McDermott - Newsletters - IP Update Vol. 12, No. 5, May 2009

The U.S. Supreme Court, dealing yet another reversal to the U.S. Court of Appeals for the Federal Circuit, has ruled that district court orders remanding cases back to state courts after declining to exercise supplemental jurisdiction are appealable, despite the language of 28 U.S.C. §1447(d) stating that remand orders are “not reviewable on appeal.” Carlsbad Technology Inc. v. HIF Bio, Inc., Case No. 07-1437 (Supr. Ct., May 4, 2009) (Thomas, J.) ( Stevens, J. and Scalia, J., concurring; Breyer, J., concurring joined by Souter, J.)

The respondents initiated the action by filing a complaint in a California state court alleging that the petitioner violated several state laws and a single federal statute, the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§1961-68. The petitioner successfully removed the entire case, including the state law claims, to the district court pursuant to §1441(c), which allows for removal when at least one claim exists over which the federal court has original subject matter jurisdiction.

Once in federal court, the petitioner successfully moved under Rule 12(b)(6) to dismiss the respondents’ RICO claim. In addition to dismissing the RICO claim, the district court decided not to exercise supplemental jurisdiction over the remaining state law claims, which gives a district court discretion to choose whether to exercise supplemental jurisdiction over a claim in which the district court has dismissed all of the claims over which it had original jurisdiction. The district court consequently remanded the case to the state court. Carlsbad Technology appealed the decision.

On appeal to the Federal Circuit, the petitioner argued that the district court should have exercised supplemental jurisdiction over the state law claims because those claims implicated federal patent law rights (in this case, ownership of an invention and inventorship). Without getting to the merits of the petitioner’s argument, the Federal Circuit dismissed the appeal, finding that the remand by the district court could “be colorably characterized as a remand based on lack of subject matter jurisdiction” and, thus, could not be reviewed under §§1447(c) and (d).

The Supreme Court granted certiorari to consider the issue of whether a district court’s order remanding a case to state court after declining to exercise supplemental jurisdiction is a remand for lack of subject matter jurisdiction for which appellate review is barred by §§1447(c) and (d). In sum, the Supreme Court concluded such orders are not based on lack of subject matter jurisdiction.

Writing for a unanimous court, Justice Clarence Thomas pointed out that Supreme Court precedent unambiguously requires that §1447(d) be construed together with §1447(c), citing Thermtron Products v. Hermandsdorfer, noting that neither party on appeal argued that Thermtron should be overruled. Thus, the Supreme Court found that type of remand at issue in this case—a remand order based on a lack of “subject matter jurisdiction”—is one type of remand order banned from appeal under §1447(c).

Framing the issue as whether the district court's remand order resting on its decision not to exercise supplemental jurisdiction over remaining state law claims is a remand based on a “lack of subject matter jurisdiction” for purposes of §§1447(c) and (d), the Supreme Court acknowledged the distinction between whether a court has subject matter jurisdiction over a claim and whether a court chooses to exercise that jurisdiction. However, the Supreme Court concluded that a remand after declining to exercise supplemental jurisdiction under §1367(c) is not a remand for lack of subject matter jurisdiction and is thus not subject to the ban on appellate review. Justice Thomas explained that a district court has subject matter jurisdiction over remaining state law claims under §1367(a) and (c), and any decision not to exercise that jurisdiction is purely discretionary.

In a concurring opinion, Justice John Paul Stevens agreed that the ruling by the court was consistent with the precedential effect of Thermtron, and that “stare decisis compels the conclusion that the District Court’s remand order is reviewable notwithstanding §1447(d)’s unambiguous contrary command.” In his concurring opinion, Justice Antonin Scalia, while agreeing with the decision, characterized Thermtron as questionable and concluded that it was ripe for review.

Justice Steven Breyer’s concurrence highlighted an anomaly in the operation of §1447(d) that allows appellate review of decisions which, if wrong, are likely to do little harm but forbids review of decisions which, if wrong, are likely to do great harm.

Patents / Product-By-Process Claims

To Infringe Product-by-Process Claim, Must Practice the Process
By Paul Devinsky

An en banc panel of the U.S. Court of Appeals for the Federal Circuit reconciled two lines of cases interpreting the scope of product-by-process claims, holding that infringement of a product-by-process claim requires that the alleged infringer practice all of the claimed process steps. Abbott Laboratories v. Sandoz, Case No. 07-1400 and Lupin Limited v. Abbott Laboratories, Case No. 07-1446 (Fed. Cir., May 18, 2009) (en banc as to Section III A) (dissenting opinion as to Section III.A. by Newman, J., in which Mayer, J. and Lourie, J., join; dissenting opinion by Lourie, J). As a result of this decision, the Federal Circuit’s 1991 Scripps Clinic & Research Foundation v. Genentech, Inc. case is no longer to be followed in considering product by process claims in an infringement context. Rather, the line of cases stemming from the 1992 Atlantic Thermoplastics v. Faytex Corp. is now the law of the Federal Circuit.

In this consolidated appeal, the Federal Circuit considered two district court cases stemming from the same patent: one from the United States District Court for the Eastern District of Virginia and the other from United States District Court for the Northern District of Illinois. After construing certain of the claims in issue to require practice of the claimed method steps, i.e., as a product-by-process claim, the Virginia district court granted the Lupin motion for summary judgment of non-infringement. In the Illinois district court case Abbott Laboratories, the exclusive licensee, was denied a preliminary injunction based on the Virginia district court claim construction. Abbott appealed.

The Court, sua sponte, took en banc the issue of proper interpretation of product-by-process claims in determining infringement.

The patent in suit has five claims. Claim 1 is directed to crystalline cefdinir, using its chemical name, and defining its unique characteristics with powder x-ray diffraction (PXRD) angle peaks. Claim 1 is not a product by process claim.

Claims 2 through 5 claim crystalline cefdinir, without any PXRD peak limitations, but with descriptions of processes used to obtain the crystalline cefdinir. The Virginia district court concluded that claims 2 through 5 were product-by-process claims and, citing the Atlantic Thermoplastics case, further concluded that the claims are limited by the recited process steps.

On appeal, Abbott argued that the Virginia district court erred in construing the process steps under the rule of Atlantic Thermoplastics that “process terms in product-by process claims serve as limitations in determining infringement,” rather than in accordance with Scripps Clinic & Research Foundation v. Genentech, Inc. (“[T]he correct reading of product-by-process claims is that they are not limited to product prepared by the process set forth in the claims.”) In Abbott, the en banc Court has now clarified that it has adopted the rule of Atlantic Thermoplastics for considering the scope of product by process claims.

In doing so, the Court looked for guidance to a line of seven Supreme Court opinions, including Smith v. Goodyear Dental Vulcanite (1877) (“The process detailed is thereby made as much a part of the invention as are the materials of which the product is composed.”); Goodyear Dental Vulcanite v. Davis, (1880) (“[T]o constitute infringement of the patent, both the material of which the dental plate is made …. and the process of constructing the plate … must be employed.”); and Gen. Elec. V. Wabash Appliance (1938). The Court explained that “the Supreme Court consistently noted that process terms that define the product in a product-by-process claim serve as enforceable limitations. In addition, the binding case law of this court’s predecessor courts, the United States Court of Customs and Patent Appeals (see In re Hughes—acknowledging that ‘true product claims’ are ‘broader’ in scope than product-by-process claims), and the United States Court of Claims (see Tri-Wall Containers v. United States) followed the same rule.”

The majority argued that the dissent “lament[s] the loss of a ‘right’ that has never existed in practice or precedent—the right to assert a product-by-process claim against a defendant who does not practice the express limitations of the claim” insisting that the en banc decision “in no way abridges an inventor’s right to stake claims in product-by-process terms. Instead this decision merely restates the rule that the defining limitations of a claim—in this case process terms—are also the terms that show infringement.”

The majority explained that “if an inventor invents a product whose structure is either not fully known or too complex to analyze … that the inventor is absolutely free to use process steps to define this product. The patent will issue subject to the ordinary requirements of patentability. The inventor will not be denied protection. Because the inventor chose to claim the product in terms of its process, however, that definition also governs the enforcement of the bounds of the patent right. This court cannot simply ignore as verbiage the only definition supplied by the inventor.”

Dissenting Opinions

In her 38-page dissent, Judge Newman argued that the court had overturned “a century of precedent and practice” in holding a new product “cannot be protected as a product if its description is aided by reference to how it was made.” Judge Newman warned that this is a “new restraint on patents for new products, particularly today’s complex chemical and biological products whose structure may be difficult to analyze with precision. It is a change of law with unknown consequences for patent-based innovation.”

In his dissent, Judge Lourie acknowledged the “substantial” line of Supreme Court precedent “that holds that product-by-process claims require use of the recited process for there to be infringement.” However, he argued that in this century old case law, the Supreme Court “did not have occasion to consider today’s innovations or decide whether a distinction should be made between a new chemical-biological product and an old product made by a new process.”

Practice Note: The fact that claim 1 of the asserted patent was not a product-by-process claim seems to have influenced the majority determination that the patentee was not constrained by some inability to characterize the invention other than as the product of a process—but simply chose to include such claims; i.e., he was not forced to do so because the product was not fully known or too complex to analyze.

The Abbott decision only addresses process limitations in terms of infringement—not patentability. The majority and Judge Newman expressed different understanding regarding the consistency of the present opinion with the 1985 Federal Circuit decision in In re Thorp, the majority insisting that it is following Thorp while Judge Newman (in dissent) explaining they are not. It appears the U.S. Patent and Trademark Office (USPTO), following Thorp, routinely rejects product-by-process claims whenever the product itself is not novel, notwithstanding the process by which it was made. In other words, when examining product-by-process claims, the USPTO bases its patentability determinations on the product itself—not the process by which it is made. It remains to be seen how, if at all, the USPTO will react to Abbott in terms of its examination process.

Patents / Licensing and Patent Misuse

Setting a Lower Patent Misuse Standard?
By Kevin M. Bolan and Stefan M. Meisner

In remanding part of U.S. Philips Corp.’s long-running infringement suit against Princo Corp., the U.S. Court of Appeals for Federal Circuit has asked the International Trade Commission (ITC) to articulate appropriate—and perhaps lower—standards for proving patent misuse if two companies agreed not to license separately from a package license technology potentially competitive with the pooled technology. The court also announced an objective test for determining whether a patent comprises technology “necessary” to practice a technical standard to assess, in turn, allegations of patent misuse by alleged patent-to-patent tying.

Princo Corp. v. ITC, Case No. 07‑1386 (Fed. Cir., Apr. 20, 2009) (Dyk, J.; Bryson, J., dissenting-in-part).

The court also announced an objective test for determining whether a patent comprises technology “necessary” to practice a technical standard to assess, in turn, allegations of patent misuse by alleged patent-to-patent tying.

Philips administrates a patent pool including technology necessary to make recordable and rewritable compact discs that are compliant with the Orange Book technical standard. Philips sued Princo for infringing these patents, resulting in several ITC and Federal Circuit decisions. In its most recent decision, the ITC rejected Princo’s patent misuse defenses on two grounds: that Philips and Sony agreed not to license separately from the pool technology (the Lagadec patent) that was potentially competitive to the pooled technology and that, through its package licensing, Philips conditioned licenses to an allegedly non-essential patent (again, the Lagadec patent) to licenses for patents essential for making compact discs compliant with the Orange Book standard. The Federal Circuit vacated the ITC’s decision and remanded the first issue and affirmed the second.

A New Misuse Standard?

Since Windsurfing International, Inc. v. AMF, Inc., a successful patent misuse defense has required an accused infringer to show that the misuse conduct “tends to restrain competition unlawfully in an appropriately defined relevant market,” except in cases in which the Supreme Court has concluded that the licensing arrangement was per se unlawful (e.g., price-fixing). Applied to Princo’s first patent misuse argument, it would seem impossible for Princo to meet this standard. No one used the Lagadec patent to commercialize a competitive alternative to products made by practicing the other Philips pooled patents. But the Federal Circuit concluded horizontal competitors cannot “insulate themselves from misuse … by agreeing to suppress competing technologies before they are fully developed.”

The Federal Circuit concluded that the ITC should determine “appropriate standard [for misuse] under the rule of reason.” Infringers might not have to satisfy the traditional market analysis given the four “pertinent considerations” identified by the Federal Circuit to inform the appropriate standard: competing technologies “typically need further development before they can be commercialized; proving commercial viability may be “difficult absent market incentives; even “faulty technology can be competitive; suppressing potentially competing technology” lacks any benefit. The Federal Circuit concluded that proof that the suppressed technology was commercially viable “would be sufficient” to establish patent misuse. But the patent misuse defense would fail, the Federal Circuit added, if it was certain that the technology two horizontal competitors agreed not to license separately could not be viable. The Federal Circuit then left “for consideration in the first instance by the Commission” where on the continuum of viability “the appropriate standard lies.”

An Objective Test for “Necessary” Technology

Like the ITC, the Federal Circuit rejected Princo’s patent misuse theory based on alleged tying by Philips of a license to the Lagadec patent, technology allegedly not essential to comply with the Orange Book standard, with undisputedly necessary technology. In a 2005 decision in this same case, the Federal Circuit concluded that patent-to-patent tying could not occur if the two patents are part of a “unified” product,” e.g., where a “group of patents [was] essential to practice a particular technology or standard.” In its most recent decision, the Federal Circuit held that separate technology is “necessary”—and therefore part of the unified product incapable of being “tied”—if “an objective manufacturer would be believe reasonably [that the technology] might be necessary to practice the technology at issue.” Because the Lagadec patent satisfied this standard, the Federal Circuit concluded that the Philips package license lacked any “tied” technology. To hold otherwise, the Court reasoned, would undermine one of the salient precompetitive virtues of package licensing: the “avoidance of uncertainty and costly litigation.” Such litigation, the Court added, would only add to the delay in commercializing pooled technology.

Practice Note: The latest Federal Circuit Princo decision reinforces the lessons of its earlier ones: patent holders that contribute technology to patent pools should ensure the same patents are available for separate, individual licensing. Such alternative licensing options will minimize the risk of patent misuse defenses and potential antitrust liability.

Patents / ITC Jurisdiction

Safe Harbor Defense Is Available at ITC
By Amanda E. Koenig

The U.S. Court of Appeals for the Federal Circuit recently reissued its 2008 opinion, reaffirming that the safe harbor of 271(e)(1) is available in International Trade Commission (ITC) cases. However, the Court retracted the prior opinion’s discussion of whether the ITC had jurisdiction over “imminent importation” not in connection with a contract for sale, stating that it was not necessary to decide the issue in light of the allegations in the complaint. Amgen, Inc. v. Int’l Trade Commission, Case No. 07-1014 (reissue) (Fed. Cir., March 19, 2008) (Newman J.; Linn, J., partial dissent).

In March of 2008, the U.S. Court of Appeals for the Federal Circuit affirmed a ruling by the ITC that the safe harbor statute applies in proceedings under the Tariff Act relating to process patents, as well as product patents, for an imported product that is used for the exempt purposes of § 271(e)(1). (See IP Update April 2008 .) An en banc Federal Circuit “authorized” the panel to revise Part II of its opinion related to the jurisdictional question, vacated the previous judgment and withdrew the accompanying opinion. It then returned the appeal to the original panel. The panel has now issued a revised opinion, pursuant to that order from the en banc court. The only difference between the two opinions is the revised discussion of the jurisdictional question.

The revised opinion removes all discussion of whether the ITC has jurisdiction over non-sales-based “imminent importations,” except to note that resolution of that dispute was “not necessary … to decide this case.” The Court noted that there was no dispute that Roche (the respondent at the ITC) has imported EPO, the subject of the dispute. The Court pointed out that the parties’ main disputes are whether the safe harbor provision of § 271(e)(1) applies as a matter of law and whether all of the EPO that Roche imported was entitled to protection under the safe harbor. According to the Court, that dispute goes to the merits of Amgen’s complaint, not to the Commission’s jurisdiction to hear it.

The panel held that the Commission had jurisdiction as a result of Amgen’s allegation that Roche imported an article made by a process covered by the claims of a valid and enforceable United States patent. According to the Court, the ITC therefore was correct to reach the merits of Amgen’s claim. The Court declined to address whether the ITC would have had jurisdiction if Amgen had not asserted actual importation and relied instead entirely on its “imminent importation” theory. ”

**WEB ONLY**
Patents / Obviousness-Type Double Patenting

Use Filing Date of the Second Application to Determine if Product and Process Are 'Patentably Distinct'
By Kristin Connarn

Addressing a question of first impression—whether later-developed alternative processes for making a patented product can be relied upon to demonstrate a patentable distinction between product and process claims for purposes of obviousness-type double patenting—the U.S. Court of Appeals for the Federal Circuit held that “the relevant time frame for determining whether a product and process are ‘patentably distinct’ should be at the filing date of the secondary application.” Takeda Pharmaceutical Co., Ltd. v. John J. Doll, Case No. 08-1131 (Fed. Cir., April 10 2009) (Rader, J.; Schall J., concurring-in-part, dissenting-in-part).

Takeda first filed a patent application disclosing compounds and the process for making those compounds in 1974. Sixteen years after the compound patent priority date, Takeda filed its secondary application covering the process for making the patented cephem compounds. The process patent issued, claiming the sole process known and disclosed in the priority patent application.

Appealing a decision of the Board of Patent Appeals and Interferences stemming from a reexamination proceeding on the process patent, the case moved to the district court under 35 U.S.C. § 145, where new evidence was presented of the existence of alternative, non-infringing processes for making the cephem compounds claimed in the product patent. After losing in the district court, the U.S. Patent and Trademark Office (USPTO) filed a notice of appeal with the Federal Circuit.

The USPTO argued the date of the first invention governs the relevance of products and processes in the double-patenting context. Takeda argued that any evidence of patentable distinction should be available for consideration. The Court rejected both arguments and held that, in the context of a patent for a compound, in order for the patent owner to get a patent for a method of making the compound, the process patent applicant has to show that as of the process patent application date there existed an alternate process for making the compound. The Court presented its reasoning as being fair to the public and to the patent applicant, because it is at the date of filing the process application that the applicant “avers that the product and process are ‘patentably distinct’” and “triggers the potential of an unjustified extension of the patent term.” The case was remanded for the lower court to consider evidence regarding the disclosure date for the alternative process.

In dissent, Judge Schall would have required a similar showing, but agreed with the USPTO that the date of invention should be a cut-off date because “the invention date is most commensurate with patent law as a whole and the policy goals relating to obviousness-type double patenting.”

Practice Note: Before filing a process patent application, make sure alternate processes exist for making the product claimed in the earlier patent.

Patents / Exhaustion

Covenant Not to Sue Triggers Exhaustion Doctrine
By Leigh J. Martinson

The U.S. Court of Appeals for the Federal Circuit held that a covenant not to sue was equivalent to a license and thus sales made pursuant to a covenant are authorized. TransCore, LP and TC License, LTD v. Electronic Transaction Consultants Corporation., Case No. 08-1430 (Fed. Cir., April 8, 2009) (Gajarsa, J.).

TransCore’s business is automated toll collection systems—the tags and readers that communicate as a vehicle passes through an automated toll plaza (e.g., E-ZPass). TransCore is the assignee of several patents related to such technology. TransCore sued competitor Mark IV Industries for infringement of their patents. That action was resolved by a settlement agreement in which money was exchanged for an unconditional covenant not to sue and a release of all existing claims.

The relevant portion of the agreement states that TransCore “hereby agrees and covenants not to bring any demand, claim, lawsuit, or action against Mark IV for future infringement” of a list of patents. The agreement also stated the “[n]o express or implied license or future release whatsoever is granted to MARK IV or to any third party by this Release.”

Several years after the execution of the release, Electronic Transaction Consultants Corporation (ETC) purchased alleged infringing products from Mark IV for a toll-road project in Illinois. TransCore sued ETC, asserting infringement of some of the patents that were the subject of the TransCore–Mark IV release. ETC moved for summary judgment, asserting that its activities were permitted by the TransCore–Mark IV settlement agreement under the related doctrines of patent exhaustion, implied license and legal estoppel. The district court granted the motion. TransCore appealed.

The question, as viewed by the Court, was whether an unconditional covenant not to sue authorized sales by the covenantee for purposes of patent exhaustion. The Court explained that the grant of a patent does not provide the patentee with an affirmative right to practice the patent but merely the right to exclude. As such, the patentee can only convey a freedom from suit. The Court quoted the Supreme Court decision in De Forest Radio and stated that “[a]s a license passes no interest in the monopoly, it has been described as a mere waiver of the right to sue by the patentee.” Thus, the Federal Circuit reasoned that a covenant not to sue is equivalent to a non-exclusive patent license.

The Court viewed the language of the agreement as an unambiguous authorization of all acts that would otherwise be infringements: making, using, offering for sale, selling or importing. The Court pointed out that TransCore did not, as it could have, limit this authorization to, for example, “making” or “using.” Applying the authorization rational of Quanta, the Federal Circuit upheld the district court’s decision.

As for the language “[n]o express or implied license or future release whatsoever is granted to MARK IV or to any third party by this Release” appearing in the covenant, the Court found this refers only to the effect of the release provision and thus does not require a different result.

Patents / Doctrine of Equivalents

Even Unsuccessful Amendments Estop Doctrine of Equivalents
By Brett Bachtell

In affirming the district court’s summary judgment of no literal infringement, the U.S. Court of Appeals for the Federal Circuit confirmed the application of prosecution history estoppel to limit the doctrine of equivalents when the limitation was added by amendment but not central to patentability. Mark D. Felix v. American Honda Motor Company, Inc., Case No. 08-1367 (Fed. Cir., April 10, 2009) (Linn, J.).

Felix sued Honda alleging that the In-Bed Trunk®of Honda’s Ridgeline truck infringed claim 6 of Felix’s U.S. Patent No. 6,155,625 (the ’625 patent). The Ridgeline truck In-Bed Trunk® includes a lid, a gasket and a flange. The In-Bed Trunk®’s gaskets are affixed to the lid, rather than to any flange. Felix’s claim 6, in its relevant portion, requires “a weathertight gasket mounted on said flange and engaging said lid in its closed position.” The original claim 1 did not include the “gasket” limitation; it was contained in original claim 7. Felix added the limitation to the independent claim during prosecution in response to a rejection from the examiner.

In a first office action, the examiner rejected claims 1 and 7 under 35 U.S.C. § 103 and concluded that original claim 8 would be allowable if rewritten in independent form. In response, Felix did not amend claim 1, instead he cancelled claims 1 and 7, rewriting the subject matter as new independent claim 14. In a second office action, the examiner again rejected the subject matter of new independent claim 14 (containing subject matter of original claims 1 and 7), while reiterating that claim 8 would be allowable if rewritten in independent form. In response, Felix cancelled claim 14 and claim 8, rewriting the subject matter in new independent claim 16 (containing subject matter of original claims 1, 7 and 8). The examiner allowed claim 16, and it issued as claim 6.

During a Markman hearing, the district court construed the claim term “mounted” to mean “securely affixed or fastened to” and “engaging” to mean “coming together and interlocking.” Following the hearing, in response to a motion for summary judgment from Honda, the district court concluded that the In-Bed Trunk® did not satisfy the above limitation “because it did not contain a weathertight gasket mounted on said flange.” The district court further explained that “[i]n essence, the difference between the ’625 patent and the In-Bed Trunk® is that the ’625 weatherstrip is mounted to the flange.” The district court therefore granted Honda’s motion for summary judgment of no literal infringement.

On appeal, the U.S. Court of Appeals for the Federal Circuit reviewed the district court’s finding that Felix was precluded under the doctrine of prosecution history estoppel from arguing that the In-Bed Trunk® infringed the gasket limitation by equivalents. As explained above, the “gasket” limitation was originally contained in claim 7, and despite adding the limitation in a first amendment, it was not until Felix made a second amendment adding the subject matter of original claim 8 that the claim was allowed. The Federal Circuit determined that this was irrelevant, finding that “[i]t is the patentee’s response to a rejection—not the examiner’s ultimate allowance of a claim—that gives rise prosecution history estoppel.” The Federal Circuit held that the presumption of prosecution history estoppel attaches when a patentee cancels and independent claim and rewrites a dependent claim in independent form for reasons related to patentability, even if the amendment alone does not succeed in placing the claim in condition for allowance. As a result, Felix was presumptively barred from relying on the doctrine of equivalents to prove that Honda’s In-Bed Trunk® meets the gasket limitation.

Felix argued that he rebutted the presumption of prosecution history estoppel by showing that the amendment giving rise to the estoppel was tangential to the equivalent in question. The Federal Circuit rejected this argument because the reasons for the amendment were not “objectively apparent” from the prosecution history and the arguments did not explain the entire amendment. The Federal Circuit stated that if Felix had intended only to add the novel channel limitation and not add the gasket limitation, he could have easily amended original claim to include the limitations of original claim 8 and not original claim 7. Because Felix could not identify any explanation in the prosecution history for the addition of the gasket limitation, he could not meet his burden to show that the rationale for adding the gasket limitation was tangential to the presence and position of the gasket.

Patents / Written Description

Written Description: Need Sufficient Disclosure of Molecules Capable of Achieving Desired Activity
By Mary Boyle, Ph.D.

The U.S. Court of Appeals for the Federal Circuit reversed a denial of judgment as a matter of law (JMOL) after a jury trial and held that claims were invalid for failure to satisfy the written description requirement. Ariad Pharms., Inc. v. Eli Lilly and Co., Case No. 08-1248 (Fed. Cir., April 3, 2009) (Moore, J.; Linn, J., concurring).

The technology-in-suit covers molecules that regulate gene expression. The naturally occurring cellular protein Nuclear Factor Kappa-B (NF-kB) was discovered by the inventors in the mid-1980s. NF-kB is part of the cell’s 911 system. In response to stimuli such as molecules released from harmful bacteria that signal imminent injury to the cell, NF-kB is activated and sent to the cell nucleus, where it turns on genes that protect the cell. When the threatening stimuli disappear, the NF-kB is reduced in activity and the cell returns to the non-emergency state. The claims at issue are for methods for reducing NF-kB activity. NF-kB activity can be reduced by prior art drugs such as aspirin and by naturally occurring inhibitor molecules inside the cell.

The Court held that the written description requirement of § 112 of the Code was not met. The patent failed to adequately describe the claimed methods for reducing NF-kB activity, including adequate description of the molecules that can be used to reduce the activity in performing the claimed methods. The only activity-reducing molecule that was described in the patent was the native inhibitor IkB, which functions to hold NF-kB in its inactive state. Given the dearth of knowledge of IkB at the time of filing, the Court found that the description of IkB was insufficient and little more than an invitation for further research. Under the rule of Univ. of Rochester v. G.D. Searle & Co.,the patent failed to disclose a method of reducing NF-kB activity using IkB or any other specific molecule. The patent’s description of three categories of activity-reducing molecules was vague and hypothetical and thus likewise insufficient as a matter of law. The state of the art at the time of filing was primitive and uncertain, so knowledge in the art could not fill the gap. Because the patentee chose to assert claims that were far broader than were supported by the specification, the claims were held invalid for lack of written description.

In his concurrence, Judge Linn wrote to restate his previously expressed belief that § 112 does not contain a separate written description requirement but simply requires a written description that is enabling, in that it allows a person of ordinary skill in the art to make and use the invention. In this case, Judge Linn asserted, the Court should have addressed and decided Lilly’s enablement argument. The written description must enable the full scope of the invention without undue experimentation. The claimed methods broadly claim any method for reducing NF-kB activity, including all unknown methods. Lilly argued that a specification cannot, as a matter of law, enable unknown methods and that the claimed methods were therefore invalid. This is an issue that the Court has not resolved.

Patents / Personal Jurisdiction over Foreign Defendant

Presence of Foreign Manufacturer at U.S. Trade Show Triggers Personal Jurisdiction
Contact Paul Devinsky

Finding specific jurisdiction and sufficient minimum contacts where a foreign manufacturer was accused of patent infringement for displaying a product at a U.S. trade show, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s dismissal for lack of personal jurisdiction and remanded the case to the lower court for further proceedings against the foreign manufacturer. Synthes (U.S.A.) v. G M Dos Reis Jr. Ind. Com. De Equip. Medico, Case No. 08-1279 (Fed. Cir., April 17, 2009) (Schall, J.).

Plaintiff Synthes is a global medical device company and assignee of a U.S. patent directed to a “bone plating system.” GMReis is a Brazilian corporation that manufactures and sells orthopedic and neurological medical devices, including bone plates. None of GMReis’ products are approved by the U.S. Food and Drug Administration (FDA) for use by, or sale to, humans in the United States. In fact, GMReis has never sold any of its products in California and has only ever completed one U.S. sale to a veterinary medical supply company in Massachusetts.

Although it does not sell products in the United States, GMReis attended and operated a booth at the American Association of Orthopaedic Surgeons’ Annual Meeting in San Diego, California in 2007. The CEO of GMReis and a GMReis employee represented GMReis at the San Diego trade show and displayed a number of products, including samples of five locking bone plates used to immobilize bones or bone fragments to promote healing of fractures. GMReis asserted that it sends representatives to this meeting because many non-U.S. surgeons attend the annual trade show and GMReis wanted to show its products to those non-U.S. surgeons. At the booth, GMReis displayed prominent signs and product literature stating that GMReis products were not approved by the FDA and were not for sale in the United States. The product literature did not list any price for the locking bone plates, and the company representatives did not discuss prices at the trade show.

Notwithstanding that it did not offer for sale or sell any of the bone plates at the trade show, Synthes served the GMReis CEO and employee with a summons and complaint for patent infringement based on the five locking bone plate samples displayed at the GMReis booth. Synthes sought a declaration of infringement and an injunction. The district court dismissed the case for lack of personal jurisdiction. Synthes appealed.

On appeal, Synthes argued GMReis is subject to personal jurisdiction because it imported infringing products into the United States when its representatives brought the sample locking bone plates to the trade show from Brazil and because GMReis used and offered to sell infringing products when it displayed and promoted the locking bone plates at the trade show. GMReis, on the other hand, argued that the acts of bringing sample locking bone plates into the United States and displaying them at a trade show without identifying a price for them did not constitute an import, use or offer to sell under 35 U.S.C. §271(a). The Federal Circuit sided with Synthes. The Court acknowledged that GMReis advertised its lack of FDA approval for sale or use of its products in the United States, as well as the fact that GMReis’ intent was to attract interest from potential foreign purchasers rather than from potential U.S. purchasers. Nevertheless, the Court concluded that, indisputably, GMReis purposefully directed its travel with the sample locking bone plates to the United States and then displayed those products at a trade show in the United States attended by U.S. residents. The Federal Circuit noted that GMReis was present in the United States through two of its employees, including its CEO, both of whom conducted company business at the trade show. Accordingly, the Court held that GMReis was subject to specific personal jurisdiction in the United States and remanded the case back to the district court for further proceedings.

Practice Note: Displaying a sample product in the United States—even where the product is not approved for sale in the United States, is not offered for sale in the United States, and the foreign manufacturer in fact makes no sales in the United States—may be sufficient to subject the foreign manufacturer to personal jurisdiction for patent infringement if the claims of a U.S. patent read on the sample product.

Patents / Validity

Substitution of Known Material with Known Properties Renders Patent Obvious
Please contact Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit unanimously reversed a district court’s infringement judgment on grounds that the asserted claims are obvious. Ritchie v. Vast Resources, Inc., Case Nos. 08-1528, -1529 (Fed. Cir., April 24, 2009) (Posner, J., sitting by designation).

Floridians Ritchie and Reynard, owners of Know Mind Enterprises, developed a rod-like device that used a “lubricious glass-based material” with boron oxide to make it resistant to electricity and bacteria, as well as slippery within the context of the patent. Borosilicate glass is the material originally used in Pyrex®. In 2006, Ritchie and Reynard sued rival Vast Resources Inc., which sells sex aids under the name Topco Sales, accusing it of infringing the patent.

Judge Posner began by noting that the properties of borosilicate glass recited in the asserted claims of the ’924 patent, namely a smoother soda-lime glass that thus would require less lubrication to become slippery, or “lubricious,” had been known in the art. Further, the wide spread notoriety of Pyrex® would make using borosilicate glass in a sexual aid obvious to try, “the triumph of hindsight over insight.”

Judge Posner noted that “inventions the law deems obvious are those modest, routine, everyday, incremental improvements of an existing product or process that confer commercial value … but do not involve sufficient inventiveness to merit patent protection.” These types of inventions include “routine experimentation with different standard grades of material used in a product.” Therefore, Judge Posner found that this case exemplifies the KSR decision of the Supreme Court, that “if a person of ordinary skill can implement a predictable variation, § 103 likely bars its patentability.” As the Supreme Court stated, “if a technique has been used to improve one device, and a person of ordinary skill in the art would recognize that it would improve similar devices in the same way, using the technique is obvious unless its actual application is beyond his or her skill.”

As the claim of the ’924 patent did not disclose any particular limit to the borosilicate glass, Judge Posner ruled that this case was like many other substitution of material cases in which patentability was denied on the grounds of obviousness and therefore reversed the finding of infringement.

Patents / Claim Construction

The Federal Circuit Provides Its Two Cents on Loose Change Patents
By Christina A. Ondrick

The U.S. Court of Appeals for the Federal Circuit upheld a claim construction ruling that resulted in the patent holder stipulating to a judgment of non-infringement in two separate cases. Every Penny Counts, Inc. v. American Express Company, Case. Nos. 08-1434 -1438 (Fed. Cir., April 30, 2009) (Cudahy, J., sitting by designation).

Every Penny Counts (EPC) is a patent holding company with patents on a method for donating excess cash to charities and savings accounts. The inventor described the invention as a way of solving the problem of loose change—i.e., the change you receive back after making a purchase.

EPC brought two separate infringement suits against two different sets of defendants. One set sells gift cards that can be used at multiple locations (credit card companies) and the other set sells gift cards that must be used with one specific vendor (gift card processors). The district court held a consolidated Markman hearing and adopted the construction urged by one set of defendants. This construction removed gift cards from the scope of the claims and resulted in EPC conceding that none of the defendants infringed. EPC appealed.

The critical issue on appeal was whether “excess cash” was correctly construed to mean an “amount selected by the payor beyond the total amount due at the point of sale” (loose change) or whether it should be construed to mean “an amount … offered in excess of the sale price of merchandise” as urged by EPC.

EPC argued that the district court improperly construed language not disputed by the parties and used the design of the accused gift cards to fashion a claim construction that would avoid infringement. The Federal Circuit rejected both arguments.

The Federal Circuit found EPC’s first argument ironic at best and disingenuous at worst. EPC proposed the phrase “sales price” as part of its construction of “excess cash.” Thus, it should not object to the district court’s attempt to understand that phrase, especially when the parties disputed its meaning. EPC argued that a sale does not occur until the merchant treats the cash as income in its accounting system. EPC further argued, without presenting any evidence, that a merchant does not treat the sale of a gift card as a sale until the gift card is used to make a purchase. The defendants, on the other hand, argued that a sale occurs when cash changes hands at a cash register.

The Federal Circuit concluded that the district court properly considered the meaning of “sales price” as part of its duty to ensure that questions of claim scope are not left to the jury. If the district court had accepted EPC’s proposal without first assigning a meaning to this construction, the court would have failed to assign a fixed, unambiguous, legally operative meaning to the claims.

The Federal Circuit also rejected EPC’s argument that the district court improperly considered the accused products during claim construction. The Court ruled that the district court simply invited the parties views on a series of hypothetical transactions, some of which included the accused products. According to the Court, “EPC’s suggestion that this was improper is way wide of the mark.”

Patents / Willfulness

Willful or Not; That Is the Question
By Eric Garcia

Affirming a district court’s claim that a limited finding of willfulness on an equitable issue was insufficient to support a finding of “willful infringement” for purposes of awarding attorney’s fees under 35 U.S.C. § 285, the U.S. Court of Appeals for the Federal Circuit held that a finding of “willful infringement” must remain with the trier of fact and required considerations of intent, state of mind and culpability. Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., Case Nos. 08-1267, -1376 (Fed. Cir., April 29, 2009) (Michel, J.).

In 2002 Revolution Eyewear filed suit against Aspex Eyewear for patent infringement of a patent, which the district court later dismissed. Aspex, together with Contour Optik, Manhattan Design Studio & Asahi Optical (collectively “Contour) counterclaimed that Revolution infringed its patent. The patented invention related to eyewear featuring primary frames and magnetically attached auxiliary frames. On summary judgment, the district court found that Revolution infringed Contour’s patent. The district court also granted in part Contour’s motion for attorneys’ fees, basing its award on Revolution’s litigation misconduct.

On appeal, Contour argued that it was entitled to enhanced damages and attorneys’ fees under Section 285 based on the district court’s limited finding that Revolution “willfully infringed.” Specifically, Contour relied on the district court’s statement that: “Revolution had unclean hands. Revolution willfully infringed Contour’s patent when it continued to sell the infringing frames after the Court granted Contour’s motion for summary judgment on the issue of infringement.” Contour thus claimed that there was no distinction between the district court’s limited finding of willfulness and that needed in “exceptional cases” under Section 285.

The Federal Circuit determined that the district court erred in finding the case “exceptional” under Section 285. According the Court, there was not sufficient evidence to support such a determination because “a limited finding of willfulness … was ‘an insufficient basis on which to declare the entire five-year case as exceptional.’” The Court further claimed that liability for willful infringement turns on considerations of intent, state of mind and culpability, “[a]lthough fairness as between patentee and infringer is a consideration in the determination of whether illegal behavior warrants an enhanced penalty, the question does not thereby become ‘equitable.’ The issue of willful infringement remains with the trier of fact.” Therefore, the Court held that, since the district court made its finding in the context of reviewing an equitable defense, its finding of willfulness was not a sufficient “clear and convincing” finding as to render this case as “exceptional” under Section 285.

Practice Note: A finding of willful infringement under Section 285 requires more than just a mere statement from a court that a party willfully infringed. For a case to be labeled as “exceptional,” as required by Section 285, there must be clear and convincing evidence of some material, inappropriate conduct related to the matter in litigation.

Trademark / Keyword Advertisements

Sale of Keyword Advertisements Is Actionable Under Lanham Act
By Rita W. Siamas

Considering whether the sale of a trademark as a keyword that triggers an internet advertisement may constitute trademark infringement, the U.S. Court of Appeals for the Second Circuit vacated a district court’s dismissal of an action against internet search engine Google, holding that a trademark owner’s allegations that Google’s recommendations and sale of its trademark to advertisers constituted sufficient “use in commerce” to state a claim under the Lanham Act. Rescuecom Corp. v. Google, Inc., Case No. 06-4881, 2009 WL 975447 (2nd Cir., April 3, 2009) (Leval, J.).

This decision is significant in that the Second Circuit clarified its holding in 1-800 Contacts v. When U.com, which district courts (outside of the Ninth Circuit) widely read as holding that internal computer use of a trademark was not actionable under the Lanham Act.

Computer service company Rescuecom sued Google, alleging that Google’s sale of Rescuecom’s RESCUECOM trademark to Rescuecom’s competitors as a keyword to trigger their banner advertisements constituted trademark infringement, false designation of origin and trademark dilution in violation of the Lanham Act. Google moved to dismiss the action, arguing that Google’s sale of the RESCUECOM mark did not qualify as trademark use within the meaning of the Lanham Act. Relying on the Second Circuit’s 1-800 holding, the district court dismissed the action, finding that Google had not used the mark in commerce. In 1-800, the Second Circuit dismissed a Lanham Act action against an internet marketer, holding that its use of trademark terms in a software program generating “pop-up” advertisements did not constitute “use in commerce” under the Lanham Act. Rescuecom appealed.

The Second Circuit vacated the district court’s dismissal, stating that the district court “misunderstood” the holding of 1-800 and held that Rescuecom’s complaint adequately pled a use in commerce. In so doing, the Second Circuit found that the allegations in 1-800 were “materially different” than those at issue here. In 1-800, the defendant did not display the plaintiff’s trademark in any manner, whereas the court found that Google, through its AdWords program, “displays, offers and sells Rescuecom’s mark.” Further, the 1-800 defendant did not sell trademarks as keywords and did not disclose to advertisers which keywords it used internally to generate pop-up advertisements, whereas Google actually encourages the purchase of the RESCUECOM mark through its Keyword Suggestion Tool. Thus, the Second Circuit concluded, “Google’s utilization of Rescuecom’s mark fits literally within the terms specified by [the Lanham Act].”

In rejecting an argument made by Google and its amici that the inclusion of a trademark in an internal computer directory cannot constitute actionable trademark use, the Court stated that “this over-reads the 1-800 decision” and explained that the 1-800 decision was never intended to stand for the proposition that the use of a trademark in an internal software or computer directory would always be absolved from trademark liability. Additionally, the Court noted that “Google’s recommendation and sale of Rescuecom’s mark to its advertising customers are not internal uses.” The Court further noted that, “[i]f we were to adopt Google and its amici’s argument,” … “the operators of search engines would be free to use trademarks in ways designed to deceive and cause consumer confusion. This is surely neither within the intention nor the letter of the Lanham Act.” The Court also rejected Google’s argument that its use of Rescuecom’s trademark was akin to the use of product placement by retailers where a generic store-brand product is placed next to a trademarked product, stating that, “Google’s argument misses the point,” because “[i]t is not by reason of absence of use of a mark in commerce that benign product placement escapes liability; it escapes liability because it is a benign practice which does not cause a likelihood of confusion.”

Practice Note: While Rescuecom must still prove a likelihood of consumer confusion before it may obtain relief under the Lanham Act, the Second Circuit’s decision provides clarity to trademark owners as to when they may seek redress under the Lanham Act for sale of their trademarks as keywords to trigger internet advertisements. Just weeks after the Rescuecom decision, software company FirePond filed a federal class action lawsuit against Google, challenging Google’s policies on behalf of all Texas trademark owners. Similarly, real estate investment company John Beck Amazing Profits, filed a federal class action lawsuit against Google in the same district court, seeking class action status for trademark owners nationwide.

Trademark Infringement / Cybersquatting

Trademark Protection Limited Against Cybersquatters
By Jeremy T. Elman

Addressing the issue of cybersquatting (or “typosquatting”) versus the traditional standards of trademark infringement, the U.S. Court of Appeals for the Fifth Circuit vacated a preliminary injunction in favor of a trademark holder because the district court improperly applied the broader trademark infringement analysis to cybersquatting claims. Southern Co. v. Dauben Inc., Case No. 08-10248 (5th Cir., April 15, 2009) (per curiam).

Plaintiff Southern Company (Southern) provides energy-related services to consumers throughout the southern United States. It holds the federal, incontestable trademark “Southern Company” and is the registrant of the domain name southerncompany.com. Dauben Inc. (Dauben), a Texas corporation, is the listed registrant of nearly 635,000 domain names. The two challenged domain names, sotherncompany.com and southerncopany.com, are linked to a website that only provides pay-per-click advertising—when an internet user enters either domain name in her browser, she is directed to a webpage that lists links to the websites of paying advertisers.

Southern filed an action under the Uniform Domain Name Dispute Resolution Policy (UDRP) with a World Intellectual Property Organization (WIPO) arbitration panel, which found for Southern and ordered Dauben to transfer the registration of the websites. Dauben then filed a Texas state court action, which delayed the transfer, and Southern responded by filing a federal court action under the Anti-Cybersquatting Protection Act of 15 U.S.C. §1125(d) (ACPA). The district court granted Southern a preliminary injunction. Dauben appealed.

The Fifth Circuit vacated the preliminary injunction because the district court had failed to properly analyze whether Dauben’s domain name registration was a fair use: “ACPA’s safe harbor provides a narrow berth for fair use arguments, and, on the merits, Dauben’s claims may or may not hold up.” The Fifth Circuit also vacated the preliminary injunction because the district court erred by analyzing whether the use of the Southern name caused a “likelihood of confusion” under a trademark infringement analysis, rather than the “confusingly similar” standard used to evaluate cybersquatter allegations under §1125(d) of the ACPA. The Court stated that “the likelihood of confusion test of trademark infringement is more comprehensive than the identical or confusingly similar requirement of ACPA, as it requires considering factors beyond the facial similarity of the two marks.”

The victory was pyrrhic however, as the district court had by this time considered the case on the merits, heard summary judgment motions and was ready to issue a permanent injunction. Thus, even though the preliminary injunction was vacated, no remand was necessary.

Practice Note: When considering action under the ACPA, trademark holders are well advised to carefully analyze their claims under stricter ACPA standards of Section 1125(d), rather than the more lenient trademark infringements standards.

Trademarks / First Sale Doctrine

Lanham Act Controls Unauthorized Product Resales
Contact Paul Devinsky

In a trademark infringement action the U.S. Court of Appeals for the Tenth Circuit upheld a preliminary injunction granted in favor of a manufacturer of electronics equipment against an internet reseller of its goods that sold products without the manufacturer’s warranty. Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC et al., Case No. 07-3340 (10^th Cir., April 9, 2009) (Tacha, J.).

Beltronics sells after-market vehicle electronics, including radar detectors, to authorized distributors that in turn sell the products at retail at a specified minimum price. In violation of their distribution agreements, the distributors sold detectors to defendant Midwest, which in turn resold them as “new” on eBay. To prevent Beltronics from discovering this unauthorized distribution, the serial numbers on the radar detectors were either replaced with phony serial number labels or removed altogether.

It is Beltronics’ policy to not provide any warranty services for products without legitimate serial numbers. Beltronics ultimately filed the underlying action after consumers sought services for detectors purchased from Midwest. Among other things, the complaint asserted trademark infringement and false designation of origin. Beltronics also sought a preliminary injunction.

Midwest’s predominant theory of defense was that there is no likelihood of confusion concerning the source of the Beltronics radar detectors because it is undisputed that the company was selling genuine Beltronics products that were manufactured by Beltronics. Thus, Midwest contended that it was protected from Beltronics’ claims under the “first sale” doctrine. Generally, a trademark owner’s right to control distribution of its trademarked product does not extend beyond the first sale of the product. In other words, resale by the first purchaser of an original article under the trademark does not constitute infringement.

However, the first sale doctrine does not apply when an alleged infringer sells trademarked goods that are “materially different” than those sold by the trademark owner. A guiding principle in evaluating whether a difference between two products bearing the same trademark is material is whether the difference causes consumer confusion about the source and the quality of the trademarked product.

In rejecting Midwest’s argument based on the first sale doctrine, the Tenth Circuit found that “material differences” are not limited to differences in the physical quality of the goods. Instead, the mere removal or alteration in warranty protection can constitute a “material difference” in the goods so as to render the goods in question non-genuine. Thus, the Tenth Circuit held that the first sale defense was not available to Midwest because it sold a materially different good without the manufacturer’s warranty and without adequate disclosures to buyers about the differences in the products.

Practice Note: The Tenth Circuit’s decision demonstrates the viability of trademark infringement lawsuits as a means of controlling the unauthorized resale of trademarked goods. However, the court also noted that resellers of unauthorized goods could potentially avoid trademark liability by taking steps to avoid confusing consumers and damaging the trademark owner’s goodwill—such as by “sufficiently disclosing” how the product warranty differs from the original product.

**WEB ONLY**
Trademark / Geographic Misdescriptiveness

Geographic Misdescriptiveness Subject to Proof
By Amol Parikh

Finding that the Trademark Trial and Appeal Board (the “Board”) had improperly defined the relevant customer for purposes of determining whether a trademark was geographically deceptively misdescriptive under the Lanham Act, the U.S. Court of Appeals for the Federal Circuit vacated and remanded the Board’s decision. In re Spirits International, N.V., Case No. 08-1369 (Fed. Cir., April 29, 2009) (Dyk, J.).

Spirits International, N.V. (Spirits) filed a trademark application for use of the mark MOSKOVSKAYA for vodka. In its application, Spirits stated that the vodka would not be manufactured, produced or sold in Moscow and would not have any other connection with Moscow. Applying the doctrine of foreign equivalents, the Board found that in Russian, Spirits’ mark means “of or from Moscow.” After translating the mark, the Board analyzed the mark under § 1052(e)(3) of the Lanham Act, which prohibits the registration of marks that are primarily geographically deceptively misdescriptive of goods. A trademark is geographically deceptively misdescriptive of goods if the mark’s primary significance is a generally known location, the relevant public would be likely to believe that the goods originated at the place named in the mark when in fact the goods did not come from that place and the deception is a material factor in the consumer’s decision. Taking judicial notice that Russian is spoken by almost a million people in the United States, the trademark office refused registration of the mark concluding that it was geographically deceptively misdescriptive of goods because Russian speakers would believe the vodka was from Moscow, when in fact it was not. Spirits appealed.

On appeal, the Federal Circuit first addressed the doctrine of foreign equivalents, noting that under the doctrine, foreign words from common languages are translated into English so as to consider the meaning of the mark to non-English speakers of that language. The Federal Circuit also noted that as a threshold limitation on the application of the doctrine, the doctrine only applies in those situations in which the ordinary American consumer would stop and translate the mark into English. The Court went on to find that the ordinary American consumer includes all American purchasers, including those proficient in a non-English language who would ordinarily be expected to translate words into English.

The Court focused its attention on the materiality requirement under §1052(e)(3), which the Court found to be related to the common law doctrine of unclean hands as applied to deceptive trademarks. However, the Court also found that the doctrine of unclean hands did not apply in situations where only a relatively small number of customers were misled. Applying the common law doctrine to § 1052(e)(3), the Court found that the appropriate inquiry for materiality is whether a substantial portion of the intended audience is likely to be deceived, not whether any absolute number of a particular segment of the intended audience (such as foreign language speakers) is likely to be deceived.

Applying the materiality requirement to Spirit’s mark, the Court found that although the trademark office may have found that an appreciable number of the intended audience (i.e., Russian speakers) might be deceived, the trademark office improperly rejected the concept of proportionality and failed to consider whether Russian speakers were a substantial portion of the intended audience. Without expressing any opinion as to ultimate question of whether the intended audience was materiality deceived, the Court noted that only 0.25 percent of the U.S. population speaks Russian and, if this is the only portion of the intended audience that is deceived, this would not be a substantial portion. However, the Court also noted that to the extent that the intended audience was Russian speakers and some portion of non-Russian speakers would understand that the mark to suggest that the vodka came from Russian, these groups could constitute a substantial portion. The Court vacated the trademark office’s holding and remanded for further proceedings the factual question of whether a substantial portion of the intended audience would be deceived by the mark.

Copyrights / Fair Use

Archiving Papers for Purpose of Evaluating Plagiarism Is Transformative Fair Use
By Sara E. Coury

The U.S. Court of Appeals for the Fourth Circuit affirmed a grant of summary judgment against the plaintiffs’ (a group of high school students) copyright infringement claims. Their high schools required plaintiffs to submit written assignments via Turnitin.com, a service operated by iParadigms, LLC, which digitally compares submitted papers with various databases to generate an “Originality Report” showing the percentage of the paper, if any, that is not original. The students appealed. A.V. et al v. iParadigms, LLC, 562 F.3d 630 (4th Cir., April 16, 2009) (Traxler, J.).

After evaluating each of the fair use factors—purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and the effect of the use upon the potential market for or value of the copyrighted work—the Fourth Circuit affirmed the district court’s conclusion that defendant has established a fair-use defense.

In considering the first factor, the court found that the defendant’s use of the students’ work was transformative because digitally archiving papers for the purpose of detecting plagiarism is unrelated to the expressive content of the work. The Court further found that the transformative nature of the use outweighed its commercial nature. With regard to the second factor, the Court concluded the nature of the work was a factor that favored neither party. While plaintiffs’ works were entitled to the highest level of protection as creative works, defendant’s archiving of the papers was unrelated to the creative content of the papers. The Court also found that, despite the fact that the defendant copied the whole of plaintiffs’ works, the third factor favored neither party. The extent of the copying was balanced by the transformative nature of the use. With regard to the fourth factor, once again the transformative nature of the use weighed in the defendant’s favor. The Court found that defendant’s use of the plaintiffs’ work would only impair sales of unpublished papers to fellow students. Since the plaintiffs’ testified they would never be a party to cheating by selling their papers to other students, the Court found that the defendant’s use had no impact on the market for the plaintiffs’ works, and, therefore, the fourth factor weighed in the defendant’s favor.

Copyrights / Protectable Subject Matter

Copyright Protection Does Not Extend to Idea of a Program to Improve Education
By Peter Siavelis and Rita J. Yoon

The U.S. Court of Appeals for the Seventh Circuit has reminded us that it is not an idea, but the original expression for the implementation of an idea, that is entitled to copyright protection. Brooks-Ngwenya v. Indianapolis Public Schools, Case No. 08-1973 (7th Cir., April 15, 2009) (per curiam).

The plaintiff, a former classroom assistant, sued the Indianapolis Public Schools for copying an educational program or system that she developed while working for the school district. The program was a system of rewards and recognition for underachieving students to be implemented by the school. For example, the program included behavioral classes, reading classes and awarding of certificates to students. The plaintiff applied for copyright registration on the program, but the U.S. Copyright Office initially refused registration because the subject matter of her copyright claim was unclear. The plaintiff then filed an infringement action against the school district without overcoming the refusal of registration.

The district court granted summary judgment for the school district because the plaintiff failed to allege any work that would qualify for a valid copyright and the plaintiff lacked a copyright registration prior to filing suit. While the case was on appeal, the plaintiff renewed her application with the Copyright Office and ultimately obtained a copyright registration.

The Seventh Circuit affirmed the district court’s decision, explaining that the plaintiff did not even try to prove that the school district, in implementing its program for encouraging students, copied any materials related to her ideas regarding a student improvement program. Instead, the plaintiff merely alleged that the school district copied her ideas for better educating students. For example, the plaintiff alleged that the school district copied her program by rewarding students with certificates and by conducting behavioral classes. The court stated, “It is not the idea that is protected, but rather the original expression of the idea.” Thus, the plaintiff’s infringement action was doomed because she failed to show that “the form of words in which she embodied her ideas was copied.”

The court also raised two procedural issues that could preclude a copyright infringement claim. First, the court commented that the circuits are split on whether a plaintiff must apply for registration or actually receive a certificate of registration prior to bringing a copyright infringement claim. This question is currently pending before the Supreme Court in In re Literary Works in Electronic Databases Copyright Litigation. The court stated that “[c]ompliance with the registration requirements of 17 U.S.C. § 411(a) is not a condition of copyright protection but is a prerequisite to suing for infringement.”

Second, the court concluded that applicants who are refused copyright registration must notify the Copyright Office of a copyright infringement claim before filing suit. “Even though nonjurisdictional, the notification requirement is a prerequisite to suit,” to ensure that the Office could intervene and defend its refusal to register a work.

Practice Note: At least until (and unless) the Supreme Court rules otherwise, plaintiffs should continue to obtain a copyright registration before filing a copyright infringement action. If the Copyright Office has refused registration, plaintiffs should notify the Copyright Office of the suit by providing a copy of the complaint. Of course, authors should focus their claims for copyright on the original expression embodied in their work, not just the underlying idea.

Copyrights / Litigation

Illegal Use of a Copyrighted Work Does Not Jeopardize Copyright Protection
By Elisabeth (Bess) Malis

Addressing whether a copyright owner’s illegal use or operation of a work affects copyright protection, the U.S. Court of Appeals for the Ninth Circuit held that illegally exploiting an otherwise copyrightable work neither removes the work’s copyright protection nor prohibits a copyright owner from seeking actual or statutory damages in an infringement action. Dream Games of Arizona, Inc. v. PC Onsite, Case No. 07-15847 (9th Cir., Apr. 2, 2009) (Wardlaw, J.).

Dream Games is the developer and copyright owner of the electronic video bingo game “Fast Action Bingo” (the Game). Dream Games and PC Onsite entered into negotiations for PC Onsite to perform software upgrades to the Game. After the defendant created the upgrades, negotiations between the parties broke down. PC Onsite subsequently developed a competing game that exhibited the same type of upgrades and licensed its product to bingo parlors that featured the Game, in direct competition with Dream Games. Dream Games filed suit for copyright infringement and various contract claims. The jury awarded Dream Games $25,000 in statutory damages and the Court granted a permanent injunction against the defendant’s use of the competing game.

On appeal, the Ninth Circuit rejected the defendant’s arguments that Dream Games was not entitled to damages because it was operating the Game illegally in two states. The Ninth Circuit referenced its own decision in Belcher v. Tarbox, as well as the Fifth Circuit’s decision in Mitchell Bros. Film Group v. Cinema Adult Theater, two cases in which copyright protection was upheld for works comprised of illegal content, to exemplify that courts rarely entertain defenses of illegality and unclean hands absent evidence that the plaintiff’s conduct related directly to the infringement and such conduct directly injured the defendant. As PC Onsite was not directly injured by Dream Games’ illegal operation of the Game, the Circuit affirmed the district court’s ruling and held that illegal operation of a copyrighted work does not strip the work of copyright protection and is not a defense to infringement. Analogizing the “Mitchell/Belcher principle” to the case at hand, the Ninth Circuit reasoned that since copyright protection is afforded to works with illegal content, works that contain legal content, but which may be used or operated in an illegal manner, are “surely copyrightable.” In addition, because the Game was only illegally operated in two out of 50 states, it would be “absurd” to deny copyright protection based on such limited illegality. The Court further held that any damages available under the Copyright Act are available to an injured copyright owner, notwithstanding evidence of illegal operation, provided that the illegal conduct did not directly injure the infringer.

Practice Note: The Court’s holding conveys the strength of federal copyright protection; the manner in which a copyrighted work is exploited has no bearing on the nature of the copyright itself.

Copyrights / Substantial Similarity

Copyright Protection Subsists For Original Plush-Toy Designs
Contact Paul Devinsky

The U.S. Court of Appeals for the First Circuit, reviewing a district court decision in which the defendants were preliminarily enjoined from producing plush-toy coqíes (or frogs) that infringed plaintiff’s copyright, affirmed the injunction, concluding that the findings of the district court that the defendant had was access to the copyrighted work and that there was substantial similarity (the latter under the ordinary observer test) were supported by the record. Coquico, Inc. v. Rodriguez-Miranda, Case No. 07-2786 (1st Cir., Apr. 6, 2009) (Selya, J).

Plaintiff-appellee Coquico manufactures and distributes plush-toy dolls of various animals. One such line of plush toys features the coquí común, a small brown tree frog indigenous to Puerto Rico, for which Coquico secured a copyright registration in 2001. When Identiko, a company founded by a former employee of Coquico, began selling a plush-toy that strongly resembled Coquico’s, the plaintiff sued for copyright infringement. Following an evidentiary hearing, the district court preliminary enjoined the defendants from continuing to market the firm’s coquí. The defendants appealed.

To prevail on a copyright infringement claim, a party must prove a valid copyright and copying of original elements of the work by the alleged infringer. In this case, the defendants conceded that Coquico had a valid copyright. Thus, the appeal focused on the second requisite, or the copying of original elements. This requirement imposes on the copyright holder a two-part burden: to prove both that the infringer copied and that the works are substantially similar.

The defendants never disputed that Rodríguez, as a former employee of Coquico, had access to plaintiff's proprietary plush-toy frog design. The First Circuit easily found that “the combination of access to information concerning the design and production of [plaintiff’s plush-toy frog] and the probative similarity between the two products adequately buttresses the district court’s determination that Coquico had shown a likelihood of success on the issue of actual copying.”

With respect to the substantial similarity factor, the defendants relied on the merger and scenes à faire doctrines, arguing that that because the coquí común is found in nature, the only “original” elements of plaintiff’s plush-toy frog are its brass button and information hang tag. The First Circuit rejected the defendants’ argument as “artificially narrow.” The court held that, at a minimum, the Coquico’s plush-toy frog's distinctive stitching pattern, its idiosyncratic color combination, pose and the placement of Puerto Rican flag on the underbelly, as well as the plush-toy’s dimensions were all protectable as original expression of ideas. The defendants also challenged the district court’s finding that “an ordinary observer would be disposed to overlook [any] disparities and conclude the wares were the same.” In particular, defendants argued that Coquico’s copyright was “not very robust,” and thus, any shared qualities between the two toys did not rise to the level of substantial similarity. The First Circuit disagreed, reasoning that the stitching, color combination, posture, size and flag placements on the two products were virtually identical. As such, the district court had not erred in finding that Coquico would likely have prevailed on the substantially similarity issue.

Patents / Legislative Update

House of Representatives Judiciary Committee Considers Patent Reform Act
By Rita W. Siamas and Paul Devinsky

On April 30, 2009, the House Judiciary Committee held a hearing on the House’s version of the Patent Reform Act of 2009, H.R. 1260. While the Senate Judiciary Committee passed an amended version of its patent reform bill on April 2nd, S. 515, House Judiciary Chairman John Conyers, Jr. (D-Mich.) stated that the House committee would consider the issues independently, stating that “[t]his body is not a rubber stamp for the Senate. Further, Conyers vowed that the committee would pass a bill that is “fair to all parties concerned—or as fair as we can get it.”

Seven witnesses testified during the hearing and other interested groups submitted written statements to the committee. Not surprisingly, a majority of the testimony centered on the issue of apportionment of damages. Dean Kamen, inventor of the Segway, testified on behalf of inventors. Concerning the damages provision in H.R. 1260, Kamen testified that he was “somewhat encouraged” to learn of the Senate’s most recent damages provision, which provides additional guidance to judges in determining damages but does not alter the current damage calculation standard. “[T]his may be a reasonable compromise,” Kamen contended, “but anything that went beyond this to alter the standards for calculating damages could have serious consequences for our patent system and our economy.” Jack Lasersohn, representing the National Venture Capital Association (NVCA), testified that his coalition also supports the Senate’s “gatekeeper” compromise, which replaced the apportionment of damages provision in the Senate bill. Lasersohn explained, “the venture capital community believes that the current methodology for calculating damages is appropriate and working and that patentees are not systematically overcompensated."

Post-grant review was also a topic of interest during the hearing. Kamen spoke out against the provisions in the House bill, arguing that, “the expansion of post-grant reviews proposed by H.R. 1260 would add uncertainty to the value and validity of patents (in some instances many years after those patents were granted), create further disincentives for patent holders and investors, and may open the system up abuse by potential infringers.” Lasersohn indicated that NVCA supports a limited, 12-month window for post-grant review, but cautioned that, “we must recognize the imbalance of power intrinsic in this situation and take care that the system limits the potential for abuse by larger firms seeking to harass smaller competitors.” Further, NVCA opposes expanding inter partes re-examination to include the use of “prior public use or sale,” language in H.R. 1260, which was removed from the Senate bill.

Biotechnology Industry Organization (BIO), a frequent contributor to patent reform discussions, submitted written testimony to the House committee. As it has stated on previous occasions, BIO stated that it opposes the post-grant review provisions in the House bill that would broaden the grounds upon which a patent may be administratively challenged, as well as the bill’s apportionment of damages provision. BIO stated that with respect to these provisions, “it stands in good company, as [t]here is a broad consensus, among a variety of industries, universities, unions and other stakeholders across the spectrum of American society, against these proposed changes.”

On the Senate side, on May 12, a group of labor and trade unions requested Senate Majority Leader Harry Reid (D-Nev.) to schedule a floor vote on S. 515, the Senate compromise version of the Patent Reform Bill, in the near future, clearly signaling their support for the bill. On that same date, Senator Patrick Leahy (D-Vt.), filed a report of the Senate Judiciary Committee on the bill, declaring it ready for Senate consideration. It is unclear what, if any impact, the removal of Senator Arlen Spector (D-Penn.) from his position as ranking Republican member of the committee (following his switch of party affiliation) will have on the bill. Senator Jeff Sessions (R-Ala.) will replace Senator Spector.

Chief Judge Michel of the Federal Circuit, speaking at the May 14 American Intellectual Property Law Association (AIPLA) meeting in San Diego, spoke out against damages apportionment legislation, stating that in reasonable royalty cases, the existing law on apportionment is fairly clear” and that the case law already circumscribes when the entire market value rule should be applied, i.e., only in cases in which the patented component is the reason for consumer demand According to Judge Michel, even the Senate compromise version on damages reform (i.e., imposing on trial judges a gatekeeper function to keep certain damages evidence out of the case) is not needed as courts already routinely perform this function.

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IP Update Vol. 12, No. 5, May 2009

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