18 in view of the Iqbal and Twombly cases. 

In Twombly, the Supreme Court stated that the plausibility standard of Rule 8 is met when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”  Form 18 sets forth a sample complaint for direct patent infringement that includes five simple elements.  According to the Federal Circuit, the touchstones of an appropriate analysis under Form 18 are notice and facial plausibility, noting that while these requirements serve as a bar against frivolous pleading, it is not an extraordinarily high one.

The Federal Circuit found that, to the extent that any conflict existed between Twombly and Iqbal and Form 18, the form controls.  The Court noted that Rule 84, which states that the forms in the Appendix of the Federal Rules suffice under the rules, combined with the Advisory Committee Notes to the 1946 amendment of Rule 84, make clear that a proper use of an appendix form effectively immunizes a claimant from attack regarding sufficiency of pleading. 

The Federal Circuit confirmed that, while Form 18 does not relax the clear principle of Rule 8 that a potential infringer be placed on notice of what activity or device is being accused of infringement, the district court applied the wrong standard.  Plaintiffs are not required to preemptively identify and rebut potential non-infringing alternatives to practicing the claims of an asserted patent. 

Regarding the argument that K-Tech’s complaint was still inadequate even under a Form 18 standard because it did not identify an infringing device by name, model number or otherwise, the Federal Circuit found that Form 18 does not require a plaintiff to identify an accused device by name.  The fact that a plaintiff cannot point to a specific product should not bar the filing of a complaint.

While the Federal Circuit indicated that sufficiency of pleadings is procedural, and is an issue to be decided under applicable law of the regional circuit, the Court concluded that it made no difference what regional circuit’s law applied.  Form 18, found the Court, is a national form and the issue would be decided the same under any circuit’s law.

Practice Note:  The court’s finding that Form 18 controls pleading sufficiency is limited to direct infringement.  The Federal Circuit’s 2012 decision In re Bill of Lading indicated that the form does not apply to infringement by inducement.

Patents / Infringement

No Double Take in Sunglasses Spat
Aspex Eyewear, Inc. v. Zenni Optical LLC
by Jeremy T. Elman

Addressing the issue of whether collateral estoppel applies when claim construction issues overlap, the U. S. Court of Appeals for the Federal Circuit affirmed the finding of a lower court that collateral estoppel applied when a plaintiff sought to litigate patents against products that were indistinguishable from those that previously had been found not to infringe. Aspex Eyewear, Inc. v. Zenni Optical LLC, Case No. 12-1318 (Fed. Cir., Apr. 19, 2013) (Newman, J.).

Plaintiff Aspex Eyewear sued Zenni Optical for infringement of multiple U.S. patents for magnetic clip-on eyewear such as sunglasses.  Specifically, the patents are directed to magnets that secure the bridge portions of the eyewear.  The district court found that Aspex was collaterally estopped from pursuing infringement because it had earlier brought suit on the same patents against another company, Altair Eyewear.  The case against Altair involved the same three patents in the current suit against Zenni.  In the Altair case, the district court had granted summary judgment of non-infringement on all three patents after claim construction of certain terms.  Although not all the asserted claims were the same, many overlapped, and all the claims asserted in this case contained the same “retaining mechanism” limitation that was dispositive of non-infringement in the Altair case.  The district court in this case held that the Altair rulings collaterally estopped Aspex from proceeding because the accused Zenni sunglasses were indistinguishable from the Altair sunglasses.  Aspex appealed.

Aspex argued that collateral estoppel does not apply because several claim terms at issue in the current litigation were not at issue in the Altair case.  The Federal Circuit, applying the law of the U.S. Court of Appeals for the Eleventh Circuit because collateral estoppel is not unique to patent law, found that collateral estoppel precludes a plaintiff from relitigating identical issues by merely switching adversaries.  Aspex claimed that Zenni’s alleged infringement hinged on the meaning of certain claim terms that had not been construed in the Altair case.  Zenni responded that the issue was not whether certain claim terms had been previously construed, but whether Aspex has already litigated the “issue” of infringement based on products that are indistinguishable from those at issue here. 

The Federal Circuit explained that the assertion of different claims or claim terms in a subsequent suit does not create a new issue to defeat preclusion.  Collateral estoppel applies if the issue, such as infringement, was already litigated and decided.  The Court further found that there were no changed circumstances or new evidence, and thus Aspex had a full and fair opportunity to previously litigate the issue of infringement.  Relitigating infringement would be repeating “essentially the same dispute.”  The Federal Circuit found that Aspex had already fully litigated the meaning of the term “retaining mechanism” in the first suit and that the result was dispositive of the present infringement claims.  Thus, collateral estoppel applied, and the Federal Circuit affirmed the district court’s finding that collateral estoppel applied based on the Altair case. 

Patents / Obviousness

New Uses of Known Compositions/Methods Not Obvious
Allergan, Inc. v. Sandoz Inc.
by Mandy Kim

Affirming-in-part a district court’s finding of validity, the U.S. Court of Appeals for the Federal Circuit held that a claimed method was not inherently obvious because defendants failed to argue the efficacy limitation was inherent to all prior art fixed combination products.  The Federal Circuit also reversed-in-part the district court’s finding of validity, holding that a claimed formulation was obvious in view of sufficient support to find a motivation to combine, notwithstanding the FDA’s approval process.  Allergan, Inc. v. Sandoz Inc., Case Nos. 11-1619, -1620, -1635, -1639 (Fed. Cir., May 1, 2013) (Prost, J.) (Dyk, J. concurring-in-part and dissenting in-part).

Allergan brought suit, under 35 U.S.C. § 271(e)(2)(A), against a group of generic-drug manufacturers including Sandoz, Apotex and Watson Laboratories, asserting infringement of four Orange Book-listed patents: U.S. Patent Nos. 7,642,258 (’258 patent); 7,320,976 (’976 patent); 7323,463 (the ’463 patent); 7,030,149 (’149 patent).  The four asserted patents were listed for Combigan®, a combination brimonidine and timolol eye-drop product used to treat glaucoma.  After a bench trial, the district court entered judgment finding each of the asserted claims of the four asserted patents valid.  The district court also granted summary judgment of non-infringement as to claims 1-3 of the ’149 patent, and the parties stipulated to infringement of the other asserted claims of the asserted patents.

The Federal Circuit disagreed with the district court’s finding that the asserted formulation claims of the ’463 patent were not invalid for obviousness due to secondary consideration of non-obviousness.  The Federal Circuit noted that the recited combination was not necessarily not obvious, notwithstanding the FDA’s lack of considering patient compliance improvement as a factor in its approval process and that “[m]otivation to combine may be found in many different places and forms; it cannot be limited to those reasons the FDA sees fit to consider in approving drug applications.”  The Federal Circuit further explained that Allergan had a “reasonable expectation of success” that using brimonidine and timolol together would be more effective than using them separately based upon the teachings in the prior art.  Moreover, the Federal Circuit did not find that secondary considerations in this case weighed heavily in the obviousness analysis.

The Federal Circuit, however, agreed with the district court’s finding that defendants failed to prove by clear and convincing evidence that method claim 4 of the ’149 patent would have been obvious. Claim 4 called for lowering the dosing of the drug from three times to twice a day, which the district court noted had a surprising result of retaining efficacy even when dosage was scaled back.  Notably, the Federal Circuit found that defendants had only argued the obviousness of the method over the prior art and “[did] not argue that this efficacy limitation [was] inherent to fixed combinations products [containing the two drugs], nor that a dose reduction without loss of efficacy would inherently flow from the obvious [composition].” 

Judge Dyk dissented from the Court’s holding with respect to claim 4 of the ’149 patent, arguing that a method claim is obvious if it merely claims the result of a treatment with an obvious composition.

Patents / Obviousness

The Federal Circuit Reverses Summary Judgment that Claims Were Not Obvious
Bayer Healthcare Pharms., Inc. v. Watson Pharms., Inc.
by Shon Lo

In an ANDA case involving a reissue patent, the U. S. Court of Appeals for the Federal Circuit reversed a district court’s summary judgment that the asserted claims of the reissue patent were not obvious, finding that prior art provided the motivation to combine the teachings of the prior art to derive the claimed subject matter with a reasonable expectation of success.  Bayer Healthcare Pharms., Inc. v. Watson Pharms., Inc., Case Nos. 12-1397, -1398, -1400 (Fed. Cir., Apr. 16, 2013) (Lourie, J.).

The asserted claims of the reissue patent are directed to a combination oral contraceptive (COC) with active pills containing a low dose (20 mcg) of ethinylestradiol and 2.5-3.0 mg of drospirenone that are administered in a 23- or 24-day dosage cycle followed by five or four pill-free or placebo pill days, also referred to as 23/5 and 24/4 regimens, respectively.  Bayer’s YAZ product embodies the claims of the reissue patent.  Defendants Watson, Sandoz and Lupin each filed an Abbreviated New Drug Application seeking approval to market generic versions of Yaz.  Defendants conceded infringement. 

Defendants argued invalidity in view of an Australian patent application that disclosed a COC containing 20-40 mcg and 1-10 mg drospirenone, in combination with 5 other prior art references that each disclosed 23/5 and/or 24/4 dosing regimens, including a European patent application which was expressly referenced in the Australian patent publication..  It was undisputed that the cited prior art references disclosed each of the limitations of the asserted claims.  Nevertheless, the district court entered summary judgment that the claims were not obviousness in view of the cited prior art.  Bayer appealed.

On appeal, Bayer argued three points:  the prior art Australian and European patent publications were primarily directed to hormone replacement therapy in older women, and not contraceptive application of the disclosed COC and regimen;  the prior art taught away from the claimed COC preparations because the “conventional wisdom” in the field favored a 21/7 regimen, and a shorter pill-free interval should be used only with higher hormone doses to avoid “escape ovulation”; and secondary indicia of obviousness including unexpected results, skepticism, industry praise and copying rebutted any prima facie showing obviousness.

The Federal Circuit rejected Bayer’s arguments, holding that the prior art provided the motivation to combine the teachings of the prior art to derive the claimed subject matter with a reasonable expectation of success.  The Court found that the references showed “missed-pill ovulation” in which ovulation occurred during an unintentional extension of the pill-free period was a recognized concern with traditional 21/7 COCs, particularly those with a low ethinylestradiol dose.  The references also expressly proposed a solution to this known problem—to reduce the pill-free interval to four or five days rather than seven.

The Federal Circuit found that the Australian and European patent references “plainly disclose” preparations with both hormone replacement and contraceptive applications and, further, that the asserted claims do not distinguish between target patient populations.  Bayer’s teaching away argument could not overcome the “express teachings of multiple references” that a shorter pill-free interval would improve COC efficacy, stating “[j]ust because one of several references indicated a preference for using 24/4 or 23/5 dosing regimens in tandem with higher dose COCs does not mean the same missed-pill rationale could not also motivate applying the shorter pill-free interval to similarly improve other COC preparations.” 

The Court found Bayer’s evidence of secondary considerations legally insufficient, making particular note that “evidence of copying in the ANDA context is not probative of non-obviousness because a showing of bioequivalence is required for FDA approval.”

Patents / Claim Construction

Claim Construction Turns on Patentee Disclaimer
Biogen Idec, Inc. v. GlaxoSmithKline LLC
by Shane G. Smith, Ph.D.

Declining to hold that one epitope can count as two, the U.S. Court of Appeals for the Federal Circuit upheld a lower court’s narrow construction of the term “anti-CD20 antibody,” finding that patentees disclaimed the use of anti-CD20 antibodies targeted to either of two antigenic regions on the CD20 molecule.  Biogen Idec, Inc. v. GlaxoSmithKline LLC, Case No. 12-1120 (Fed. Cir., Apr. 16, 2013) (Reyna, J.) (Plager, J., dissenting).

Biogen owns a patent covering a method for treating patients with chronic lymphocytic leukemia (CLL) through antibody binding to the CD20 antigens present on the CLL cell surface.  The patent broadly claims uses unlimited by any particular type of anti-CD20 antibody.  Dependent claims recite uses of specific anti-CD20 antibodies such as Biogen’s Rituxan® approved for treatment of CLL and other leukemias in the United States.

At the time Biogen filed its application for the patent, scientists thought that only one large loop, or epitope, of the CD20 antigen was available for an antibody-mediated therapy.  Rituxan and the other anti-CD20 antibodies specifically taught by the patent specification bind to this large loop.  Sometime later, however, scientists discovered that therapeutic antibodies could be targeted to a second small loop on CD20.  GlaxoSmithKline LLC and Glaxo Group Ltd. (collectively “GSK”) and their Arzerra® antibody targeted to this second CD20 epitope.  Biogen sued GSK for infringement of the Biogen anti-CD20 patent in 2010.  The district court adopted GSK’s construction of key term “anti-CD20 antibody” as meaning antibodies “that bind to the same epitope of the CD20 antigen with similar affinity and specificity as” Rituxan, thereby excluding GSK’s Arzerra product.  Based on that construction, Biogen stipulated to non-infringement and, after the district court entered judgment, Biogen appealed.

A Federal Circuit panel affirmed, finding that during prosecution of the patent, Biogen disclaimed anti-CD20 antibodies that do not “have a similar specificity and affinity for the specific epitope to which Rituxan® binds,” i.e., the first large loop of CD20.  Such a “clear and unmistakable” disavowal overcame the “heavy presumption” that the term “anti-CD20 antibody” “carrie[d] its full ordinary and customary meaning” of antibodies directed to any CD20 epitope.  The Court’s analysis cited long-standing claim construction precedents Phillips v. AWH Corp. and Omega Eng’g v. Raytek Corp., among others.  Yet its holding turned on a fine reading of the file history, where the examiner had argued that Biogen only enabled uses of anti-CD20 antibodies such as Rituxan directed to the first large epitope, and Biogen appeared to concede in response that some anti-CD20 antibodies might have different properties than its antibodies specific for that epitope.  In the Court’s view, antibodies directed to the second small epitope of CD20 thus fell outside the scope of the patent.

In dissent, Judge Plager arrived at a contrary interpretation, explaining the decision is one on which reasonable judges could differ.  In Plager’s view, Biogen’s failure to expressly challenge the examiner’s characterization of the specification during prosecution was not a “clear and unmistakable” disclaimer as found by the majority. 

Patents / Indefiniteness

Functional Limitation Saves “Spaced Relationship” from Indefiniteness
Biosig Instruments, Inc. v. Nautilus, Inc.
by Darryl J. Ong

Addressing the issue of indefiniteness under 35 U.S.C. 112 ¶2, the U.S. Court of Appeals for the Federal Circuit reversed a summary judgment of indefiniteness regarding the claim term “spaced relationship” and remanded for further proceedings. Biosig Instruments, Inc. v. Nautilus, Inc., Case No. 12-1289 (Fed. Cir., Apr. 26, 2013) (Wallach, J.) (Schall, J., concurring).

Biosig owns a U.S. patent directed to an improved heart rate monitor associated with exercise machines. The patent claimed improvements in heart rate measurements attained by eliminating interfering signals given off by skeletal muscles during exercise (EMG signals). The patent described a cylindrical bar with sensors intended to be gripped by both hands to measure heart signals.  The claim in issue recited a live electrode and a common electrode mounted on each end of the cylindrical bar, where the electrodes were in a “spaced relationship with each other.”

Under § 112 ¶2, the scope of the claims must be sufficiently definite to inform the public of the bounds of the protected invention. A claim is indefinite when it is “not amenable to construction” or “insolubly ambiguous.” The district court had construed the term “spaced relationship,” thus the Federal Circuit found that the term was amenable to construction and would be indefinite only if it was insolubly ambiguous.

The Federal Circuit decided a person of ordinary skill would not find the term “spaced relationship” insolubly ambiguous, because the claim language, specification and figures disclosed certain inherent parameters delineating the boundaries of the claim. The Court noted the maximum distance between the live and common electrodes cannot be greater than the width of a user’s hands because the patent required the live and common electrodes to independently detect electrical signals at two distinct points of a hand. Likewise, the distance cannot be so small so as to merge into a single electrode. The Court also faulted the district court’s inquiries into “the size of a user's hands, placement of fingers, and the composition of the handle” as possibly relevant to a enablement inquiry under § 112 ¶1, but not an indefiniteness analysis under § 112 ¶2.

The Federal Circuit found that a “whereby” clause contained in one of the claims described the function of substantially removing EMG signals was “highly relevant” in ascertaining the proper bounds of the claim term, noting the U.S. Patent and Trademark Office (USPTO) had found this function crucial to overcoming prior art during reexamination. When a claim limitation is defined in purely functional terms, determining whether the limitation is sufficiently definite is highly dependent on context.  The Court cited evidence in the record showing that those skilled in the art could, with some experimentation, determine the “spaced relationship” between the electrodes that would result in removal of EMG signals.

The Court ultimately held the term “spaced relationship” was not indefinite because it was amenable to construction and because the patent provided inherent parameters sufficient for a skilled artisan to understand the boundaries of the term.

The concurring opinion agreed that the district court erred in its finding of indefiniteness, but faulted the majority analysis for presuming a functional linkage between the “spaced relationship” limitation and the removal of EMG signals.

Patents / Appellate Procedure

Form over Substance?—No Review of Patent Validity on Remand if Accused Infringer Failed to File a Cross-Appeal after a Judgment of Non-Infringement
Lazare Kaplan Int’l, Inc. v. Photoscribe Techs., Inc.
by Sarika Singh, Ph.D.

Addressing whether a lower court on remand can properly grant relief under Rule 60(b) if the beneficiary of the relief failed to file a cross-appeal in the earlier appeal, the U.S. Court of Appeals for the Federal Circuit reversed a lower court’s decision to vacate an earlier judgment of no invalidity under Rule 60(b), finding such ruling unjustified because it would allow a movant to circumvent the cross-appeal rule.  Lazare Kaplan Int’l, Inc. v. Photoscribe Techs., Inc., Case No. 12-1247 (Fed. Cir., Apr. 19, 2013) (Lourie, J.) (Dyk. J., dissenting). 

Lazare Kaplan sued Photoscribe in district court for infringement of a patent relating to methods for making micro inscriptions on gemstones with lasers. Photoscribe counterclaimed for a declaration of invalidity. The district court’s claim construction resulted in a finding that the claims at issue were not invalid and not infringed. Lazare Kaplan appealed the judgment of non-infringement, but Photoscribe did not appeal the judgment as to patent validity. The Federal Circuit broadened the district court’s construction of a claim limitation, vacated the non-infringement judgment and remanded the case for determination of the infringement issue. The district court found that it would “make no sense” not to retry validity in view of the broadened claim construction and granted Photoscribe’s Rule 60(b) motion to vacate the validity judgment.

On appeal, the Federal Circuit found that the district court abused its discretion in granting the Rule 60(b) relief because it conflicted with the cross-appeal rule which requires that a party, although successful in the overall outcome, must file a cross-appeal if it seeks to enlarge its right or lessen the rights of its adversary. According to the Court, reopening the prior judgment of validity lessened Lazare Kaplan’s rights under the prior judgment and expanded those of Photoscribe. The Court found the close interrelation between invalidity and infringement irrelevant to its analysis because Photoscribe could have filed a conditional cross-appeal arguing the claims would be invalid if the Court broadened the construction of the claim limitation.

In dissent, Judge Dyk agreed with Photoscribe that claims must have the same meaning for purposes of both invalidity and infringement analyses. He maintained that Photoscribe was not required to file a conditional cross-appeal on validity when it agreed with the district court’s judgment in full, citing the Supreme Court in Bohn and Bowen for support. In Judge Dyk’s view, Photoscribe here was merely seeking to preserve rather than expand its right under the prior judgment. He noted that the majority identified no case in support of its position that a failure to file a contingent cross-appeal bars Rule 60(b) relief and the cases cited by the majority involved situations where the Rule 60(b) had lost entirely and failed to appeal.

Patents / Infringement, Damages and Injunctive Relief

Large Damages OK, but Injunctive Relief Too Broad
Versata Software, Inc. v. SAP America, Inc.
by Gabriel Daniel

Addressing a finding of infringement that resulted in a lost-profits and reasonable royalty damages award of more than $300 million, the U. S. Court of Appeals for the Federal Circuit affirmed a lower court’s ruling of infringement and damages, finding that sufficient evidence supported the findings.  Versata Software, Inc. v. SAP America, Inc., Case No. 12-1029 (Fed. Cir., May 1, 2013) (Rader, C.J.).

Versata sued SAP in 2007 over two patents that provide particularized pricing data based on factors such as the type of customer, type of product and size of the order.  Starting in the mid-1990s Versata sold its software, called Pricer, to many large companies, including as IBM, Lucent and Motorola.  SAP began offering software that provided customized pricing as part of its enterprise software in 1998.  As acknowledged by the Federal Circuit, when “SAP entered the market by bundling hierarchical pricing into its enterprise software, the market for Pricer disappeared.” 

At a first trial, SAP was found to have infringed both patents, but the lower court later granted SAP judgment as a matter of law (JMOL) of non-infringement as to one of the patents and ordered a new trial on damages based on a change in governing law.  In a second trial, the jury awarded Versata $260 million in lost profits and $85 million in reasonable royalties.  Further, the district court permanently enjoined SAP from continuing to sell its customized pricing software. Predictably, SAP appealed.

SAP argued to the Federal Circuit that its accused products did not infringe and that, in any event,  the lost-profits and royalties damages, as well as the permanent injunction, should be set aside as improper for various reasons.  On the infringement issue, SAP argued that it could not infringe because its software is not capable of performing the necessary tasks (required by the claims) without additional computer instructions.  As for damages, SAP argued that the lost profits and reasonable royalty damages were improperly calculated as a matter of law and should be set aside.  SAP also argued that the injunction was overbroad in that it would prevent the company from offering maintenance and additional licenses to previously existing users.

As to the issue of infringement, the Federal Circuit found sufficient evidence to support the jury’s verdict of infringement.  The Court noted that the record “clearly support the jury’s conclusion that SAP’s accused products infringe the asserted claims without modification or additional computer instructions.” 

In considering SAP’s arguments on damages, the Federal Circuit rejected some of SAP’s arguments on lost profits damages noting that they should have been raised under a Daubert challenge.  The Court found that sufficient evidence supported the jury’s damages findings on lost-profits and reasonable royalty damages.

However, the Federal Circuit agreed that the permanent injunction as entered was overbroad and remanded the case to the district court for modification of the injunction.

Patents / Exceptional Case

$6.6 Million in Sanctions Awarded to Defendants for an “Exceptional Case” Revoked Due to Admissions and Lack of Competing Evidence at Trial
Checkpoint Systems Inc. v. All-Tag Security S.A.
by John C. Low

Addressing the exceptional case standard under 35 U.S.C. § 285, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s award of attorneys’ fees, costs and interest to a defendant, finding that the failure to test samples of the accused infringing products, and instead testing non-accused versions made in a different facility, did not make the litigation “objectively baseless.”  Checkpoint Systems Inc. v. All-Tag Security S.A., Case No. 12-1085 (Fed. Cir., Mar. 25, 2013) (Newman, J.). 

Checkpoint Systems sued its competitor All-Tag Security for patent infringement on asserted claims directed to electronic theft-deterrent tags that may be disengaged by a store clerk at checkout.  A key claim limitation was the requirement for a “throughhole,” a feature that could be identified following a technical product analysis.  Checkpoint’s infringement allegations were specifically based on product made by All-Tag in Belgium.  However, during the litigation, All-Tag identified that Checkpoint had examined only tags previously manufactured by All-Tag in Switzerland.  Despite an opportunity to do so, Checkpoint never examined the Belgian-made tags.

In considering whether the Checkpoint’s actions were “objectively baseless,” the Court credited Checkpoint’s argument that, upon the move from Switzerland, “the Belgian operation resumed manufacture within a week, on the same equipment.”  Further, there was no evidence that the Belgian products did not have a throughhole or that the Belgian products were materially different than the Swiss products, consistent with defendant’s prior assertion that “it is undisputed that All-Tag S.A. purchased equipment and other assets from All-Tag A.G., and continued to manufacture the same resonant tags which were previously manufactured by All-Tag A.G.” 

All-Tag’s CEO also testified that he “believed” that the manufacture of the defendant’s products was made in accordance with All-Tag’s own patents.  Checkpoint’s expert opined that such tags would infringe the asserted claims.  Further, All-Tag’s expert conceded that the Belgian products would have a throughhole if made in accordance with All-Tag’s patents.  The Court found that Checkpoint was entitled to rely on All-Tag’s admission as an unqualified admission, because there was only a single, admittedly infringing embodiment described in All-Tag’s patents as opposed to multiple embodiments, some of which might not infringe.

In view of the entire record, the Court could not find that the “infringement allegations [were] such that no reasonable litigant could reasonably expect success on the merits” and so did not undertake to determine whether “the litigation [was] brought in subjective bad faith” per the legal framework recently articulated by the Court in Highmark v. Allcare Health Mgmt. (See IP Update, Vol. 15, No. 9.)

Patents/ ITC Practice and Procedure

ITC Issues New Final Rules on Section 337 Practice and Procedure
by Christopher G. Paulraj

The United States International Trade Commission (ITC) has amended its Rules of Practice and Procedure concerning rules of general application, adjudication and enforcement with respect to Section 337 investigations, 19 C.F.R. Rule 10.16 and Part 210.  On July 12, 2012, the ITC published a notice of proposed rulemaking (NOPR) that proposed to amend certain rules of practice and procedure at the ITC.  The ITC considered public comments concerning the NOPR and issued its final rules on April 11, 2013.  Additionally, on October 5, 2012, the ITC published another NOPR addressing certain additional amendments concerning e-discovery procedures and issued a final rule based on this NOPR on May 15, 2013. 

April 11, 2013 Final Rules

The amendments to the ITC rules are mostly procedural in nature.  However, perhaps most importantly in terms of substance, the ITC has also changed certain pleading requirements under the amended rules.  In particular, Rule 210.12(a) has been amended to require the complainant to plead domestic industry allegations in the complaint with more particularity by providing a “detailed” description of the alleged domestic industry that exists or, if a domestic industry is alleged to be in the process of being established, a showing that the complainant is actively engaged in steps leading to the exploitation of its intellectual property rights, and that there is a significant likelihood that an industry will be established in the future.  Additionally, new paragraph (11) of Rule 210.12(a) requires the complainant to specify in the complaint whether it is requesting relief in the form of a general exclusion order, a limited exclusion order, and/or a cease-and-desist order. Furthermore, the Commission has added new paragraph (12) to Rule 210.12(a) to require the complainant to identify the accused products with a clear statement in “plain English” in order to put the public on notice of the specific types of products involved.

There are two significant changes to discovery in Section 337 investigations pursuant to the amended rules.  First, Rule 210.28(a) has been amended to limit the number of depositions.  Complainants will be limited to a maximum of five fact depositions per respondent, or no more than 20 fact depositions, whichever is greater.  Respondents, as a group, will be limited to a maximum of 20 fact depositions.  If the Commission investigative attorney is a party, he or she may take a maximum of 10 fact depositions and is permitted to participate in all depositions taken by the other parties to the Investigation.  Under these rules, each corporate deposition notice counts as only one fact deposition.  Second, Rule 210.29(a) has been amended to limit the number of interrogatories that may be served by each party to a maximum of 175, including all discrete subparts.  The presiding administrative law judge (ALJ) may increase the number of depositions or interrogatories upon a showing of good cause.  The Commission also clarified that all related respondents are to be treated as a single entity for purpose of these rules.

The amended rules also include several provisions addressing confidential submissions.  The ITC has amended Rule 210.5 to require that the Commission or a presiding ALJ issue a public version of any confidential documents within thirty days, unless good cause exists to extend that deadline.  Additionally, the rule provides that parties must provide support in the record for any claim of confidentiality upon request by the Commission or the ALJ.  Furthermore, the new rules provide that public versions of certain documents must be provided within one day after the deadline for filing the submission, including pre-institution submissions on the public interest filed by the complainant and responses to recommended determinations. 

May 15, 2013 Final Rules

The final rules issued on May 15 addressed, for the first time, e-discovery in Section 337 investigations by including several additional provisions to Rule 210.27.  The ITC noted that “the intended effect of the amendments is to reduce expensive, inefficient, unjustified, or unnecessary discovery practices in agency proceedings while preserving the opportunity for fair and efficient discovery for all parties.”  New paragraph (c) in Rule 210.27 provides for specific limitations on electronically stored information and states that a “person need not provide discovery of electronically stored information from sources that the person identifies as not reasonably accessible because of undue burden or cost.”  However, if electronically stored information is withheld from discovery because it is not reasonably accessible, the party seeking the information may file a motion to compel discovery, in response which the person from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost.  If that showing is made, the ALJ may order discovery from such sources upon a showing of good cause. 

New paragraph (d) of Rule 210.27 provides that the ALJ must limit the frequency and extent of discovery otherwise allowed if the ALJ determines that the discovery sought is unreasonably cumulative or burdensome, among other considerations.  Additionally, new paragraph (e) of the same rule addresses privilege claims in response to discovery requests and imposes a requirement that the party claiming privilege must produce to the requester a privilege log identifying specific information within 10 days of making the claim. The rule also specifies the procedure for inadvertently produced privileged documents.  The parties may waive compliance with or otherwise modify these requirements by written agreement, and the ALJ may order a different period of time for compliance for good cause shown.  The prior versions of paragraphs (c) and (d) of Rule 210.27 have now been renumbered as paragraphs (f) and (g).

Cert Alert

Supreme Court to Hear Licensee Standing Case
Medtronic Inc. v. Boston Scientific Corp.
by Paul Devinsky

The U.S. Supreme Court has granted a writ of certiorari in a license dispute involving licensed defibrillator patents in which a DJ plaintiff (Medtronic) held a license that gave it the right to challenge the licensed patent even while under license.  In this case, the licensee (Boston Scientific) held an exclusive license in the patents.  Medtronic Inc. v. Boston Scientific Corp., Docket No. 12-1128 (Supr. Ct., 2013).

Normally, a patentee has the burden of proving infringement.  Here, when Medtronic challenged whether its new products infringed the patents in question, the Federal Circuit reversed the burden and held that where a licensee sues for a declaratory judgment of non-infringement, it has the burden of proof on infringement.  (See IP Update Vol. 15, No. 10.)  In its cert. petition, Medtronic posed the following question:

In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

Trademarks / Likelihood of Confusion

PTO Decision on Likelihood of Confusion Not Entitled to Preclusive Effect in Infringment Action
B&B Hardware, Inc. v. Hargis Industries, Inc.
by Elisabeth (Bess) Malis Morgan

The U.S. Court of Appeals for the Eighth Circuit held that a Trademark Trial and Appeal Board’s (TTAB) decision on likelihood of confusion was not entitled to preclusive effect in a federal trademark infringement action, and that it was not an abuse of discretion for a district court to reject admission of the TTAB decision into evidence.   B&B Hardware, Inc. v. Hargis Industries, Inc., Case Nos. 10-3137, 11-1247 (8th Cir., May 1, 2013) (Shepherd, J.) (Colloton, J., dissenting).

For more than a decade, B&B Hardware and Hargis Industries have been in litigation over B&B’s mark SEALTIGHT and Hargis’s mark SEALTITE.  B&B filed a federal trademark infringement and unfair competition case in district court arguing that a 2007 TTAB decision denying registration of Hargis’s mark based on likelihood of confusion with B&B’s mark should be given preclusive effect in the infringement action.  The district court refused to apply collateral estoppel based on the TTAB decision, reasoning that the TTAB is not an Article III court.  The district court also refused to enter the TTAB decision into evidence on the basis that it would be misleading and confusing to the jury.  After the jury issued a verdict in favor of Hargis, B&B appealed.

The 8th Circuit agreed that collateral estoppel was not appropriate as the TTAB is not an Article III court of competent jurisdiction.  The court acknowledged that there may be instances when administrative agencies are acting a judicial capacity such that collateral estoppel may be appropriately applied.  Nevertheless, the Court found that the TTAB did not decide “the same likelihood of confusion issues” as those brought before the district court because the likelihood of confusion analysis used to grant or deny trademark registration differs from the likelihood of confusion analysis required for a federal trademark infringement claim.  The 8th Circuit likewise affirmed the district court’s decision to exclude the TTAB decision from the evidence presented to the jury, noting that the TTAB and jury do not use identical factors to evaluate likelihood of confusion, and because the jury is instructed to analyze and apply the likelihood of confusion factors in a particular manner.  As such, the TTAB’s ultimate conclusion regarding likelihood of confusion had minimal probative value.

In dissent, Circuit Judge Colloton argued that the court should give preclusive effect to the TTAB’s decision regarding likelihood of confusion.  In response to the majority’s cited precedent regarding the preclusive effect of decisions made by administrative agencies, Judge Colloton noted that the Supreme Court more recently emphasized that “giving preclusive effect to administrative fact-finding serves the value underlying general principles of collateral estoppel.”  While the TTAB may have engaged in a slightly different method of analyzing likelihood of confusion, Judge Colloton reasoned that “modest differences in analytical approach to the same ultimate issue … do not justify dispensing with collateral estoppel.”  He further noted that the majority’s reasoning would deny preclusive effect to any TTAB decision because the method of balancing used by the TTAB in connection with registration or cancellation actions is not appropriate in an infringement action.  That the majority disagreed with the method of the TTAB’s likelihood of confusion analysis should not deny its preclusive effect. 

Copyright / Fair Use

The [Appropriation] Artist Is a Prince
Cariou v. Prince
by Paul Devinsky

The U.S. Court of Appeals for the Second Circuit, in a case involving allegations, against an appropriation artist, of infringement of photographs subject to registered copyrights, concluded that a broad fair use defense is available for most of his artistic works.  Cariou v. Prince, Case No. 11-1197 (2d Cir., Apr. 25, 2013) (B.D. Parker, J.) (Wallace, J.; concurring-in-part, dissenting-in-part).

Photojournalist, Patrick Cariou, who had completed and published a book of photographs (Yes Rasta) taken over a period of six years living among the Rastafarians in Jamaica, sued appropriation artist, Richard Prince.  Prince altered and incorporated several of the Yes Rasta photographs into a series of paintings and collages called Canal Zone.  On cross motions for summary judgment, the district court concluded there was copyright infringement (notwithstanding Prince’s fair use defense) and entered a permanent injunction.  Prince appealed, contending his works were transformative and constituted fair use of Cariou’s copyrighted photographs. 

The 2d Circuit vacated the injunctions, finding that the district court erroneously concluded that in order to qualify as a fair use, a work using copyrighted content must comment on the original work.  Rather, as the 2d Circuit explained, copyright law “imposes no requirement that a work comment on the original on its author in order to be transformative and a secondary work may constitute fair use even if it serves some purpose other than those (criticism, comment, news, reporting, teaching, scholarship and research) identified in the preamble to the statute.”

The panel majority concluded that 25 of the 30 accused pieces of art work were transformative and did qualify as fair use.  As for those 25 works, the court noted that Prince’s artworks “manifest an entirely different aesthetic from Cariou’s photographs.”  The 2d Circuit then remanded the case to the trial court to reconsider the remaining five works under the fair use standard explained in the decision.  As for the five works subject to remand the court observed that the images in question “do not sufficiently differ from the photographs of Cariou’s” for the court to rule on them as a matter of law and so remanded for the district court to consider whether the “minimal alterations” in those works render the, fair uses, including a determination of whether they are transformative. 

Judge Wallace (from the U.S. Court of Appeals for the Ninth Circuit, sitting by designation) disagreed with the majority that 25 of the accused works were, as a matter of law, subject to a fair use defense.  Wallace would have remanded the entire case for reconsideration and permit the district court to make all of the necessary factual determinations for each of the accused works “… while I freely admit I am not an art critic or expert, I fail to see how the majority, in its appellate role, can ‘confidentially’ draw a distinction between the twenty five works it has identified as constituting fair use and the five works that do not readily lend themselves to a fair use defense.”

Copyright / Public Performance Right

Second Circuit Refuses to Enjoin Aereo’s Internet Streaming of Broadcast Television
WNET, Thirteen et al. v. Aereo, Inc.
by Alexander P. Ott

Addressing the legality of a streaming TV service that provides internet-streaming of broadcast television programming, the U.S. Court of Appeals for the Second Circuit concluded that the activities in question were not materially different from those of the Cablevision system held to be non-infringing in the 2008 2d Circuit case of Cartoon Network LP v. CSC Holdings (“Cablevision”).  WNET, Thirteen et al. v. Aereo, Inc., Case Nos. 12-2786, -2807 (2d Cir. Apr. 1, 2013) (Droney, Cir. J. and Gleeson, J., sitting by designation) (Chin, J., dissenting).  The 2d Circuit held that Aereo’s internet transmission of television programs it acquired from over-the-air broadcasts did not constitute a “public performance” because unique copies were created and transmitted for each customer.

Aereo enables its customers to watch broadcast television over the internet for a monthly fee.  Aereo maintains thousands of small television antennas that receive broadcast television channels.  When a subscriber wishes to view or record a particular program, Aereo assigns a unique antenna and stores a unique copy of the program used solely for that particular subscriber (and no one else).  The user can view their copy of the program nearly live or have it recorded for later viewing; users are also provided with DVR functionality such as pause and rewind.

Aereo was sued by two groups of copyright holders of broadcast television programming, including ABC, CBS, NBC, FOX, Univision, and PBS.  The plaintiffs alleged infringement based on the exclusive rights of public performance and reproduction and also alleged contributory infringement. The plaintiff sought a preliminary injunction.  The district court denied the injunction based on the likelihood of success factor, holding that Aereo’s system was not materially distinguishable from the Cablevision system that the 2d Circuit had held to be non-infringing.  The plaintiffs appealed. 

On appeal, the 2d Circuit affirmed.  The court reviewed its Cablevision holding was not “materially distinguishable” from the facts presented here.  The decision on Cablevision rested on two essential facts:  unique copies of programs were created for each customer, and transmissions were generated for each customer from their own designated copy, which could be viewed by that customer alone and no others.  The majority concluded that Aereo’s system had both of these essential features. 

The court also rejected the plaintiffs’ attempts to distinguish Cablevision, disagreeing that Cablevision’s license for transmission of live programs played any role in its holding regarding Cablevision’s re-transmission of stored programs.  The 2d Circuit also refused to aggregate each individual private transmission into a “public” transmission, holding that courts must look to the transmission, not the underlying work.  The court held that Cablevision was not limited to VCR-like devices, noting its application of Cablevision to internet music downloads in U.S. v. Am. Soc’y of Composers, Authors & Publishers.  The court also found legal significance in Aereo’s use of separate antennas, finding them akin to rooftop antennas that are “rented” from Aereo.  Finally, the Court disagreed that its decision “exalts form over substance,” stating that technical architecture matters and Aereo is not alone in designing systems to avoid copyright liability.

In dissent, Judge Chin characterized Aereo’s system of mini antennas as a sham, insisting they served no technological purpose.  He further characterized the system as “a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act.”

Copyright / Standing

No Standing by Alleged True Copyright Owner in Infringement Case
Bridgeport Music, Inc. v. Smith
by Ulrika E. Mattsson

The U.S. Court of Appeals for the Sixth Circuit denied a motion filed by a non-party to a lawsuit, claiming to be the legal owner of the disputed copyright by operation of law at the time the lawsuit was filed, asking the district court to set aside the default judgments.  Bridgeport Music, Inc. v. Smith, Case No. 12-1523 (6th Cir., May 2, 1013) (Suhrheinrich, J.).

In 1974, songwriter, performer and producer Abrim Tilmon, Jr. (Tilmon) wrote the disputed song “You’re Getting’ a Little Too Smart” (the “Smart” song) and registered the song with the U.S. Copyright Office.  Years later, Tilmon assigned his rights in the song, together with other compositions, to the Plaintiff, Bridgeport.  Tilmon died in 1982 and was survived by his widow, Janyce Tilmon-Jones.

In 1997, Rashaam A. Smith, a rap artist and defendant in this case, released a recording titled “You and Me.”  Bridgeport Music sued Smith, alleging that the song included samples from the Smart song and was ultimately awarded a default judgment.  Bridgeport recorded the judgment with the U. S. Copyright Office.  Bridgeport also filed for renewal registration of the Smart song, claiming it was acting as the “duly authorized agent” of Tilmon-Jones. 

In 2011, Tilmon-Jones filed a motion pursuant to Fed. R. Civ. P. 60(b) seeking to have the judgment set aside, claiming that she was the rightful owner and copyright holder of the Smart song at the time of filing of Bridgeport’s claims against Smith.  The widow’s argument was based on the fact that the initial copyright term in the composition expired in 2002 and that renewal interest had reverted back to Tilmon’s heirs.  In addition, Tilmon-Jones had earlier also filed a separate lawsuit against Bridgeport, alleging, among other things, infringement of two different songs and objecting to ownership claims by Bridgeport in registration of those works.  This matter settled in 2007.

According to Fed. R. Civ. P. 60(b), the court may relieve a party or its legal representative from a final judgment, order or proceeding for various reasons, including “fraud” and “any other reason that justifies relief.”

The district court denied the motion, finding that Tilmon-Jones could not establish standing based either on fraud or on the basis that she had been “strongly affected” by the judgment.  The district court noted that Tilmon-Jones always had the option of suing Bridgeport in order to establish rightful ownership of the Smart song.  Tilmon-Jones appealed.

The 6th Circuit affirmed, noting that although there are cases in which non-parties to a law suit were permitted to seek relief (e.g., where they had interests that “were direct or strongly affected by the judgment”) even if the 6th Circuit were to adopt such an exception, Tilmon-Jones interest in the renewal of the copyright had not been strongly affected by the judgment against the defendant.

Copyrights / Settlement Agreements

No Termination for “False” Affidavit Where Statement Was Made to the Best of Affiant’s Knowledge
Silver Dream L.L.C. v. 3MC Inc.
by Donna M. Haynes

Addressing a provision in a settlement agreement permitting termination of the agreement if an affidavit was false, the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court summary judgment ruling that the provision was not triggered by an affidavit assuring that statements were made to the best of the affiant’s knowledge and memory and, thus, that the settlement agreement was enforceable.  Silver Dream L.L.C. v. 3MC Inc., Case No. 11-30968 (5th Cir., March 13, 2013) (per curiam) (non-precedential).

The plaintiff, Silver Dream, brought suit against 3MC and Charles and Mei Chen (collectively, the Chens) alleging that the Chens sold football-themed fleur-de-lis jewelry infringing its copyright interests.  The parties reached a settlement agreement in which the Chens would make a one-time payment of $1,850, turn over any infringing items, cease further infringing sales and provide “materially true, complete, and exact” affidavits disclosing the details of the source of the infringing items.  In exchange, Silver Dream agreed to dismiss the suit.  Silver Dream retained the right to terminate the settlement within a year if the Chens’ affidavits were “false.”

To satisfy the settlement agreement, the Chens provided sworn declarations to the best of their “knowledge and memory” that a small number of infringing jewelry pieces were purchased from Malibu International at a trade show.  In their declarations, the Chens stated that they did not have a receipt and were “really uncomfortable with [providing] an exact number” of pieces purchased.  Silver Dream allegedly obtained documents from Malibu denying that it made any such sales and subsequently refused to dismiss its suit against the Chens based on falsity of the affidavits, invoking the termination provision of the settlement agreement.  The Chens filed a counterclaim to enforce the settlement agreement and moved for summary judgment.  After the district court found for the Chens, Silver Dream appealed.

The 5th Circuit unanimously affirmed, rejecting Silver Dream’s argument that the Chens’ affidavits constituted breach of the settlement agreement.  The court reasoned that the termination provision only applied if the statements in the affidavits were false, and because the Chens’ statements were made to the best of their “knowledge and memory,” the provision did not apply.  Moreover, Silver Dream proffered no competent evidence that the statements in the Chens’ affidavits were actually false.  Accordingly, the court granted summary judgment and remanded for a determination of attorneys’ fees and costs.

Practice Note:  The 5th Circuit stated that an affidavit need only be a positive and unqualified statement of personal knowledge.  Practitioners should be aware that any agreement made contingent on a declaration or affidavit being “false” is likely to be construed as a term subjective to the affiant’s actual knowledge, whether or not such knowledge is factually correct. 

Licensing / Forum Selection

Second Circuit Is Not the Place to Judge Claims of Fraud, Negligence, Breach of Contract, Unjust Enrichment and Conversion Against the Holy See
Magi XXI, Inc. v. Stato Della Città Del Vaticano
by Ryan N. Phelan

Addressing the district court’s dismissal of claims of fraud, negligence, breach of contract, unjust enrichment and conversion against the Holy See (the Vatican State), the U.S. Court of Appeals for the Second Circuit affirmed the lower court’s ruling, finding that the venue was improper based on forum selection clauses in the relevant agreements.  Magi XXI, Inc. v. Stato Della Città Del Vaticano, Case No. 12-568 (2d Cir., Apr. 30, 2013) (Droney, J.). 

Plaintiff Magi XXI, Inc. of Long Beach, New York brought accusations of fraud, negligence, breach of contract, unjust enrichment and conversion against the Vatican State and its licensee and co-defendant Second Renaissance, LLC.  Under a “Master License Agreement,” the Vatican State had granted Second Renaissance the rights to produce and market reproductions and adaptations of artwork and artifacts of the Vatican Library collection.  Second Renaissance was also granted the right to sublicense its rights.  Magi was one such sub-licensee and had entered into several “Sublicense Agreements” with Second Renaissance for the production by Magi of “candles, chocolates, confections, flowers, stamps, wrapping paper/gift bags, and fundraising materials,” which would all bear the name, logo, and seal of the Vatican Library.  The Vatican State had approved the Magi sublicenses.

Magi’s complaint alleged that Second Renaissance had failed to provide Magi with the contracted-for access to artwork and commercially usable images of the materials that Second Renaissance had licensed from the Vatican Library. According to Magi, Second Renaissance had misrepresented the nature of Second Renaissance’s relationship with the Vatican State as well as the availability of certain images from the Vatican Library.

The district court granted the Vatican State’s motion to dismiss for improper venue, where the Vatican State had cited to forum selection and choice of law clauses in the Magi Sublicense Agreements.  Each sublicense contained identical forum selection clauses found in the Master License Agreement—which required, in part, that “[a]ny disagreements … shall be resolved exclusively in the Sovereign State of Vatican City” and that “[a]ll disputes relating to this Agreement … shall be governed by the laws of the Sovereign State of Vatican City.”  Maji appealed to a…er…higher authority.

Alas (for Maji) the 2d Circuit affirmed the ruling.  Magi had not disputed that the forum selection clauses were reasonably communicated, mandatory and not “unjust.”  Thus, under its precedent, the Second Circuit considered only whether Magi was subject to the Vatican State’s forum selection and choice of law clauses (even though the Vatican State was not a signatory to the sublicense agreements. 

The 2d Circuit found that a non-signatory such as the Vatican State may enforce a forum selection clause against a signatory such as Magi if the non-signatory is “closely related” to another signatory, in this case Second Renaissance, and if the relationship between the non-signatory (Vatican State) and the latter signatory (Second Renaissance) is “sufficiently close” such that the non-signatory’s enforcement of the forum selection clause is foreseeable to the signatory against whom the non-signatory wishes to enforce the forum selection clause.

In the present case, the Vatican state was “closely related” to Second Renaissance by virtue of the Master License Agreement.  And, the Vatican State’s relationship with Second Renaissance was “sufficiently close” with regard to the licensing of reproductions of items in the Vatican Library collection such that it was foreseeable to Magi that the Vatican State would seek to enforce the forum selection clauses in the sublicense agreements. 

The 2d Circuit listed seven factors that guided its decision:

  1. The sublicense agreements were subject to the Vatican State’s approval;
  2. All of the artwork and artifacts which were the subject matter of the contracts were owned by the Vatican State;

  3. Magi’s products made pursuant to the sublicense agreement were subject to the Vatican State’s approval;

  4. The sublicense agreements were wholly derivate of the Master Agreement between Second Renaissance and the Vatican State;

  5. The sublicense agreements stated that the Master License Agreement would control if any conflicts existed between the two;

  6. The Master License Agreement and Sublicense Agreements had identical forum selection clauses; and

  7. Magi effectively admitted that Second Renaissance and the Vatican State “acted in concert.”

Intellectual Property / Arbitration

Arbitration Clause Can Result in Amending an Agreement to Realize Its “Essence”
Timegate Studios, Inc. v. Southpeak Interactive, LLC et al.
by D. Jeremy Harrison

Due to fraudulent conduct and an “extraordinary” breach of a development agreement, the U.S. Court of Appeals for the Fifth Circuit reversed a district court’s vacatur of an arbitrator’s award granting a perpetual license to a video game’s intellectual property.  Timegate Studios, Inc. v. Southpeak Interactive, LLC et al., Case No. 12-20256 (5th Cir., Apr. 9, 2013) (Davis, J.).

In June 2007, Timegate Studios entered into an agreement with Gone Off Deep LLC d/b/a Gamecock Media Group (later acquired by Southpeak Interactive LLC) to develop and market a futuristic military-style video game entitled “Section 8.”  Per the agreement, Timegate was required to design and develop the video game, and Gamecock was to provide most of the investment funding for the game’s development and was also primarily responsible for manufacturing, marketing, distributing and selling the game after its release.  The agreement granted Gamecock a worldwide license to “Section 8” for a predetermined term, and Timegate was to remain the exclusive owner of the “Section 8” intellectual property.

When sales of “Section 8” failed to meet expectations upon its release in 2009, the parties’ relationship began to deteriorate.  Timegate subsequently filed suit against Gamecock, alleging multiple breaches of the agreement.  Gamecock countered by asserting that it was Timegate that breached and subsequently requested that the matter be stayed in the district court and submitted to arbitration in accordance with the arbitration clause of the agreement.  The arbitration clause contained no limitations relevant to the current dispute.

Following an eight-day arbitration hearing, the arbitrator determined that Timegate had engaged in several fraudulent misrepresentations and contractual breaches, including inducing Gamecock into entering into the agreement by fraud.  The arbitrator awarded Gamecock $7.35 million and, finding the monetary award failed to fully compensate Gamecock for Timegate’s fraud, also amended the agreement to provide Gamecock with a perpetual license in the intellectual property of “Section 8.”  Timegate asked the district court to vacate the arbitrator’s award on the grounds that the arbitrator exceeded his authority.  The district court agreed, concluding that the arbitrator’s creation of the perpetual license, when the agreement required only a temporary license, was not rationally rooted in the agreement and therefore inconsistent with its fundamental purpose.  This time Gamecock appealed. 

On appeal, the 5th Circuit found the perpetual license to be rationally rooted in the “essence” of the agreement, which was to provide mutual access to financial benefits derived from the joint creation and distribution of “Section 8.”  Giving deference to the arbitrator’s findings, the court concluded that Timegate’s relationship with Gamecock had become so contentious that the collaborative relationship presupposed by the agreement was no longer possible and the perpetual license was an attempt by the arbitrator to restore the fundamental goal and essence of the agreement. 

Because “Timegate committed an extraordinary breach of the Agreement, […] an equally extraordinary realignment of the parties’ original rights [was] necessary to preserve the essence of the Agreement,” the court commented.  Since the parties were unable to work together in a cooperative effort to profit from the venture, the only way to give Gamecock the opportunity to benefit from the future development of “Section 8” was to allow it to independently market the game via the perpetual license granted by the arbitrator.