IN THIS ISSUE
- Supreme Court/Patent Litigation - Amending Judgment Without Opportunity to Respond and Contest Liability Violates Due Process
- Copyright/Internet - MP3.com Liable for Copyright Infringement Despite Fair Use Defense
- Patent/Infringement - A Claim Element in Means-Plus-Function Format Found Not to Invoke § 112, ¶ 6 Where Sufficient Structure Is Recited
- Patent/PCT - Commissioner’s Refusal to Revive Unintentionally Abandoned Case Found to Be Unreasonable
- Patent/Litigation - Invalidity Rulings Not Reduced to Judgement Are Not Reviewable on Appeal and Will Not Have Collateral Estoppel Effect Only Where Plead As an Affirmative Defense
- Patent/Prosecution - New Law Revises the Effective Filing Date of "Bypass Continuations"
Amending Judgment Without Opportunity to Respond and Contest Liability Violates Due Process
By Mary Chapin
In a unanimous decision, the Supreme Court reversed the Federal Circuit, holding that amending a judgment against a company to make its owner personally liable without giving him an opportunity to respond and contest personal liability before the entry of judgment violated due process. Nelson v. Adams USA, Inc., Case No. 99-502(U.S. April 25, 2000).
The district court dismissed an infringement suit brought by Ohio Cellular Products Corporation against Adams USA for infringing its patent, U.S. Pat. No. 5,273,702, directed to a method of making athletic pads. Based on the court’s finding of inequitable conduct by Ohio Cellular in procuring the '702 patent, the court (on remand) ordered Ohio Cellular to pay Adams' costs and attorney fees. Fearing Ohio Cellular’s inability to pay the fee award due to its representation that it would be liquidated if Adams sought more than a nominal amount of fees, Adams moved to amend its complaint to add Ohio Cellular’s president and sole shareholder, Donald Nelson, as a third-party defendant. The court granted the motion and amended the judgment to hold Nelson liable for the fee award. The Federal Circuit affirmed, over Nelson’s argument that he was never afforded a proper opportunity to respond to the claim against him, observing that as long as no prejudice is shown, due process requirements are met if the requirements for amending pleadings under FRCP 15 were satisfied.
Writing for a unanimous Supreme Court, Justice Ginsburg stated that under these circumstances the requirements of Rule 15 were not met, noting that the district court allowed the pleading amendment and entered judgment against Nelson "at a single stroke." The Supreme Court found that Nelson was neither served with an amended pleading nor accorded time to state his defenses against personal liability for costs and fees after he was joined. Instead, judgment was entered against him simultaneously with the granting of permission to amend the pleadings, thereby depriving Nelson of the opportunity to defend against the imposition of liability. Rule 15(a) grants a party added by leave of court 10 days after service of the amended pleading to plead in response. This opportunity to respond, Justice Ginsburg explained, is fundamental to due process and is the echo of the opportunity to respond to original pleadings under Rule 12. Explaining that due process demands a more reliable and orderly course, Justice Ginsburg stated that merely because Nelson may have known that upon amendment of the complaint he may ultimately be subjected to personal liability, does not mean he had a full and fair opportunity to respond and be heard.
The Supreme Court also rejected Adams' arguments that Nelson waived his objections to the swift process of the district court because he failed to promptly raise personal jurisdiction and service of process issues. Nor was the Court persuaded by Adams' argument that there was sufficient identity between Nelson and Ohio Cellular to bind Nelson to a judgment already entered against Ohio Cellular, that Nelson was bound because he had participated as a witness in the hearing or because he may have controlled the litigation for Ohio Cellular. Noting that the Federal Circuit did not find that these factors would have justified imposing liability on Nelson by piercing Ohio Cellular’s corporate veil, Justice Ginsburg explained that one-person corporations may be an appropriate means to permit innovation without exposing inventors to possibly ruinous consequences.
Finally, the Court disagreed with the Federal Circuit’s conclusion that nothing different or additional would have had to have been done had Nelson been a party from the outset because as president and sole shareholder Nelson had prior notice that Adams was seeking to collect a fee award from Ohio Cellular, based, inter alia, on its allegation of inequitable conduct in procurement of the '702 patent. The Supreme Court summarized "judicial predictions about the outcome of hypothesized litigation cannot substitute for the actual opportunity to defend that due process affords every party against whom a claim is stated."
MP3.com Liable for Copyright Infringement Despite Fair Use Defense
By Carrie A. Shufflebarger
The U. S. District Court for the Southern District of New York recently granted summary judgment to several record companies for copyright infringement against MP3.com based upon its "My.MP3.com" Internet service. UMG Recordings, Inc. v. MP3.com, Inc., Case No. 00 Civ. 472, 2000 U.S. Dist. LEXIS 5761 (S.D.N.Y., May 4, 2000).
MP3.com had, without authorization, copied recordings from Plaintiffs’ copyrighted CDs, and then enabled subscribers to its "My.MP3.com" Internet service to access these recordings via its we site. Before a subscriber could access the recordings, he/she was required either to "prove" that he already owned the CD version of the recording by briefly inserting his copy of the commercial CD into his computer’s CD-ROM drive, or purchase the CD from one of MP3.com’s cooperating online retailers. MP3.com argued that since subscribers either already owned or were required to purchase the CD containing the recordings they sought, its service was merely the "functional equivalent" of storing the subscribers’ CDs and then enabling the subscribers to access their CDs over the Internet. The Court rejected this argument, finding that MP3.com was replaying unauthorized copies of the Plaintiffs’ copyrighted works, which constituted prima facie copyright infringement.
MP3.com asserted that its copying of CDs constituted "fair use" under the Copyright Act. In rejecting this affirmative defense, the court analyzed the four statutory factors delineated in 17 U.S.C. § 107, focusing on "the purpose and character of the use," and "the effect of the use upon the potential market for or value of the copyrighted work."
With regard to the first factor, MP3.com did not dispute that its purpose and use were commercial since it sought to attract a sufficiently large subscription base to draw advertising. The court rejected the argument that the My.MP3.com service was "transformative," noting that while the service may be "innovative," this did not equate to "transformative." MP3.com did not add any "new aesthetics, new insights and understandings" to the original music recordings, but rather simply repackaged the original recordings to facilitate their transmission through another medium.
The court further rejected MP3.com’s arguments regarding the second mentioned factor, finding that the activities in question directly invaded the Plaintiffs’ statutory rights to license their sound recordings to others for reproduction. The Court also rejected the assertion that since MP3.com required subscribers to either already own or to purchase the CD before listening to the recording through the My.MP3.com service, its activities could only enhance the Plaintiffs’ sales.
Finally, the Court rejected MP3.com’s reliance upon other fair use factors, which it found basically amounted to a claim that absent the subject services, essentially the same service would be performed by pirates. According to the court, copyright "is not designed to afford consumer protection or convenience but, rather, to protect the copyright holders’ property interests."
Case Note: In another case involving the RIAA and the MP3 format, the U.S. District Court for the Northern District of California recently denied a motion for summary adjudication by Napster concerning the applicability of the § 512(a) "safe harbor provision" of the Digital Millennium Copyright Act (DMCA) to its online service. Napster is an Internet service provider that makes software available on the Internet to enable users to share MP3 music files stored on a user’s hard drive with other Napster users. Napster claimed that its services fell within the safe harbor provision (which generally shields portals and directory sites from liability unless they participate in an illegal activity), and (as required by § 512(a)) that it ejects users found engaging in piracy. The Court found the safe harbor provision inapplicable, since Napster did not transmit, route or provide connections "through" the Napster system. Rather, the infringing MP3 files were transmitted from user to user via the Internet. The court also found there were genuine issues of material facts concerning Napster’s copyright compliance policy.
A Claim Element in Means-Plus-Function Format Found Not to Invoke § 112, ¶ 6 Where Sufficient Structure Is Recited
By D. Sean Trainor
A claim element formatted as a means-plus-function element was held not to invoke § 112, ¶ 6, because the element contained sufficient structure to rebut the presumption that § 112, ¶ 6 applied. Envirco Corp. v. Clestra Cleanroom, Inc., No. 99-1111 (Fed. Cir. Apr. 18, 2000).
Envirco sued Clestra alleging infringement of U.S. Patent No. 4,560,395, which is directed to clean rooms (i.e., a closed area used for applications that require dust free conditions). The claimed invention has five elements – a housing, a blower fan, a first baffle, a second baffle and a HEPA filter. The only disputed element, the second baffle, reads as follows:
"...second baffle means disposed radially outward of said centrifugal fan means and said first baffle means, said second baffle means having inner surfaces for directing the airflow from said centrifugal fan means inwardly of said primary housing and between said first baffle means and said filter means whereby air being introduced into said housing by said centrifugal fan means will be directed radially outwardly of said centrifugal fan means and guided by said first baffle means towards said second baffle means and thereafter by said second baffle means between said first baffle means and said air filter means."
The district court ruled that § 112, ¶ 6 applied because the claim element used the word "means." The court then looked to the specification to determine the structures that correspond to the claimed function and granted Clestra’s summary judgment motion of non-infringement, finding that Clestra’s devices did not have an identical or equivalent structure to that set forth in the specification.
The Federal Circuit reversed and remanded the case, holding that the "second baffle means" claim element does not invoke § 112, ¶ 6. The Court acknowledged that the use of the word "means" raised a presumption that § 112, ¶ 6 was involved, but that the term "baffle," itself, is a structural term that rebuts the presumption. The word "baffle" is defined as "a device (as a plate, wall or screen) to deflect, check or regulate flow." According to the court, use of the word baffle, which by itself imparts structure, is sufficient to overcome the presumption that § 112, ¶ 6 applies.
Moreover, the Federal Circuit noted that the claim recites baffle structure, such as "inner surfaces for directing airflow... radially outward." The court held that, "because the claims recite sufficient structure, including details about the location and formation details about the second baffle," the claim fell outside of the purview of § 112, ¶ 6.
Commissioner’s Refusal to Revive Unintentionally Abandoned Case Found to Be Unreasonable
By Paul Devinsky and Thomas D. Robbins
The Commissioner’s refusal under PCT Rule 91.1 to accept an "obvious" fix for an "obvious" error is both an abuse of discretion and legally incorrect. Helfgott v. Dickenson, Case No. 99-1308 (4/14/00, Fed. Cir.).
In March 1996, the law firm Helfgott & Karas, P.C. (Helfgott) filed two PCT applications with the PTO. The first was entitled "Fluid Actuated Chuck" (the chuck application). The second was entitled, "Three Dimensional Puzzle" ("the puzzle application"). The chuck and puzzle applications both claimed priority dates in March 1995, based on earlier filings made in Israel. The chuck and puzzle applications both listed Helfgott as the first named inventor. The agent’s file reference number for the two applications differed by a single digit.
In October 1996, Helfgott filed a Demand with the PTO, listing the application serial number, filing date and priority date of the puzzle application, but the title, applicants and "agent’s file reference number" of the chuck application. It was intended that the puzzle application would be abandoned, and the chuck application prosecuted. The Commissioner construed the Demand as one for the puzzle application, based primarily on the PCT number typed on the Demand, as verified by the filing and priority dates and the first-listed applicant.
The Commissioner then sent "Invitation to Correct Defects in the Demand" (the Invitation) to which the agent’s file reference number corresponding to the puzzle application was substituted. No notification was provided to Helfgott that the Commissioner had substituted a different file reference number. The Demand, along with four communications from the PTO, was placed in the abandoned file for the puzzle application.
When the error was discovered, Helfgott unsuccessfully petitioned the commissioner under 37 CFR § 1.183 (permitting the Commissioner to suspend nonstatutory rules "in an extraordinary situation, when justice requires."), to correct "obvious" errors in the demand under PCT Rule 91.1. Helfgott then filed an unsuccessful suit in the District Court for the state of New York.
On appeal, the Federal Circuit stated that the PCT Guidelines specifically contemplate that the PTO may make simple corrections to the Demand, but that the Commissioner must inform the applicant of the correction made by sending him either a copy of the corrected sheet of the demand or by a separate notification. Here the Commissioner was found to bear some responsibility for the trail of errors that was perpetuated when it changed the agent’s file reference number to one that did not match the Demand. The court then stated that the argument for discretion to grant the petition is strong in this case because the "harmful actions of the PTO were ... in contravention of the PCT Guidelines." Consequently the Commissioner’s resistance to correct the Demand was unreasonable.
Invalidity Rulings Not Reduced to Judgement Are Not Reviewable on Appeal and Will Not Have Collateral Estoppel Effect Only Where Plead As an Affirmative Defense
By Mary Chapin
The Federal Circuit held that where a patent infringement allegation is dismissed and the defendant plead patent invalidity only as an affirmative defense, any adverse district court ruling on patent validity not reduced to a judgement will not be addressed on the merits in an appeal nor have collateral estoppel effect as between the parties should they engage in a future dispute. Hill-Rom Company, Inc. v. Kinetic Concepts, Inc., Case No. 99-1314, 1315 (Fed. Cir. April 14, 2000). The court also held that courts may consider the patent abstract in construing the claims.
The district court dismissed an infringement suit brought by Hill-Rom against Kinetic finding that certain hospital beds manufactured by Kinetic do not infringe various claims of Pat. No. 5,586,346 (the '346 patent). The court also rejected Kinetic’s affirmative defense of invalidity, finding that it failed to show by clear and convincing evidence that the '346 patent is invalid. In its judgment, the court made no reference to the invalidity issue, but simply stated that judgment was entered in favor of Kinetic.
On appeal, Kinetic argued that if the Federal Circuit upholds the trial court’s judgment of non-infringement, it should vacate the portion of the judgment relating to the validity of the '346 patent. The Federal Circuit held that while the district court may decide the issue of invalidity, even if raised only as an affirmative defense, where a patent is held not to be infringed and where invalidity is raised only as an affirmative defense and not in the form of a counterclaim, the district court need not include in its judgment any reference to its ruling on the issue of invalidity.
The Federal Circuit explained that because the judgment contained no reference to the validity of the '346 patent, unlike the situation in Electrical Fittings Corp. v. Thomas & Betts, there is no need to review the validity portion of the decree. Further, because the district court’s resolution of the issue of invalidity was not necessary to its judgment, the invalidity ruling would have no collateral estoppel effecting any possible future dispute between the parties involving the '346 patent.
On the claim construction issue, the Federal Circuit held that courts may consider the patent abstract as a source of intrinsic evidence in construing the meaning of patent claims. Although 37 C.F.R. §1.72(b) provides that patent abstracts shall not be used for interpreting the scope of patent claims, this rule only governs the conduct of patent examiners and does not restrict courts from considering patent abstracts in construing patent claims in infringement actions.
Practice Hint: In addition to pleading invalidity as an affirmative defense, practitioners should always plead invalidity as a counterclaim to preserve the issue for appeal and to accord collateral estoppel effect between the parties should they engage in a future dispute.
New Law Revises the Effective Filing Date of "Bypass Continuations"
By William D. Pegg
The American Inventor's Protection Act revised 35 U.S.C. § 102(e) to provide that "a patent shall not be deemed filed in the United States…based on the filing of an international application filed under the [Patent Cooperation Treaty]." This change, effective as of November 29, 2000, will remove the discrepancy between effective dates awarded "bypass" continuation applications and national stage applications.
Traditionally, there have been two routes to enter the U.S. national phase based on an international application:
-allow the international application to mature into a regular U.S. application by entering the U.S. national stage under 35 U.S.C. § 371; and
- file a "bypass continuation of the international application designating the U.S. under 35 U.S.C. §§ 111(a), 120 and 365(c).
The effective § 102(e) date of "bypass" continuations is the international filing date, as defined by 35 U.S.C. §§ 363 and 365(c). In contrast, the effective § 102(e) date of national stage applications is the date on which the requirements of 35 U.S.C. § 371(c)(1), (2), and (4) are completed (i.e., required are the national fee, copy of international application and English translation together with oath or declaration of inventor). "Bypass" continuation applications typically obtain a § 102(e) date earlier than that of national stage applications.
In February 2000, the Patent Office revised the MPEP to reflect changes in the law due to revision of § 102(e). MPEP § 2136.03 now states that when a U.S. application filed under § 111(a) claims the benefit of the filing date of a co-pending PCT international application under § 120, its effective date as a reference under 102(e) is the U.S. filing date of the § 111(a) application, not the international filing date. Similarly, MPEP § 1896 has now been revised to state that the effective date of a patent arising from a U.S. national application filed under § 111(a) against a pending application, (i.e., its § 102(e) date), is its effective U.S. filing date other than an international filing date. In other words, under the new law, the effective date of any U.S. patent as a reference will be its U.S. filing date, not its international filing date.