IP Update, Volume 8, No. 4, April 2005
April 2005
- Copyrights / Compilation - Collection of Magazines on CD-ROM Constitutes a Compilation under Copyright Law
- Copyrights / Unprotected Expression - Arcade Game Maker Entitled to No Protection from Competitor’s Intentional Copying
- Copyrights / Standing of Assignees to Sue - Assignees of Accrued Actions Have No Standing to Sue for Copyright Infringement
Antitrust / Pharma Settlements
Reverse Payments in Pharmaceutical Patent Settlements Held Lawful
By Nick Koberstein
In vacating a 2003 U.S. Federal Trade Commission (FTC) decision, the U.S. Court of Appeals for the Eleventh Circuit significantly hampered the agency’s decade-long attack against reverse payment patent settlements in the pharmaceutical industry. Schering-Plough Corp. v. FTC, Case No. 04-10688 (11th Cir. Mar. 8, 2005) (Fay, J.).
In 2003, the FTC ruled that two patent infringement settlements between branded drug manufacturer Schering-Plough Corporation and generic drug manufacturers Upsher-Smith Laboratories, Inc. and American Home Products (AHP) violated the antitrust laws. The settlements arose when Schering-Plough sought to enforce its patent for the drug K-Dur 20, which expires in 2006.
Under its agreement with Upsher-Smith, Schering-Plough agreed to pay $60 million in initial royalty fees to license five unrelated products from Upsher-Smith, and Upsher-Smith agreed to delay entry of its generic drug until 2001. In its agreement with AHP, Schering-Plough agreed to pay AHP $10 million contingent upon the Federal Drug Administration’s (FDA) approval of its generic substitute, and AHP agreed to delay entry of its drug until 2004. The FTC found that Schering-Plough’s payment of $60 million to Upsher-Smith grossly exceeded the fair market value of the licenses and was simply a payment to obtain delayed entry of a generic substitute. Utilizing a rule of reason analysis, the FTC concluded that this reverse payment had no procompetitive benefit and, therefore, was unlawful. The FTC similarly found no legitimate basis for Schering-Plough’s settlement agreement with AHP and held this agreement also violated the antitrust laws.
In a sharply worded decision, the Eleventh Circuit questioned the FTC’s finding that Schering-Plough’s $60 million payment to Upsher-Smith exceeded the fair market value of the licenses. Further, the Court determined that the FTC’s use of the rule of reason analysis in patent settlement cases was inappropriate and held that when assessing potential antitrust liability related to patent settlements, it is necessary to examine: (1) the scope of the exclusionary potential of the patent; (2) the extent to which the agreement exceeds that scope; and (3) the resulting anticompetitive effects. Utilizing this analysis, the Court found that the delays in entry imposed by Schering-Plough’s settlement agreements did not exceed the scope of the exclusionary potential already inherent in the patent and concluded that the agreements were procompetitive and lawful.
Most significantly, the Court found the Hatch-Waxman Act so significantly reduced the cost for generic drug manufacturers to defend patent challenges that reverse payments by patent holders may be necessary to avoid litigation. Recognizing the significant benefits inherent in settlements, the Court rejected the FTC’s reasoning that, in essence, makes reverse payment patent settlements in the pharmaceutical industry presumptively unlawful.
UPDATE
On April 22, the FTC petitioned the Court and requested a re-hearing of the case en banc . In its petition, the FTC noted that “If the panel’s approach stands, exclusion payments from a branded to a generic drug manufacturer in the context of a patent settlement will be per se lawful in this Circuit – regardless of the size of, or reason for, the payment – so long as the exclusion period does not extend beyond the expiration of the patent.” The Court has not yet ruled on the FTC’s petition.
Patents / Inherent Anticipation
Inherent Anticipation Replaces Public Use as Federal Circuit Panel Receives En Banc Order to Reconsider Paxil® Dispute
By Astrid R. Spain
In a well-choreographed display of appellate procedure, the U.S. Court of Appeals for the Federal Circuit issued an en banc decision vacating a panel’s original decision with regard to the issue of experimental use on the same day that the original panel issued its new decision. SmithKline Beecham Corp. v. Apotex Corp. Case Nos. 03-1285, -1313 (Fed. Cir. Apr. 8, 2005) (en banc order); SmithKline Beecham Corp. v. Apotex Corp. Case Nos. 03-1285, -1313 (Fed. Cir. Apr. 8, 2005) (Rader, J.) (Gajarsa, J., concurring).
Claim one of SmithKline’s U.S. Patent No. 4,721,723, recites, in its entirety, “crystalline paroxetine hydrochloride hemihydrate” (PHC hemihydrate), which is the active ingredient of SmithKline’s antidepressant drug Paxil®. Apotex filed an abbreviated new drug application (ANDA) with the Federal Drug Administration (FDA) seeking approval to market its own PHC antidepressant drug. Apotex identified the active ingredient in its antidepressant as PHC anhydrate and included in its ANDA a paragraph IV certification that its drug would not infringe the `723 patent. PHC anhydrate comprises crystals of PHC without bound water molecules. PHC hemihydrate comprises PHC crystals with one bound water molecule for every two PHC molecules.
SmithKline’s `723 patent was initially found to be invalid in a 2003 opinion by Seventh Circuit Judge Richard Posner. On appeal, the Federal Circuit reversed the trial court’s erroneous claim construction and concluded that Apotex’s product infringes SmithKline’s claim covering Paxil®’ s active ingredient, but the Court further held the claim invalid because SmithKline’s clinical tests prior to one year before filing constituted a public use not qualifying under the experimental use exception. The majority panel emphasized its commitment to the strict requirements of the experimental use negation of the statutory bar as being limited to testing claimed features or, rarely, inherent features of a claim. The panel concluded that SmithKline’s clinical trials to establish the efficacy and safety of the compound as an antidepressant for FDA approval did not involve the claimed features of the invention so as to qualify as experimental use. See “SmithKline Beecham Corp. v. Apotex Corp.,” IP Update, Vol. 7, No. 5.
In the most recent development, the Federal Circuit, sitting en banc, issued an order granting the party’s petition for rehearing en banc “for the limited purpose of vacating the panel’s original opinion addressing the issue of experimental use” and simply “remanded [the case] to the panel for further proceedings.” On the same day, the original panel issued a new opinion, deleting the earlier public use holding “pursuant to an order issued by this court en banc” and replacing it with a new holding that the patent was invalid by reason of inherent anticipation. While completely avoiding the issue of public use, the Court held the asserted claim invalid relying on a prior art patent that discloses preparation of the PHC anhydrate. The Court pointed out that for inherent anticipation Apotex did not need to prove that it was impossible to make PHC anhydrate in the United States that contained no PHC hemihydrate but merely that “the disclosure [of the prior art] is sufficient to show that the natural result flowing from the operation as taught [in the prior art] would result in” the claimed product.
Federal Circuit Refuses En Banc Rehearing in Zoloft® Patent Dispute: Next Stop, Supreme Court?
By Astrid R. Spain
The U.S. Court of Appeals for the Federal Circuit has denied Teva’s petition for an en banc rehearing of a panel decision holding that an Orange Book listing does not create a legal controversy sufficient to trigger federal jurisdiction. Judges Dyk and Gajarsa each filed a dissenting opinion explaining their reasons for wanting to rehear the case. Teva Pharmaceuticals USA, Inc. v. Pfizer, Inc., Case Nos. 04-1186 (Fed. Cir. Jan. 21, 2005) (Shall J.; Mayer, J. dissenting).
The Hatch-Waxman Act requires new drug application (NDA) filers to submit to the Food and Drug Administration (FDA) information on all patents against which claims of infringement “could be reasonably asserted” and lists these patents in what is known as the “Orange Book.” A party seeking FDA approval for a generic version of a brand-name drug before the expiration of such patents may provide a “paragraph IV certification” that the patents are invalid or will not be infringed by its proposed generic version. The act facilitates litigation concerning such patents by providing that the filing of an application for a generic drug containing a paragraph IV constitutes an act of infringement.
Pfizer holds two patents that are listed in the Orange Book relating to Zoloft®. Teva is a manufacturer of generic drugs and filed a paragraph IV certification along with an application seeking approval from the FDA to market a generic version of Zoloft®. Under the provisions of the Hatch-Waxman Act, Pfizer had 45 days to sue Teva for patent infringement based on Teva’s abbreviated new drug application (ANDA) filings. After Pfizer failed to sue Teva within the forty-five-day period of Pfizer’s receipt of notice of the paragraph IV certification, Teva filed a declaratory judgment action against Pfizer in the U. S. District Court that its generic drug did not infringe Pfizer’s patent. The district court dismissed Teva’s suit for lack of jurisdiction because Teva failed to establish that an actual controversy existed as is required under the Declaratory Judgment Act.
In a 2-1 decision issued on January 21, 2005, a Federal Circuit panel followed the district court’s analysis and affirmed the ruling of the district court that a declaratory judgment plaintiff in a patent case must demonstrate a “reasonable apprehension” of suit to establish Article III jurisdiction. In essence, the Court held that the fact that there was an Orange Book filing did not create a reasonable apprehension of suit, i.e., more is required for an actual controversy than the existence of an adversely held patent.
Teva requested an en banc rehearing. Noting that “a poll was requested, taken, and failed,” the Court of Appeals for the Federal Circuit denied the request. Dissenting from the denial of rehearing en banc, Judge Gajarsa, who was a member of the original Teva panel, argued that the ANDA situation was quite different from other patent infringement situations and rendered the reasonable apprehension test inappropriate. Judge Dyke’s dissent provides a full Article III analysis and concludes that the Teva panel was wrong in determining that a reasonable apprehension or imminent suit was required for declaratory judgment jurisdiction.
“Clarified” Appellate Court Claim Construction Warrants Second Remand
By Daniel R. Foster
In the long-running litigation between Asyst Technologies, Inc. and various defendants over Asyst’s patent directed to a system used in the production of integrated circuits, the U.S. Court of Appeals for the Federal Circuit has—for a second time—overturned the district court’s summary judgment grant of non-infringement. Asyst Techs., Inc. v. Emtrak, Inc., Case Nos. 04-1048, 04-1064 (Fed. Cir. Mar. 22, 2005) (Bryson, J.).
Asyst accused Emtrak and others of patent infringement in a suit first filed almost nine years ago. After construing pertinent terms in the asserted claims, the district court granted summary judgment of non-infringement. In the first appeal, the Federal Circuit concluded the district court had erred on claim construction, reversed the summary judgment of non-infringement and remanded for further proceedings. On remand, the district court again granted summary judgment of non-infringement. In its second review, the Federal Circuit affirmed the district court’s decision of non-infringement in part but vacated the summary judgment and remanded the case for further fact-finding as to other claims.
Asyst’s patent discloses a system for the production of integrated circuits, a central feature of which is an automated process that ensures that the integrated circuit wafers are processed by the right tool at the right time. Claim one is directed to a processing system and claim two to an inventory management system.
Asyst urged that the term “mounted on” as used in claim one ought to be construed broadly to include “connected by a cable.” Finding no justification in the specification or the prosecution history for the broader construction, the Court instead gave the term its ordinary meaning and then held that the limitation was not literally met in the accused device. The district court also held that the term was entitled to no range of equivalents as allowing an equivalent would effectively read the “mounted on” limitation out of the patent. Thus, the Federal Circuit affirmed summary judgment of no infringement of claim one.
The district court also granted summary judgment of non-infringement on the inventory management system of claim two, finding that the accused system did not have the required “sensing means.” The Federal Circuit, however, clarified its earlier decision on this point, noting that while the claim did require a particular corresponding structure to perform the sensing function, it did not require use of a particular sensing protocol. Because the district court had applied the wrong legal analysis, the Federal Circuit remanded for a determination of whether Asyst’s evidence was sufficient to raise a triable issue as to whether the defendants’ system has a structure equivalent to the claimed sensing means.
Patents / Standing Assignments
Ownership Matters—But Only at the Start and Finish
By Tamara (Tammy) Lee
Addressing the relationship between patent ownership and jurisdiction, the U.S. Court of Appeals for the Federal Circuit held that a judgment is not void when there is a temporary transfer of the patent in suit to a non-party during litigation provided the plaintiff owned the patent at the commencement of the suit and at the time of judgment. Schreiber Foods, Inc., v. Beatrice Cheese, Inc., et al, Case Nos. 04-1279-1314 (Fed. Cir. Mar. 22, 2005) (Dyk, J.).
Schreiber, owner of the patents in suit, filed suit alleging infringement of its patents. During the litigation, Schreiber assigned one of the patents in suit, including all causes of action to its subsidiary, Schreiber Technologies, Inc. In turn, Schreiber Technologies granted Schreiber a non-exclusive license. Schreiber failed to inform the defendants or the court of the assignment despite various opportunities to do so. Schreiber Technologies was never joined as a party to the lawsuit. The jury returned a special verdict finding the patents infringed and awarded damages. On advice of counsel, before judgment had been entered, Schreiber reacquired ownership of the patent. Upon learning of the assignment, one of the defendants, Kustner, moved to vacate the judgment pursuant to Rule 60(b). The court granted the motion holding that Schreiber’s lack of ownership during the litigation deprived Schreiber of standing and rendered the suit moot and the judgment void. The court also found that Schreiber’s conduct constituted fraud, misrepresentation or misconduct, which warranted relief from judgment. Schreiber appealed and Kustner cross-appealed for a new trial.
Applying Federal Circuit law, the Court held that the judgment was not void for lack of standing, noting that at the time the action commenced, Schreiber was the owner of the patent and had standing. While the Court agreed that upon assignment of all causes of actions to Schreiber Technologies, Schreiber lost standing, the Court noted that such a loss was “only temporary” and that Schreiber had regained its stake in litigation “when it reacquired the patent before the entry of judgment.” The reacquisition of the patent prior to the entry of judgment was crucial in the Court’s analysis, citing to precedent for the proposition that the “temporary loss of standing during patent litigation can be cured before judgment.”
Addressing the issues of fraud, misrepresentation and misconduct, the Federal Circuit applied regional circuit law. In upholding the district court’s decision to grant a new trial, the Court noted that Schreiber’s conduct was sanctionable and that there was no error in the district court’s finding that Schreiber and its counsel had engaged in improper conduct and agreed with defendants that the district court “properly vacated the entire judgment and that a new trial on all issues (rather than outright dismissal) was an appropriate sanction.”
Federal Circuit Can’t Stomach PB&J Patent
By Michael S. Wilcox
The U.S. Court of Appeals for the Federal Circuit affirmed, without opinion, an obviousness rejection by the U.S. Patent and Trademark Office of claims to a crustless peanut butter and jelly sandwich in which outer layers of peanut butter encapsulated the jelly and the edges of the bread were compressed to prevent leakage. In re Kretchman, Case No. 04-1448/49 (Fed. Cir. Apr. 8, 2005) (affirmed without opinion, F.C.R. 36).
J.M. Smucker Co., on behalf of Messers. Kretchman and Geske, applied for a patent relating to Smucker’s crustless peanut butter and jelly sandwich product. In claiming this simple food product, one exemplary claim read in part: “closely spaced depressions of compacted bread along said sealed marginal area to crimp said compressed marginal area at spaced points to prevent said bread portions from separating at said outer perimeters....” Another read: “a second layer of peanut butter over said first layer of peanut butter and sealed to said first peanut butter layer at said exposed surface whereby said jelly is encapsulated by peanut butter of said layers....”
The Board of Patent Appeals (the Board) found the claims directed to the compressed edges of the sandwich to be anticipated citing a cooking reference entitled Tart Recipes From Around the World. The Board also found the claims directed to encapsulating jelly between layers of bread to be obvious based on an article entitled “Ways to Make it Through the First Day of School” in combination with the recipe book.
Smuckers reportedly generated sales of $27.5 million in 2004 on the product embodying the invention and attempted to predicate patentability on commercial success. However, according to the Board, no nexus had been established between the commercial success and any unique characteristics of the claimed subject matter. Therefore, the Board held that Smucker’s could not claim commercial success as a secondary indicia of non-obviousness. Smuckers appealed.
While hearing the appeal, Circuit Judge Gajarsa reportedly noted that his wife had squeezed together the sides of their child’s peanut butter and jelly sandwiches to keep the filling from oozing out and that such an act might infringe the subject claim if a patent issued. Such comments did not bode well for Smucker’s. The Federal Circuit affirmed the Board of Patent Appeals’ findings of anticipation and obviousness without opinion two days after the hearing.
Court May Consider Function of Invention in Determining Meaning of Claim Terms
By Krista Vink Venegas
The U.S. Court of Appeals for the Federal Circuit affirmed the district court’s summary judgment that Medrad’s patent is invalid as anticipated by the prior art. The Court held it is proper to consider how the invention functions in construing disputed claim terms. Medrad, Inc.v. MRI Devices Corp., Case No. 04-1134 (Fed. Cir. Mar. 16, 2005) (Bryson, J.).
Medrad’s patent claims a two-coil magnetic imaging (or MRI) system. Whether the claims were anticipated turned on how “uniform” the magnetic field of the claims had to be and over what “region of interest.”
The district court defined “region of interest” to mean “the portion of a patient’s body being scanned” within one coil of the system. In determining that “region of interest” did not refer to the anatomy residing within both coils, as Medrad argued, the district court adopted a construction consistent with the broad usage in the specification, the dependant claims, inventor testimony describing the claimed invention, Medrad’s own expert testimony and the district court’s understanding of how the invention was intended to function. The Federal Circuit agreed that all of this evidence was properly considered.
The district court read a functional requirement into the term “substantially uniform magnetic field,” construing it to mean “substantially uniform to obtain useful MRI images.” The district court declined to adopt Medrad’s proposed construction (a magnetic field that has largely, but not wholly, the same form throughout). In affirming, the Federal Circuit held that where the usage of the term in the claim is ambiguous (in this case, as to how much the field may deviate before it is no longer uniform), the meaning of the term must be considered in the context of the function of the invention as revealed in the written description and file history: it is “entirely proper to consider the functions of an invention in seeking to determine the meaning of particular claim language.”
Claim Construction That Excludes All Disclosed Embodiments Vacated
By Carrie R. Grandinetti
The U.S. Court of Appeals for the Federal Circuit, finding the district court erred in its construction of two critical claim terms, vacated the district court’s summary judgment ruling of non-infringement and remanded the case. Nellcor Puritan Bennett, Inc., et al. v. Masimo Corp., Case No. 04-1247 (Fed. Cir. Apr. 8, 2005) (Bryson, J.).
This case involved pulse oximeters, medical devices that measure the level of oxygen saturation in a patient’s blood. Nellcor sued Masimo alleging that numerous Masimo pulse oximeter products infringe selected claims of its patent. Nellcor’s patent covers a method and apparatus for digitizing the signals received by a photodetector, processing those signals, separating much of the aperiodic noise from the signal variations caused by the pulsing of the patient’s blood and calculating the oxygen saturation from the processed signal using a well-known formula.
The claims recited processing of periodic information so that it becomes “attenuated and filtered.” The first issue on appeal was whether the district court correctly construed the phrase “attenuated and filtered” to mean “reduced and removed.” The Federal Circuit agreed with Nellcor that the district court interpretation was not supported by the plain meaning of the claim language, the patent specification or the prosecution history. The Court, citing Vitronics Corp. v. Conceptronic, Inc., also concluded that “construing the term ‘filtered’ to require removal of the aperiodic noise would have the effect of excluding all the embodiments described in the specification,” a construction that is “rarely if ever correct.” To the contrary, the Court found that such a finding in this case is “powerful evidence that the court’s construction is incorrect.” In addition, the Court found no support within the prosecution history for the district court’s construction. Accordingly, the Federal Circuit held that “attenuated and filtered from the composite waveform” means “reduced in comparison to the desired information.”
The claims also required a calculation based on a relative maximum and minimum amplitude of a composite waveform. The second issue on appeal was whether the district court’s ruling that the claimed “minimum amplitude” must be part of the composite and that it must be determined and used only after the composite waveform is generated. The district court found that the placement of the word “thereafter” (prior to the step of calculating) supported its conclusion that the minimum value could be used only after the composite signal was generated. The Federal Circuit disagreed: “the district court added a limitation that is not present in the claim language and is not supported by the specification or prosecution history. We have stated that we ‘cannot construe the claim to add a limitation not present in the claim itself’” (citing, Hewlett-Packard Co. v. Mustek Sys.). The Court held that the claim only required that both the “relative maximum” and “relative minimum” amplitudes must be used in the calculation.
Patents / Claim Indefiniteness
Claims Are Definite When Understood by One of Ordinary Skill
By Patrick D. Richard
The U.S. Court of Appeals for the Federal Circuit reversed the district court summary judgment that the claim terms of a pair of patents was indefinite and invalid under 35 U.S.C. §112, noting that one of ordinary skill in the art would understand the claim language from the patent. Howmedica Osteonics Corp. v. Tranquil Prospects, Ltd., Case No. 04-1302 (Fed. Cir. Mar. 28, 2005) (Rader, J.). The Federal Circuit further held that the district court erred in holding certain claims required the claimed prosthetic to be pre-coated with bone cement.
Tranquil is the owner of two patents relating to implantation of an intramedullary prostheses. Howmedica sought declaratory judgment that the claims of Tranquil’s patents were invalid, unenforceable and not infringed. The claims of the two patents require that the “transverse sectional dimensions” of the coated prosthesis constitute certain percentages of the medullary canal defined by the cortical bone. The district court, unable to construe the term “transverse sectional dimensions,” found the claims indefinite. Additionally, the district court found that since the claims of one patent recited a “coated stem,” infringement by stems coated with bone cement after insertion into the stem socket was precluded. Tranquil appealed.
Tranquil argued the “transverse sectional dimensions” refer to two-dimensional, cross-sectional surface areas. Howmedica argued the term is indefinite because the patents do not specify whether the term applies to a two-dimensional measurement or a single-dimensional, i.e., linear measurement.
The Federal Circuit found that one of ordinary skill in the art would readily ascertain from the written description that the “transverse sectional dimensions” require a two-dimensional measurement. The Federal Circuit noted that the written description, including the abstract, made it clear that the invention required a very tight fit for the prostheses. The Court noted that one of ordinary skill in the art would recognize that a one-dimensional linear measurement would not provide a snug fit. By contrast, when the “transverse sectional dimensions” were two-dimensional, the prostheses would achieve the snug fit that is the centerpiece of the invention.
The parties further disputed whether the claim term “coated stem” covered stems coated by bone cement after insertion into the stem socket. Both parties agreed that placing a layer of bone cement on the stem before insertion meets the “coated stem” limitation. Because the dispute relates to an apparatus claim without process limitations, the Federal Circuit held that there is no difference between a stem that is coated with cement prior to insertion into the stem socket or afterward.
Patents Disclosed During Prosecution Part of Intrinsic Evidence
By Tyler J. Woods
The U.S. Court of Appeals for the Federal Circuit recently upheld a district court’s grant of summary judgment of non-infringement in favor of the maker of Rollerblade in-line roller skates under a claim construction arrived at, in part, by looking at how terms were used in patents cited to the U.S. Patent and Trademark Office during prosecution. V-Formation, Inc. v. Benetton Group SpA, Case No. 03-1408 (Fed. Cir. Mar. 15, 2005) (Rader, J.).
V-Formation’s patent claimed a structure for “releasably attaching” the sidewalls of the wheel enclosure of an in-line roller skate. V-Formation claimed that Benetton’s skates (which use rivets to secure the sidewalls) infringed its claims.
The district court granted Benetton’s motion for summary judgment, holding the rivets in the accused devices do not meet the “releasably attaching” limitation. In affirming, the Federal Circuit held that the district court correctly construed that claim term after reviewing the patent specification and the intrinsic evidence, including prior art cited as a reference in the patent, disclosed in an information disclosure statement (IDS) or cited in the prosecution history of the patent. Here, a prior art patent explained that toe and heel plates may be “permanently attached . . . through the use of rivets or releasably attached through the use of fasteners such as screws or bolts.” Relying on this language “to set the context for its claim construction,” the Court agreed that the intrinsic evidence “provides evidence that rivets are considered by persons of ordinary skill to be permanent fasteners” and are, therefore, properly excluded from the scope of a claim limited to structures for “releasably attaching.”
Patents / Validity / Injunctions
No “Raise or Waive” Rule Regarding Anticipation/Permanent Injunctions Appropriate Absent Exceptional Circumstances
By Irina A. Kushner
In a case closely watched by the e-commerce world and involving patents asserted by MercExchange against eBay, its subsidiary Half.com and others, the U.S. Court of Appeals for the Federal Circuit affirmed the jury’s verdict regarding infringement and validity of one of MercExchange’s patents but reversed the jury’s verdict regarding validity of another patent, finding it invalid for anticipation, and overruled the district court’s denial of a permanent injunction. MercExchange, L.L.C. v. eBay, Inc., Case Nos. 03-1600-1616 (Fed. Cir. Mar. 16, 2005) (Friedman, J.).
MercExchange, the assignee of three patents directed to systems for selling goods through an electronic network, filed suit against eBay, Half.com and ReturnBuy, alleging infringement. At issue in the case was the fixed-price purchasing feature of eBay’s website, which allows customers to purchase items that are listed on eBay’s website for a fixed, listed price. Half.com is a wholly owned subsidiary of eBay, and at the time the action was brought, ReturnBuy operated an internet website hosted on the eBay website. Following the verdict, defendants appealed the denial of their motions for judgment as a matter of law (JMOL) and for a new trial on two of the patents in suit. MercExchange cross-appealed.
On appeal, the defendants argued that a reasonable jury would necessarily have found the asserted claims of one patent to be invalid as anticipated or rendered obvious by a prior art reference. In response, MercExchange argued that because defendants’ invalidity arguments were based on obviousness, they had waived their right to make an invalidity argument on appeal based on anticipation. The Federal Circuit disagreed: “[b]ecause ‘anticipation is the epitome of obviousness,’ the defendants’ obviousness arguments preserved their right to argue invalidity based on anticipation.” Notwithstanding the preservation of defendants’ right to make an anticipation argument, the Federal Circuit found that there was substantial evidence to support the jury’s finding of non-obviousness.
In overruling the denial of a permanent injunction, the Federal Circuit rejected the lower court’s reasoning that an injunction should be denied because of a “growing concern over the issuance of business-method patents;” the likelihood of continuing disputes due to eBay’s attempts to design around the patents in suit and MercExchange’s public statements that it was willing to license its patents. The Federal Circuit found such reasons unpersuasive, stating “[i]njunctions are not to be reserved for patentees who intend to practice their patents, as opposed to those who choose to license. The statutory right to exclude is equally available to both groups….We therefore see no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.”
Federal Circuit Affirms Denial of Registration of Surname and Rules Paris Convention Not Self-Executing
By Jennifer M. Mikulina
The U.S. Court of Appeals for the Federal Circuit upheld the decision of the Trademark Trial and Appeals Board (TTAB) affirming the U.S. Patent and Trademark Office’s (USPTO) refusal to register the marks RATH and DR. RATH, even though the marks had been registered in Germany, the applicant’s home country. In re Rath, Case Nos. 04-1419- 1420 (Fed. Cir. Mar. 24, 2005) (Dyk, J.; Bryson, J., concurring).
Dr. Matthias Rath, a German citizen, filed U.S. trademark applications for the marks RATH and DR. RATH for use in connection with a line of nutritional supplements and related goods and services. Dr. Rath’s U.S. applications were based on his existing German trademark registrations for the same marks. The USPTO refused registration of the RATH and DR. RATH marks because they are “primarily merely surnames” and, therefore, not registrable under the Lanham Act without proof of acquired distinctiveness.
Dr. Rath argued that the Paris Convention for the Protection of Industrial Property, of which both the U.S. and Germany are signatories, required the U.S. to register his marks because they had attained registration in Germany. The Paris Convention provides guidelines for the protection in all member countries of marks registered in one member country. The USPTO, however, argued that the applications fell within the exception listed in the Paris Convention allowing the denial of a registration where it is “devoid of any distinctive character.”
Instead of addressing whether the Lanham Act’s rule regarding surnames in U.S. trademarks conflicts with the Paris Convention, the Federal Circuit held that because the Paris Convention is not a self-executing treaty, it does not have direct effect until it is implemented by domestic law.
In a concurring opinion, Judge Bryson opined that “[t]he question whether the Lanham Act should be read to conflict with and trump the Paris Convention is a difficult one…I would instead decide the case on the narrower ground that the Lanham Act and the Paris Convention are in accord as applied in this case.”
Practice Note: In view of this case, it would be a good practice when filing U.S. trademark applications based on foreign trademark registrations to consider whether the trademark is independently eligible for registration on the principal register under U.S. law and to not rely exclusively on the Paris Convention.
Commercial Use: Requirement Differs under Trademark Infringement and Anticybersquatting Laws
By Robert W. Zelnick & Kathrin Tauber
Addressing the issue of whether “non-commercial use” of a trademark is actionable under the trademark infringement and anticybersquatting portions of the Lanham Act, the U.S. Court of Appeals for the Ninth Circuit decided that the use of a trademark as a domain name for a customer commentary website does not constitute trademark infringement. However, depending on other factors, non-commercial use of a trademark in a domain name might be actionable under the Anticybersquatting Consumer Protection Act (ACPA). Bosley Medical Institute, Inc. v. Michael Steven Kremer, Case No. 04-55962, 2005 U.S. App. LEXIS 5329 (9th Cir. Apr. 5, 2005).
Plaintiff Bosley Medical Institute, Inc. provides surgical hair transplantation, restoration and replacement services. Bosley owns the registered trademark BOSLEY MEDICAL. Defendant Kremer was dissatisfied with the hair restoration services provided to him by Bosley and developed a website at www.bosleymedical.com to publish information that is highly critical of Bosley. Kremer does not earn any revenue from his website, does not sell any goods or services and does not link his website to any of Bosley’s competitors.
Bosley sued Kremer, alleging trademark infringement, trademark dilution, unfair competition and various state law claims. The district court entered summary judgment for Kremer and also granted Kremer’s motion to dismiss Bosley’s claims under California’s anti-strategic lawsuit against public participation (anti-SLAPP) statute.
On the trademark infringement and dilution claims, the Ninth Circuit affirmed the district court’s decision that the defendant does not use Bosley’s mark “in connection with the sales of goods and services.” The Ninth Circuit distinguished the Fourth Circuit’s opinion in People for the Ethical Treatment of Animals v. Doughney and rejected Bosley’s argument that commercial use existed insofar as the defendant’s unauthorized use of Bosley’s mark as a domain name prevented users from obtaining Bosley’s goods and services. The Court held that such a broad view was neither supported by the language of the Lanham Act nor by the history of trademark laws generally and refused to use the Lanham Act to restrict otherwise protected consumer commentary. Regarding Bosley’s claims under the ACPA, the Ninth Circuit rejected the district court ruling that a cybersquatting claim under the ACPA requires proof of “commercial use.” The Court found that the district court failed to consider whether the defendant’s behavior, on balance, satisfied the other requirements under the ACPA claim, and, therefore, remanded the case to the district court for such findings. Finally, the Ninth Circuit found that Bosley’s complaint about the unauthorized use of its trademark as Kremer’s domain name was not so lacking in the merit as to be susceptible to an anti-SLAPP motion. “The hallmark of a SLAPP suit is that it lacks merit, and is brought with the goals of obtaining an economic advantage over a citizen party by increasing the cost of litigation to the point that the citizen party's case will be weakened or abandoned, and of deterring future litigation.”
Copyrights / Right of Copyright Owner
Rights of Copyright Owner Not Necessarily Dependent on Formal Title
By Farah Bhatti
The U.S. Court of Appeals for the Second Circuit has held that the owner of a copy of a copyrighted software program can lawfully exercise the rights of §117(a) copyright “owner,” even without formal title to the copy. Krause v. TitleServ, Inc., No. 03-9303 (2d. Cir. Mar. 21, 2005) (Leval, J.).
Krause authored computer programs for TitleServ. When he worked for TitleServ, Krause left executable copies of the programs on its servers but “locked” the software to prevent TitleServ from modifying the source code. Without Krause’s permission, TitleServ “unlocked” the programs and modified the source code to fix bugs, to make changes to customer addresses and to keep the software functional. Krause sued for copyright infringement.
Section 117(a) of the Copyright Act allows the owner of a copy of a computer program to modify the program if doing so is “an essential step in the utilization of the computer program.” The Court found that TitleServ, which did not have formal title to its copy of the software, nevertheless qualified as an “owner” under §117(a) because it had paid Krause to develop the software (which was customized for it), had stored copies of the software on its servers and because Krause had not reserved the right to repossess copies of the software.
The Court also found TitleServ’s modifications were “essential” to the continued functioning of the software within the meaning of §117(a). The Court reached the same conclusion as to the addition of a new feature added by TitleServ to improve the functionality of the software. The Court reasoned the changes were “modest alterations,” affecting only TitleServ’s copies of the software and did not lessen Krause’s rights to “use, market, or otherwise reap the fruits of the copyrighted programs.”
Finally, the Court found that use of the software by TitleServ’s subsidiary was a continuation of the original use and not forbidden “use in another manner.”
Practice Note: Software companies have had good success using “shrinkwrap licenses” to keep “buyers” of their products from becoming §117(a) “owners.” Because of the unique facts of this case (including the finding that Krause failed to take the steps necessary to make TitleServ a licensee rather than an owner), it would be premature to characterize it as the opening salvo of an attack on that practice.
Collection of Magazines on CD-ROM Constitutes a Compilation under Copyright Law
By Ann Brose
Addressing the principal issues of the preclusive effect of the doctrine of collateral estoppel and privileged revisions under the Copyright Act, the U.S. Court of Appeals for the Second Circuit recently affirmed a lower court’s grant of summary judgment in favor of defendant organizations that created a CD-ROM compilation of previous issues of a magazine. Faulkner v. Mindscape, Inc., Nos. 04-0263-cv(L), 04-0388-cv(CON), 04-0265-cv(CON), 04-0475-cv(CON), 04-0318-cv(CON), 04-0481-cv(CON), 2005 U.S. App. LEXIS 3642 (2d. Cir. Mar. 4, 2005) (Winter, J.).
The numerous defendants, including the National Geographic Society and various other entities, were involved in the creation of a CD-ROM entitled “The Complete National Geographic” (CNG) which consists of all issues of the National Geographic Magazine (the magazine) published from its founding in 1888 to the present. Plaintiffs are freelance photographers and authors who had contributed photographs and writings to various issues of the magazine over the years. In several different actions, the plaintiffs filed suit against the defendants for copyright infringement in relation to the CNG, which consists of digital images of each issue of the magazine scanned two pages at a time. A viewer sees the pages exactly as they appeared in the print version with no changes to the original content, format or appearance including all text, photographs, graphics, advertising, credits and attributions. The issues of the magazine also appear chronologically with the first issue published appearing at the beginning of the first disk and the last appearing at the end of the last disk. The CNG includes brief introductory and conclusory materials in addition to a search engine that allows users to find stories and other various images and advertisements within it.
All of the cases were filed in or transferred to the Southern District of New York except for the suit filed by the plaintiff Greenberg which proceeded in a Florida district court (the Greenberg case). The Florida court granted the defendants summary judgment on the copyright claims. However, the Eleventh Circuit reversed the judgment, finding that the three components comprising the CNG—the introductory sequence, the replicas of the magazines, and the computer programs that stored and retrieved the images—were able to be copyrighted, and, therefore, the CNG was not a “revision” but was a new work which infringed the plaintiff’s copyrights. In the meantime, the New York district court granted summary judgment for the defendants on the copyright claims, holding that the CNG was a privileged revision under §201(c) of the Copyright Act, and, therefore, the defendants did not infringe the plaintiffs’ copyrights when publishing the underlying works in the CNG. The plaintiffs appealed to the Second Circuit, arguing that the Eleventh Circuit decision in Greenberg should serve as collateral estoppel and preclude the defendants from litigating their §201(c) argument.
However, in the intervening time between the Eleventh Circuit’s Greenberg decision and the Second Circuit’s consideration of this case, the U.S. Supreme Court, in its Tasini decision, ruled on the issue of privileged revisions, focusing on whether the underlying original works were presented in a particular database in the context of the original works. Because the Tasini approach significantly departed from the analysis in Greenberg, the Second Circuit believed the intervening change in the law rendered application of collateral estoppel inappropriate. Thus, applying Tasini, the Second Circuit held that because the original context of the magazines is intact in the CNG—using almost identical “selection, coordination and arrangement” of the underlying works as used in the original collective works—the CNG is a privileged revision and not a violation of §201(c).
Copyrights / Unprotected Expression
Arcade Game Maker Entitled to No Protection from Competitor’s Intentional Copying
By Linda Lamberson
The U.S. Court of Appeals for the Seventh Circuit has affirmed the denial of a preliminary injunction in a copyright case even as it observed that the defendant clearly set out to copy the plaintiff’s product. Incredible Technologies, Inc. v. Virtual Technologies, Inc., 400 F.3d 1007 (Seventh Cir. Mar. 15, 2005) (Evans, J.). The Court indicated success on the merits was unlikely because the plaintiff was seeking to protect generic and functional features of its product not protected under the copyright laws.
Incredible Technologies, makers of the Golden Tee video arcade game, sued Virtual Technologies (d/b/a Global VR) for copyright infringement over its competing video arcade game, PGA Golf Tour. Even though the Court found PGA Golf Tour uses the same control panel and “trackball” system “so that a Golden Tee player could play the new game with no appreciable leaning curve,” it affirmed the denial of the injunction on the grounds that “ideas—as opposed to their expression—are not eligible for copyright protection,” and, therefore, “protection does not extend to the game itself.” The court held that many of the elements of the Golden Tee video imagery were common to the game of golf and, therefore, lacked sufficient creativity under the scenes a faire doctrine to warrant copyright protection except against “virtually identical copying.” Further, Golden Tee’s trackball system and control panel were functional in nature and, therefore, accorded only limited copyright protection. The Court noted, “an item may be entirely original, but if the novel elements are functional, the item cannot be copyrighted.”
The Court went on to observe that the trackball system may have been eligible for patent protection, but without such protection, the most significant and similar elements of the two games were not at issue in this case.
Practice Note: As it is difficult to predict the manner in which a client’s intellectual property may be infringed, clients should consider investing in various ways to protect this property, including patent, copyright and trademark/trade dress protection.
Copyrights / Standing of Assignees to Sue
Assignees of Accrued Actions Have No Standing to Sue for Copyright Infringement
By Rania C. Sarkis
The U.S. Court of Appeals for the Ninth Circuit has held that an assignee of an accrued claim for copyright infringement who has no legal or beneficial interest in the copyright may not sue for infringement. Silvers v. Sony Pictures Entertainment, Inc., Case No. 01-56069 (9th Cir. Mar. 25, 2005) (en banc) (Graber, J.; dissents by Berzon, J. and Bea, J.).
Nancy Silvers wrote the script for The Other Woman as a work-for-hire for Frank and Bob Films II (FBF), which owns the copyright in the work. After Sony released Stepmom, FBF assigned Silvers any claims and causes of action against Sony with respect to infringement of the copyright in The Other Woman. FBH retained ownership of the copyright. Silvers sued Sony for copyright infringement alleging that Stepmom was substantially similar to The Other Woman. Sony moved to dismiss Silvers’ complaint for lack of standing. The district court denied Sony’s motion; and a panel of the Ninth Circuit affirmed; but the en banc the Ninth Circuit—in a 7-4 decision—reversed the district court.
The Ninth Circuit held that §501(b) of the Copyright Act confers the right to sue for copyright infringement on the “legal or beneficial owners of an exclusive right under copyright.” To sue for copyright infringement, the Court reasoned, a plaintiff must have at least one of the exclusive rights described in §106: (a) the right to reproduce the work; (b) the right to prepare derivative works; (c) the right to distribute copies of the work; (d) the right to perform the work publicly; (e) the right to display the work publicly or (f) the right to perform the work by means of digital audio transmission.
Although the statute does not expressly limit the right to sue to only beneficial or legal owners, the Ninth Circuit read the legislative history to convey Congress’s intent that the listing be exclusive.
Judge Berzon (joined by Reinhardt) dissented on the grounds that consistent with Congress’s intent, Silvers, as the original creator of The Other Woman, should be allowed to pursue the accrued claims assigned by FBH even if a complete stranger to the creative process could not. Judge Bea (joined by Kleinfeld) also dissented, arguing Congress never intended to strip owners of bare assignments of standing to sue under the Copyright Act.
