PATENTS / § 101 / SUMMARY JUDGMENT
Escaping Summary Judgment Under § 101
Setting a new course with respect to 35 USC § 101 litigation issues, the US Court of Appeals for the Federal Circuit held that the issue of whether a claim recites patent eligible subject matter—a traditional question of law—may also contain disputes over underlying facts sufficient to prevent a court from granting summary judgment. Berkheimer v. HP Inc., Case No. 17-1437 (Fed. Cir., Feb. 8, 2018) (Moore, J). The underlying factual disputes in Berkheimer involved step two of the Alice analysis (IP Update, Vol. 17, No. 7) as decided by the district court on summary judgment. Here, the Federal Circuit vacated the grant of summary judgment with respect to some of the disputed claims.
Less than a week later, the Federal Circuit again vacated a district court’s grant of a motion to dismiss claims for patent ineligibility based on similar reasoning. Aatrix Software, Inc. v. Green Shades Software, Inc., Case No. 17-1452 (Fed. Cir., Feb. 14, 2018) (Moore, J) (Reyna, J, concurring in part, dissenting in part). In each of these decisions, the Federal Circuit emphasized the factual disputes underlying the § 101 analysis.
According to the Supreme Court of the United States, the second step in an Alice analysis (whether the claims require an “inventive step”) is satisfied when the claim limitations “involve more than the performance of well-understood, routine, [and] conventional activities previously known to the industry.” To date, the patent eligibility analysis under Alice (both step one and two) has been considered a question of law and has often been decided on the basis of early motions, such as a motion to dismiss for failure to state a claim or summary judgment. The decision in Berkheimer upends that analysis because the Federal Circuit has now explained that whether a claim element or combination of elements is “well-understood, routine and conventional to a skilled artisan in the relevant field” is itself a question of fact. Thus, even though the issue of whether a claim recites patent eligible subject matter remains a question of law, the underlying facts may give rise to disputes that prevent the issue from being decided on summary judgment or early motions practice.
In its analysis, the Federal Circuit looked to the specification of Berkheimer’s patent to determine whether it included anything that could create a factual dispute as to whether the invention described “well-understood, routine and conventional activities.” The Court found that the specification described an inventive feature of storing parsed data “in a purportedly unconventional manner.” Further, the specification noted that the disclosed system “eliminates redundancies, improves system efficiency, [and] reduces storage requirements,” among other things.
To create a factual dispute, however, the purported inventive features of the specification must be “captured in the claims.” The Federal Circuit analyzed the asserted claims to determine whether they captured the recited improvements found in the specification. The Court concluded that the broader claims did not “recite an inventive concept sufficient to transform the abstract idea [parsing, comparing and storing data] into a patent eligible application.” However, some of the narrower claims included limitations directed to the “arguably unconventional inventive concept described in the specification.” Thus, the Court vacated grant of summary judgment with respect to several claims so that the district court could determine whether, under Alice step two, there was a genuine issue of material fact as to whether those claims performed “well-understood, routine and conventional activities,” making summary judgment improper.
The Federal Circuit also addressed the issue of claim indefiniteness with respect to the term “minimal redundancy” in the context of a claimed archive that exhibits minimal redundancy. The Court affirmed the district court’s holding that the term was indefinite because “[t]he specification contains no point of comparison for skilled artisans to determine an objective boundary of ‘minimal’ when the archive includes some redundancies.” According to the Court, neither the claims and specification nor the prosecution history provided an objective boundary or specific examples to inform a skilled artisan what was meant by “minimal redundancy” with reasonable certainty. The Court emphasized that not all terms of degree are indefinite. Rather, it is the lack of any objective boundary found in the intrinsic claim construction materials that renders the term indefinite.
In Aatrix Software, the Federal Circuit decided an appeal of the district court’s dismissal under Fed. R. Civ. P. 12(b)(6) concerning claims of two patents the district court deemed invalid as being directed to patent-ineligible subject matter under § 101. The Court found that the district court erred in not allowing Aatrix to amend its complaint (after the motion to dismiss was granted) to provide additional allegations and evidence that Aatrix argued would have precluded a dismissal under § 101 at the Rule 12(b)(6) stage. According to the Federal Circuit, such factual allegations, if accepted as true, would have contradicted the district court’s conclusion that the claimed combination was conventional or routine. For example, the Court found that the allegations in the proposed amended complaint, such as whether the claim term “data file” constitutes an inventive concept, alone or in combination with other elements, would have been sufficient to survive an adverse Alice ruling at the Rule 12(b)(6) stage.
Judge Reyna dissented from the majority with respect to the role of factual evidence in a § 101 inquiry. According to Reyna, shifting the character of the analysis to a predominately factual inquiry risks “open[ing] the door in both steps of the Alice inquiry for the introduction of an inexhaustible array of extrinsic evidence.”
Practice Note: These pro-patentee decisions will likely serve as guideposts for patent owners and patent drafters to strengthen patent specifications and claims, and for patent owners to provide self-serving factual allegations in their complaint, to avoid early dismissals in litigation.
On March 15, 2018, in Intellectual Ventures LLC et al. v. Symantec Corp. et al., Case Nos. 17-1814: -1858 (non-precedential), Judge O’Malley affirmed a summary judgment grant of patent ineligibility under § 101, distinguishing Berkheimer and noting that the district court in Intellectual Ventures “found that IV failed to offer evidence to show that the order of the steps was unconventional. . . . IV also acknowledged at oral argument that it did not offer expert testimony to show the lack of conventionality of its components.” (Slip Op at N.1)
HP has requested en banc review in Berkheimer, so we may not yet have the final word on the possibility of raising a factual dispute to defeat an early Alice-based motion to dismiss or motion for summary judgment. If the holdings and associated reasoning of Berkheimer and Aatrix stand after any further appellate review, practitioners should take note of their likely effects. For patent owners, these decisions provide another argument strategy to keep a case alive against an early motion under Rule 12(b)(6) or summary judgment. If patent owners can point to one or more inventive concepts in the specification and connect them to the elements of the claims, patent owners may be able to provoke enough of a factual dispute regarding Alice step two to prevent a dispositive motion from rendering the claims ineligible. Consequently, defense counsel will need to minimize the effect of any purported improvements over the prior art disclosed in the specification and divorce any such improvements from the language of the claims. For patent drafters, these decisions encourage the recitation of the purported improvements throughout the specification. And as always, practitioners should be mindful of the recited improvements to the underlying technology when drafting claims.
PATENTS / OBVIOUSNESS / MOTIVATION TO COMBINE / TEACHING AWAY / COMMERCIAL SUCCESS
Subjective Preference Is No Excuse for Ignoring Teaching Away
Addressing the issues of teaching away and commercial success, the US Court of Appeals for the Federal Circuit remanded a case to the Patent Trial and Appeal Board (PTAB) to reconsider its final written decision issued in one of two inter partes reviews (IPRs) where the PTAB found the challenged claims unpatentable over one combination of references but not the other. Polaris Industries, Inc. v. Arctic Cat, Inc., Case Nos. 16-1807; -2280 (Fed. Cir., Feb. 9, 2018) (O’Malley J).
Arctic Cat, a manufacturer of all-terrain vehicles (ATVs), filed two IPR petitions for a patent held by its competitor, Polaris Industries, for the configuration of ATVs. The PTAB found the patents obvious from a combination of prior art presented in one IPR but not the other, and the parties cross-appealed. The Federal Circuit affirmed the PTAB IPR decision finding the patent valid, but overturned in part the IPR decision finding it invalid and remanded for reconsideration.
The Federal Circuit upheld the PTAB’s claim constructions and part of its conclusion on the motivation to combine prior art. Specifically, the Court found that the PTAB properly gave a broad interpretation for the placement of the claimed plates because the claims and specification allowed for it, but properly narrowed the term “extending between” to require no intervening parts because such a construction conformed to all of the patent examples. The Court also upheld the PTAB’s conclusion that a skilled artisan would have been motivated to combine or rely on the asserted prior art because the prior art dune buggies were analogous to the claimed ATVs and the component placement in the prior art allowed for comparable placement of the driveshaft as taught in the challenged patent.
The Federal Circuit remanded the case to the PTAB, however, finding that the obviousness analysis was inadequate. First, the Court found that the PTAB had failed to take into account uncontested evidence of teaching away. It was undisputed that the prior art suggested that placing the fuel tank under the seat would require raising the occupancy area, and that the claimed fuel tank configuration was therefore taught to be undesirable because it would raise the center of gravity and make the ATV more dangerous. As noted by the Court, since the claimed tank placement ran counter to the prior art teaching, the PTAB relied on a theory of “subjective preference” to nevertheless find obviousness: “one of ordinary skill has the ability to weigh the various benefits and disadvantages based on subjective preferences in an analysis largely unrelated to obviousness” (emphasis in original).
The Court rejected this framework: “[w]e have never articulated a framework for analyzing whether claims would have been obvious that includes the phrase ‘subjective preference’ or that permits a tribunal to wholly disregard the significance of prior art teachings based on such a characterization.” In short, the Court found that the PTAB’s analysis did not comport with a proper obviousness analysis by allowing hindsight bias, focusing on what a skilled artisan would have been able to do rather than motivated to actually do, and discarding relevant evidence of teaching away. While the Court acknowledged that merely expressing a general preference without criticizing, discrediting or otherwise discouraging the invention is not teaching away, statements of preference are still relevant to motivation.
Second, the Federal Circuit found that the PTAB erred by rejecting Polaris’s uncontested claims of commercial success as “conclusory.” The Court explained that a plaintiff need not provide more than conclusory statements as to commercial success where its evidence is otherwise unchallenged. If the plaintiff provides sufficient evidence to tie the objective evidence of commercial success to a specific product that embodied the claim features, the plaintiff is entitled to a “presumption of a nexus,” which may be rebutted by defendant’s evidence. Arctic Cat provided no evidence to overcome the presumption, however, and therefore the Court found that the PTAB erred in disregarding commercial success in its obviousness analysis.
PATENTS / OBVIOUSNESS / 35 USC § 103
Substantial Evidence Supports Non-Obviousness in Helmet Case
In a long-running dispute between Thales Visionix, Inc., and the US government and Elbit Systems of America, LLC, the Patent Trial and Appeal Board (PTAB) issued a final written decision finding that 11 claims of the challenged patent were not obvious (while invalidating other asserted claims on grounds not discussed here). The US Court of Appeals for the Federal Circuit affirmed the non-obviousness determination, finding that substantial evidence supported the determination and that Thales’s expert offered more credible testimony than Elbit’s invalidity expert. Thales Visionix, Inc. v. US, Case No. 17-51355 (Fed. Cir., Feb. 6, 2018) (Wallach, J).
Elbit filed a petition for inter partes review of Thales’ patent having claims generally covering HMDS used by F-35 fighter jet pilots. The claims utilized mathematical equations to determine the orientation of the helmet relative to the frame of a moving vehicle through inertial sensors, such as accelerometers and gyroscopes. The key claim limitation in the PTAB’s analysis was the calculation of the “relative angular rate signal.” Elbit argued that certain challenged claims were obvious in view of three prior art references in combination. Thales, however, presented evidence demonstrating that the limitation of calculating the “relative angular rate signal” was not disclosed in the prior art. The PTAB agreed with Thales and found that Elbit failed to carry its burden in demonstrating that the asserted claims were obvious. Elbit appealed.
The Federal Circuit limited its analysis to a representative claim and agreed with the PTAB that “there were many ‘deficiencies’ in the testimony of Elbit’s expert” and that the petitioner failed to prove the challenged claims were unpatentable by a preponderance of the evidence. A key distinction between the two parties in presenting evidence through their respective experts was the number of steps required to calculate the orientation or position of a moving object relative to a moving reference frame. Thales’s expert explained that the challenged claims employed a two-step method to arrive at the claimed “relative angular rate signal,” a position that was supported by the specification of the challenged patent and evidence that the two-step method was beneficial over the steps disclosed in the prior art.
In contrast, Elbit’s expert relied on a three-step method in the prior art to calculate an object’s relative orientation, arguing that the two- and three-step methods are “mathematically equivalent” and that “there is no practical difference” between them. The PTAB found Elbit’s expert’s testimony “unsupported” and entitled to “little weight” because the expert did not address or account for the recited relative angular rate signal limitation “anywhere in his opinion.” The Federal Circuit agreed, concluding that the difference between the steps recited in the claims and the steps in the prior art provides substantial evidence that the prior art does not teach the claimed “relative angular rate signal” limitation.
Regarding the PTAB’s criticism of Elbit’s expert, the Federal Circuit agreed that the PTAB is entitled to weigh the credibility of witnesses and point out where an expert’s testimony was unsupported.
Lastly, Elbit’s counter-arguments were dismissed as unpersuasive. In particular, Elbit argued on appeal that the PTAB failed to appreciate the knowledge of a person of skill in the art. According to Elbit, a skilled artisan would understand that the sum of integrals principle extends to navigation equations, thereby negating the need for Elbit to produce a prior art reference expressly directed to the sum of integrals principle in the context of navigation equations. The Federal Circuit rejected Elbit’s arguments as to what a person of ordinary skill in the art would understand as mere attorney argument that cannot rebut the testimony of Thales’s expert and the PTAB’s reliance on that testimony.
Practice Note: This is not the first time the Federal Circuit has had occasion to consider the Thales patent. In March 2017, the Federal Circuit reversed a US Court of Federal Claims decision invalidating Thales’ claims directed to a heads-up display patent as patent ineligible under 35 USC § 101 (IP Update, Vol. 20, No. 4). In that case, the Federal Circuit concluded the claims were not directed to an abstract idea since they specify a particular configuration of inertial sensors and a particular method of using the raw data from the sensors. The Court emphasized that “it is not enough merely to identify a patent-ineligible concept underlying the claim; we must determine whether that patent-ineligible concept is what the claim is ‘directed to.’”
PATENTS / ON-SALE
Distribution Agreement Qualifies as Commercial Offer for Sale
Sagun KC, PhD
Addressing what qualifies as an invalidating offer for sale under 35 USC 102(b), the US Court of Appeals for the Federal Circuit reversed a district court finding that a distribution agreement was not a commercial offer for sale. The Medicines Co. v. Hospira, Inc., Case Nos. 14-1469; -1504 (Fed. Cir., Feb. 6, 2018) (Hughes, J).
The Medicines Company (TMC) owns two patents covering pharmaceutical bivalirudin, an anti-coagulant synthetic peptide branded and sold as Angiomax. More than a year before filing the patents, TMC entered into an exclusive distribution agreement with Integrated Commercialization Solutions, Inc. (ICS). The distribution agreement stated that TMC desired to sell Angiomax to ICS and that title would pass to ICS upon receipt of Angiomax at the distribution center. The agreement also permitted TMC to reject all purchase orders submitted by ICS. ICS received the first batch of Angiomax less than one year before the filing of the patents.
Seeking to market a generic version of Angiomax, Hospira filed an abbreviated new drug application seeking US Food and Drug Administration approval. TMC sued for patent infringement. In response, Hospira alleged that the asserted patents were invalid because a distribution agreement between TMC and ICS was signed prior to the critical date and thus constituted an invalidating “sale” under § 102(b). The district court found that the distribution agreement was not an invalidating sale because the agreement was for ICS to be a distributor of Angiomax and was not an offer to sell Angiomax. Finding no offer for sale, the district court did not reach whether the distribution agreement covered the patented invention. Hospira appealed the invalidity finding.
The Federal Circuit reversed the district court’s invalidity finding. In a prior appeal involving the parties, the Court explained that the framework for determining whether there is an offer for sale requires focusing on activities that would be understood to be commercial sales and offers for sale in the commercial community (IP Update, Vol. 19, No. 8). The Court found that under this framework, the distribution agreement was an agreement to sell and purchase Angiomax. TMC argued that the distribution agreement was not an offer for sale because it permitted TMC to reject all of ICS’s purchase orders. The Court rejected TMC’s argument because the agreement explicitly stated that TMC desired to sell Angiomax to ICS, that TMC was required to use “commercially reasonable efforts” to fill the purchase orders, and that TMC was unlikely to reject any purchase orders because ICS had exclusive distribution rights. The Court found that the distribution agreement was a commercial offer for sale and remanded to the district court to determine if the distribution agreement covered the patented invention.
PATENTS / ANTICIPATION
Federal Circuit’s “Only Permissible Finding” Is to Reverse PTAB
Addressing patentability, the US Court of Appeals for the Federal Circuit reversed the Patent Trial and Appeal Board’s (PTAB’s) rejection of claims as being anticipated, and vacated and remanded the obviousness determination, finding that the PTAB’s anticipation determination was not supported by substantial evidence and that the obviousness determination was based on insufficiently or inappropriately explained factual findings. In re: Hodges, Case No. 17-1434 (Fed. Cir., Feb. 12, 2018) (O’Malley, J) (Lourie, J, concurring) (Wallach, J, concurring in part, dissenting in part).
Hodges filed a patent application directed to a valve assembly for draining contaminants, condensation and other fluids that adversely affect the efficiency and function of a pressurized system. The patent claims a “valve body, wherein said valve body defines an inlet seat and a first outlet seat downstream of said inlet seat.” In response to a prior art rejection, Hodges argued that while the cited references disclosed an inlet seat, the references did not disclose an inlet seat defined by a valve body. The examiner and PTAB disagreed, finding that in the prior art reference, the unlabeled valve allows or prevents flow into the inlet port, and that the seat of the valve would therefore be an internal part of, and contained within, the outer casing of the drain valve. The PTAB maintained the examiner’s rejection, finding the claims anticipated and obvious. Hodges appealed.
The Federal Circuit disagreed with the PTAB’s findings, explaining that the inlet seat of the valve is not an internal part contained within the outer casing of the drain valve in the prior art reference, and that the only permissible finding that can be drawn from the prior art is that it does not disclose the claim limitation at issue. The Court also found that the PTAB’s finding was predicated on an erroneous construction of the claimed “sensor,” and that the only permissible factual finding that could be drawn from the prior art is that it does not disclose a sensor that generates a “signal” under any reasonable construction of that term. The Court also held that the PTAB’s obviousness determination involved insufficiently or inappropriately explained factual findings, warranting reversal and remand.
Judge Wallach dissented in part, believing reversal of the PTAB’s determination exceeded the Court’s authority because the basis for the majority opinion (i.e., erroneous factual findings and the existence of only one permissible factual finding) did not fit the facts of this case. The dissent stated that neither the majority nor the PTAB provided sufficient support for their mutually exclusive findings regarding the location of the inlet seat relative to the unlabeled valve and the outer casing of the drain valve.
PATENTS / AIA / CLAIM CONSTRUCTION
Examiner’s Reason for Allowance May Be Sufficient to Show Prosecution Disclaimer
While affirming a Patent Trial and Appeal Board (PTAB) decision to invalidate a patent as obvious, the US Court of Appeals for the Federal Circuit found that the PTAB incorrectly concluded that an examiner’s statements in a “Notice of Allowance” was not a prosecution disclaimer. Arendi S.A.R.L. v. Google LLC, Case No. 16-1249 (Fed. Cir., Feb. 20, 2018) (Newman, J).
Google requested inter partes review (IPR) of one of Arendi’s patents relating to a method of handling information. During the IPR proceeding, Arendi relied on the examiner’s “Reasons for Allowance,” arguing that amendments made during prosecution distinguished the prior art by further narrowing the scope of the claims. The PTAB disagreed, finding that amendments are not limited by the prosecution record when only the examiner disclaims subject matter that would otherwise fall within the scope of the claims. Finding that the claims were not narrowed based on prosecution disclaimer, the PTAB found the claims obvious over the prior art. The PTAB also found that even if the examiner’s statements were considered prosecution disclaimers, the narrower interpreted claims would still be obvious over the prior art. Arendi appealed.
The Federal Circuit affirmed the PTAB’s invalidity finding but determined that the PTAB erred in concluding that prosecution disclaimer does not apply. The Court noted that while the applicant, not the examiner, must disclaim subject matter that would otherwise fall within the scope of the claims, the applicant must clearly and unambiguously express surrender of subject matter during prosecution. Turning to the current case, the Court found that the applicant clearly and unambiguously expressed surrender by amending the claims and explaining why the amendment was necessary. The examiner simply confirmed why the amended claims were allowable. The examiner’s Reasons for Allowance also made clear that both the examiner and the applicant understood that amendments were necessary to overcome prior art, and thus prosecution disclaimer applied. The Federal Circuit then turned to the PTAB’s alternative ruling and affirmed, finding that even though prosecution disclaimer applied, the narrower interpreted claims were still obvious in view of the prior art.
PATENTS / AIA / CLAIM CONSTRUCTION
Knee Brace Patent Application Gets a Leg Up
Finding that the Patent Trial and Appeal Board (PTAB) erred in rejecting patent claims after improperly construing an apparatus claim element by ignoring what it deemed to be a recited method step, the US Court of Appeals for the Federal Circuit vacated the rejection and remanded to the PTAB for further proceedings. In re: Nordt Dev. Co., LLC, Case No. 17-1445 (Fed. Cir., Feb. 8, 2018).
Nordt filed a patent application directed to an elastic knee brace. The application included apparatus claims that, in response to an anticipation rejection, were amended to include process limitations reciting “injection molded” components. The examiner maintained the anticipation rejection despite acknowledging that the prior art did not disclose the “injection molded” method. The examiner reasoned that the claims were anticipated because “[i]n order to anticipate the injection molded feature, the prior art must disclose the finished product and not the method of making the product.”
On appeal to the PTAB, Nordt argued that the “injection molded” limitation was a structural limitation because it described the structural relationship between the framework and the strut and arm components of the knee brace. The PTAB rejected Nordt’s argument and affirmed the rejection because Nordt “[did] not persuasively explain what structural limitation is imparted by this manufacturing practice.” Nordt appealed.
On appeal, the Federal Circuit found that the “injection molded” limitation was a structural limitation and thus should be seen as limiting. The Court found that the PTAB’s analysis should have focused on whether the claim limitation conferred a patentable distinction over the prior art. The Court noted that the analysis requires determining whether “injection molded” is a process or structural limitation, and if it is structural, determining the meaning of the limitation. The Court found that “injection molded” was structural because, unless the patentee has demonstrated otherwise, the presumption in interpreting ambiguous language is to use its structural sense, and the patent specification describes injection molding as forming an integral component. While the Court found that the “injection molded” limitation was structural, it did not actually identify what that structure was. Instead, the Court remanded for further proceedings consistent with the opinion.
PATENTS / WRITTEN DESCRIPTION / INCORPORATION BY REFERENCE
Incorporation by Reference: Context May Affect Written Description Support for Later-Added Claims
The US Court of Appeals for the Federal Circuit partially vacated a ruling by the Patent Trial and Appeal Board (PTAB), concluding that an incorporation by reference clause in an earlier application in the line that led to the challenged patent did not limit the applicability of incorporated reference in terms of providing written description support for later-added claims. Paice LLC v. Ford Motor Company, Case Nos. 17-1387; -1388; -1390; -1406; -1457; -1458 (Fed. Cir., Feb. 1, 2018) (O’Malley, J).
Paice appealed final written decisions issued by the PTAB in six inter partes review (IPR) proceedings initiated by Ford to challenge two of Paice’s patents relating to hybrid cars. The challenged patents were directed to a torque-based algorithm for selecting operating modes in a hybrid vehicle having an internal combustion engine and one or more battery powered electric motors. The claims at issue generally recite methods for comparing the instantaneous torque required to propel the vehicle, to both a setpoint and the engine’s maximum torque output to determine whether to operate the engine, the electric motor or both. The PTAB held several challenged claims to be unpatentable over a reference that Paice asserted was not prior art to the challenged claims by virtue of an incorporation by reference in an earlier application in the family that matured into the challenged patent.
The Federal Circuit affirmed the PTAB decisions on obviousness, essentially based on affirmance of the PTAB’s broadest reasonable interpretation construction of two disputed claim terms, and its conclusion that the final written decisions provided “a reasoned basis for their decisions,” but it vacated the PTAB ruling relating to the priority date to which the challenged claims were entitled. In doing so, the Court clarified whether, and to what extent, a document is incorporated by reference in a patent application.
The priority date for later-added patent claims depends on when the claimed subject matter first appeared in the chain of patent applications from which the claims arose. For claims to be entitled to a priority date of an earlier-filed application, the application must provide adequate written description support for the later-claimed limitations.
During the IPR proceedings, Paice argued that the challenged claims were entitled to claim priority from an earlier US application and that the earlier application provided sufficient written description support for the challenged claims by virtue of incorporation by reference of a US patent to Severinsky. The PTAB rejected Paice’s argument and found that the later-added limitations were not supported by an adequate written description.
The Federal Circuit reversed, concluding that the statement in the earlier application that “[Severinsky] is incorporated herein by this reference” (emphasis in original) “identified with detailed particularity the specific material subject to incorporation and where that material can be found,” and was “plainly sufficient to incorporate Severinsky in its entirety.” The Court explained that the PTAB’s reliance on a subsequent sentence in the application that stated “[w]here differences are not mentioned, it is to be understood that the specifics of the vehicle design shown in [Severinsky] are applicable to the vehicles shown herein as well” did not limit incorporation to only those disclosures in Severinsky that are not different from disclosures from the disclosures in the application. Rather, the Court concluded that “[t]he sentence has no bearing . . . on the extent of incorporation. It refers only to the applicability of certain features of Severinsky’s invention to the . . . application’s purportedly new and improved hybrid vehicle, rather than to which textual portions of the Severinsky document are incorporated.” As the Court further explained, “[t]he applicability of a document’s disclosed features and the incorporation of the document itself are distinct concepts, and one does not imply the other.”
The Federal Circuit explained that when read in context, the entire passage makes it clear that Severinsky is incorporated in its entirety into the application, but applies only some of the specific features of the invention disclosed in the application now in issue.
The Court remanded the case to the PTAB to determine whether the earlier application, with Severinsky incorporated in its entirety, provides the requisite written description support for the challenged claims.
PATENTS / WRITTEN DESCRIPTION
PTO Clarifies Written Description Guidance for Claims Drawn to Antibodies
Bernard P. Codd
The US Patent and Trademark Office (PTO) issued a memorandum to patent examiners clarifying the written description requirement of 35 USC § 112(a) for claims drawn to antibodies. The memorandum was spurred by the US Court of Appeals for the Federal Circuit 2017 decision in Amgen v. Sanofi, which addressed adequate written description for claims drawn to antibodies. In Amgen, the Federal Circuit explained that when an antibody is claimed, § 112(a) requires adequate written description of the antibody itself. This is in contrast to MPEP 2163(II)(3)(a), which teaches “disclosure of an antigen fully characterized by its structure, formula, chemical name, physical properties, or deposit in a public depository provides an adequate written description of an antibody claimed by its binding affinity to that antigen, if generating the claimed antibody is so routine that possessing the [antigen] places the applicant in possession of an antibody” (the so-called newly characterized antigen test).
The Federal Circuit found that although the newly characterized antigen test was noted in dicta in several other Federal Circuit decisions, it could not stand because it contradicted the quid pro quo of the patent system whereby one must describe an invention in order to obtain a patent. Therefore, the memorandum instructs examiners that adequate written description of a newly characterized antigen alone should not be considered adequate written description of a claimed antibody to that newly characterized antigen, even when the preparation of such an antibody is routine and conventional.
The memorandum further instructs examiners to continue to follow the guidance in the MPEP 2163 except for the portion teaching that disclosure of a fully characterized antigen may provide written descriptive support of an antibody to that antigen. The memorandum noted that the MPEP will be updated to reflect these changes.
PATENTS / PATENT TERM ADJUSTMENTS
Counting the Days: PTA Calculated from Date National Stage Commences
Addressing the patent term adjustment (PTA) calculations under 35 USC § 154(b)(1)(A)(i)(II), the US Court of Appeals for the Federal Circuit held that an applicant must comply with the “express request” provision of § 371(f) to commence the national stage, and that the national stage commences on the next workday if the 30-month date falls on a federal holiday. Actelion Pharm., Ltd. v. Matal, Case No. 17-1238 (Fed. Cir., Feb. 6, 2018) (Lourie, J). At issue in the appeal were four days of patent term extension.
Actelion filed an International Patent Application on July 16, 2009. On January 12, 2012, four days before the 30-month deadline for national phase entry, Actelion filed a US national stage patent application claiming priority to the International Patent Application. The US Patent and Trademark Office (PTO) issued the first office action on April 26, 2013, which was after the statutory deadline for action, leading to accrual of “A Delay” under 35 USC § 154.
Upon issuance, the PTO calculated “A Delay” of 41 days (March 16, 2013, to April 26, 2013). Actelion requested recalculation of the PTA in view of § 154, claiming it was entitled to a PTA of 45 days because accrual should have been calculated based on the application’s January 12, 2012, filing date. In recalculating, the PTO reduced the PTA to 40 days (March 17, 2013, to April 26, 2013). Actelion filed suit against the PTO in the Eastern District of Virginia. The district court granted the PTO’s motion for summary judgment, agreeing that the PTO correctly calculated the PTA. Actelion appealed.
The Federal Circuit affirmed. The Court agreed with the PTO that calculating “A Delay” is based on the date of full compliance with the “entirety of § 371.” To commence the national stage before the 30-month deadline, Actelion was required to make an express request under § 371(f). Since Actelion failed to make an express request for early examination, the national stage did not commence until the 30-month deadline, which was January 16, 2012. Moreover, because the 30-month deadline fell on a federal holiday, the national stage did not commence until the next workday, which was January 17, 2012. The Court therefore concluded that the PTO correctly calculated the PTA to be 40 days.
PATENTS / TRIAL
Deference, Discovery and District Court Findings
Giving deference on discovery issues and non-infringement findings, the US Court of Appeals for the Federal Circuit affirmed a non-infringement determination, finding the district court did not abuse its discretion by proceeding to trial notwithstanding the defendant’s violation of a discovery order regarding production of the alleged infringing product. Merck Sharp & Dohme Corp. v. Amneal Pharmaceuticals LLC, Case No. 17-1560 (Fed. Cir., Feb. 9, 2018) (Stoll, J).
Amneal submitted an abbreviated new drug application (ANDA) to the US Food and Drug Administration (FDA) seeking approval to market a generic nasal spray with the active ingredient MFA. In response, Merck filed a patent infringement complaint alleging that the MFA in Amneal’s proposed product would convert to Merck’s patented MFM form over time. In violation of the district court’s standing discovery order, Amneal did not produce to Merck samples of all the batches it tested and submitted to the FDA. Merck file a motion to compel production of the samples, which the court denied. The case proceeded to trial, and the court ultimately found that Merck had failed to prove infringement. Merck appealed.
On appeal, the Federal Circuit acknowledged that the discovery question was “a close one” and that Amneal should have produced the samples it provided to the FDA, but held that the district court did not abuse its discretion in denying Merck’s motion to compel. The Court found that Merck had the opportunity to prove that the unproduced samples were substantively different from the produced samples, but failed to do so. At trial, Merck offered expert testimony to demonstrate that mixing promotes the conversion of MFA to MFM such that there were material differences between the samples it received and those it did not. The district court found, however, that Merck did not prove that actual testing of the non-produced samples was necessary to avoid prejudice.
The Federal Circuit further held that the district court did not err in relying on the produced samples of Amneal’s ANDA product as representative of its final commercial product. Merck argued that the samples produced by Amneal were only an intermediate product, and that the proper ANDA infringement inquiry should focus on what will be or is likely to be sold. The Federal Circuit rejected that argument, concluding that the evidence was sufficient to support a determination that the produced samples were representative of Amneal’s final commercial product and thus could be relied upon in deciding infringement.
Finally, the Federal Circuit held that the district court did not clearly err in finding non-infringement. While there was conflicting expert testimony regarding what was required to prove the presence of MFM (specifically, whether one or three “Raman peaks” on a spectrograph are necessary), Merck’s evidence showed only one Raman peak, and therefore the record sufficiently supported the district court’s non-infringement finding.
PATENTS / LICENSE / BREACH
Activity Outside Licensed “Field of Use” Not a Material Breach
The US Court of Appeals for the Federal Circuit found a licensor’s termination of a license agreement ineffective, concluding that a licensee’s activity outside of a “field of use” provision was not a material breach of that agreement. MACOM Technology Solutions Holdings, Inc., Nitronex, LLC v. Infineon Technologies, et al., Case No. 17-1448 (Fed. Cir., Jan. 29, 2018) (Prost, CJ).
Nitronex developed semiconductors using gallium-nitride and obtained several patents related to this technology. Nitronex sold its gallium-nitride patents to International Rectifier in 2010. At the same time, both companies executed a separate license agreement that licensed back to Nitronex certain rights under the patents. Both companies were later acquired and renamed, where MACOM was formerly Nitronex and Infineon was formerly International Rectifier. The license agreement included an Exclusive Field of Use provision for the gallium-nitride-on-silicon technology under which MACOM had certain exclusive rights to practice the licensed patents. Infineon notified MACOM that its activity in making and selling products using gallium-nitride-on-silicon-carbide technology, a technology outside of the Field of Use provision, was a material breach terminating the license agreement. MACOM obtained a preliminary injunction against Infineon for wrongful termination of the license agreement. The injunction also declared Infineon’s termination ineffective and ordered Infineon to comply with the agreement. Infineon appealed.
The Federal Circuit affirmed entry of the injunction, vacated-in-part the injunction and remanded for further proceedings. Applying Ninth Circuit law, the Federal Circuit concluded that MACOM showed a likelihood of success on its wrongful termination claim, finding that MACOM could likely establish that its activity outside of the Field of Use provision did not breach the license agreement’s implied covenant of good faith and fair dealing. The Federal Circuit explained that use of the term “only” with the Field of Use language did not suggest any additional promise or obligation by MACOM not to exceed the Field of Use, dismissing the notion of supplementing Infineon’s mere promise not to sue with a contractual obligation of MACOM.
The Federal Circuit also concluded that there was a sufficient causal nexus between Infineon’s termination of the license agreement and harm to MACOM. The Federal Circuit explained that losing the license exclusivity would harm MACOM “merely by virtue of its customers’ perception that it no longer holds an exclusive license” if the termination was effective, noting that MACOM would have difficulty competing alongside Infineon for the same business without the exclusivity provided by the license agreement.
Finally, the Federal Circuit vacated portions of the injunction enjoining future infringing acts without reference to any particular adjudicated infringing products as violating the specificity requirements of Fed. R. Civ. P. 65(d), and portions of the injunction enjoining Infineon from granting licenses or sub-licenses to the licensed patents in the Exclusive Field without evidence of Infineon breaching or threatening to breach a contractual provision. The case was remanded to the district court for further proceedings.
PATENTS / STANDING
Bring All Your Claims Together: No Piecemeal Declaratory Judgment Actions
In a dispute over royalty payments, the US Court of Appeals for the Federal Circuit held that a patent holder lacked standing under the Declaratory Judgment Act to challenge its own patent’s validity to expedite the termination of its royalty payments. AbbVie Inc. v. MedImmune Ltd., Case No. 17-1689 (Fed. Cir., Feb. 5, 2018) (Dyk, J).
In 1995, AbbVie and MedImmune’s predecessors entered into an agreement to develop and license adalimumab, the active ingredient in Humira. The agreement provided that AbbVie’s predecessor would pay royalties on the sale of certain products until (1) the last of a number of certain patents expired, or (2) 15 years after the first commercial sale of a certain product, whichever was later. The last patent was set to expire on June 19, 2018, and the first commercial sale was made 15 years before January 2018 (in January 2003).
In June 2016, AbbVie sought a declaration that the patent set to expire in 2018 was invalid. AbbVie believed that a declaration of invalidity would act as an “expiration” of the patent and thereby end AbbVie’s obligation to pay royalties in January 2018 instead of in June 2018. However, AbbVie did not seek a declaration that it would no longer need to pay royalties if the patent was declared invalid. The district court found that AbbVie lacked standing to bring the action because it did not practice the patent and therefore was not subject to a potential infringement claim. The district court also held that it would not exercise jurisdiction over the action, finding that deciding the patent’s validity would not necessarily end the dispute over AbbVie’s royalty payments. AbbVie appealed.
The Federal Circuit affirmed the district court’s conclusion but rejected its reasoning. The Court noted that standing to bring declaratory actions is examined “by looking to the mirror image suit the declaratory defendant might bring.” While the district court treated the “mirror image” of this lawsuit as an infringement suit, the Federal Circuit explained that the proper mirror image was actually a contractual dispute over the agreement to pay royalties. Citing to ample Supreme Court of the United States and Federal Circuit precedent, the Court found that contractual disputes can confer declaratory judgment jurisdiction.
Nevertheless, the Federal Circuit found that even if the patent was found invalid, the contractual dispute between the parties would not have been resolved, because AbbVie did not seek a declaration regarding its contractual obligations. The Court reasoned that under the 2007 Supreme Court decision in MedImmune v. Genentech (IP Update, Vol. 10, No. 1), a litigant may not use a declaratory judgment action to obtain piecemeal adjudication of defenses that would not finally and conclusively resolve the underlying controversy. Applying that principle here, the Court held that it was an “open question” whether invalidation of the patent alone would be tantamount to its expiration for purposes of the parties’ agreement. Without a resolution to this question, the parties’ contractual dispute would persist, and AbbVie therefore lacked standing to bring its declaratory judgment on invalidity.
PATENTS / INFRINGEMENT / PLEADINGS
Injecting Claim Construction into Motion to Dismiss Analysis Is Improper
The US Court of Appeals for the Federal Circuit reversed a district court’s grant of dismissal as the pleading stage, concluding that the district court inappropriately engaged in claim construction at the pleading stage. Nalco Co. v. Chem-Mod, LLC, Case No. 17-1038 (Fed. Cir., Feb. 27, 2018) (O’Malley, J).
Nalco owns a patent directed to a method for removing mercury, a toxic pollutant, from the flue gas of coal-fired power plants. The claimed method involves reacting halogens (chlorine or bromine) with mercury in flue gas in order to form solid mercury-containing particles that can be filtered from the gas. Because halogens have corrosive properties, however, they cannot be inserted directly into the flue gas. Instead, the Nalco patent claims require injecting into the flue gas a halogen precursor, which will turn into the desired halogen at the high temperatures in the flue. The patent describes a preferred embodiment where the halogen precursor is directly injected into the flue gas downstream of the combustion zone.
Nalco filed a patent infringement lawsuit against Chem-Mod alleging the “Chem-Mod Solution” infringed the patent’s claims. Nalco’s first complaint alleged that the Chem-Mod Solution uses halogen precursors and meets the “injecting” step by adding these precursors directly to the coal before the coal is fed into the combustion zone. Chem-Mod moved to dismiss, and the district court granted the motion, finding that the Chem-Mod Solution differed from the claims of the patent based on when it is applied (before the coal is burned versus after) and how it is applied (to cold coal versus flue gas).
Nalco amended its complaint four separate times to add details regarding the Chem-Mod Solution and further explain its theory that the Chem-Mod Solution involved “injecting . . . into said flue gas.” Nalco’s amended complaint also alleged that the claims did not restrict when, where or how the injecting step is performed. Each time, the district court found that the amended complaint did not adequately plead that the Chem-Mod Solution met the claimed “injecting” step. Eventually, the district court dismissed the fourth amended complaint with prejudice. Nalco appealed.
On appeal, Nalco argued that the district court implicitly construed the term “injecting” to be limited to the first time the halogen precursor is mixed, thereby equating the place of mixing with the site of “injection.” Nalco thus argued that the ultimate resolution of the infringement claims depends on claim construction. The Federal Circuit agreed, finding that Nalco’s complaint plausibly pleaded infringement and that Chem-Mod’s arguments “read like classic Markman arguments” and “boil down to objections to Nalco’s proposed claim construction . . . a dispute not suitable for resolution on a motion to dismiss.” Thus, the Federal Circuit reversed the dismissal of Nalco’s claims and remanded.
PATENTS / ATTORNEY-CLIENT PRIVILEGE
Hi Ho Silver: Texas Supreme Court Finds Patent Agent Communications Protected
The Supreme Court of Texas held that a client’s communications with a registered patent agent, made to facilitate the agent’s provision of authorized legal services to the client, fall within the Texas attorney-client privilege. In re Silver, Case No. 16-0682 (Tex., Feb. 23, 2018) (Devine, J).
Silver brought a breach-of-contract action against Tabletop Media, LLC. Silver alleged that Tabletop failed to pay him for patented technology that Silver claims to have invented and sold to Tabletop. In discovery, Tabletop sought production of emails between Silver and the non-attorney patent agent who represented Silver before the US Patent and Trademark Office (PTO). Silver refused, asserting the attorney-client privilege. Tabletop moved to compel, and the trial court granted Tabletop’s motion. Silver sought mandamus relief, which the Texas court of appeals denied in a divided decision. Silver then appealed to the Supreme Court of Texas.
The Supreme Court of Texas held that a non-attorney patent agent is a “lawyer” for purposes of Texas Rule of Evidence 503, which codifies the state’s attorney-client privilege. The Court was persuaded by the Supreme Court of the United States’ decision in Sperry and the US Court of Appeals for the Federal Circuit’s Queen’s University decision (IP Update, Vol. 19, No. 4), which held that communications between a client and a non-attorney patent agent relating to PTO proceedings are privileged in federal court cases. (See also IP Update, Vol. 20, No 11, discussing the new PTO privilege rule promulgated pursuant to Queen’s University).
The Court also conducted an independent textual analysis of Texas Rule of Evidence 503, determining that that non-attorney patent agents “practice law” within the confines of PTO proceedings, that they are “authorized” to do so, and that patent agents are therefore “lawyers” for purposes of Rule 503. Thus, the Court held that Silver’s communications with his non-attorney patent agent were protected by Texas’ attorney-client privilege and, consequently, that the trial court abused its discretion in ordering production of documents reflecting such communications.
Practice Note: The application of the attorney-client privilege in state court remains a matter of state law. Although the logic of Silver applies broadly, lawyers should analyze the rules that pertain to their particular venue before making assertions of privilege.
America Invents Act
AIA / IPR / SOVEREIGN IMMUNITY
Tribal Sovereign Immunity Does Not Apply to IPR
In a matter of first impression, the Patent and Trial Appeal Board (PTAB) denied a Native American tribe’s motion to terminate a finding that tribal sovereign immunity does not apply to inter partes review (IPR) proceedings. Mylan Pharmaceuticals Inc. v. St. Regis Mohawk Tribe, Case No. 2016-01127, Paper No. 14 (PTAB, Feb. 23, 2018) (per curiam).
Based on petitions filed by Mylan, the PTAB instituted IPR proceedings on patents related to the drug Restasis. At the time of institution, the owner of the challenged patents was Allergen, Inc. Less than one week before the scheduled final hearing, Allergen assigned the challenged patents to the Saint Regis Mohawk Tribe. On that same day, the Tribe granted back to Allergen an irrevocable, perpetual, transferable and exclusive license under the challenged patents for all US Food and Drug Administration-approved uses in the United States. Allergen was also granted the first right to sue for infringement with respect to “generic equivalents,” while the Tribe retained the first right to sue for infringement of anything unrelated to generic equivalents. As the new owner of the challenged patents, the Tribe filed a motion to terminate the IPR proceedings for lack of jurisdiction based on tribal sovereign immunity.
The PTAB denied the motion to terminate, finding that tribal sovereign immunity does not apply to IPR proceedings. The PTAB found that while state sovereign immunity has been applied in IPR proceedings, the immunity possessed by Native American tribes is not co-extensive with that of the states. The PTAB explained that IPRs are not the type of suit to which a Native American tribe would traditionally enjoy immunity under common law. The PTAB also noted that Congress enacted a generally applicable statute that renders any patent (regardless of ownership) subject to IPR proceedings, and that the PTAB does not exercise jurisdiction over the patent owner, but instead exercises jurisdiction over patents in order correct its own errors in originally issuing the patents.
The PTAB held that even if the Tribe was entitled to assert immunity, the IPR proceedings could continue with Allergen as the patent owner. The PTAB found that the license agreement transferred “all substantial rights” in the challenged patents back to Allergen. The PTAB found that Allergen was granted primary control over commercially relevant infringement proceeding and the Tribe was granted only an illusory right to enforce the challenged patents. The PTAB also found that the license agreement provided Allergen with all rights to meaningful commercial activities under the challenged patents, rights to sublicense, reversionary rights in the patents, obligations to pay maintenance fees and control prosecution, and the rights to assign interests in the patents. Finally, the PTAB found that the Tribe was not an indispensable party and would not be significantly prejudiced if it chose not to participate in the IPR proceedings since Allergen could adequately represent the Tribe’s interest of defending the challenged patent’s validity.
Practice Note: Allergan and the Saint Regis Mohawk Tribe have filed a Notice of Appeal to the US Court of Appeals for the Federal Circuit on several issues, including whether tribal sovereign immunity applies to IPR proceedings.
AIA / IPR / REAL PARTIES IN INTEREST
Put All Your RPIs on the Table: Petitioner Bears Burden to Prove List of Real-Parties-in-Interest Is Correct
Brian A. Jones
The Patent Trial and Appeal Board (PTAB) signaled the importance of responding to discovery related to a petitioner’s real-parties-in-interest and privies (RPIs), reiterating that while the burden of production related to RPIs may shift between the petitioner and patent owner during the proceeding, the ultimate burden remains with petitioner to show that the petition correctly named all RPIs. I.M.L. SLU v. WAG Acquisition, LLC, Case No. IPR2016-01656, Paper 42 (PTAB, Feb. 26, 2018) (McNamara, APJ).
Under 35 USC § 312 (a)(2) and 37 CFR 42.8 (b), an inter partes review (IPR) petition must name all RPIs of the petitioner. The rationale behind this requirement is that a petitioner and its RPIs may be estopped from bringing or maintaining an IPR proceeding under certain circumstances, such as if the petitioner or any RPI was served with a complaint for infringement more than one year before the IPR petition was filed. If a petition fails to correctly list all RPIs, the PTAB may terminate the proceeding.
In this case, after the PTAB instituted review of the challenged patent, WAG (the patent owner) alleged that IML (the petitioner) failed to name at least one RPI, CoolVision. If WAG was correct, IML would have been estopped from filing the petition because CoolVision had been served with an infringement complaint more than one year prior to the date IML filed the petition. Because of the importance of this issue, the PTAB allowed limited discovery into the relationship between CoolVision and IML. IML refused to provide the requested discovery and instead filed a motion for adverse judgment to terminate the proceedings.
WAG opposed IML’s request for adverse judgment, explaining that the petition was fatally flawed from the beginning because IML failed to identify CoolVision as an RPI. The PTAB noted that while a petitioner’s identification of RPIs is generally presumed correct, this presumption is rebuttable. Where the patent owner reasonably brings into question the accuracy of petitioner’s list of RPIs, the burden remains with the petitioner to establish that it properly listed all RPIs. In this case, WAG reasonably challenged IML’s identification of RPIs, and IML failed to provide any evidence to the contrary. Based on this failure, the PTAB found that IML did not carry its burden of showing that the petition correctly named all RPIs. The PTAB thus terminated the proceeding and vacated the decision to institute review.
COPYRIGHTS / FAIR USE
Eyeing the Line for Fair Use
Rebecca Harker Duttry
In a closely watched case attracting more than a dozen amici, the US Court of Appeals for the Second Circuit further clarified the boundaries of fair use, finding that a key element of this balancing test is “the effect of the [secondary] use on the potential market for or value of the copyrighted work.” Fox News Network, LLC v. TVEyes, Inc., Case Nos. 15-3885; -3886 (2d Cir., Feb. 27, 2018) (Jacobs, J). The Court referenced its 2015 decision in in Authors Guild v. Google (Google Books) (IP Update, Vol. 16, No. 12), in which it found that Google’s creation of a text‐searchable database of millions of books (including books under copyright) was a fair use because Google’s service was “transformative” and because integral features protected the rights of copyright holders. The Court cautioned, however, that Google Books “test[ed] the boundaries of fair use.” Here, the Court concluded that “TVEyes has exceeded those bounds.”
TVEyes is a for-profit media company offering a service that allows clients to sort through large quantities of television content using search terms in order to find clips that discuss items of interest to them. TVEyes records essentially all television broadcasts as they happen on more than 1,400 channels for 24 hours a day, every day, and copies the accompanying closed-captioned text to create a text-searchable transcript of the words spoken in each video. Using a text-searchable database, clients can input a search term to get a list of video clips that mention the term and then watch relevant video clips. Clips can be played for no more than 10 minutes, but a user can play an unlimited number of clips. Clients also have the ability to “archive” videos permanently on the TVEyes servers and to download videos directly to their computers.
Fox brought a lawsuit for copyright infringement when TVEyes refused to stop using Fox’s programming after Fox refused TVEyes’ request to grant a license. The key legal question was whether TVEyes had a “fair use” defense to Fox’s copyright infringement claims. The question was limited to TVEyes’ “Watch function,” which allows clients to view up-to-10-minute-long unaltered video clips of copyrighted content. Fox did not challenge the “Search function” on appeal; that function allows clients to identify videos that contain key words of interest.
There are four statutory factors considered in a fair use defense: “(1) the purpose and character of the use . . . , (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and (4) the effect of the use upon the potential market or value for the copyrighted work.” 17 USC § 107.
The first factor, the “purpose and character” of the use, looks at whether the use is transformative—that is, whether the use “communicates something new and different from the original or [otherwise] expands its utility.” Merely repackaging or republishing the original generally does not establish a fair use defense. Quoting from Google Books, the Second Circuit explained that in order for the copying to serve a transformative purpose, it must “communicate something new and different from the original.” As the Google Books Court noted, “the result of a word search is different in purpose, character, expression, meaning, and message from the page (and the book) from which it is drawn.” Similarly, the Court reasoned that TVEyes’ Watch function enhances efficiency by enabling its clients to view all of the Fox programming discussing a topic of particular interest to them without having to monitor the television programming and/or view entire programs to find the relevant segments.
When considering whether the nature of a secondary use is transformative, the “commercial nature” of the use can weigh against a finding of fair use, particularly when, as in this case, the transformative character of the secondary use is modest. Although the Watch function delivers content in a transformative manner, it is essentially republishing the content unaltered from its original form without adding any “new expression, meaning or message.” Thus, TVEyes clients use Fox’s broadcasts for the same purpose as authorized Fox viewers do: to learn the information reported. Overall, despite the commercial nature of the use, the Court found that the first statutory factor slightly favored TVEyes.
The second statutory factor, “the nature of the copyrighted work,” played no significant role in the Second Circuit’s analysis. There was no reasonable argument to be made that others may freely copy and re-disseminate news reports.
The third statutory factor, “the amount and substantiality of the portion used in relation to the copyrighted work as a whole,” looks at the amount of copyrighted work made available to the public rather than the amount of material used by the copier. Because TVEyes makes virtually the entirety of the Fox programming available to TVEyes users, the Second Circuit found that this factor clearly favored Fox. The Court distinguished the Google Books database from the TVEyes Watch function because while Google used the entire copyrighted work, it only made available snippets cumulating up to one page of the copyrighted work and had limitations in place to prevent users from compiling large, coherent blocks of text. TVEyes users can view all of the Fox programming they seek, with no limitations. Thus, the Court found TVEyes’ use of Fox’s content to be both “extensive” and inclusive of all that is “important” from the copyrighted work, making the third factor weigh in Fox’s favor.
The fourth statutory factor, “the effect of the [secondary] use upon the potential market for or value of the copyrighted work,” is the single most important element of fair use. This factor examines the market harm caused by the actions of the alleged infringer and the market harm that would result from unrestricted and widespread conduct of a similar nature. The Second Circuit found that the success of TVEyes’ business model demonstrates that there is a multi-million dollar market for providing a service that allows certain consumers to search for and view selected television clips. By providing Fox’s content to TVEyes clients without payment to Fox, TVEyes is depriving Fox of licensing revenues from TVEyes or similar entities, or depriving Fox of its own right to exploit the market for this type of service. Because TVEyes’ action of selling access to Fox’s audiovisual content without a license deprives Fox of revenues to which Fox is entitled as the copyright holder, the fourth factor favored Fox.
Weighing all four factors, the court concluded that the balance of these factors strongly favored Fox and defeated TVEyes’ defense of fair use. The Second Circuit remanded the case to the district court to revise the injunction in accordance with this opinion, noting that any injunction should not bar the Search function.
COPYRIGHTS / INFRINGEMENT / SUBSTANTIAL SIMILARITY / UNLAWFUL APPROPRIATION
Jumpman Logo Ruling Is a Slam Dunk for Nike
In a dispute concerning the famous Michael Jordan “Jumpman” logo owned by Nike, Inc., the US Court of Appeals for the Ninth Circuit agreed with the district court that the Nike logo did not infringe any copyright in photographer Jacobus Rentmeester’s 1984 photograph of Michael Jordan after Nike commissioned its own photo of Jordan, which was then used to create the Jumpman logo. Jacobus Rentmeester v. Nike, Inc., Case No.15-35509 (9th Cir., Feb. 27, 2018) (Watford, J) (Owens, J, concurring in part, dissenting in part).
One of Nike’s most recognizable trademarks, the Jumpman logo, was created in 1987 when Nike commissioned a photograph of then-Chicago Bulls player Michael Jordan to create the now-famous solid color silhouette design of Jordan soaring in the air toward a slam dunk. According to Rentmeester’s complaint for copyright infringement, both the Jumpman logo and the commissioned photograph used to create the logo infringe Rentmeester’s own 1984 photograph of Jordan, which originally appeared in a Life magazine photo essay featuring Olympic athletes.
Rentmeester’s photograph is famous in its own right. The photograph was choreographed by Rentmeester and depicts Jordan in a ballet-inspired leap rising toward an out-of-reach basketball hoop placed on a grassy knoll, contrasted against a bright blue sky. After the Rentmeester photo appeared in Life magazine, and right around the time that Nike was partnering with Jordan in connection with the Air Jordan athletic shoe, Rentmeester licensed two transparencies of his Jordan photograph to Nike “for slide presentation only.” The creation of Nike’s Jumpman logo occurred shortly thereafter.
Although Nike has been using the Jumpman logo for 30 years, Rentmeester filed his action for copyright infringement in 2015. To avoid a defense of laches, Rentmeester sought damages only for acts of infringement for the preceding three years, as allowed under the Copyright Act. After the district court granted Nike’s motion to dismiss, concluding that neither Nike’s commissioned photo of Jordan nor the Jumpman logo infringed Rentmeester’s copyright as a matter of law, Rentmeester appealed.
Reviewing the district court’s decision de novo, the Ninth Circuit explained that the only relevant issue on appeal was whether Nike engaged in unlawful appropriation by copying more of Rentmeester’s protected expression in his 1984 photo than copyright law allows. In analyzing that issue, the Court walked through the various elements and tests for proving copyright infringement.
To state a claim for copyright infringement in a photograph, a plaintiff must plausibly allege that (1) it owns a valid copyright and (2) the defendant copied protected aspects of the photo’s expression. The second element, however, has two distinct components: “copying” and “unlawful appropriation.” Each of these elements requires a showing of “substantial similarity” between the works at issue. Substantial similarity constituting unlawful appropriation must involve the copying of enough protected elements of the plaintiff’s work, such as the particular expression of ideas or concepts.
Under this framework, the Ninth Circuit found that Rentmeester plausibly alleged (1) ownership of a valid copyright in the 1984 photo, and (2) copying of the photo by Nike, given Nike’s access to the original Rentmeester photo, as well as various conceptual similarities between the works. Nevertheless, the Court determined that Rentmeester did not plausibly allege that Nike copied enough of the protected expression from the 1984 photo to establish unlawful appropriation.
The Ninth Circuit outlined the “extrinsic test” used by courts to assess the objective similarities of two works as a matter of law, which requires the “filtering out” of unprotectable elements of the plaintiff’s work, such as ideas, concepts and materials in the public domain, before comparing the remaining protectable elements to the allegedly infringing work. The Court noted that the dissection and comparison of photographs can be challenging given that individual elements of a photograph, such as the subject matter, a pose or a camera angle, are not protectable standing alone. Instead, what is protected is the photographer’s selection and arrangement of those otherwise unprotected elements.
In comparing the Rentmeester photo to the photograph commissioned by Nike, the Ninth Circuit determined that the works were not substantially similar as a matter of law, concluding that each photographer made a “series of creative choices in the selection and arrangement of the elements in his photograph” to produce images that differ from one another in “more than just minor details.” The Court noted that while the photos embody a similar idea or concept (a basketball player in a leaping, ballet-inspired pose moving toward a hoop in an outdoor setting captured by a camera angle to create a silhouette against the sky), the two photographs express that concept through objective details in “different ways.”
Affirming the district court and holding that the Jordan photograph commissioned by Nike could not, as a matter of law, be found substantially similar to Rentmeester’s photo, the Ninth Circuit applied that same conclusion to Nike’s corresponding Jumpman logo, which the Court noted is “even less similar” to the Rentmeester’s photo.
In partial dissent, Judge Owens agreed with the holding as it was applied to the Jumpman logo, but disagreed with the holding as to the commissioned Nike photo, arguing that questions of substantial similarity are inherently factual and should not be decided by a motion to dismiss.
COPYRIGHTS / EXCLUSIVE RIGHTS / STANDING TO SUE
A Picture Is Worth a Thousand Words, but Owning a Piece of the Bundle Is Priceless.
In a case where a licensee granted the right to sue was bounced by the district court for lack of standing, the US Court of Appeals for the Second Circuit ruled that under § 501(b) of the Copyright Act, assignees of the bare right to sue for infringement lack statutory standing where they neither have nor ever have had “legal or beneficial” ownership “of an exclusive right.” John Wiley & Sons, Inc. v. DRK Photo, Case No. 15-1134 (2d Cir., Feb. 16, 2018) (Carney, J) (Parker, J, dissenting).
DRK maintains a collection of stock photographs that it licenses from copyright holders and in turn licenses to textbook publishers for a fee. One such publisher was John Wiley & Son. The license between DRK and Wiley authorized a limited number of uses for each image. The standing issue arose as a consequence of a 2011 declaratory judgment action by Wiley and DRK’s infringement counterclaim based on John Wiley’s alleged production of textbooks in excess of the agreed amount.
DRK is not the copyright holder of the photographs in question. Rather, it is a party to two separate agreements with the photographers. The first, a “Representation Agreement,” established a non-exclusive agency relationship. The second, a “Copyright Assignment, Registration, and Accrued Causes of Action Agreement,” included two clauses that were in issue in this case. The first clause granted all copyright and legal title to DRK up until DRK registers the image’s copyright, at which point DRK agrees to reassign all rights and title back to the photographer. The second clause granted DRK all rights in any accrued or later accrued causes of action to enforce the image’s copyright.
On summary judgment, the district court granted John Wiley’s motion and dismissed DRK’s infringement claims for the images where DRK was a non-exclusive licensee. After finding that neither the Representation Agreement nor the Assignment Agreement conferred any legal title in the photographs to DRK, the district court concluded that the authorizing suit on a copyright holder’s behalf was insufficient to convey statutory standing. DRK appealed.
The Second Circuit panel majority interpreted the durational limitation in § 501(b) (requiring ownership of at least one exclusive right during the time when infringement of that right allegedly occurred) as evidencing congressional intent to “carefully circumscribe the boundaries of statutory standing.” The Court further relied on the joinder provision of § 501(b), which permits joinder of those whose rights “may be affected” (i.e., non-exclusive licensees), as evidence that Congress did not intend to authorize standing by virtue of bare assignments of the right to sue.
The Second Circuit also addressed whether DRK was, or had ever been, a legal or beneficial owner of an exclusive right by virtue of either of the two agreements. The Court found neither agreement conferred in DRK legal or beneficial ownership of any exclusive rights. The Court dismissed the Representation Agreement as a non-exclusive license incapable of transferring ownership of any exclusive right. Further, even though the Granting Clause of the Assignment Agreement purported to transfer legal ownership of all exclusive rights, the Court explained that applicable state law permitted introduction of parole evidence. Upon consideration of communications from DRK to photographers that stated “there is no ‘rights grab’ going on,” the Court concluded that the clause should not be interpreted as transferring legal ownership. Lastly, the Court dismissed DRK’s argument of beneficial ownership because, at most, a person may become a beneficial owner when receiving an equitable interest in an exclusive right—not equity in the right to sue as DRK argued.
In dissent, Judge Parker argued that the Copyright Act authorizes statutory standing to those holding bare assignments of the right to sue: “[b]ecause I conclude that nothing in the Copyright Act precludes DRK from prosecuting claims on its non-exclusive licenses as an assignee of a bare right to sue, I would reverse on this ground alone and would not reach the question of whether DRK had beneficial ownership of a copyright interest.” The dissent also argued that it was error to admit parole evidence to interpret a clause plainly clear on its face, especially as the Assignment Agreement had no choice of laws provision. Parker would have found that the Granting Clause transferred ownership of the exclusive rights: “the critical provision of the Assignment Agreements states that ‘[t]he undersigned photographer . . . hereby grants to DRK all copyrights and complete legal title in the Images.’. . . By any reasonable calculus this statement is unambiguous.”
COPYRIGHTS / DMCA / SAFE HARBOR / CONTRIBUTORY INFRINGEMENT
No Safe Harbor Shelter for ISP, but No $25 Million Payout Either
Addressing an internet service provider’s (ISP’s) eligibility for the Digital Millennium Copyright Act (DMCA) safe harbor and liability for contributory copyright infringement, the US Court of Appeals for the Fourth Circuit affirmed a summary judgment ruling that the defendant did not qualify for DMCA’s safe harbor defense under § 512(i)(1)(A). The Court concluded, however, that instructions to the jury on the intent required for contributory copyright infringement were erroneous. BMG Rights Management (US) LLC v. Cox Communications, Inc., Case Nos. 16-1972; 17-1352; -1353 (4th Cir., Feb. 1, 2018) (Motz, J).
Cox Communications provides internet access to subscribers for a monthly fee. Some of Cox’s subscribers shared and received copyrighted files without authorization through BitTorrent, a peer-to-peer sharing software. To monitor incidents of alleged infringement, Cox created an automated notification system wherein a subscriber becomes subject to termination after Cox receives 13 notifications of alleged infringement concerning that subscriber. Cox never automatically terminated a subscriber.
BMG Rights Management owns copyrights in several music compositions. BMG hired a third-party rights management company, Rightscorp, to monitor the unauthorized sharing of BMG’s copyrighted works on BitTorrent. When Rightscorp detected this infringement, Rightscorp notified the infringer’s ISP (here, Cox) and asked the ISP to forward the notice to the infringer. The notice contained a settlement offer to the infringer, and because of this language, Cox refused to send the notices on to the infringers. Prior to BMG hiring Rightscorp, Cox had “blacklisted” Rightscorp in part because of this language, meaning that Cox never viewed any of the millions of notices of infringement sent by Rightscorp, let alone forwarded those notices on to its infringing subscribers.
BMG sued Cox for contributory copyright infringement. Cox invoked the safe harbor under § 512(i)(1)(A) of the DMCA, which requires ISPs to adopt and implement a policy that terminates subscribers who are repeat infringers. On summary judgment, the district court held that Cox had failed to demonstrate that it qualified for that defense, and the Fourth Circuit agreed. Cox argued that “repeat infringers” in § 512(i)(1)(A) meant subscribers who had been found liable by a court for copyright infringement, and that BMG had failed to show that Cox had not terminated any “adjudicated infringers.” Looking at the plain meaning of the term and finding further support elsewhere in the DMCA, the statute’s legislative history and a 2016 decision from the Second Circuit, EMI Christian Music Grp., Inc. v. MP3tunes, LLC (IP Update, Vol. 19, No. 11), the Court rejected Cox’s argument, finding “repeat infringer” to mean simply one who infringes a copyright more than once.
Based on this interpretation, the Fourth Circuit held that Cox failed to reasonably implement a repeat infringer policy. Discovery had uncovered damaging emails demonstrating that Cox did not terminate repeat infringer subscribers because it did not want to lose revenue from paying subscribers. In the instances when Cox had terminated a subscriber for repeat infringements, Cox would often reactivate that subscriber, which would restart the 13-strike count under its policy. The Court determined that Cox essentially had no repeat infringer policy and was not entitled to § 512(i)(1)(A)’s safe harbor defense, and thus affirmed the district court’s summary judgment decision.
After summary judgment, the case proceeded to a two-week jury trial. The jury awarded BMG $25 million in statutory damages, finding that Cox was liable for willful contributory copyright infringement. On appeal, Cox argued that the district court’s jury instruction for the level of intent necessary to prove contributory copyright infringement was a misstatement of the law. The district court had instructed the jury that Cox could be liable for contributory copyright infringement if the jury found that “Cox knew or should have known of such infringing activity.”
This instruction, the Fourth Circuit held, was in error. Contributory copyright infringement requires a party to have intentionally induced or encouraged infringement. While courts have held that willful blindness is sufficient to establish this requisite intent, the Court held that negligence (or “should have known”) is insufficient. The Fourth Circuit found that the jury instruction could have reasonably affected the jury’s verdict, and therefore remanded the case for a new trial. Providing additional guidance for proper jury instructions on remand, the Court stated that because contributory infringement requires knowledge or willful blindness of specific instances of infringement, the district court should instruct the jury that willful blindness requires Cox to have consciously avoided learning about specific instances of infringement of BMG’s copyrighted works.
COPYRIGHTS / DMCA / DEFAULT JUDGMENT
Deliberately Ignoring Lawsuit Earns a $100 Million Consequence
Sarah P. Hogarth
Addressing whether a defendant could obtain relief from a $100 million default judgment in a lawsuit it deliberately ignored, the US Court of Appeals for the Fifth Circuit affirmed a district court’s refusal to find the judgment “void” for lack of standing, federal question jurisdiction, personal jurisdiction or improper service. Nagravision SA v. Gotech Int’l Tech. Ltd., Case No. 16-20817 (5th Cir., Feb. 7, 2018) (Reavley, J).
Nagravision SA, a Swedish company, filed suit against Gotech International Technology Ltd. and Zhuhai Gotech Intelligent Technology Co. Ltd., both Chinese companies (collectively, Gotech), alleging violations of the Digital Millennium Copyright Act (DMCA) and the Federal Communications Act. Gotech deliberately ignored the lawsuit, resulting in a $100 million default judgment in favor of Nagravision. After Nagravision initiated enforcement proceedings in a Hong Kong court and successfully froze Gotech’s assets, Gotech filed a motion under Rule 60(b) for relief from the default judgment. After the district court denied the motion, Gotech appealed.
The Fifth Circuit affirmed, rejecting all of Gotech’s purported grounds for relief. The Court summarily rejected Gotech’s request for relief under Rule 60(b)(1) because Gotech’s willful default precluded relief on grounds of “mistake, inadvertence, surprise, or excusable neglect.” Thus, the court reasoned that Gotech’s only remaining possibility for relief was Rule 60(b)(4)’s narrow provision for relief from a judgment that is “void.”
The Fifth Circuit rejected Gotech’s argument that Nagravision lacked standing to bring its claims. The Court agreed with Nagravision that it had an injury traceable to Gotech’s misdeeds in the form of Gotech’s software and hardware that misappropriated Nagravision technology and defeated Nagravision security, and that therefore Article III standing existed. The Court also rejected Gotech’s statutory standing arguments because a lack of statutory standing does not render a judgment void.
Next, the Fifth Circuit rejected Gotech’s argument regarding lack of federal question jurisdiction because the DMCA does not apply to violations of foreign intellectual property rights. The Court held that Gotech’s argument improperly conflated a failure to state a claim with subject matter jurisdiction, finding that the assertion of the claim gave rise to federal question jurisdiction.
The Fifth Circuit also rejected Gotech’s argument that Nagravision failed to effect proper service because Nagravision did not serve Gotech through the Hague Convention. The Court found that Nagravision properly served Gotech by court-ordered email under Rule 4(f)(3)—a court-ordered service not prohibited by international agreement—rather than Rule 4(f)(1).
Finally, the Fifth Circuit rejected Gotech’s argument that the district court lacked personal jurisdiction under Rule 4(k)(2) because Nagravision had not shown that Gotech was “not subject to jurisdiction in any state’s court of general jurisdiction.” The Court recognized the tension between the plaintiff’s burden to establish personal jurisdiction and the burden on the party seeking relief from a default judgment. It held that, on this particular question, Gotech bore the burden of establishing that it was subject to some other state’s jurisdiction, which it did not do.
Practice Note: The grounds for relief available under Rule 60(b) are narrow, especially when a party has actual notice of a lawsuit pending against it and chooses not to respond. Standing and jurisdictional issues are fact specific and often have unclear answers. In the defendant’s absence, the court, aided only by the plaintiff, must decide these difficult issues. A defendant that has actual notice of a pending lawsuit can instead assert these defenses through a Rule 12(b) motion—improving its chances to persuade the court while avoiding waiver of other available defenses.