McDermott - Newsletters - IP Update, Vol. 11, No. 8, August 2008

Addressing the issue of inequitable conduct during patent prosecution, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s holding that the patentee’s alleged acts did not rise to the level of inequitable conduct. The court also affirmed the district court’s findings of validity and infringement. Eisai Co. Ltd. and Eisai, Inc., v. Dr. Reddy’s Labs. Ltd. and Dr. Reddy’s Labs. Inc, and Teva Pharms. USA, Inc., Case No. 07-1397, -1398 (Fed. Cir., July 21, 2008) (Rader, C. J.).

Eisai Co., Ltd. and Eisai, Inc. (Eisai) own a patent claiming drugs for the treatment of gastrointestinal disorders. Eisai filed a suit against Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc. (Dr. Reddy’s) and Teva Pharmaceuticals USA, Inc. (Teva) after they filed Abbreviated New Drug Applications to market generic versions. Dr. Reddy’s and Teva conceded infringement, but asserted that the patent is invalid due to obviousness and unenforceable for inequitable conduct.

The district court found the patent valid and enforceable on partial summary judgment. After a bench trial, the district court further found that the patent was enforceable because Dr. Reddy’s and Teva had failed to prove the allegations of inequitable conduct, and that Eisai had established that Dr. Reddy’s and Teva infringed. Dr. Reddy’s and Teva appealed the judgment of enforceability.

The Federal Circuit affirmed the finding of validity because the district court correctly determined that the patent was non-obvious over the proffered prior art, and it affirmed the finding that inequitable conduct was not established by clear and convincing evidence because the record did not show an intent to deceive the U.S. Patent and Trademark Office (USPTO).

Dr. Reddy’s and Teva alleged that Eisai misled the USPTO in five ways: failing to disclose Eisai’s co-pending application, which claimed the “ethyl homolog” of the drug; withholding rejections from that application’s prosecution that would have been applicable; failing to disclose a prior art patent; submitting a misleading declaration to the examiner; and concealing a prior art drug from the examiner. The district court rejected the fifth assertion on summary judgment.

The Court reviewed the district court’s findings of materiality and intent for clear error and its ultimate conclusion for an abuse of discretion. The Federal Circuit reiterated that inequitable conduct may take the form of an affirmative misrepresentation of material fact, a failure to disclose material information or the submission of false material information, but that in every case the communication or failure to communicate must be coupled with intent to deceive.

The Federal Circuit reviewed all allegations and, relying on the district court’s findings, affirmed the district court’s “thoughtful, thorough opinions.” In doing so, it affirmed that the ethyl homolog differed from the drug because Eisai’s scientists did not consider them “primarily in relation to each other” but considered the ethyl homolog separately patentable and, while disclosure of the co-pending ethyl homolog application would have been prudent, failure to disclose was not fatal because the materiality of the application was low and an obviousness-type double-patenting rejection could have been overcome by amending claims or filing a terminal disclaimer. The Court also affirmed that the record lacked any real suggestion, much less the clear and convincing evidence, of intent to deceive the USPTO.

The Court further affirmed that Eisai’s failure to disclose the co-pending application and the issued rejections did not rise to the level of inequitable conduct because there was insufficient proof of intent to deceive. In addition, it affirmed that the prior art patent was immaterial by definition because it was cumulative with the disclosed references, but even if the patent had been material, the lack of clear and convincing evidence of intent to deceive would have imposed an insurmountable bar to finding inequitable conduct.

The Court also affirmed that despite Dr. Reddy’s and Teva’s argument that the declaration Eisai submitted to overcome an obviousness rejection, demonstrating the drug’s superiority over the prior art compound, was misleading, the materiality of the ethyl homolog and the patent application claiming it was low, so Eisai did not commit inequitable conduct in failing to include them in the declaration because Eisai had no obligation to include additional, unnecessary data such as a comparison to the ethyl homolog.

Finally, the Court found that summary judgment was appropriate because Teva and Dr. Reddy’s presented neither direct evidence of deceptive intent to withhold a patent application for a prior art drug nor any evidence to support an inference of materiality since the strongest evidence—the comment of one Eisai insider that the similarity of Eisai’s drug and the prior art drug “bothers me”—was vague, subjective and insufficient to establish materiality, let alone intent.

Patents / Inequitable Conduct

Federal Circuit Removes District Court Judge Following Similar Action by Ninth Circuit
By John Gilmore, Ph.D.

The U.S. Court of Appeals for the Federal Circuit reversed a district court finding of inequitable conduct as lacking appreciation of the “materiality prong” and instructed the chief judge of the district court to reassign the case away from Judge M. Real, the second time in 10 days an appellate court had taken this unusual action in a matter pending before Judge Real. Research Corporation Technologies, Inc. v. Microsoft Corporation, Case No. 06-1275 (Fed. Cir., Aug. 1, 2008) (Rader, J.).

The case came before Judge Real after an illness resulted in a transfer from the originally assigned judge, who had conducted a Markman hearing and had granted a motion for partial summary judgment of infringement against Microsoft. Judge Real, without an opinion, reversed the prior summary judgment grant and granted Microsoft’s motions for summary judgment of non-infringement and invalidity. Then, at Microsoft’s request, the district court cancelled a jury trial and instead ordered a bench trial limited to the issue of unenforceability of the patents in suit. At that bench trial, Microsoft, which did not call any witnesses, argued for one hour. Research Corporation Technologies (RCT) called its inventors to testify on candor and good faith. However, the court barred expert testimony on the materiality prong of the inequitable conduct defense. Ruling from the bench, Judge Real held that the patents were unenforceable due to inequitable conduct and issued a cursory final order. RCT appealed.

While the appeal was pending, Microsoft moved for attorneys’ fees and amplification of the court’s findings. Judge Real granted the fee request, but did not amplify any of his findings of fact or conclusions of law.

The Federal Circuit reversed or vacated all of the district court’s holdings, i.e., on invalidity, non-infringement and unenforceability. As to the holding that RCT’s patents were unenforceable, the Federal Circuit found clear error. The court found that Judge Real misapplied the two-prong inequitable conduct test, completely ignoring the essential materiality element of that test in finding a non-prior-art document describing experiments performed by one of the inventors post application filing to be potentially material to inequitable conduct. As for the district court’s findings on the intent prong, Federal Circuit found clear error as the district court relied on an inventor’s testimony as to his hope for remuneration as the basis for a finding of intent to deceive the U.S. Patent and Trademark Office (USPTO). The Court reversed the holding on inequitable conduct, vacated the grant of attorneys’ fees and remanded the matter along with the earlier-decided motions for summary judgment on infringement.

On remand, however, the case will not go back to Judge Real. Applying Ninth Circuit law, the Federal Circuit instructed reassignment on the basis that there had been a pattern of error and finding that Judge Real may not easily and objectively reconsider his strongly expressed convictions in the case.

Practice Note: Ten days earlier, the U.S. Court of Appeals for the Ninth Circuit removed Judge Real from a class action based on abuse of discretion in certifying a class “without making any findings regarding Rule 23’s requirements for class certification.” Scott Bonlender et al. v. American Honda Motor Co. Inc., Case No. 07-55258 9th Cir., (July 22, 2008).

Patents / Patent Term Extension

Patent Term Extension Denied for Patent on Synergistic Combination Drug
By Judith L. Toffenetti, Ph.D.

The U.S. Patent and Trademark Office (USPTO) has now determined that Astra Zeneca’s patent, which claims the combination drug product Symbicort, is ineligible for patent term extension (PTE). Astra Zeneca had sought extension of the patent term under 35 U.S.C. § 156 based on the time for Food and Drug Administration (FDA) review of Symbicort, a drug which contains two active ingredients that purportedly act synergistically, under § 505 of the Federal Food, Drug and Cosmetic Act.

The Patent Office determined that the patent was ineligible for PTE based on the regulatory review period of Symbicort because Symbicort does not constitute the first permitted commercial marketing or use of the product and because Astra Zeneca’s application for PTE was not filed in a timely manner. The USPTO’s determination clarifies that PTE is not available for drug products containing two previously approved active ingredients even though the active ingredients act synergistically.

To qualify for PTE under 35 U.S.C. § 156, several requirements must be met, including the following: the term of the patent has not expired; the patent has not previously been extended under § 156; an application for PTE is submitted to the USPTO by the owner of record within 60 days of approval of the New Drug Application (NDA); the product was subject to regulatory review before being commercially marketed; and the NDA is the first commercial use of the product. Under the statute, a product is defined as a single active ingredient or a combination of active ingredients.

The FDA records showed that the two active ingredients that comprise Symbicort, formoterol fumarate dehydrate and budesonide, had each been separately approved for use or commercial marketing before the approval of Symbicort. As a result, the USPTO determined that the subject patent was ineligible for PTE.

Astra Zeneca, relying on language in the Manual of Patent Examining Procedure (MPEP), which states that “an approved product having two active ingredients, which are not shown to have a synergistic effect or have pharmacological interaction, will not be considered to have a single active ingredient made of the two active ingredients,” took the position that the synergistic activity of the previously approved active ingredients in Symbicort yielded a single new product, which should be eligible for PTE. The USPTO disagreed, explaining that synergy of active ingredients has no relevance in a determination of “first permitted commercial marketing or use of a product,” pointing specifically to § 156 (f)(2), where the term “product” means any new drug “as a single entity or in combination with another active ingredient.”

The USPTO also denied the PTE on the basis that Astra Zeneca had missed the filing deadline by one day; counsel simply miscounted.

Patents / Hatch-Waxman Act

No Case or Controversy Between Patentee and Generic Company in Hatch-Waxman Context
By David L. Romero

The U.S. Court of Appeals for the Federal Circuit vacated a district court decision regarding infringement and invalidity and held that the case no longer presented an Article III case or controversy upon which relief could be reasonably granted. Merck & Co. v. Apotex, Case No. 07-1362, (Fed. Cir., July 16, 2008) (Gajarsa, J.).

Apotex filed an Abbreviated New Drug Application (ANDA) for a generic version of Merck’s Fosomax^® drug for treating osteoporosis. As part of the process for obtaining Food and Drug Administration (FDA) approval for Fosomax^®, Merck listed 10 patents in the FDA’s Orange Book, including U.S. Patent No. 4,621,077, which covers alendronate sodium, the active ingredient. Six of the listed patents cover various formulations for the Fosomax^® tablets, while the remaining three patents are directed to dosing schedules. For the ’077 patent, Apotex filed a Paragraph III certification stating that Apotex would not market its generic drug until six months after the expiration of the patent. For Merck’s nine other Orange-Book-listed patents for Fosomax^®, Apotex filed a Paragraph IV certification stating that the patents were invalid or not infringed by Apotex’s generic drug. Merck then sued Apotex under the Hatch-Waxman Act for infringement of the nine Orange-Book-listed patents for which Apotex filed a Paragraph IV certification. Upon Merck’s filing of this infringement action, the FDA stayed approval of Apotex’s ANDA for 30 months as required by Act.

Following institution of Merck’s suit, the FDA stayed Apotex’s ANDA for 30 months as required by Hatch-Waxman, allowing Apotex an entry to the generic market on the drug no earlier than August 24, 2008. Following discovery, Merck granted Apotex a covenant not to sue on the patents-in-suit. Merck then moved to dismiss on the grounds that there was no longer a case or controversy between the parties. Apotex in response moved to amend its complaint to include a claim for Sherman Act violations. The district court granted Merck’s motion and denied Apotex’s motion. Apotex appealed.

Importantly, Apotex was not the first Paragraph IV ANDA filer with respect to Fosomax^®. During pendency of the appeal, Teva Pharmaceuticals obtained FDA approval for its own version of generic Fosomax^® and began marketing the drug on February 6, 2008. Because it had been the first generic company to file a paragraph IV ANDA on the generic version, Teva was entitled to a 180-day exclusivity period in marketing the drug. In its appeal, Apotex asserted that it suffered damages because in granting Merck’s motion, the court had precluded Apotex from entering the market on February 6, 2008, and it could only do so following Teva’s 180 days of regulatory exclusivity.

On appeal, the Federal Circuit concluded that the injury-in-fact alleged by Apotex, which was the delay in marketing generic Fosomax^®, was “not fairly traceable” to Merck in view of the covenant not to sue. Relying heavily on its decision in Caraco, the panel noted that “depending on the circumstances, a justiciable Article III controversy may continue to exist between a patentee drug company and a Paragraph IV ANDA filer in the context of the Hatch-Waxman Act even after the patentee drug company has granted the Paragraph IV ANDA filer a covenant not to sue.” In this case, however, the Federal Circuit found two factual distinctions from Caraco. First, the FDA decided to treat the 30-month stay on Apotex’s ANDA as dissolved once the district court dismissed this case. Second, Teva, the first Paragraph IV filer, triggered its 180-day exclusivity period under the Act by marketing its generic drug on or about February 6, 2008. As a result, the Court concluded, Apotex no longer suffers a delay in entering the market under either the 30-month stay provision or the 180-day exclusivity provision that is traceable to Merck and redressible by a court judgment. The Federal Circuit also affirmed the district court’s denial of Apotex’s motion to amend its complaint to include its antitrust counterclaim. Applying regional (Third Circuit) law, the panel agreed with the district court that Apotex “failed to allege facts sufficient to support its antitrust counterclaim, and that Apotex’s antitrust allegations were ‘bald and conclusory.’”

Patents / 271(e)(1) Safe Harbor

How Safe Is The Safe Harbor?
By Atabak Royaee, Ph.D and Astrid R. Spain

Addressing the question of whether §271(e)(1) immunizes the manufacture, marketing or sale of a device used in the development of Food and Drug Administration (FDA) regulatory submissions, but is not itself subject to the FDA pre-market approval process, the Federal Circuit held that being subject to FDA pre-market approval is a prerequisite for invoking the safe harbor provided by §271(e)(1). Proveris Scientific Corp. v. Innovasystems, Inc., Case No. 07-1428 (Fed. Cir. Aug. 5, 2008) (Schall, A.).

Passed as part of the Hatch-Waxman Act, 35 U.S.C. §271(e)(1) provides a “safe harbor” from claims of patent infringement based on activities reasonably related to the pursuit of FDA approval of drug products. Proveris Scientific owns a patent directed to a system and apparatus for characterizing aerosol sprays used in drug delivery devices, such as nasal spray pumps and inhalers. Innovasystems makes and sells a device that, although not itself subject to FDA approval, is used in connection with FDA regulatory submissions as it measures the physical parameters of aerosol sprays used in nasal drug delivery devices. Proveris filed suit against Innovasystems, alleging infringement. Innovasystems invoked the safe harbor provision of §271(e)(1), arguing that its activities are immunized because its device is used solely for the development and submission of information to the FDA. At trial, the district court ruled as a matter of law that Innovasystems could not avail itself of §271(e)(1).

On appeal, the Federal Circuit relied heavily on the Supreme Court’s examination of the policy considerations leading to the enactment of the Hatch-Waxman Act in Eli Lilly. In Eli Lilly, the Supreme Court noted that §§ 156 and 271(e)(1) were enacted in order to eliminate two unintended distortions of the effective patent term resulting from pre-market approval required of certain products pursuant to the Federal Food, Drug and Cosmetic Act (FDCA). The first distortion was the reduction of effective patent life caused by the FDA pre-market approval process, while the second distortion was the de facto extension of effective patent life at the end of the patent term—also caused by the FDA pre-market approval process. While the first distortion adversely affected patentees, the Federal Circuit noted that the second distortion, which adversely affected those seeking FDA approval in order to enter the market to compete with patentees, was relevant to the case before it. In this regard, the Federal Circuit noted that, since Innovasystems’ device is not subject to FDA pre-market approval and therefore faces no regulatory barriers to market entry upon patent expiration, Innovasystems is not a party that, prior to enactment of the Hatch-Waxman Act, could be said to have been adversely affected by the second distortion. For this reason, the Court concluded that Innovasystems cannot avail itself of the safe harbor of §271(e)(1). At the same time, the Court further noted that, because Proveris’ patented product is not subject to a required FDCA approval process, it is not eligible for the benefit of the patent term extension afforded by § 156(f). Thus, Proveris is not a party that, prior to enactment of the Act, could be said to have been adversely affected by the first distortion. Overall, the Court noted that its result achieves the same kind of symmetry achieved in Eli Lilly, where the Supreme Court spoke of its interpreting the phrase “patented invention” in §271(e)(1) to include all products listed in §156(f) as producing a “perfect ‘product’ fit” between the two provisions.

Patents / Inter Partes Reexamination

For Purposes of Inter Partes Reexamination “Original Application” Means First Filed Applications, Continuations or Divisionals
By Kenneth L. Cage

In a decision addressing the jurisdiction of the U.S. Patent and Trademark Office (USPTO) to institute inter partes reexamination proceedings, the U.S. Court of Appeals for the Federal Circuit held that inter partes reexamination is available for “any patent that issues from an original application”—i.e., any “utility, plant and design applications, including first filed applications, continuations, divisionals continuations-in-part, continued prosecution applications and national stage phase of international applications” - filed in the United States on or after November 29, 1999. Cooper Technologies Co., v. Jon W. Dudas, Director, USPTO and Thomas & Betts Corp., Case No. 08-1130, (Fed. Cir., Aug. 19, 2008) (Linn, J.).

Cooper Technologies filed a suit against Thomas & Betts (T&B), alleging infringement of U.S. Patent No. 6,984,791 (which matured from the ’683 application filed on April 14, 2003) and which claimed priority back to June 20, 1994 through a string of ancestor applications. T&B filed a request for inter partes reexamination of the ’791 patent. The request was granted and the USPTO issued an office action concluding that claims 1-30 were invalid. Cooper then filed a petition to terminate the inter partes reexamination proceeding, arguing that the ’791 patent did not issue from an “original application” (as that phrase is used in the American Inventor’s Protection Act of 1999—AIPA) filed on or after November 29, 1999.

In the AIPA, Congress created the inter partes reexamination procedure, stating that:

“[T]his subtitle and the amendments made by this subtitle shall take effect on the date of the enactment of this Act [November 29, 1999] and shall apply to any patent that issues from an original application filed in the United States on or after that date.”

The USPTO’s Official Gazette “notice” interpreted the phrase “original application” as follows:

“The phrase “original application” is interpreted to encompass utility, plant and design applications, including first filed applications, continuations, divisionals, continuations-in-part, continued prosecution applications (CPAs) and the stage of international applications. … Therefore, the Optional Inter Partes Reexamination Procedure is applicable to patents which issue from all applications (except for reissues) filed on or after November 29, 1999. …”

After the USPTO denied the petition to terminate, Cooper sought review of that decision in district court with T&B appearing as an intervener. Cooper argued that the PTO’s interpretation of the term “original application” was arbitrary, capricious and contrary to law and that the USPTO implementation constitutes improper rule making. Cooper sought declaratory relief, as well as an injunction directing the USPTO from undertaking similar inter partes reexaminations.

The district court concluded that the USPTO had correctly interpreted the term “original application” to be any application filed on or after November 29, 1999, and that its notice was not arbitrary, capricious, an abuse of discretion or otherwise not in accordance in the law.

The Federal Circuit affirmed, concluding that the USPTO’s interpretation was reasonable and entitled to Chevron deference because the USPTO is charged with administering statutory provisions relating to “the conduct of proceedings in the Office.” The Court then proceeded to review the USPTO position using the two-step Chevron analysis: whether Congress had directly spoken to the precise issue and if not, whether the agency’s interpretation is based on a permissible construction of the phrase at issue.

Contrary to the district court’s finding, the Federal Circuit found that Congress had not spoken directly to the precise phrase in issue, in that the term “original application” has no settled meaning either in the Manual of Patent Examining Procedure (MPEP) or Federal Circuit case authority. Turning to the second step of the Chevron analysis, the Court gave the Patent Office’s construction “particular weight” and concluded that the agency’s interpretation was permissible. The Court noted that the fact that Congress did not amend the term “original application” when it modified the AIPA in 2002 suggests that it agreed with the Patent Office’s interpretation—as the Court presumed that Congress had knowledge of the Patent Office’s interpretation.

Practice Note: A party challenging the Patent Office’s interpretation of a statutory phrase has a heavy burden to establish that the interpretation was unreasonable or contrary to the Congressional intent.

Patents / Litigation

Thinking About Enforcing an Arbitration Clause? He Who Hesitates Is Lost
By Leigh J. Martinson

In a Summary Order, the United States Court of Appeals for the Second Circuit refused to allow Nokia to enforce its right to arbitrate claims involving an alleged license agreement with InterDigital, basing its decision partly on the fact that by waiting three and a half years, Nokia waived its arbitration right. Nokia Corporation v. InterDigital Inc., InterDigital Communications, LLC and InterDigital Technology Corp., Case No. 08-1642 (2nd Cir., July 31, 2008) (non-precedential).

In the ongoing saga between Nokia and InterDigital, the Court of Appeals for the Second Circuit dealt Nokia a setback by reversing the district court’s grant of a motion for a preliminary injunction. The now defunct preliminary injunction had enjoined InterDigital from participating in the investigation of Nokia being conducted by the International Trade Commission (ITC) and required InterDigital to submit to arbitration despite the long litigation history between the parties.

Nokia filed suit against InterDigital on January 2005 seeking a declaration that it did not infringe any valid claim InterDigital’s 3G patents. Nokia also sought a determination as to which InterDigital patents were 3G patents according to an agreement between them. Nokia amended its complaint in January 2007 and again asserted that it had a license to the 3G patents.

About a month before Nokia amended its complaint, InterDigital filed an ITC action. The ITC complaint included the patents that were at issue in the district court action.

Roughly 34 months after the filing of the district court action, Nokia moved for a mandatory stay in that preceding, citing an overlap of issues in the district court action and the ITC. Still later, Nokia filed a motion to terminate or, in the alternative, to stay the ITC proceeding, pending arbitration under the parties prior agreement. This was the first time that Nokia claimed that InterDigital’s claims should be submitted to arbitration. The district court granted the motion to stay pending the outcome of the ITC investigation. After the district court granted Nokia’s motion for a preliminary injunction enjoining InterDigital from proceeding at the ITC, InterDigital appealed.

The Second Circuit reversed, determining that Nokia waived its right to arbitration. In reaching that conclusion, the Court considered the time elapsed from when litigation was commenced until the request for arbitration; the amount of litigation to date, including motion practice and discovery; and proof of prejudice.

The court found that the three and half years of proceedings provided evidence of Nokia’s desire and successful efforts to litigate, rather than arbitrate, claims involving the 3G patents.

Further, the Court had little trouble determining that InterDigital was prejudiced by Nokia’s conduct, in part because Nokia was the first to bring suit and the parties thereafter engaged in considerable discovery. The Court stated that allowing Nokia to prevail in its arbitration strategy and force InterDigital into yet another forum (i.e., arbitration) after it initiated the district court proceeding would cause InterDigital to suffer prejudice in the form of an ever-increasing delay in the resolution of the multiple disputes between the parties in the district court and at the ITC. In the end, the Court concluded that Nokia has waived its right to arbitrate through its repeated, intentional invocation of judicial process to resolve questions about the scope of the patents at issue and the applicability of the license established by the agreement to these patents.

Patents / Laches

Inventorship Claim to Laser Vision Correction Technology Barred by Laches
By Philip Canelli

The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s grant of summary judgment that a claim of inventorship was barred by laches and that state law claims of unjust enrichment and fraud were barred by the applicable statute of limitations. Serdarevic v. Advanced Medical Optics, Inc., Case No. 08-1075 (Fed. Cir., July 16, 2008) (Linn, J.).

The case involved Olivia N. Serdarevic, M.D. (Serdarevic), who performed her ophthalmic residency training at Columbia Presbyterian Medical Center from 1979 to 1982. While training at Columbia, Serdarevic claimed that she conceived of the technology behind laser vision correction that two prominent attending physicians had patented without acknowledging her as the inventor or co-inventor. The six patents-at-issue were granted between 1987 and 1998 and were assigned to the defendant.

In 2006, Serdarevic brought suit against the current owner of the patents and the named inventors, seeking correction of inventorship and alleging state law claims of unjust enrichment and fraud against the named inventors. The district court granted the defendants’ motions for summary judgment on the presumption of laches based on the delay of greater than six years before bringing the inventorship claims and upon the applicable state statutes of limitation.

Serdarevic challenged the district court’s laches determination on three grounds: that the presumption of laches should not have applied because one of the patents had undergone reexamination proceedings; that she presented sufficient evidence to rebut the presumption; and that the defendants’ unclean hands precluded them from relying on the laches defense.

According to the Federal Circuit, however, the issuance of a reexamination certificate does not automatically reset the six-year clock for the presumption of laches. In addition, the Court held that the mere possibility that the claims of a patent may be amended does not excuse a delay in bringing an inventorship suit. Therefore, the Court affirmed the district court’s application of the presumption of laches.

The Federal Circuit also held that, because there was an absence of evidence that the delay was reasonable or excusable, the plaintiff failed to rebut the presumption of laches. Specifically, the Court held that Serdarevic’s assertions of unfamiliarity with the U.S. patent system, an inability to obtain willing legal counsel and efforts to license one’s inventorship rights do not suffice to rebut the presumption that the delay was unreasonable or inexcusable.

The Court further held that, in the context of an inventorship action, a plaintiff relying on the unclean hands doctrine to defeat a defense of laches must show not only that the defendant engaged in egregious misconduct, but also that the defendant’s misconduct was responsible for the plaintiff’s delay in bringing suit. In this case, the Court held that Serdarevic did not identify any instances in which the defendants’ alleged misconduct was responsible for her delay in bringing her claim. Therefore, the Court affirmed the district court’s finding that the laches defense was not precluded by unclean hands. The Court made similar finding on the state law issues, noting the delay from 1998 to 2006 was greater than the applicable six-year statute of limitations. For the same reasons as with the laches claim, there was likewise no reason to equitably toll the statute of limitations. Therefore, the Court affirmed the dismissal of the state law claims on statute of limitations grounds.

Patents / Claim Construction

Federal Circuit Avoids “Nonsensical Result”
By Todd Hales

The U.S. Court of Appeals for the Federal Circuit, finding that a “nonsensical result” would be effected by construing the claim term “syllabic elements” as proposed by patentee, affirmed the district court’s claim construction and subsequent grant of summary judgment of non-infringement in a consolidated suit that included a total of 56 defendants. Board of Regents of the Univ. of Tex. v. BENQ Am. Corp., Case No. 07-1388 (Fed. Cir., July 24, 2008) (Prost, J.).

The patent in suit is directed to methods and apparatus for transmitting a word (or words) using a standard touch-tone telephone by pressing a single key on the telephone that corresponds to a letter. The patent specification states that a sequence of keys are compared against a vocabulary of possible entries and the vocabulary may include either words or “syllabic elements” that can be combined to form a word. The dispute, both at the district court and on appeal, was the construction of a step in the claim that recites, “matching said binary code with one or more pre-programmed codes, each pre-programmed code being representative of a syllabic element.”

The district court construed the term “syllabic element” to mean “a one-syllable group that either comprises a word or can be combined with other one-syllable letter groups to form a word. A syllabic element may be as small as a single letter.” Despite contentions by the Board of Regents that the term should be more broadly construed to encompass any word or part of a word, the Federal Circuit agreed with the district court’s construction in its de novo review.

The Federal Circuit explained that the language of the claims provided “little guidance,” but that the specification repeatedly distinguished between a “word” and a “syllabic element,” suggesting that “the terms ‘word’ and ‘syllabic element’ are not coextensive in scope.” The court also looked to the prosecution history where a predecessor to the claim in suit was rejected as anticipated by a prior art (Rabiner) reference which taught processing a received signal “to identify the word or words of a request.” Two pending dependent claims recited that the alphabetic character string “one or more syllabic elements which combine to form a word” and that the character string comprised “a word.” To overcome the prior art, the independent claim was amended to recite “syllabic element” instead of the original “alphabetic character string” language, and both dependent claims were canceled. Based on these amendments and arguments presented to the examiner, the Federal Circuit found ample support for limiting the construction of “syllabic element” to a one-syllable letter group. The Court also found that the language “each pre-programmed code being representative of a syllabic element” required that the entire vocabulary consist solely of one-syllable letter groups. Because it was undisputed that the accused devices do not include vocabularies that consist solely of one-syllable letter groups, the Court concluded that the accused devices do not infringe the claim.

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Patents / Preliminary Injunction

Preliminary Injunction Receives a Shot in the Arm
By Monique Morneault

The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s denial of Novo Nordisk’s motion to preliminarily enjoin Sanofi-Aventis from “making, using, selling, offering to sell and/or import” Sanofi’s SoloStar product. Novo Nordisk A/S v. Sanofi-Aventis U.S. LLC, Sanofi-Aventis Deutschland GmbH and Sanofi-Aventis, Case No. 07-3206 (Fed. Cir., July 30, 2008) (Prost, J.).

Novo Nordisk sued Sanofi-Aventis alleging that Sanofi-Aventis, through its sale of its SoloStar insulin delivery device, infringed one or more claims of its patent directed to an insulin injection pen requiring less force to inject the insulin medication. Novo Nordisk moved to preliminarily enjoin Sanofi-Aventis and Sanofi France from making, using, selling, offering to sell and/or importing SoloStar.

The district court denied Novo Nordisk’s motion for preliminary injunction because Novo Nordisk failed to show a reasonable likelihood of success on the merits. Specifically, the district court concluded that Novo Nordisk had not shown that Sanofi-Aventis’ asserted defense—that the Sanofi SoloStar product did not infringe the ’278 patent because it lacks a direct gearing and a non-rotatable piston rod—lacks substantial merit. In support of its decision, the district court reasoned that Sanofi-Aventis raised substantial questions concerning the specification and whether the Novo Nordisk invention required direct gearing and a non-rotatable piston rod as part of every embodiment. Novo Nordisk appealed.

The Federal Circuit held that the district court did not abuse its discretion by finding that substantial questions precluded a finding that Novo Nordisk has a likelihood of success on the merits. According to the Court, the district court found that a question exists regarding whether “the very character of the invention requires a direct gearing and a non-rotatable piston rod.” Novo Nordisk argued the claims do not explicitly include these elements, while Sanofi-Aventis countered that the specification is directed to an invention centering on the gear box and non-rotatable piston rod. It held that the invention could not function without these elements. Novo Nordisk argued that the district court erred in its interpretation of the claims and required elements. The Court, however, read the district court’s opinion as addressing whether Sanofi-Aventis raised substantial questions such that the preliminary injunction failed on its merits. The Court noted “[a]t the preliminary injunction stage, however, it is irrelevant whether this case presents greater issues of claim construction or validity—the existence of one or both of these issues is sufficient to justify the district court’s decision to deny a preliminary injunction.”

Patents / Obviousness

Board Decision Won’t Be Overturned Based Simply on Plausible Alternative Finding
By Alissa Misun

The U.S. Court of Appeals for the Federal Circuit affirmed the United States Patent and Trademark Office Board of Patent Appeals and Interferences’ (the Board’s) rejection of all claims in a patent application based on obviousness, stating that it would not overturn a decision simply because the Board found one way when it could have plausibly found in the alternative. In re Stauffer, Case No. 07-1445 (Fed. Cir., July 24, 2008) (Ward J.).

David W. Stauffer and Joseph P. Hoffbeck (collectively SEI) filed an application generally directed to a device for printing caller ID information associated with a telephone call without user intervention. SEI claimed the invention was an improvement over the prior art because the message taker only needed to use the printed call records to record relevant message information quickly and easily.

The examiner rejected the claims based on three prior art references. SEI appealed the rejection to the Board. On September 25, 2006, the Board affirmed the examiner’s final rejection of the claims as obvious in view of prior art. On March 30, 2007, in a decision on request for rehearing, the Board declined to modify the decision on appeal. SEI appealed to the Federal Circuit.

The Court reviewed the Board’s legal determination without deference and the underlying factual findings for substantial evidence, which is any evidence that a reasonable person might accept as adequate to support a conclusion. The Court noted that, where two different inconsistent conclusions may reasonably be drawn from evidence in the record, an agency’s decision to favor one conclusion over the other is the epitome of a decision that must be sustained upon review for substantial evidence. The Court found there was substantial evidence to support the Board’s ruling that the application was obvious in view of the prior art. Therefore, the Court determined that it would not overturn a plausible conclusion by the Board simply because the Board could have arrived at an alternative conclusion.

Practice Note: Under 35 U.S.C. §145, an applicant dissatisfied with the decision of the Board in an appeal may seek remedy by civil action against the Director of the U.S. Patent and Trademark Office (USPTO) in the United States District Court for the District of Columbia. The district court may determine that the applicant is entitled to a patent. An action under §145 allows the applicant to present additional evidence and bolster the record. Thus, this may be an avenue to consider before an appeal to the Federal Circuit.

Patents / Licenses

Fifth Circuit Finds License Irrevocable Even in the Face of a Material Breach
By Debra L. Dennett

The U.S. Court of Appeals for the Fifth Circuit found an irrevocable license to be truly irrevocable, regardless of the licensee’s material breach in attempting to impermissibly sublicense. Nano-Proprietary Inc. v. Canon Inc. et al., Case No. 07-50540 (5^th Cir., July 25, 2008) (Benavides, J.).

In December 1998, Nano-Proprietary Inc. granted Canon a “fully paid-up, worldwide, royalty-free, irrevocable, perpetual, nonexclusive license (without the right to sublicense)” to Nano’s field emission display (FED) patents, relevant to flat-panel television technologies, in exchange for a one-time lump-sum payment. Some six months later, Canon entered a joint development agreement with Toshiba that eventually led to the formation of a joint venture (SED, Inc.) between Canon and Toshiba to develop technology using the FED patents. Under the terms of the joint venture agreement, Canon’s shares had to exceed Toshiba’s shares by a single share, a condition that the district court found to be “a corporate fiction designed for the sole purpose of evading Canon’s contractual obligations.” The district court found that SED was not a subsidiary of Canon and SED’s use of the licensed patents was an impermissible sublicense constituting a material breach of Canon’s license. Thus, the court found, Nano was entitled to terminate the license notwithstanding the license’s “perpetual” and “irrevocable” language.

The Fifth Circuit agreed that Canon materially breached the terms of the license. At the same time, while noting disagreement among leading licensing treaties on the issue, the Fifth Circuit determined that to permit revocation of a “perpetual” and “irrevocable” license would contravene the established rules of contract interpretation. Thus, while Nano could sue Canon for any available form of relief, termination of the license was not an option. Nano’s claim for damages was held to be too speculative, based as it was on the value of a prospective license to SED.

Practice Note: Before including the terms “perpetual” and “irrevocable” in a license grant, licensors would be wise to remember that such terms may mean a truly permanent relationship with very limited options should the association turn sour. Licensors may want to consider a liquidated damages clause to protect against a material breach, but uncertain damages.

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Patents / Infringement

Court Remands Ambiguous Consent Ruling in Patent Case
By Sarah Simon

Addressing whether a consent judgment entered by the district court was ambiguous, the U.S. Court of Appeals for the Federal Circuit vacated the ruling of the lower court and remanded the case for clarification. G. David Jang M.D. v. Boston Scientific Corp. and Scimed Life Systems, Inc., Case No. 07-1385 (Fed. Cir., July 15, 2008) (Dyk, J.).

Plaintiff Dr. G. Jang, an inventor of intravascular stents (tube shaped mesh devices used to treat certain forms of cardiac disease), sued defendants Boston Scientific and Scimed Life Systems for patent infringement and breach of contract. Jang alleged that Boston Scientific and Scimed had breached an assignment agreement by failing to make required payments on two stent patents. Jang claimed that models of intravascular stents sold by the defendants were “covered by” the patents assigned to them and therefore Jang was entitled to an additional $100 million payment under the assignment agreement. Both defendants claimed that the various stent designs they sold did not use the patents.

The district court issued a claim construction, construing the contested terms. Based on the claim construction, the parties entered a stipulation agreeing that under the district court’s claim construction Jang could not prove that the accused products infringed the asserted patents. The district court signed a proposed consent judgment drafted by the parties that incorporated two prior partial summary judgment rulings into a final judgment and granted declaratory relief that the disputed angioplasty patents were not within the scope of Jang’s assignment. Jang appealed the district court’s claim construction.

The Federal Circuit examined the lower court’s consent judgment and found it suffered from two ambiguities. First, the Court was unable to determine which of the lower court’s claim construction rulings would actually affect the issue of infringement, due to the sparse record and lack of any explanation as to which constructions would support a claim of infringement. Article III does not permit the courts to resolve issues when it is not clear that the resolution of the question would resolve a controversy between interested parties. Secondly, the Court determined that the stipulated judgment provided no context with respect to how the disputed claim construction rulings relate to the accused products, leaving the Court without a proper context for accurate claim construction. As a result, the Court remanded the case to the district court for clarification, both to avoid rendering an advisory opinion as to claim construction issues that would not actually affect the infringement controversy between the parties and to receive a better context for claim construction.

Patents / Prosecution

USPTO Warns Applicants of Outsourcing Patent Application Preparation
By Babak Akhlaghi

On July 23, 2008, the United States Patent & Trademark Office (USPTO) published a notice in the Federal Register, stating that it may be illegal to outsource invention information to a foreign country for the purposes of preparing a patent application to be filed in the United States. In the notice, the USPTO reminded applicants and registered patent practitioners that exporting subject matter abroad in compliance with a valid foreign filing license is limited only to preparing, filing and prosecuting a foreign patent application and not to preparing, filing and prosecuting a U.S. patent application. As such, the USPTO advised applicants wishing to export discoveries in the United States for purposes of preparing U.S. patent applications to contact the Bureau of Industry and Security at the Department of Commerce for an appropriate clearance.

The notice appears to be in response to the USPTO’s recent awareness that a number corporations within the United States outsource their patent drafting work. In particular, some corporations have recently started to outsource application work to foreign countries, such as India. The reason is simply that the cost associated with preparing a patent application in India is much less than the cost associated with preparing the same application in the United States. Statistically, the cost of preparing a patent application in India averages about $2,000, whereas the cost to prepare the same application in the United States ranges from about $8,000 to $15,000. While it may be more cost-effective for corporations to have their patent applications drafted abroad, the USPTO’s notice hints at ending this practice.

Practice Note: Clients contemplating outsourcing patent preparation should not only be aware of possible quality control issues attendant to patent applications drafted abroad, but the possibility of a future enforceability issue as well.

Trademarks / Declaratory Judgment

MedImmune Declaratory Judgment Standard for Patents Applies to Trademarks as Well
By Tiffini (Smith) Hines

Addressing the issue of the existence of a case or controversy in a threatened trademark infringement matter, the U.S. Court of Appeals for the Tenth Circuit held that administrative actions at the Trademark Trial and Appeal Board (TTAB) by the trademark owner were a sufficient predicate to meet the case or controversy requirement for declaratory judgment relief. Surefoot LC v. Sure Foot Corp., Case No. 06-4294 (10th Cir., July 7, 2008) (Gorsuch, J.).

The defendant, Sure Foot Corp. (Sure Foot ND), is a corporation located in North Dakota and is in the business of manufacturing and selling shoe traction products as well as shoe laces. The plaintiff, Surefoot LC (Surefoot UT), is a company based in Utah and is in the business of manufacturing and selling custom-fit ski boots and ski boot orthotics. Sure Foot ND started doing business under the name Sure Foot in 1985. Surefoot UT started doing business under that brand in 1994. Sure Foot ND sent a series of cease-and-desist letters to Surefoot UT in 1998. During 1998 the parties were in settlement negotiations. In 2002 Sure Foot ND initiated a cancellation proceeding before the Trademark Trial and Appeal Board to cancel Surefoot UT’s registration for “Surefoot.” Further, from mid-2005 to mid-2006, Sure Foot ND filed oppositions against of three trademark applications that were filed by Surefoot UT. In July 2006 Surefoot ND filed a declaratory judgment action in federal district court.

The trial court dismissed the action, finding no threat of imminent harm and further that Sure Foot ND’s intervening administrative actions before TTAB do not give rise to “any reasonable basis [for Surefoot UT] to fear imminent litigation.” Surefoot UT appealed.

The 10th Circuit, quoting from the Supreme Court decision in MedImmune v. Genentech, a decision that was issued after the district court’s decision here, noted that while the jurisdictional basis for a declaratory judgment suit must be “definite and concrete, touching the legal relations of the parties having adverse legal interests [and the issue must be] real and substantial [and] admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts,” it requires no greater showing than is required by Article III of the Constitution, which does not require a party to take law-breaking steps before a declaratory suit can be filed. Specifically, the MedImmune Court found the “reasonable apprehension of suit” test, as applied by the Federal Circuit in the patent context, to be overly stringent. (See IP Update, Vol. 10, No. 1. )

On the facts of this case, the 10th Circuit held that Sure Foot ND had made clear that it believed Surefoot UT’s use of the “Surefoot” mark causes consumer confusion in the market and therefore infringes Sure Foot ND’s trademark rights. The court also noted that Sure Foot ND had not only threatened litigation against Surefoot UT, it had filed cancellation and opposition proceedings against Surefoot UT’s trademark applications as well. Thus, the Court found that there was a definite and concrete dispute between the parties to support the claim for declaratory judgment relief and remanded the case to the district court, noting that even given the existence of a definite and concrete dispute, it remains within the discretion of the district court to determine whether to consider Surefoot UT’s claims.

Practice Note: The 10th Circuit decision extends the Supreme Court’s rejection of the “reasonable apprehension of litigation” test to trademarks (as well as patents).

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Trademarks / Federal Jurisdiction

Fifth Circuit Holds Federal Jurisdiction Is Not Automatic in Malpractice Action Arising from Federal Trademark Suit
By Rita W. Siamas

Reviving Robin Singh’s hopes that his company TestMasters may prevail in a malpractice claim against its former trademark attorney, a three-judge panel for the U.S. Court of Appeals for the Fifth Circuit recently vacated a summary judgment win for Duane Morris, LLP and one of its partners, Richard Redano, holding that the district court lacked subject matter jurisdiction to hear the state law malpractice claim because it did not arise under federal trademark law. Singh v. Duane Morris, Case No. 07-20321 (5th Cir., July 30, 2008) (Smith, J.).

The underlying trademark infringement action involved a dispute over the use of the name “Testmaster” between two companies offering Law School Admissions Test (LSAT) preparation services. A Texas-based company, Test Masters Educational Services, Inc., brought a federal trademark infringement action against Singh’s California-based company TestMasters. After a five-day trial, a jury determined that Singh’s “TestMasters” mark had acquired secondary meaning. On appeal, however, the Court of Appeals reversed, holding that Singh had presented insufficient evidence to establish secondary meaning. (See IP Update, Vol. 11, No. 5, Three Strikes at Secondary Meaning—And You're Out !)

Thereafter, Singh filed a malpractice suit against Duane Morris and Redano in Texas state court, claiming that Redano had mishandled the representation by failing to introduce available evidence at trial that would have shown the existence of secondary meaning. Redano removed the malpractice action to federal court, claiming that its outcome depended on resolving questions of federal trademark law. The district court denied Singh’s motion to remand the action to state court, concluding that it possessed subject matter jurisdiction over the action. Ultimately, the district court granted Redano’s motion for summary judgment in part and dismissed Singh’s malpractice claims.

On July 30, however, a three-judge panel of the Court of Appeals vacated the district court’s grant of summary judgment and dismissed the case for lack of jurisdiction, holding that a state-law malpractice claim does not arise under federal law merely because the alleged malpractice occurred in a prior federal trademark suit. The court stated, “This is not a case in which the federal issue requires resolution of an important question of law.” Rather, the court noted, “the federal issue is predominantly one of fact—whether Singh had sufficient evidence that his trademark had acquired secondary meaning.” The court noted that while the issue was “obviously significant to Singh’s claim,” the issue “does not require resort to the experience, solicitude, and hope of uniformity that a federal forum offers.” Singh plans to refile the malpractice action in state court.

Copyright / Compilations

Identical Use of Permissible Copyrighted Work Privileged in Collective Work
By Jeremy T. Elman

The U.S. Court of Appeals for the Eleventh Circuit, in a case destined to be widely cited, held that copyrighted work can be reproduced in a collective work if it is a work that collectively uses material originally published with permission it and uses the identical selection, coordination and arrangement of the work as in the original work. Greenberg v. National Geographic Society, 2008 U.S. App. LEXIS 13832 (June 30, 2008).

Appellant National Geographic Society is a nonprofit scientific and educational organization that has published a monthly magazine since 1888. Appellee Jerry Greenberg is a freelance photographer, some of whose photographs were published in four issues of the National Geographic Magazine, specifically the January 1962, February 1968, May 1971 and July 1990 issues. Greenberg regained, after publication, ownership of the copyrights he originally assigned to National Geographic.

In 1997, National Geographic produced The Complete National Geographic (CNG), a 30-disc CD-ROM set containing each monthly issue of the National Geographic Magazine—roughly 1,200 issues of the publication. In addition, the CNG includes a short opening montage and a computer program that allows users to search the CNG, zoom into particular pages and print.

Greenberg sued National Geographic for including his four copyrighted images. The district court granted summary judgment to National Geographic, holding that because the CNG constituted a “revision” of the print issues of the magazine, the reproduction of Greenberg’s photographs in the CNG was privileged under 17 U.S.C. § 201(c) of the Copyright Act. However, an Eleventh Circuit panel reversed and remanded, and a jury held National Geographic liable for $400,000 in damages. The Eleventh Circuit again reversed, citing the intervening decision of the U.S. Supreme Court in New York Times Co. v. Tasini. The Eleventh Circuit then granted a rehearing en banc.

On rehearing, the Court concluded that Congress added § 201(c) to the Copyright Act in order to protect both the copyrights of freelance authors in their individual contributions to a collective work as well as the copyright of the publisher in the collective work itself. A magazine publisher is privileged to reproduce or distribute an article—or photographs—contributed by a freelancer, “absent a contract otherwise providing, only ‘as part of’ any (or all) of three categories of collective works: (a) ‘that collective work’ to which the author contributed her work, (b) ‘any revision of that collective work,’ or (c) ‘any later collective work in the same series.’”

Based on Tasini's definition of “revision,” the Eleventh Circuit concluded that the CNG is a “revision” of the original “collective works” under the second prong of § 201(c). Similar to the microfilm or microfiche at issue in Tasini, the CNG uses the identical selection, coordination and arrangement of the underlying individual contributions as used in the original collective works. An author’s contribution is viewed within its original context, with each page containing the articles, photographs and/or advertisements as they originally appeared in the National Geographic Magazine’s print versions.

Thus, the court reversed and remanded, dismissing Greenberg’s arguments that the CNG’s additional functionality rendered it non-privileged, stating “[t]he CNG’s additional elements—such as its search function, its indexes, its zoom function, and the introductory sequence—do not deprive National Geographic of its § 201(c) privilege in that they do not destroy the original context of the collective work in which Greenberg’s photographs appear.”

Copyright / Criminal Violations

Copyright First-Sale Doctrine Not Applicable to Computer Crimes
By Jeremy T. Elman

The U.S. Court of Appeals for the Eleventh Circuit rejected the contention that the first-sale doctrine provided a defense to criminal violation of the copyright laws by the purchaser of copyrighted material. United States v. Harrison, 2008 U.S. App. LEXIS 15096.

Harrison was convicted of selling Microsoft certificates of authenticity (COAs) that Microsoft packages with software to ensure that a particular copy of Microsoft’s product is authentic. Each copy has a numeric key that activates a Microsoft program. Harrison bought stand-alone certificates and then resold them to individuals to activate pirated copies of Microsoft’s programs.

After the district court precluded his “first-sale doctrine” defense, Harrison pled guilty to two counts of trafficking in illicit labels in violation of 18 U.S.C.S. § 2318. The statute forbids “knowingly traffic[ing] in—a counterfeit label or illicit label affixed to, enclosing, or accompanying, or designed to be affixed to, enclose, or accompany” a product. Harrison then appealed his conviction, arguing that the district court erred in precluding him from raising the copyright first-sale doctrine as a defense. Harrison argued that under the first-sale doctrine a copyright purchaser does not violate copyright law by distributing copies of copyrighted works when he owns those copies.

The 11th Circuit noted that Harrison was not charged with copyright infringement, so the first-sale doctrine was not relevant to whether the stand-alone certificates are illicit under § 2318 and held that there is no first-sale defense to § 2318. The Court reasoned that otherwise anyone could avoid the statute by claiming that the illicit labels were properly purchased. As the Court noted, “[t]he statute targets the secondary market in authenticating labels; the first-sale doctrine eliminates restrictions on secondary markets. Therefore, to allow a first-sale defense would be to allow precisely the secondary market Congress intended to eliminate.”

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Copyright / Infringement / Sovereign Immunity

Government Employee Inducement to Use His Copyright Does Not Waive Government's Sovereign Immunity
By Kenneth L. Cage

The U.S. Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims (CFC) dismissal, on sovereign immunity grounds, of copyright infringement claim and violations of the Digital Millennium Copyright Act of 1998 (DMCA). Blueport Company, LLC, v. United States, Case No. 07-5140 (Fed. Cir., July 25, 2008) (Gajarsa, J.).

A software program, the AUMD software program, was written by Air Force Technical Sergeant Mark Davenport when he was employed as a manager of the Air Force’s Manpower Data System (MDS). MDS is a database containing manpower profiles of each unit of the Air Force. Davenport, finding the existing MDS software to be inefficient, sought to improve it and requested computer program training from the Air Force. His request was denied.

On his own, Davenport learned programming skills and wrote the AUMD source code while at his home and on his home computer. He tested an early version AUMD at work on the MDS and during regular business hours. After making improvements, Davenport provided his MDS colleagues computer disks with AUMD object code versions. He posted an object code version of AUMD on a web site that the Air Force manpower community could download and use. As Davenport improved each AUMD version, he added an expiration date that required a user to download the new version when the old version expired.

Davenport successfully presented the AUMD program to a senior Air Force officer’s conference, where he encouraged his audience to use and adopt the AUMD. With adoption of the AUMD, the Air Force asked Davenport to turn over his source code. He refused and the Air Force excluded him from his work on the MDS.

He then assigned the AUMD program rights to Blueport, which unsuccessfully attempted to negotiate a license for use of the AUMD by the Air Force. To assure continued use, the Air Force engaged a contractor to modify the object code and extend its expiration date. Blueport then sued the Air Force for copyright infringement and for violation of the DMCA. After the CFC dismissed Blueport’s claims based on the Air Force’s sovereign immunity defense, Blueport appealed.

The Federal Circuit affirmed, noting that the United States, as sovereign, is immune from suit save as it consents to be sued, and that a waiver of sovereign immunity is to be strictly construed in terms of its scope in favor of the sovereign. Blueport argued that certain provisions of § 1498 were affirmative defenses to be proven by the government. Specifically, in connection with Blueport’s claim of copyright infringement, the Court reviewed the scope of the waiver of sovereign immunity in § 1498(b) and concluded that the provisos of § 1498(b)—that the copyright claimant is in a position to order, influence or induce use of the copyrighted work by the government; that the copyrighted work was prepared by a person while in the employment or service of the United States, where the copyrighted work was prepared as a part of the official functions of the employee; or that the preparation of the copyrighted work involved use of government time, material or facilities—simply carve out three classes from the scope of the government’s waiver of sovereign immunity for claims of copyright infringement, rejecting Blueport’s affirmative defense argument.

Rather, the Court concluded that Blueport, as copyright claimant, has the burden of showing that its claim is not jurisdictionally barred by § 1498(b). Here, the Court concluded that Davenport fell within the scope of the first proviso class where sovereign immunity was not waived because he had used his position to “influence” and “induce” use of the AUMD program by the Air Force. His later exclusion from the Air Force’s MDS did not create an exception to the first proviso class sufficient to waive sovereign immunity.

As to Blueport’s DMCA claim, the Federal Circuit held that a waiver of sovereign immunity “cannot be implied, but must be unequivocally expressed.” The Court found that the DMCA contains no waiver of sovereign immunity, as the DCMA refers only to individual persons—not the government. As to Blueport’s claim that the Tucker Act, 28 U.S.C. § 1491(a)(1), provides such a waiver of sovereign immunity, the Court stated that the Tucker Act does not create a substantive cause of action, and the claimant must identify a separate source of substantive law that creates the right to claim money damages.

Legislative Update / Trademark and Copyright

Senate Seeks to Enhance Trademark and Copyright Enforcement with Its Counterpart to House’s PRO IP Act
By Rita W. Siamas

Although legislative efforts towards patent reform appear to have stalled, the Senate recently expressed its commitment to enhancing trademark and copyright enforcement by introducing the Enforcement of Intellectual Property Rights Act of 2008. Judiciary Committee Chairman Patrick Leahy (D-Vt.) and Ranking Member Arlen Specter (R-Pa.) introduced the bill, S. 3325, on July 24, 2008. Co-sponsors of the bill include Senators Evan Bayh (D-Ind.), George Voinovich (R-Ohio), Dianne Feinstein (D-Calif.) and John Cornyn (R-Texas).

The bill is the Senate counterpart to the House’s Prioritizing Resources and Organization for Intellectual Property Act of 2007 (PRO IP Act), H.R. 4279. Leaders of the House Judiciary Committee introduced the PRO IP Act in December 2007 to strengthen enforcement against piracy, trademark infringement and copyright infringement. The PRO IP Act was overwhelmingly passed in the House in May 2008, by a vote of 410 to 11.

The bill aims to enhance civil and criminal intellectual property laws, coordinate federal efforts to combat counterfeiting and piracy and increase resources available to federal and local law enforcement agencies to combat theft of intellectual property. Some notable portions of the bill are the following:

Authorizes the attorney general to bring civil actions against copyright infringers whose conduct constitutes criminal infringement, in addition to criminal actions.
Amends the Copyright Act so that obtaining copyright registration of a work is not required before bringing a criminal infringement suit, although it would remain a prerequisite to bringing a civil suit.
Increases the maximum statutory penalties for counterfeiting activities that endanger public health and safety—from 10 to 20 years imprisonment for knowingly or recklessly causing bodily injury—and imposes life imprisonment for knowingly or recklessly causing or attempting to cause death.
In addition to those who intentionally use a counterfeit trademark, the Act provides for treble damages for persons who intentionally supply goods or services necessary to a violation of the Trademark Act.
Doubles the statutory damages in trademark counterfeiting cases from the current range of $500 to $100,000 per counterfeit mark, per type of goods or services sold, to $1,000 to $200,000. Also doubles the maximum amount of statutory damages currently available for willful counterfeiting from $1 million to $2 million per counterfeit mark, per type of goods or services sold.
Creates a new executive-level position, the Intellectual Property Enforcement Coordinator (IPEC), who would chair an inter-agency committee charged with creating a nationwide plan to enforce intellectual property laws.

As with the PRO IP Act, the Senate bill is not without critics. Gigi B. Sohn, president of the citizens’ advocacy group Public Knowledge, issued a statement warning that while the bill rightly targets commercial infringers, “some of these same enforcement provisions are likely to hurt ordinary consumers.” Sohn also criticized the proposal giving the Department of Justice authority to bring civil actions, arguing that, “this bill would turn the Justice Department into an arm of the legal departments of the entertainment companies by authorizing the DOJ to file civil lawsuits for infringement, forcing taxpayers to foot the bill.”

The Electronic Frontier Foundation, which previously expressed criticism for the PRO IP Act, has also voiced its disapproval of the bill. “One of the bill’s most disturbing changes would give the Attorney General new powers to sue individuals on behalf of rights holders like the MPAA and the RIAA,” EFF activist Richard Esquerra commented. Esquerra disagrees with one of the justifications offered for the proposal, namely, that allowing the attorney general to bring civil actions is necessary because some infringement does not rise to the level of criminal conduct. “This justification just doesn’t make sense,” Esquerra writes. “If it’s a low-level offense, why should our top cops pursue it?” Because those types of offenses can and will be pursued by copyright owners, Esquerra argues that “there is no reason the American taxpayer should be picking up Hollywood’s legal costs while movie studios are celebrating record box office returns and record-breaking single-title revenues.”

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IP Update, Vol. 11, No. 8, August 2008

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