- Patents / Claim Construction - Court May Not Re-Draft Claims to Ensure Operability of Invention as Claimed
Written Description Requirement Is Alive and Well
By David Larson
Drawing attention to a potentially powerful, but little used, avenue of attack on a patent, the U.S. Court of Appeals for the Federal Circuit recently upheld a finding of invalidity of a patent on the grounds that the patent failed to comply with the “written description” requirement of 35 U.S.C. §112, 1. University of Rochester v. G.D. Searle & Co., Case No. 03-1304 (Fed. Cir. Feb. 13, 2004) (Lourie, J.)
Scientists at the University of Rochester developed a screening assay to determine whether a particular drug could selectively inhibit the activity of one class of prostaglandin enzymes called “PGHS-2,” without also inhibiting the activity of another class of enzymes called “PGHS-1.” Based on an original application filed in 1992, the Rochester scientists obtained the patent-in-suit, which is directed to methods “for identifying a compound that inhibits prostaglandin synthesis catalyzed by mammalian prostaglandin H synthase-2 (PGHS-2).” The claims recited a method “comprising administering a non-steroidal compound that selectively inhibits activity of the PGHS-2 gene product,” but neither the claims nor the specification identified any such compound. Upon issuance of the patent, the university immediately sued the defendant who moved for summary judgment of invalidity for failure to comply with the written description and enablement requirements. The district court granted the motion on both grounds.
On appeal, the Federal Circuit rejected the university’s argument that the written description requirement, which dates back to the 1793 Patent Act, became “redundant with the advent of claims in 1870.” The Court reviewed several earlier cases recognizing a written description requirement independent of enablement and held that only the U.S. Congress could repeal the statutory language giving rise to the requirement. The Court went on to hold that the written description requirement means the patent must “describe the claimed subject matter in terms that establish that the applicant was in possession of the claimed invention, including all of the elements and limitations” (quoting Hyatt v. Boone). The Court explained that the written description requirement serves as a teaching function, whereby the public is given meaningful disclosure in exchange for being excluded from practicing the invention. Finding that the patent at issue fails to disclose any compounds that can be used in its claimed methods, the Court held that the claimed invention is not described. The patent is required to “set forth enough detail to allow a person of ordinary skill in the art to understand what is claimed and to recognize that the inventor invented what is claimed.” Finding that the patent-in-suit failed to meet this standard, the Court upheld the summary judgment finding the patent invalid.
Practice Note: This case makes clear that a patent may be held invalid on its face, without resorting to any evidence outside the four corners of the patent itself. This holding could be a powerful summary judgment tool for patent defendants.
“Plain Meaning” of Claim Terms Determined Without Extrinsic Evidence
Contact Paul Devinsky
Using the plain and ordinary meaning of the claim terms, the specification and the prosecution history, the U.S. Court of Appeals for the Federal Circuit affirmed-in-part and reversed-in-part the district court’s claim construction, and in doing so broadened the meaning of the disputed term “regularly received television signals.” Superguide Corp. v. DirecTV Enterprises, Inc., Case No. 02-1561 (Fed. Cir. Feb. 12, 2004) (Prost, J.) (concurring opinion by Michel, J.)
The district court, relying on the specification of the patent-in-suit, limited the claim term “regularly received television signals” to analog signals. This was based on the explanation in the patent that “when the programming guide is not in use the received television signals are sent directly through the RF section to the television for viewing” and on the fact that only analog signals were broadcast in 1985 (the year the application for the patent was filed). Superguide asserted that the plain meaning of the disputed term covered digital as well.
The Federal Circuit reversed, broadening the disputed term to include digital signals. The majority noted that the district court should not have relied on cases with a means-plus-function claim element to conclude that later developed technology “cannot fall within the literal scope of the [apparatus] claims.” According to the majority, claim construction began “by first examining the claim language,” which did not limit the disputed term “to any particular type of technology or specify a particular signal format.” The Court asserted that “regularly received television signals” refers to “video data” and that “it was known to those skilled in the art during the pendency of the... application that video data could be communicated in either analog or digital format.” The majority (quoting SRI Int’l v. Matsushita Elec. Corp. of Am.) noted that the “law ‘does not require that an applicant describe in his specification every conceivable and possible future embodiment of his invention.’” The majority believed that nothing in the prosecution history of the patent had altered the claim construction.
In a concurring opinion, Judge Michel took issue with the construction of the disputed term as encompassing “signals not transmitted by television broadcasters at the time the patent issued.” In Judge Michel’s view, the proper inquiry is whether a claim term “would have had a particular meaning to one of ordinary skill in the television art at the time” (emphasis in original) in the context of the overall disclosure, and that the majority erred by considering the term in isolation. Judge Michel noted that the majority did not consider extrinsic evidence such as expert declarations, technical treatises, technical dictionaries, technical publications or contemporaneous or prior art patents to support its meaning of the disputed term. Judge Michel expressed concern “that the use of these ‘short-hand’ expressions about ordinary meaning obscures the correct analysis, tempting panels to look for an ‘ordinary meaning’ divorced from the proper perspective—the artisan’s—and the preferred, proper sources of interpretation—the disclosure, technical dictionaries, prior art patents, and expert testimony.”
Court May Not Re-Draft Claims to Ensure Operability of Invention as Claimed
By Andrew D. Mickelsen
The U.S. Court of Appeals for the Federal Circuit has held that courts need not depart from “ordinary meaning” of an otherwise unambiguous claim term merely to render a claim operable or to sustain its validity. Chef America, Inc. v. Lamb-Weston, Inc., Case No. 03-1279 (Fed. Cir. Feb. 20, 2004) (Friedman, Sr. J.).
Chef America’s patent claims a process for producing a dough product that includes a step of “heating the resulting batter-coated dough to a temperature in the range of about 400° F. to 850° F.” The dispute over claim construction concerned whether it was the oven or the dough that had to be heated to the claimed range.
Following a Markman hearing, the district court concluded that the ordinary meaning of the “to” required that the dough itself be heated to the claimed temperature range. Since Lamb-Weston does not heat its dough products to the claimed temperature range, the district court granted Lamb-Weston’s motion for summary judgment of non-infringement.
Chef America appealed, noting that under the district court’s claim construction, the patented process would produce something that “resembles a charcoal briquet” rather than the intended dough product. Chef America argued that the claim language “to a temperature” should be construed to mean “at a temperature” so as to preserve the operability of the claimed process.
In affirming the district court’s claim construction and judgment, the Federal Circuit observed that the claim language consists of “ordinary, simple English words whose meaning is clear and unquestionable.” The Federal Circuit indicated that it could “discern nothing in the claims, the specification, or the prosecution history that indicates that the patentees here defined ‘to’ to mean ‘at’.” The Federal Circuit also discounted the declaration of Chef America’s baking expert for failing to “explain how the word “to” in the claim could be read to mean “at,” or even state that persons of ordinary skill in the baking art would so do.”
While the claimed process would produce an undesirable result using the district court’s claim construction, the Federal Circuit held that claims may not be redrafted by a court “to make them operable or to sustain their validity.”
§112, ¶ 6 Claim Element Limited by Disclosed Embodiment
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The U.S. Court of Appeals for the Federal Circuit, affirming the grant of summary judgment of non-infringement, held that structure corresponding to an independent means-plus-function claim must be interpreted by reference to the written description, not by limitations contained in a dependent claim. Since the written description disclosed only one embodiment, which was neither the same as nor structurally equivalent to the alleged infringing device, the accused device that performed the claim function was found not to infringe. Nomos Corporation v. BrianLab, Inc., 357 F.3d 1364 (Fed. Cir. 2004) (Mayer, Chief J.)
This case involves an ultrasonic device used in a patient positioning system for administering radiation therapy. The process involves generating an ultrasonic image using an ultrasonic probe and comparing the generated image to a prior image obtained through a computerized tomographic (CT) scan. Since cancerous lesions move with time, the image generated by the ultrasonic device at the time treatment is administered is used in order to fine tune and determine the present location of the lesion.
The independent claim in issue included a means-plus-function claim element that recited “a means for generating at least one ultrasound image.” The corresponding structure described in the specification was limited to a single embodiment that included an ultrasonic probe and a fixation device for securing the probe to the treatment table in a specific fashion. After a Markman hearing, the district court construed this element as limited to a fixed ultrasonic probe having a fixation device that maintains the probe perpendicular to the treatment table and to equivalents. Since the alleged infringing device was a handheld ultrasonic device that could be moved as desired by a physician, the district court found it did not infringe. In reaching this conclusion the court stated that in order to infringe a means-plus-function claim, the structure of the accused device must be compared with the disclosed structure and equivalent structures and an identical function must be found. The court found that while the claimed function, i.e., detection of the present position of a cancerous lesion for allowing administration of effective at the point radiation, was met, the structure used in the BrainLab probe was quite different.
Nomos contended that under the doctrine of claim differentiation, the means-plus-function claim element should not be limited to a fixed probe because to do so would render a dependent claim that recited “means for mounting” superfluous. The district court rejected this argument, noting that the corresponding structure must be ascertained from the written description, not from a dependent claim. The district court also held the doctrine of equivalents was inapplicable because the accused technology “was not after-developed.”
The Federal Circuit affirmed, finding no literal infringement because the accused structure is neither the same nor an equivalent of the corresponding structure because it “does not generate the ultrasound image in substantially the same way.” Citing Ishida and Chiuminatta, the Federal Circuit also found that the doctrine of equivalents did not come “into play” because no after-developed technology was involved.
Practice Note: When writing a means-plus-function claim, make certain that more than one structure is described in the written description and, if possible, name as many equivalents as possible.
Jurors Must Be Informed of Claim Construction Rulings for All Disputed Claim Terms
By David E. A. Jordan
Clarifying an earlier decision, the U.S. Court of Appeals for the Federal Circuit has held that trial courts have a duty to inform jurors of the court’s claim construction rulings on all disputed claim terms and of the jury’s obligation to apply the court’s determined meanings of the terms to the deliberations of the facts. This applies even when the court has construed the disputed claims before the trial and the parties have applied the court’s construction during the trial. Sulzer Textil A.G. v. Picanol N.V., Case Nos. 02-1410, -1411 (Fed. Cir. Feb. 17, 2004) (Linn, J.).
In this case, Sulzer filed suit against Picanol alleging infringement of two patents relating to air-jet weaving machines for weaving threads or yarns into fabric. In accordance with Markman, a Special Master issued a report construing 12 disputed claim terms, and the district court adopted the report in its entirety. The jury instructions did not contained a discussion of the district court’s claim construction rulings, and the jury returned a verdict of non-infringement in favor of Picanol. Citing a 1992 Federal Circuit case, U.S. Surgical Corp. v. Ethicon, Inc., the district court asserted that the constructed terms were not “in dispute” at trial and that Markman did not require a trial judge to instruct a jury as to an “undisputed ‘claim construction’” for every term.
Finding that the claim terms had no “plain meaning” and initially required a Markman ruling for resolution, the Federal Circuit disagreed with the reasoning of the district court. The Court noted that, even though the disputed meaning of the claim terms had been determined by the time of trial, without the benefit of the district court’s claim construction determinations, the meaning of the previously disputed claim terms was not apparent. Accordingly, the district court had a duty to instruct the jury on the meanings of all disputed terms so the jury could intelligently determine the questions presented: “[B]ecause the district court made specific claim construction rulings, it was required to inform the jury that it was not free to consider its own meanings for the disputed terms. ...”
Pre-Filing Infringement Analysis Is “Key Factor” to Avoiding Rule 11 Sanctions
Contact Paul Devinsky
The U.S. Court of Appeals for the Federal Circuit confirmed that the Rule 11 requirements of reasonable pre-filing investigation may be satisfied by an “infringement analysis” performed prior to filing a patent infringement suit. Q-Pharma, Inc. v. The Andrew Jergens Company, Case No. 03-1184 (Fed. Cir. Mar. 8, 2004) (Lourie, J.).
Q-Pharma filed suit against Jergens alleging that Jergens’ sale of its “Cruel Lotion with Coenzyme Q10” infringed the Q-Pharma patent directed to a method for therapeutically treating damaged tissue by administering a composition containing Coenzyme Q10 (C0Q10). The label on the Jergens’ lotion prominently displays the term “Q10.”
During discovery, Q-Pharma repeatedly demanded information regarding the contents of the Jergens’ lotion. Jergens refused to comply. Eventually, Jergens revealed that its lotion contained an almost negligible amount of Q10. Upon learning that information, Q-Pharma abandoned its suit.
After the district court dismissed Q-Pharma’s infringement claim, Jergens filed motions for sanctions under Rule 11 and for attorney fees. As the basis for its Rule 11 motion, Jergens argued that Q-Pharma did not prepare an appropriate claim construction chart and did not perform a chemical analysis on the lotion prior to filing the suit. According to Jergens, a rigorous claim chart would have made it apparent that the claims of the patent required “a therapeutically effective” amount of C0Q10 and a chemical analysis of Jergens’ lotion would have revealed that it contained an almost negligible amount of C0Q10. Thus, Jergens argued, had Q-Pharma performed an adequate pre-filing investigation, it would have known that Jergens’ “Cruel Lotion” could not possibly infringe the patent. Jergens further argued that Q-Pharma’s suit was filed in bad faith, making it an exceptional case under §285.
The district court denied both motions and the Federal Circuit affirmed. The Court explained that “[i]n the context of patent infringement actions, we have interpreted Rule 11 to require… that an attorney interpret the asserted patent claims and compare the accused device with those claims before filing a claim alleging infringement.” Relying on the filing attorney’s declaration,
the Court noted that, “[I]t was enough that the filing attorney had reviewed the patent claims, written description, and prosecution history, and interpreted the patent claims.” A “claim chart is not a requirement of a pre-filing infringement analysis.” Rather, the Court explained, it is “[t]he presence of an infringement analysis [that] plays the key role in determining the reasonableness of the pre-filing inquiry made in a patent infringement case under Rule 11.”
Such an “infringement analysis can simply consist of a good faith, informed comparison of the claims of a patent against the accused subject matter.” The Federal Circuit noted that Q-Pharma acquired a sample of the Cruel Q10 lotion, which “listed the product’s ingredients and repeatedly touted the therapeutic effects of C0Q10.” Given Q-Pharma’s non-frivolous interpretation of its patent claim (as requiring no specified amount of C0Q10) and Jergens’ assertions regarding the therapeutic effects of C0Q10 expressly made on the packaging of the accused product, the Court concluded that “it was reasonable for Q-Pharma to believe that the product contained a ‘therapeutically effective amount’ of C0Q10.”
The Federal Circuit also rejected the award of attorneys fees, concluding that Q-Pharma reasonably believed its patent was valid and infringed when it filed suit and that its claim of infringement was, therefore, neither frivolous nor unjustified. Jergens did not show by clear and convincing evidence that Q-Pharma was grossly negligent in its belief of infringement and validity.
Patent Term Extension Under H-W Act Covers Alternative Forms of Approved Product
Contact Paul Devinsky
Construing portions of the Hatch-Waxman Act (H-W), the U.S. Court of Appeals for the Federal Circuit held that the patent term restoration provision encompasses alternative salt and ester forms of an approved drug product, but clarifying that the term restoration provision is limited to registered uses of the approved product. Pfizer Inc. v. Dr. Reddy’s Laboratories, Ltd., Case Nos. 03-1227, -1258 (Fed. Cir. Feb. 27, 2004) (Newman, J.).
Norvasc is marketed as an anti-hypertensive, anti-ischemic drug product having the active ingredient amlodipine and is claimed in U.S. Patent No. 4,572,909 (the `909 patent) assigned to Pfizer, Inc. (Pfizer). The `909 patent term was set to expire in 2003, but was extended under H-W Act for a period equal to that time consumed in gaining regulatory approval. The act balances this term extension benefit to patentees by exempting infringement of generic producers for acts required for regulatory approval and allows use of the patentee’s data to support approval of a generic counterpart.
Pfizer submitted clinical data on both besylate and maleate salts of amlodipine to gain regulatory approval but selected amlodipine besylate to market. Pfizer’s application for term extension identified only amlodipine besylate as the approved product. Dr. Reddy’s Laboratories, Ltd. (Dr. Reddy’s) filed for regulatory approval to market amlodipine maleate for the same uses as Norvasc and also submitted Pfizer’s clinical data. While acknowledging that amlodipine maleate is covered by the `909 claims, Dr. Reddy’s persuaded the district court that the patent term extension applies only to the besylate salt form as the registered product and form identified in Pfizer’s term extension request. Pfizer appealed, arguing that regulatory approval was for “amlodipine” and that amlodipine maleate is within the scope of the statute as a salt or ester of the active ingredient.
Construing the term “drug product” under the H-W Act, the Federal Circuit held that the statutory definition is met by both amlodipine and its salts. The term drug product is defined as “any salt or ester of the active ingredient,” where an active ingredient means a molecule responsible for physiological or pharmacological action, excluding appended ester or salt portions. The Court further reasoned that the H-W Act foresaw and avoided circumvention of the patent term extension provision by changing the salt form of the active ingredient. The Court also held that while amlodipine maleate is eligible for patent term extension, the restoration provision of the act is limited to approved uses of the drug product. This provision, therefore, excludes other uses of a drug, but maintains protection for other forms of the approved product that are subject to the extension.
In a dissent that focused on the eligibility requirement that limits term extension to drug products subject to regulatory review prior to commercial marketing, Chief Judge Mayer concluded that amlodipine maleate did not meet this requirement and should be precluded from patent term extension.
Licensee in Good Standing Barred from Bringing Declaratory Judgment Action
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In a case involving a declaratory judgment suit, the U.S. Court of Appeals for the Federal Circuit vacated a district court’s ruling that the claims at issue were not infringed and invalid on the grounds that the lower court lacked subject matter jurisdiction. The Federal Circuit held that a patent licensee in good standing who continues to pay royalties may not file suit for declaratory judgment to challenge the licensed patents because there is no case in controversy. Gen-Probe Incorporated v. Vysis, Inc., Case Nos. 02-1617,-1618 (Fed. Cir. Mar. 5, 2004) (Rader, J.)
Gen-Probe was a licensee of U.S. Pat. No. 5,750,338 (the `338 patent) owned by Vysis. The patent relates to methods of capturing and amplifying viral DNA in blood samples. At the time the `338 patent issued, Gen-Probe and Vysis were litigating unrelated patents. An employee of Vysis informed an employee of Gen-Probe, orally and in writing, that its products may infringe the `338 patent. In order to resolve all of its “intellectual property issues at one time,” including the litigation of unrelated patents, Gen-Probe took a license in the `338 patent.
Gen-Probe subsequently informed Vysis of its opinion that the claims of the `338 patent were invalid and unenforceable and filed a declaratory judgment action. However, to “preserve the status quo” and hedge its bets against potential damages should it lose the suit, Gen-Probe elected to fulfill its obligations under the license and continue to pay royalties.
Vysis filed a motion in the district court to dismiss the action for lack of subject matter jurisdiction arguing that as a licensee in good-standing, Gen-Probe had no reasonable apprehension of suit. The district court disagreed and, following a two-week trial, ultimately held that the claims of the `338 patent were invalid and not infringed. The district court relied on the history of litigation between the parties, the oral notification of possible infringement between employees and the letter of possible infringement to substantiate an actual controversy between the parties. Additionally, the district court cited Lear v. Adkin for the proposition that a license does not bar a licensee from challenging the validity of a patent.
The Federal Circuit reversed, holding that in order to find the requisite “actual controversy,” the plaintiff must do so using a “totality of the circumstances” test. In patent cases, the Federal Circuit stated that there must be both an explicit threat or other action by the patentee that creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit, and present activity that could constitute infringement or concrete steps taken with the intent to conduct such activity.
The Court noted that Vysis had relinquished its ability to bring suit against Gen-Probe by entering the license and that by continuing to make the required royalty payments Gen-Probe maintained its status as a licensee in good standing. Moreover, the Court stated that even though a licensee is not always barred from challenging the validity of a patent, Lear does not allow any licensee to do so for any reason. According to the Court, before a licensee may avail itself of the rights afforded by Lear, the licensee must cease payment of royalties and provide the licensor notice that the reason for the cessation is because it considers the relevant claims invalid. Here, Gen-Probe presented no facts supporting an actual controversy, and the Court found that it could not be under reasonable apprehension of a lawsuit.
Practice Note: The Federal Circuit felt that allowing Gen-Probe to prosecute its lawsuit without renouncing its license would discourage patentees from issuing licenses. As a licensor, a patent holder would carry greater risk in terms of its ability to recover only a reasonable royalty in damages, vis-à-vis a licensee hedging its bets by paying royalties while seeking to undermine the underlying patent.
Only Ambiguous Claims May Be Construed “to Preserve Validity”
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In an opinion that may come as a surprise to those familiar with the old axiom that “claims should be construed when possible to preserve their validity,” the U.S. Court of Appeals for the Federal Circuit has held the axiom applies only to ambiguous claim terms. Liebel-Flarsheim Co. v. Medrad, Inc., Case Nos. 03-1082, -1165 (Fed. Cir., Feb. 11, 2004) (Bryson, J.).
Applying the ordinary-meaning rule to Liebel-Flarsheim’s patent, the Court found the meaning of the claim terms to be unambiguous. That being the case, the Court found no need to consider whether the resulting construction might also render the patents invalid.
In addition to clarifying when to apply the axiom regarding preserving patent validity, the Liebel-Flarsheim case provided the Federal Circuit with a chance to underscore the prohibition of importing limitations from the specification into the claims. The specification of Liebel-Flarsheim’s patent described several preferred embodiments, all of which had pressure jackets surrounding the claimed syringes. After seeing the defendant’s products in the marketplace,
the patentee attempted to claim its invention more broadly to include syringes without pressure jackets. The district court, focusing on the written description, held that the claims inherently required the pressure jackets described in the specification.
In reversing the district court, the Federal Circuit stated that because the specification did not clearly disavow the broader scope implicit in the plain meaning of the claims, it was improper for the district court to import that limitation into the broader claims. The Court noted that whether the broadly construed claims would be invalid should not have been taken into consideration in construing otherwise unambiguous claims. The Court also further noted that there was nothing necessarily improper in amending pending claims to cover newly discovered competitive products.
Spawn Comic Book Characters Creator Secures Co-Author Status Under Copyright Act
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The U.S. Court of Appeals for the Seventh Circuit affirmed a jury determination, holding that the statute of limitations under 17 U.S.C. §507(b) did not begin to run until Todd McFarlane, the publisher and compiler of the Spawn comic book, unambiguously denied that Neil Gaiman, the co-creator of three Spawn characters, had any copyright interest in his contribution to the Spawn series. Gaiman v. McFarlane, Case Nos. 03-1331, -1461, 2004 U.S. App. LEXIS 3396 (7th Cir. Feb. 20, 2004) (J. Posner).
The parties are two of the most renowned figures in comics. Neil Gaiman is the author of numerous comic book stories and novels, including the Sandman series, while Todd McFarlane is a writer and illustrator who has contributed to the Spiderman and Batman series and who created the Spawn series in 1992. Gaiman was temporarily brought on by McFarlane in late 1992 to contribute new ideas to the Spawn series, including a script and three new characters. After years of operating through an informal oral agreement regarding use of the characters Gaiman brought to Spawn, the relationship between the parties soured in the late 1990s when the parties tried to reduce their understanding to a written contract. Ultimately, McFarlane abandoned the parties’ three-year effort to reach an accord, and, in 1999, Gaiman sued, seeking a declaratory judgment that he was a co-author with McFarlane of the characters he helped create during his stint as a Spawn contributor. After a jury trial, Gaiman was granted a declaratory judgment of co-ownership of the characters in question, along with monetary relief and an accounting. McFarlane appealed.
The Seventh Circuit upheld the timeliness of Gaiman’s suit under the Copyright Act, rejecting McFarlane’s argument that the copyright notices and registration filings omitting Gaiman as a co-author should have put him on notice of an adverse claim of ownership by McFarlane. Because a comic book is a collaborative compilation, the Court held that McFarlane’s copyright notice
and copyright registrations listing only himself as owner were not adverse to Gaiman’s separate and distinct copyrights in the elements of his contributions to the collective work and registration of the latter did not trigger the statute of limitations as to the collective work.
Having determined that Gaiman’s action was not barred by the statute of limitations, the Court turned to the copyrightability of the characters Gaiman had contributed to the Spawn series. While acknowledging that neither stock characters nor Gaiman’s character ideas alone would be copyrightable, the comic book characters realized by the joint authors of the Spawn comic books were protected by copyright because they all had sufficiently distinct appearances, names and manners of speech. As the person who contributed the detailed ideas for these characters, the Court determined that Gaiman was a co-author of them for purposes of copyright law.
Trade Secret Must Be Valuable to Theft Victim and Others
By Matthew F. Weil
Characterizing the matter as a case of first impression, the California Court of Appeal (California’s intermediate appeals court) has held that to qualify as a trade secret under the California Penal Code, information must be unknown both to the public and also to those who could gain economic benefit from access to the information. People v. Laiwala, 115 Cal. App. 4th 850 (2004) (Mihara, J.).
A trial court had convicted Laiwala of grand theft of trade secret under California Penal Code §499(c) for copying a “DVD copy protection system” and taking it with him when he left his job as an engineer at Hyundai Electronics America’s Odeum Microsystems Division. Code §499(c) defines a trade secret as information that “[d]erives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.”
The Court of Appeal construed this language to restrict trade secret status to information that derives independent economic value from both not being generally known to the public and not being generally known to those who can obtain economic value from its disclosure or use. Under this definition, the court found the prosecution’s case lacking.
The valuable information Laiwala was accused of stealing consisted of a “master key” code that allowed Odeum to develop DVD copy protection software. Odeum was required by the license agreement under which it obtained the master key to maintain its secrecy. If Odeum failed to maintain the secrecy of the master key, the licensor had the power and right to deactivate the master key. Deactivation of the master key would destroy any value that Odeum derived from the master key license but would also prevent others from benefiting from its use. Thus, while the secrecy of the master key was of at least potential economic value to Odeum, there was no evidence in the record that the master key derived “independent economic value” from not being generally known to “other persons who can obtain economic value from its disclosure or use” because there was no evidence or basis for an inference that anyone other than Odeum could have obtained economic value from the use of Odeum’s master key.
Practice Note: The facts of this case are admittedly unusual and arose in the context of a criminal, rather than a civil, case (which could explain the rationale for the court’s particular statutory construction in this matter). Nevertheless, Laiwala could have broader application and may raise the bar for litigants hoping to prove civil trade secret misappropriation in California and elsewhere.