IP Update, Vol. 21, No. 4

Patents

PATENTS / CLAIM CONSTRUCTION

Mic Drop: PTAB Not Bound by Prior Federal Circuit Decisions


In a split decision, the US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) decision finding a patent invalid despite a 2011 Federal Circuit decision that upheld the validity of the same patent. Knowles Electronics LLC v. Cirrus Logic, Inc., Case No. 16-2010 (Fed. Cir., Mar. 1, 2018) (Wallach, J) (Newman, J, dissenting).

Knowles owns a patent directed to microelectromechanical system (MEMS) packages having a substrate, a microphone and a cover accommodating the microphone. According to the patent, the MEMS packages shield the microphone from interference signals or environmental conditions and improve over prior art drawbacks associated with manufacturing. Cirrus initiated an inter partes re-examination proceeding challenging certain claims of the patent. In the proceeding, the PTAB affirmed the examiner’s rejection of certain claims for anticipation based on the construction of the term “package.” The PTAB also affirmed the examiner’s finding that certain newly proposed claims were unpatentable for lack of adequate written description. Knowles appealed.

The Federal Circuit had considered the same patent seven years ago in an appeal from a decision at the US International Trade Commission. In the prior appeal, the Federal Circuit concluded that the patent was not invalid. In the current appeal, Knowles argued that the PTAB improperly construed the term “package” differently from the way the Federal Circuit construed it in the earlier proceeding. The majority found that the PTAB properly construed the term “package,” however, and explained that there was no inconsistency between the prior construction and the current broadest reasonable interpretation (BRI) by the US Patent and Trademark Office (PTO).

Regarding the written description issue, the Federal Circuit applied the pre-America Invents Act (AIA) § 112 requirement and found that the PTAB’s written description ruling was supported by substantial evidence. The Court agreed that a person of skill in the art, reading the specification, would not have recognized that the inventor possessed solder pads “configured to” connect to a printed circuit board through a reflow process. As the panel explained, “it is not sufficient for purposes of the written description requirement that the disclosure, when combined with the knowledge in the art, would lead one to speculate as to the modifications that the inventor might have envisioned, but failed to disclose.”

In dissent, Judge Newman argued that the construction of the term “package” was different in the two cases. She argued that the PTAB was bound by the previous Federal Circuit ruling and faulted the majority for perpetuating the position that the PTAB need not apply a prior final judicial decision of the same issue of the same claims of the same patent. In Judge Newman’s view, the PTAB’s “duplicate” litigation of the same question negates the purpose of the AIA, which is “to provide a more efficient and less costly post-grant determination of certain validity issues.”

Practice Note: Although the PTAB took the position that the PTO, in determining the BRI, was not bound by the prior claim construction, the panel majority declined to address whether its prior decision was binding on the PTAB. In other words, as Judge Newman observed, the status quo is that claim construction collateral estoppel does not arise against the PTO.


PATENTS / CLAIM PRECLUSION

Terminal Disclaimer Does Not Establish Claim Preclusion


Addressing claim preclusion, the US Court of Appeals for the Federal Circuit reversed a district court’s dismissal of a complaint as barred by claim preclusion and the Kessler doctrine. SimpleAir, Inc. v. Google LLC, Case No. 16-2738 (Fed. Cir., Mar. 12, 2018) (Lourie, J).

SimpleAir obtained a family of patents including a parent patent and several child patents claiming continuation priority back to the parent patent. During prosecution, SimpleAir filed terminal disclaimers in each child patent to overcome obviousness-type double patenting rejections.

After the patents issued, SimpleAir filed several patent infringement lawsuits against Google’s cloud messaging and cloud-to-device messaging services. In the first lawsuit, a jury found infringement of one of the child patents, but the Federal Circuit reversed the verdict. In the second lawsuit, a jury found non-infringement of a different child patent. SimpleAir then filed a third lawsuit, asserting infringement of two different child patents. Google moved to dismiss SimpleAir’s complaint (under Fed. R. Civ. Pro. 12(b)(6)) on the basis that it was barred by claim preclusion and the Kessler doctrine. The district court agreed, reasoning that (1) the two patents shared the same specification with the previously adjudicated child patents, and (2) the filing of the terminal disclaimers indicated that the US Patent and Trademark Office believed the patents-in-suit were patentably indistinct from the earlier patents. Concluding that the various child patents claimed the same underlying invention, the district court dismissed SimpleAir’s complaint. SimpleAir appealed.

On appeal, the Federal Circuit found the district court record insufficient to sustain the district court’s dismissal. The Court agreed that the various lawsuits and child patents substantially overlapped, but ultimately found that the district court never analyzed the claims of any patent in reaching its conclusion that the child patents claimed the same invention. The Court also rejected the district court’s reliance on terminal disclaimers:

[A] terminal disclaimer is a strong clue that a patent examiner and, by concession, the applicant, thought the claims in the continuation lacked a patentable distinction over the parent. But as our precedent indicates, that strong clue does not give rise to a presumption that a patent subject to a terminal disclaimer is patentably indistinct from its parent patents. It follows that a court may not presume that assertions of a parent patent and a terminally-disclaimed continuation patent against the same product constitute the same cause of action. Rather, the claim preclusion analysis requires comparing the patents’ claims along with other relevant transactional facts.

Because the district court did not specifically consider the claims, the Federal Circuit found insufficient basis for claim preclusion.

Google also argued that if claim preclusion did not apply, then the Kessler doctrine barred SimpleAir’s claims. The Kessler doctrine is based on a 1907 Supreme Court of the United States decision that protects a party’s rights to continue a practice that had been accused of infringement where an earlier judgment found that essentially the same activity did not infringe the patent. However, the Federal Circuit explained that the doctrine has not been applied to bar a broader set of rights than would have been barred by claim preclusion. The Court declined to do so, explaining, “Google asks us to subsume claim preclusion within a more expansive, sui generis Kessler doctrine. But the Kessler doctrine just fills a particular temporal gap between preclusion doctrines . . . it does not displace them.”

Practice Note: Claim preclusion does not apply where claims of an asserted patent are not the same as claims of an earlier litigated patent from same family—unless the court determines the asserted claims are narrower than the previously litigated claim.


PATENTS / CLAIM CONSTRUCTION

Claim Differentiation Cannot Be Used to Broaden Narrowly Described Invention


Bhanu K. Sadasivan, PhD

The US Court of Appeals for the Federal Circuit reversed a district court’s claim construction, finding that later-added dependent claims cannot broaden claim scope affirmatively limited by the specification. Cave Consulting Grp., LLC v. Optuminsight, Inc., Case No. 17-1060 (Fed. Cir., Mar. 21, 2018) (Lourie, J).

Cave owns a patent directed to a method for measuring physician efficiency and patient health risk stratification. The patent describes that a physician’s efficiency can be determined by calculating “weighted episode of care statistics” of a peer group and of a physician. The patent explains that the invention “uses an indirect standardization technique for weighing together the episodes within the core group of medical conditions.” After Cave sued Optum for infringement, Optum argued that the term “weighted episode of care statistics” should be construed to exclude direct standardization, while Cave argued for a broader claim scope that includes both direct and indirect standardization. Cave contended that indirect standardization was merely one embodiment and the claims were not so limited. The district court adopted Cave’s construction, and a jury found infringement by Optum. Optum appealed.

On appeal, the Federal Circuit found that the district court erred in construing the term “weighted episode of care statistics” to include direct standardization. The Court noted that the only support for the district court’s broad construction was based on the rationale of claim differentiation to preserve the validity of the dependent claims. In rejecting the district court’s finding, the Federal Circuit noted that claim language is not read in isolation and that the patent describes its method as one that employs indirect standardization. Addressing the direct standardization claimed in the dependent claims, the Court found that the only support came exclusively from the description of the prior art methods, and not from the patent specification. The Court also noted that the dependent claims were added after the filing of the original application. The Court noted that if the originally filed application included claims reciting direct standardization, then the later-added dependent claims specifically claiming direct standardization would have lent support for the broader construction. However, in view of the specification’s consistently limiting description, the Court concluded that these interpretive canons, despite the later-added dependent claims, cannot overcome the claim scope that is unambiguously prescribed by the specification.

The Federal Circuit also rejected Cave’s argument that indirect standardization is merely one embodiment, explaining that the specification affirmatively limits its method of use to one that uses indirect standardization, as opposed to other methods disclosed in the prior art. The Court also rejected Cave’s argument that a clear and unmistakable disavowal is required to find disclaimer, explaining that explicit redefinition or disavowal is not required when the description itself is affirmatively limiting.

Finally, the Court concluded that Optum did not infringe as a matter of law. The Court noted that it is undisputed that Optum’s method performs direct standardization, and no reasonable jury could find that Optum infringes under the correct construction of “weighted episode of care statistics,” which excludes direct standardization.

Practice Note: Avoid limiting description of invention in the specification, and where feasible include dependent claims that rely on prior art methods in the original application.


PATENTS / WRITTEN DESCRIPTION / § 112

Earlier Disclosure Conveys Possession of Invention, Is Not Invalidating Reference


Addressing the written description requirement under 35 USC § 112, the US Court of Appeals for the Federal Circuit found that an international patent application had sufficient written description to act as a priority document rather than an invalidating obviousness reference. Hologic, Inc. v. Smith & Nephew, Inc., Case No. 17-1389 (Fed. Cir., Mar. 14, 2018) (Stoll, J).

Smith & Nephew owns a patent directed to an endoscope and has claims reciting a “permanently affixed light guide” in one of two channels. The patent claims priority to an earlier-filed Patent Cooperation Treaty (PCT) application by the same inventor and with a nearly identical specification. During the national stage examination, the specification of the application was amended to state that “[a] connection . . . for a light source is also present, for connection to a light guide, such as a fibre optics bundle which provides for lighting at the end of lens” in response to an objection for inadequate disclosure.

After the application issued, Hologic filed a request for inter partes re-examination of the patent. During re-examination, the examiner found that the patent could not claim priority to the international application because the international application did not provide adequate written description for the broad genus of “light guides.” The examiner determined that the phrase “fibre optics bundle” alone did not provide adequate written description. The examiner found that without adequate written description in the international application, the effective priority date of the patent was well after the publication of the international application. Therefore, the international application publication was prior art to the claims of the patent under pre-America Invents Act § 102(b), resulting in rejection of the re-examined claims of the patent.

Smith & Nephew appealed to the Patent Trial and Appeal Board (PTAB), which reversed the examiner, finding that the earlier-filed PCT application provided sufficient written description support for the claimed light guide, therefore entitling the patent to the priority date of the PCT application. Hologic appealed to the Federal Circuit.

On appeal, the Federal Circuit affirmed the PTAB’s decision. The Court found that the specification of the earlier-filed PCT application supported the PTAB’s finding that the PCT application contemplated a distinct channel for light or viewing, separate from cutting tools. Based on this description, the Court found that substantial evidence supported the PTAB’s conclusion that a person of ordinary skill, reviewing the PCT figures and specification, would have understood that the inventor had possession of a light guide affixed in the “first channel.”

Practice Note: It remains good practice to include generic support, at least as an example, when drafting patent specifications. Practitioners should also ensure that claim terms, including in child applications, are fully supported in the specification of relevant priority documents.


PATENTS / SUMMARY JUDGMENT / DISMISSAL OF COMPLAINT (PLAUSIBILITY)

A Book Holder Is Not a Camera Holder


Addressing issues of dismissal under Fed. R. Civ. Pro. 12(b)(6) and summary judgment of non-infringement, the US Court of Appeals for the Federal Circuit affirmed the district court’s dismissal of a pro se appellant’s complaint with prejudice as to some defendants and the grant of summary judgment of non-infringement as to others. Ottah v. Fiat Chrysler, Case No. 17-1842 (Fed. Cir., Mar. 7, 2018) (Newman, J).

Chikezie Ottah owns a patent directed to a removable book holder assembly for use by a person in a protective or mobile structure such as a car seat, wheelchair, walker or stroller. Ottah filed a pro se complaint against multiple automobile companies alleging that back-up cameras installed in defendants’ cars infringed Ottah’s patent.

One group of defendants moved for summary judgment of non-infringement, arguing that the Federal Circuit had previously found that the patented device must be capable of being “removed without tools” and that defendants’ camera did not infringe the patent because it could not be removed without tools. Another group of defendants moved to dismiss the complaint with prejudice for failure to state a claim, because the patent’s claims were explicitly directed to a book holder, and Ottah could not plausibly plead a claim of infringement by a camera holder. The district court agreed with both groups of defendants, granting both the motion for summary judgment of non-infringement and the motion to dismiss. Ottah appealed.

The Federal Circuit affirmed the district court’s summary judgment and dismissal with prejudice. As to the summary judgment finding, Ottah argued that the district court erred in construing the term “removably attached” to exclude “fixed mounts.” The Court disagreed, citing its prior claim construction where it found that the term “removably attached” requires removal without tools. The Court found that no error had been shown in this claim construction and that there was no reason for departing from the rules of collateral estoppel or stare decisis. The Court found that because defendants’ accused cameras utilize fixed mounts and require tools for removal, they do not infringe.

Turning to the dismissals under Rule 12(b)(6), the Federal Circuit stated that the grant of the motion is reviewed de novo to determine whether the claim is plausible on its face, accepting the material factual allegations in the complaint and drawing all reasonable inferences in favor of the plaintiff. The Court noted that while a complaint filed by a pro se plaintiff is liberally construed and held to less stringent standards than formal pleadings drafted by lawyers, the pro se plaintiff must still meet the minimal standards to avoid dismissal under Rule 12(b)(6). The Court found that the district court correctly found that the claimed “book holder” could not plausibly be construed to include or be equivalent to a camera holder, and Ottah’s arguments were legally implausible even liberally construing the complaint.


PATENTS / AIA / PTAB

Federal Circuit to PTAB: Explain Yourself


The US Court of Appeals for the Federal Circuit reversed a Patent Trial and Appeal Board (PTAB) decision invalidating the challenged claims in an inter partes review (IPR), finding that the PTAB’s conclusions in support of the decision were not sufficiently explained in its final written decision, nor could the Court gain any such explanation from the record. DSS Tech. Mgmt. v. Apple Inc., Case Nos. 16-2523; -2524; -2018 (Fed. Cir., Mar. 23, 2018) (O’Malley, J) (Newman, J, dissenting).

Apple filed two IPR petitions challenging claims of DDS’s patent directed to a wireless communication network. In two final written decisions, the PTAB found that all of the challenged claims were invalid as obvious in light of two prior art references. DDS conceded that the cited prior art references disclosed every limitation except one limitation that related to a “transmitter[] being energized in low duty cycle RF bursts.” Thus, the sole issue on appeal was the PTAB’s finding that it would have been obvious to modify part of the prior art disclosure to be “energized in low duty cycle RF bursts.”

The Federal Circuit found that the PTAB’s decision failed to provide sufficient explanation for its obviousness finding. In particular, the PTAB relied on “ordinary creativity” or “common sense” to supply the missing claim limitation. The Court explained that, ordinarily, common sense may be used in an obviousness rejection in order to provide motivation to combine prior art references. Common sense should not be used to supply a missing claim term, however, unless the claim limitation is simple and the technology is straightforward. Here, the Court found that the limitation at issue was not simple and the technology was not straightforward. Additionally, the Court was unable to find evidence in the record to support the PTAB’s conclusion, as the testimony from Apple’s expert was conclusory and failed to consider the overall functionality of the cited prior art.

Judge Newman dissented from the majority for two reasons. First, Judge Newman found that the PTAB’s explanation was sufficient, as the PTAB acknowledged and adopted Apple’s cited evidence and expert’s views, while finding that Apple persuasively refuted DSS’s arguments. Second, Judge Newman found that if the PTAB’s explanation was insufficient, the Court should either remand the decision to the agency for additional investigation or limit its decision to the question of law. Judge Newman stated that the majority’s decision to reverse the ruling of the PTAB, as opposed to remanding the decision, cements an improper final judgment of patentability, which will have estoppel effects in district court, is contrary to the body of precedent and dilutes the purpose of IPR proceedings.


PATENTS / AIA / OVERLAPPING RANGES / PRIMA FACIE OBVIOUSNESS

Prima Facie Obviousness: Much Ado “Abut” Ranges


Addressing the issue of claims that recite a range that abuts but does not overlap that of a prior art reference, the US Court of Appeals for the Federal Circuit upheld the Patent Trial and Appeal Board’s (PTAB’s) finding of a prima facie case of obviousness. In Re: Brandt, Case No. 16-2601 (Fed. Cir., Mar. 27, 2018) (Reyna, J).

The application in issue relates to “high density polyurethane or polyisocyanurate construction boards, as well as their use in flat or low-slope roofing systems.” The independent claim recited as a feature “said coverboard having a density greater than 2.5 pounds per cubic foot and less than 6 pounds per cubic foot.”

During examination, the examiner issued a final rejection under 35 USC § 103(a) over a prior art reference disclosing a prefabricated roofing panel with a coverboard having a polymer material core layer with a density “between 6 lbs/ft3 and 25 lbs/ft3 and preferably a density of at least 8 lbs/ft3.” The examiner took the position that it would have been obvious to a skilled artisan to have “a cover board that had a density of less than 6 pounds per cubic feet as an obvious design choice and also due to margin of error by the slightest percentage.” The applicants appealed the rejection, and the PTAB affirmed the rejection. This appeal to the Federal Circuit followed.

Applicants challenged the PTAB’s finding of a prima facie case of obviousness based on the prior art coverboard density range disclosure, because that range did not overlap with the claimed density range. Specifically, applicants argued that the PTAB erred by applying a per se rule that whenever the differences between a prior art reference’s disclosed range and the application’s claimed range are close, a prima facie case of obviousness is established.

The Federal Circuit disagreed with the premise that the PTAB applied a per se rule. Rather, it found a prima facie obviousness conclusion grounded in the facts before it. The PTAB specifically agreed with the examiner’s factual finding that the difference between the claimed range and prior art range was “virtually negligible.” This finding accounted for manufacturing tolerance levels, because “precise results are not always achieved and tolerance levels are usually taken into account.” In addition, the cited reference recognized that the composition and compressive strength of the coverboard may vary through the addition of fillers during manufacturing. The Court concluded that “[t]his is a simple case in the predictable arts that does not require expertise to find that the claimed range of ‘less than 6 pounds per cubic feet’ and the prior art range of ‘between 6lbs/ft3 and 25lbs/ft3’ are so mathematically close that the examiner properly rejected the claims as prima facie obvious.”

The Federal Circuit also noted that the applicants did not provide any evidence showing a criticality of the claimed range.

Practice Note: When the difference between a claim and the prior art rests on a claimed range, it is important to provide evidence of criticality of that range.


PATENTS / AIA / CLAIM CONSTRUCTION

Claim Term Cannot Be Uncoupled from Specification and Claim Language


Addressing a Patent Trial and Appeal Board (PTAB) unpatentability decision that turned on claim construction, the US Court of Appeals for the Federal Circuit explained that the broadest reasonable interpretation of a claim term cannot be so broad that it is inconsistent with the specification or renders the term meaningless. In re: Power Integrations, Inc., Case No. 17-1304 (Fed. Cir., Mar. 19, 2018) (Mayer, J).

In 2006, Fairchild, Inc., requested ex parte re-examination of a Power Integrations patent directed to a digital frequency jittering circuit. In a first decision finding the claims invalid, the PTAB rejected Power Integrations’ argument that the term “coupled” in the challenged claims requires two components to be connected “such that voltage, current or control signals pass from one to another.” Instead, the PTAB adopted a broader construction of “coupled” based upon a generalist dictionary where any two components in the same circuit were considered to be “coupled.” Power Integrations appealed, and the Federal Circuit vacated the PTAB’s decision, explaining that the PTAB had an obligation to consider whether Power Integrations’ construction, which had been adopted by a district court in parallel litigation, was consistent with the broadest reasonable construction. On remand, the PTAB again found the challenged claims invalid, concluding that comparison of its claim construction with the district court’s construction was unwarranted because a district court construction of a term is typically narrower than the broadest reasonable construction of that term. Power Integrations again appealed.

On appeal, the Federal Circuit found that the PTAB’s claim construction was unreasonably broad and improperly omitted any consideration of the specification. The Court contrasted Power Integrations’ construction of “coupled,” which required a specific control relationship, with the PTAB’s construction, which allowed for any two elements in the same circuit. The Court found that the plain language of the claim required a causal relationship between the two coupled elements, while the PTAB’s construction would allow for significant intervening components. In addition, the Court found that the PTAB’s construction rendered the claim term “coupled” meaningless, because the claim already recited that the two elements were in the same circuit. The Court also found that the PTAB’s construction was inconsistent with the specification, which teaches the elimination of superfluous components and shows two coupled components connected in a manner consistent with Power Integrations’ construction such that voltage, current or control signals pass from one to another. The Court concluded that Power Integrations’ construction of “coupled” comports with the broadest reasonable construction of the term, and based on that construction, the Court reversed the PTAB’s decision affirming the examiner’s rejections.


PATENTS / AIA / IPR / PROCEDURE

PTAB May Disregard New Evidence Presented at Oral Argument


Joseph Speyer, PhD

The US Court of Appeals for the Federal Circuit concluded that the Patent Trial and Appeal Board (PTAB) is not required to consider evidence presented for the first time at oral argument in an inter partes review (IPR). Dell Inc. v. Acceleron, LLC, Case No. 17-1101 (Fed. Cir., Mar. 19, 2018) (Reyna, J).

This appeal concerned a challenged claim of Acceleron’s patent, which is directed to a computer network appliance that includes caddies, which provide air flow in the chassis. Dell contended that a prior art reference disclosed the claimed caddies, but Acceleron responded that the reference disclosed, at most, a single caddy, while the claim required plural caddies to be provided. At oral argument, Dell raised a novel argument equating the slides in the chassis with the claimed caddies. Acceleron objected that Dell’s argument was not timely raised, but the PTAB denied Acceleron’s objection. In its final written decision, the PTAB found the challenged claim unpatentable, relying on Dell’s argument regarding the slides in the chassis.

Acceleron appealed, arguing that the PTAB violated the Administrative Procedures Act (APA) by not giving Acceleron a fair opportunity to respond to Dell’s novel “slides” argument. The Federal Circuit agreed with Acceleron that the PTAB had violated the APA, and vacated the PTAB’s cancellation of the challenged claim, remanding the case to the PTAB. On remand, the PTAB decided not to consider the slides argument because it was new and non-responsive to Acceleron’s response. This time, the PTAB found the challenged claim to not be anticipated by the prior art reference. Dell appealed.

Dell argued that the PTAB should have considered the slides argument and provided Acceleron an opportunity to address the argument, but the Federal Circuit disagreed. The Court’s remand order in the first appeal only set out the requisite procedure that would be applied had the PTAB actually considered Dell’s new evidence. Dell further argued that ignoring evidence of unpatentability is against public policy, but the Court concluded that due process and preserving the PTAB’s discretion outweigh any negative effects of not invalidating a patent claim.


PATENTS / AIA / CLAIM CONSTRUCTION / COLLATERAL ESTOPPEL / OBVIOUSNESS

Cleaning Up Aseptic Packaging Patent Disputes


Addressing final decisions in two separate inter partes reviews, the US Court of Appeals for the Federal Circuit overturned a Patent Trial and Appeal Board (PTAB) claim construction because of collateral estoppel in one case, and in a second case upheld the PTAB claim construction and obviousness determination. Nestle USA, Inc. v. Steuben Foods, Inc., Case No. 17-1193 (Fed. Cir., Mar. 13, 2018) (Hughes, J); Steuben Foods, Inc. v. Nestle USA, Inc., Case No. 17-1290 (Fed. Cir., Mar. 13, 2018) (Hughes, J).

Steuben owns several patents directed to aseptic packaging of foods, which relates to putting a sterile food product into a sterile package within a sterile environment. Nestle sought inter partes review of Steuben’s patents, and the PTAB issued final decisions finding one patent non-obvious and the second patent obvious in view of the prior art. Nestle appealed the non-obviousness decision, and Steuben appealed the obviousness finding.

In the first case (No. -1193), Nestle argued on appeal that the PTAB had erroneously construed the terms “aseptic” and “aseptically disinfecting.” Pointing to a previous Federal Circuit decision involving the claim construction of “aseptic” in a related Steuben patent, Nestle argued that the same claim construction should apply here. The Federal Circuit agreed, applying the doctrine of collateral estoppel or issue preclusion. The Court noted that the prior patent used the term “aseptic” in a similar fashion and provided identical lexicography for the term in the specification. The Court also pointed out that neither party in this case identified any material differences between the patents or prosecution histories that could warrant a different claim construction. Thus, the Court found that collateral estoppel obviated the need to revisit the claim construction issue, vacated the PTAB’s construction and non-obviousness finding, and remanded for further proceedings.

The second case (No. -1290) involved a patent related to a method for providing the sterile environment for aseptic packaging where the sterile environment is split into several separate zones, including at least one zone for spraying the sterilant and a second for filling the sterile package with food. The patent’s claims require that the concentration of the sterilant be present in a specific ratio in the different zones, including a ratio of at least 5 to 1 in the independent claim and at least 1,000 ppm to 0.1 ppm in a dependent claim. The PTAB construed “sterilant concentration levels in the . . . zones” to mean the sterilant level measured at any point in the zone, including in residual concentration on package surfaces. Using this construction, the PTAB found the claims obvious in view of the prior art.

On appeal, Steuben challenged the PTAB’s claim construction, arguing that “sterilant concentration” meant the amount of sterilant in the volume of gas within the zone. The Federal Circuit disagreed, finding that Steuben was attempting to limit the construction to a specific embodiment described in the specification. Instead, the Court affirmed the PTAB’s construction, pointing to references in the specification discussing residual concentration of sterilant on lids and surfaces of the packaging. Steuben also argued that the prior art failed to disclose the specifically claimed ratios. Again, the Federal Circuit disagreed, finding that the prior art disclosed multiple zones with different sterilant concentrations, including up to 300,000 ppm of hydrogen peroxide (a sterilant) in the spraying zone. The Court found that this reference, combined with US Food and Drug Administration regulations limiting hydrogen peroxide concentrations to 0.5 ppm in the filling zone, sufficiently taught the claimed ratios, thereby affirming the PTAB’s obviousness decision.


PATENTS / LICENSING / TAX TREATMENT OF ROYALTIES

Waiver Leads to Double Tax Liability on Patent Royalties


David Mlaver

Declining to address whether certain technology licensing royalties should be subject to taxation as income or capital gains, the US Court of Appeals for the Third Circuit found that the patentee-taxpayer had waived his claim on appeal, and affirmed the decision of the Tax Court that the royalties should be treated as income. Spireas v. Comm’r of Internal Revenue, Case No. 17-1084 (3d Cir., Mar. 26, 2018) (Hardiman, J) (Roth, J, dissenting).

Spiridon Spireas is an inventor of a drug delivery technology that must be adapted to each drug sought to be delivered. In 1998, Spireas and a drug company entered into an agreement whereby the drug company would have the exclusive rights to utilize the drug delivery technology, but only to develop products that the company and Spireas would unanimously select. The drug company also received the exclusive rights to produce, market, sell, promote and distribute those products. Spireas was entitled to a 20 percent royalty on the gross profits the drug company earned.

In 2000, Spireas and the drug company agreed to use the technology to develop a generic version of a blood-pressure drug called felodipine. The development was successful, and, in 2007 and 2008, sales of the product generated royalties exceeding $40 million.

Spireas reported the royalties as capital gains on his 2007 and 2008 tax returns. In 2013, the Commissioner sent Spireas a notice of deficiency for 2007–2008, asserting that that the royalties should have been treated as ordinary income. Spireas petitioned the US Tax Court for a redetermination, arguing that capital gains treatment was appropriate because the 1998 and 2000 agreements combined to transfer to the drug company all of Spireas’s rights in the particular formulation of felodipine. The Tax Court agreed with the Commissioner, reasoning that no transfer of rights could have taken place in 1998 with respect to the felodipine product because it had not yet been invented.

On appeal, Spireas claimed that the 1998 agreement prospectively assigned to the drug company the relevant rights to the felodipine product. The Third Circuit disagreed, explaining that Spireas’s theory was inconsistent with his assertion in Tax Court that a transfer of rights took place sometime after the felodipine product was invented, between the end of 2000 and spring 2001. Finding that Spireas had failed to raise a prospective assignment argument in Tax Court, the Third Circuit held that Spireas had waived that argument.

In dissent, Judge Roth took the position that the arguments were sufficiently consistent to avoid waiver and would have found for Spireas on the merits.

Practice Note: The problem in this case arises from difficulty defining exactly the property right in which Spireas transferred all substantial rights. The Tax Court relied on the fact that Spireas failed to transfer all substantial rights to the drug delivery technology in general, but the Third Circuit acknowledged that a patentable invention (it was not disputed that the felodipine product was independently patentable) may be subject to capital gains treatment even without a patent or patent application. Precision in describing the transferred right(s)—and maintaining consistency regarding that issue—is likely to be instrumental when attempting to obtain favorable tax treatment.


America Invents Act

AIA / IPR / PRIOR ART / PRINTED PUBLICATION

Who Is “Another” Depends on Who Else Is Named


The Patent Trial and Appeal Board (PTAB) denied a patent owner’s request for rehearing of the PTAB’s decision to institute inter partes review (IPR) when there was ambiguity in one of the inventors’ declarations about whether and to what extent non-author inventors contributed to the relevant portion of an asserted reference. Watson Laboratories, Inc. v. United Therapeutics, Corp., Case No. IPR2017-01621 (PTAB, Mar. 26, 2018) (Paper 33) (Cotta, APJ).

Watson Laboratories filed a petition for request IPR challenging certain claims of a patent owned by United Therapeutics (UTC). Following UTC’s preliminary response, the PTAB entered a decision granting institution. UTC filed a request for rehearing seeking reconsideration of the institution decision.

UTC argued that an asserted journal article was not prior art because it was not the work of another. In the institution decision, the PTAB concluded that evidence provided by Watson was sufficient to resolve factual disputes involving the availability of the journal article as a prior art printed publication for the purposes of institution. The PTAB maintained its conclusion while denying UTC’s request for rehearing and further elaborated its finding that the declarations provided by UTC left some ambiguity as to the contribution of authors who were not co-inventors to the relevant portion of the asserted journal article and the contribution of several named inventors who were not co-authors of the asserted journal article. The PTAB framed the issue as follows: “whether a reference is the work of ‘another’ is not limited to the contribution of the non-inventor co-authors. Rather, the inquiry is whether the inventive entities are the same for the relevant portion of [the journal reference] and for the challenged claims.”

The PTAB distinguished its findings here from its 2017 ruling in Varian Med Systs. v. Wm. Beaumont Hosp., where it held that “the omission of a named inventor from co-authorship has no significance for whether the publication is the work of ‘others,’” because the “by another” issue is to be determined based on the facts of the case at hand, and the facts in Varian were different because the inventor’s declaration in Varian was unambiguous.

The PTAB further noted that in determining whether to institute IPR, the PTAB considers whether a petitioner has met the burden of establishing a “reasonable likelihood that at least one of the claims challenged in the petition is unpatentable” in the light most favorable to the petitioner, and therefore the issue of contribution of the non-inventor co-authors is a genuine issue of material fact that must be viewed in the light most favorable to the petitioner, and may be resolved after Watson has the opportunity to cross-examine any of UTC’s declarants.

Practice Note: When confronting the issue of whether an asserted printed publication is the work of another, practitioners representing patent owners in America Invents Act proceedings should endeavor to unambiguously address and resolve all factual issues regarding whether (1) the portion of the asserted publication relied on by the petitioner and (2) the subject matter of the challenged claims both represent the contribution of the named inventors—and only the named inventors.


Trademarks

TRADEMARKS / RICO

Fraudulent Lawsuit Allegations Insufficient to Maintain RICO Claim


Mary Hallerman

Addressing the sufficiency of allegations to sustain a claim under the Racketeer Influenced and Corrupt Organizations (RICO) Act, the US Court of Appeals for the Second Circuit affirmed the dismissal of a complaint alleging a scheme to fraudulently bring a trademark infringement lawsuit. Kim v. Kimm, Case Nos. 16-2944; -3115 (2d Cir., Feb. 27, 2018) (Sack, J).

In 2014, Sik Gaek, Inc., a restaurant owner, sued Daniel Kim and his restaurant, Yogi’s II, Inc., over the use of a trademark that Sik Gaek claimed to own. Sik Gaek alleged that Kim and Yogi’s II had failed to pay a $2 million fee under a license agreement, and that Kim had attempted to register the trademark for himself. The district court granted summary judgment in favor of Kim, and the remaining claims against Yogi’s II were later dismissed as agreed by the parties.

Kim later filed a lawsuit against Sik Gaek and the other plaintiffs from the prior lawsuit. Kim claimed that the prior lawsuit was an “ill-conceived scheme” designed “to extort $2 million” from him, alleging that the defendants had submitted false documents posing as owners of the trademark. These false documents formed the predicate acts alleged by Kim for his RICO conspiracy claim against the defendants. The defendants moved to dismiss Kim’s RICO conspiracy claim for failure to state a claim, and the court granted the motion. Kim had also moved to amend his complaint, and the district court denied that motion. Kim then appealed these and other rulings to the Second Circuit.

To state a claim for a RICO violation under 18 USC § 1692, plaintiff must show conduct of an enterprise through a pattern of racketeering activity. Racketeering activity means any act indictable under certain statutes, such as wire fraud or mail fraud. On appeal, the Second Circuit agreed that Kim’s allegations failed to allege racketeering activity. Kim alleged that the defendants prepared and electronically filed several false declarations with the court over the span of four years. Finding supporting decisions from the First, Fifth, 10th, and 11th Circuits, the Second Circuit held that allegations of frivolous, fraudulent or baseless litigation activities—without more—cannot constitute racketeering activity.

The Second Circuit largely adopted the district court’s main reasons for why litigation activities should not qualify as racketeering activity. First, the district court reasoned that every failed lawsuit could be the subject of a later RICO claim. Second, allowing RICO claims based on litigation activities would collaterally attack the finality of judgments. And third, such an interpretation of RICO would deter litigants from pursuing actions in court.

The Second Circuit also affirmed the district court’s denial of Kim’s motion for leave to amend, finding that any proposed amendments—also based on litigation activities—would have been futile.

Practice Note: Where a plaintiff alleges that defendants engaged in a single fraudulent lawsuit, such allegations alone do not constitute racketeering activity under RICO.


Right of Publicity

RIGHT OF PUBLICITY

Seventh Circuit Hands the Ball to State Supreme Court


The US Court of Appeals for the Seventh Circuit asked the Indiana Supreme Court to weigh in on whether the state’s right-of-publicity law gives athletes a right to challenge fantasy sports companies’ websites for using their likenesses and statistics in their contests. Akeem Daniels, et al. v. Fanduel Inc., et al., Case No. 17-3051 (7th Cir., Mar. 7, 2018) (Easterbrook, J).

Nick Stoner, Akeem Daniels and Cameron Stingily, former college football players, sued FanDuel and DraftKings for using their names, photos and statistics in online fantasy-sports games without the plaintiffs’ consent. The plaintiffs argued that the right of publicity statute in Indiana gives them control over the commercial use of their names and data. The district court dismissed the complaint, relying on the following two exemptions:

  • The use of a personality’s name, voice, signature, photograph, image, likeness, distinctive appearance, gestures or mannerisms in material that has political or newsworthy value
  • The use of a personality’s name, voice, signature, photograph, image, likeness, distinctive appearance, gestures or mannerisms in connection with the broadcast or reporting of an event or a topic of general or public interest

In dismissing the complaint, the district court held that on-field sports performances and statistics are newsworthy and of general or public interest, meaning the defendants could use plaintiffs’ names in fantasy games and advertising.

On appeal, the plaintiffs argued that the district court misunderstood the scope of the two exemptions because defendants are illegal gambling companies and therefore the statutory exemptions do not apply to them.

Noting that there is no precedent regarding this issue, the Seventh Circuit found that while the district court’s ruling analyzes whether the players’ names and statistics are newsworthy and of general public interest, the question under Indiana’s statute is whether the players’ photos and information appear in material that has newsworthy value or in connection with the reporting of an event of general or public interest such that the statutory exemptions would apply. Finding it inappropriate for the Seventh Circuit to decide the question, the Court certified the case to the Indiana Supreme Court to answer the specific question as to “[w]hether online fantasy-sports operators that condition entry on payment, and distribute cash prizes, need the consent of players whose names, pictures, and statistics are used in contests, in advertising the contests, or both.”


Copyrights

COPYRIGHTS / FAIR USE

Next Up, Damages – Federal Circuit Finds Google’s Use of Java Was Not Fair


Sarah Bro

In a case that attracted 20 amici briefs, the US Court of Appeals for the Federal Circuit issued a blockbuster decision in the years-long battle between Oracle and Google over Google’s Android platform. The Court concluded that Google’s use of Oracle’s Java application programming interface (API) packages in its Android operating system did not qualify as fair use as a matter of law. Oracle America, Inc. v. Google LLC, Case Nos. 2017-1118; -1202 (Fed. Cir., Mar. 27, 2018) (Alsup, J). In doing so, the Federal Circuit reversed the district court’s denial of Oracle’s motions for judgment as a matter of law (JMOL) and remanded for a trial on damages.

The Federal Circuit’s decision comes after a second jury trial in the dispute. Oracle originally filed suit against Google for patent and copyright infringement with respect to 37 Java API packages, which can be described as pre-written computer source code programs, used in the Google Android operating system for smartphones and tablets. The first trial resulted in a district court judgment for Google, ruling that the API packages were not copyrightable as a matter of law. Oracle appealed, which resulted in the Federal Circuit finding that the Java API packages were entitled to copyright protection given the “declaring code and the structure, sequence, and organization” of the APIs. The Federal Circuit remanded for further proceedings on Google’s copyright infringement defense of fair use.

The second jury trial resulted in a favorable ruling for Google. The jury found fair use of the copyrighted API packages, and the district court denied Oracle’s motions for JMOL and a new trial. Oracle appealed.

The Federal Circuit has exclusive jurisdiction over all appeals in actions involving patent claims, even where an appeal raises only non-patent issues, as in this dispute. Because copyright law is not within the court’s exclusive jurisdiction, however, it applied the law of the Ninth Circuit in the appeal to decide whether Google’s copying of Oracle’s API packages was fair use. Considering that fair use is a mixed question of law and fact, the Federal Circuit presented a lengthy discussion on the applicable standard of review, concluding that the fair use inquiry is a question to be reviewed de novo. The Court then presented a detailed assessment of the four non-exclusive fair use factors set forth in § 107 of the Copyright Act.

The Purpose and Character of the Use

The first fair use factor has two components, which look at whether use of the copied work is commercial in nature rather than for education or public interest purposes, and whether the new work is transformative or simply replaces the original copyrighted work. The Federal Circuit was quick to note that the free and open source nature of Android does not qualify the use of the API packages as “non-commercial.” Instead, the Court looked to whether Google stood to profit from exploitation of the copyrighted material “without paying the customary price,” and found that Google’s commercial use of the API packages weighed against a finding of fair use.

On the transformative use component, which requires the infringing work to “add something new” to the original, giving it new purpose, character, expression, meaning or message, Google argued that the application of the APIs to mobile smartphone platforms—instead of the typical use for desktops and servers—was transformative. The Court disagreed, stating that the format change to smartphones did not qualify as transformative use given the verbatim copying of the APIs for an identical function and purpose. Thus, the “highly commercial and non-transformative nature of the use” led the Court to conclude that the first factor weighed against finding fair use.

Nature of the Copyrighted Work

This factor turns on whether the work is more informational or creative, and the Federal Circuit concluded that this factor favored Google’s claim of fair use given the “substantial and important” functional considerations of the API packages. Nevertheless, the Court also noted that the Ninth Circuit has determined that this second factor is not particularly significant in the overall fair use balancing exercise.

Amount and Substantiality of the Portion of the Work Used

The Federal Circuit found that, in terms of the fair use analysis, this factor was neutral at best and arguably weighed against a finding of fair use. The Court stated that even if Google copied only a small portion of Java, it was not qualitatively insignificant, since Google largely conceded that the APIs were important to the creation of the Android platform.

Effect on the Potential Market

This factor looks at whether the copying materially affects the marketability of the work that was copied. Citing the 1985 Supreme Court of the United States case Harper & Row Publishers, Inc. v. Nation Enters., the Federal Circuit explained that this factor is the single most important element of fair use (while still requiring an overall balancing of the four factors). Considering both potential and actual market harm, the Court found that the evidence showed that Oracle intended to license Java in smartphones, and that Google’s conduct would adversely affect the potential market for the original APIs and their derivatives. This factor thus weighed “heavily” in favor of Oracle.

Balancing the analysis of all four factors, and noting that factors one and four weighed greatly against a finding of fair use, the Federal Circuit concluded that Google’s use of the 37 API packages was not fair as a matter of law, and remanded for a trial on damages.

Practice Note: The Federal Circuit was careful to note that its holding in this case does not foreclose a fair use defense in any action involving the copying of computer code, but is instead specific to the facts relating to the copying in this case.


COPYRIGHTS / LICENSE SCOPE AND AGENCY

Great Minds Don’t Always Think Alike: License Limitations Must Be Explicit


Paul Devinsky

In addressing whether a non-exclusive copyright licensee was permitted to use a commercial printing service in furtherance of its “non-commercial” rights granted by a public license, the US Court of Appeals for the Second Circuit affirmed a Fed. R. Civ. Pro. 12(b)(6) dismissal, explaining that principles of agency law require express prohibitions in a license in order to restrict a non-exclusive licensee’s use of commercial services in the exercise of its license. Great Minds v. FedEx Office and Print Services Inc., Case No. 17-808-cv (2d Cir., Mar. 21, 2018) (Carney, J).

Great Minds offers royalty-free licenses of its education materials to the public for non-commercial purposes. Great Minds asserts that its licenses should be read as including an explicit limitation against the employment of commercial print shops by the non-commercial licensees. Instead, Great Minds requires any commercial actor (e.g., a commercial print shop) to seek its own negotiated license.

Great Minds sued FedEx, which had been printing the copyrighted materials subject to several school districts’ non-commercial licenses and at the direction of the school districts in the exercise their non-commercial rights. It is not disputed that the licensed school districts only use FedEx commercial print services in furtherance of their educational (i.e., non-commercial) activities. On FedEx’s motion, the district court dismissed Great Minds’ action for copyright infringement. Great Minds appealed, seeking de novo review.

In affirming the district court, the Second Circuit explained that “[a]pplying well‐established agency principles, we conclude that licensees may use third‐party assistance in exercising their rights under non‐exclusive copyright licenses unless the license clearly states otherwise.” Specifically, the Court focused on three aspects: (1) the text of the license, (2) the “downstream recipients” provision and (3) the reservation of rights.

First, the Court found that the license itself was not explicit as to the permissibility of employing third-party commercial services. The license terms simply allowed the licensee to “share” the material with “the public by any means or process that requires permission under the licensed rights.” As construed by the Court, “the term ‘share’ encompasses the various types of reproduction and dissemination activities that require permission from the copyright holder; [but] does not expressly describe a right to enlist the services of third parties in performing those activities.”

Next, the Second Circuit looked at the “downstream recipients” provision, which made each recipient of licensed materials capable of obtaining an identical license themselves, and found the clause unpersuasive in clearly prohibiting school districts from seeking FedEx’s services because it failed to account for the sine qua non in a world of corporate entities—agency relationships. Under Great Minds’ theory, not only would the downstream provisions purport to make each teacher and administrator its own independent licensee, it would also make an independent licensee out of other non-affiliated corporate entities and their respective individual employees. As the Court put it, “Great Minds fails to account for the mundane ubiquity of lawful agency relationships, in which ‘one person, to one degree or another . . . , acts as a representative of or otherwise acts on behalf of another person.’” The Court found that such a radical deviation from the generally understood meaning of the license grant must be stated more explicitly.

Lastly, the Second Circuit looked to the catch-all reservation of rights provision in the license, noting “the unambiguous import of this provision is to reserve [Great Minds’] right to collect royalties from a licensee if the licensee exceeds the scope of a license by, for example, selling copies of the Materials” (emphasis in original). The Court found the argument that the licensee exceeded the scope of the license to have “little persuasive force, as it merely begs the question whether FedEx should properly be considered a licensee or an agent of the licensee school districts.”

Accordingly, finding no explicit prohibition against the use of third-party commercial printing services in furtherance of the school district’s non-commercial rights, the Second Circuit affirmed the district court’s dismissal.

Practice Note: A license is a contract. Avoid ambiguity where appropriate in all circumstances.


COPYRIGHTS / INFRINGEMENT

Blurred Lines Songwriters Have Got to Give It Up for the Gaye Family


Jodi Benassi

The US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s judgment after a jury trial, ruling that the song “Blurred Lines” infringed Marvin Gaye’s 1970s song “Got To Give It Up.” Pharrell Williams, et al. v. Frankie Christian Gaye, et al., Case No. 15-56880 (9th Cir., Mar. 21, 2018) (Smith, J) (Nguyen, J, dissenting).

In 2012, Pharrell Williams and Robin Thicke wrote and recorded “Blurred Lines.” After hearing the song, Marvin Gaye’s family members, who had inherited the copyrights to Marvin’s musical compositions, made an infringement demand on Williams and Thicke. Negotiations failed, and Williams and Thicke, along with Clifford Harris, Jr., who separately wrote and recorded a rap verse for “Blurred Lines,” filed for a declaratory judgment of non-infringement. The Gayes counterclaimed alleging copyright infringement. The Gayes added UMG Recordings, Inc., its subsidiaries, and other publishing companies and record labels as third-party defendants, asserting that they were liable for their manufacture and distribution of the song. After the trial court denied Williams and Thicke’s motion for summary judgment, the case went to trial.

The jury found that Williams and Thicke infringed the Gayes’ copyright, but found Harris, the record labels and publishers not liable for infringement. The jury awarded the Gayes $7.3 million in actual damages and infringer’s profits. After the trial, the district court denied Williams and Thicke’s motion for judgment as a matter of law and for a new trial. The district court overturned the part of the jury verdict finding that Harris and the record labels should not be liable for infringement, and reduced the award to $5.3 million while adding royalties of 50 percent for future revenues received by Williams, Thicke and Harris. All parties appealed.

The Ninth Circuit addressed five issues on appeal. First, the Court rejected Williams and Thicke’s challenge to the district court’s denial of their motion for summary judgment. The Court stated that according to the 2011 Supreme Court of the United States case Ortiz v. Jordan, a party may not appeal an order denying summary judgment after a full trial on the merits. Second, the Court upheld the district court’s damages award, finding that the royalty rate of 50 percent was not unduly speculative because it was based on the testimony of an expert with deep industry knowledge. Third, the court rejected the Gayes’ challenge to the district court’s denial of attorneys’ fees, finding that the district court properly analyzed the discretionary factors as defined by the Supreme Court in its 2016 decision in Kirtsaeng v. John Wiley & Sons, Inc. (IP Update, Vol. 19, No. 7).

Fourth, in addressing Williams and Thicke’s challenge of the district court’s denial of their motion for a new trial, the Ninth Circuit found none of their arguments persuasive. Williams argued that the jury instructions regarding extrinsic similarity in terms of comparing the accused and copyrighted works were erroneous. The Court detected no defect, noting that the instructions on the whole made it clear that the jury could consider only elements in the sheet music deposit copy and that copying does not require deliberate or intentional copying. Rather, the Court explained that copying is usually proven thorough circumstantial evidence and substantial similarity. The Court found that it was proper for the jury to be instructed that it need not find all of the musical elements identified by the Gayes’ expert witness to find infringement.

Williams further argued that the district court erred in admitting portions of the Gayes’ expert testimony based on unprotectable elements of the Marvin Gaye song. The Ninth Circuit panel majority disagreed, finding that the district court properly allowed the experts to present their interpretations of sound recordings containing only what was included in the sheet music as required by the Copyright Act of 1909, to which the 1970s copyright was subject.

Finally, the Ninth Circuit reversed the part of the district court’s holding overturning the jury and finding Harris and the other third-party defendants not liable, finding waiver because the defendants had failed to make a motion for judgment as a matter of law before the case was submitted to the jury as required under Rule 50(a). The defendants thus waived any consistency challenge in terms of the jury’s general verdicts.

Judge Nguyen issued a strong dissent, stating that the decision allowed the Gayes to accomplish what no one has before: copyrighting a musical style. In her view, the two works were not objectively similar as a matter of law under the extrinsic test because they differed in melody, harmony and rhythm. She believed the majority established a dangerous precedent that strikes a devastating blow to future musicians and composers everywhere.


COPYRIGHTS / DMCA / SAFE HARBOR

Pornography Dispute Sheds Light on DMCA Safe Harbor Defense


Sarah Bro

In a dispute pertaining to copyright infringement of pornographic films created by the plaintiff, the US Court of Appeals for the Ninth Circuit affirmed the district court’s grant of summary judgment in favor of a defendant website that displays pornographic images and videos uploaded by the site’s users, finding that defendant qualified for the safe harbor defense to copyright infringement under § 512(c) of the Digital Millennium Copyright Act (DMCA). Ventura Content, LTD. v. Motherless, Inc. and Joshua Lange, Case Nos. 13-56332; -56970 (9th Cir., Mar. 14, 2018) (Kleinfeld, J) (Rawlinson, J, dissenting).

Ventura Content creates and distributes pornographic films. Ventura sued Motherless for copyright infringement when 33 clips from Ventura’s films were posted to Motherless.com by the site’s users. Motherless.com’s terms of use prohibit certain user uploads, including copyright-infringing material. The terms of use also invite copyright owners to submit takedown notices for infringing content that appears on Motherless.com, and offer the ability to remove infringing content directly through a software tool provided by Motherless.

Ventura did not utilize takedown notices or the Motherless direct removal software before filing suit against Motherless for copyright infringement and requesting an injunction and damages. After being served with the lawsuit, Motherless deleted the infringing clips from its website once it obtained a list of the applicable URLs from Ventura, thus making the injunction claim moot. The district court granted summary judgment in favor of Motherless on the federal copyright claim under the safe harbor provision of the DMCA.

Section 512(c) of the DMCA provides a safe harbor provision that protects website service providers from liability for unintentional copyright infringement due to the service providers’ storage and hosting of copyrighted material posted “at the direction of” a third-party user so long as the service providers follow the notice and takedown requirements as set forth in the Act, including expeditious takedown of known infringement and termination of repeat infringers. On appeal, Ventura challenged Motherless’s compliance with various requirements of the statute to argue that Motherless was not eligible for safe harbor protection.

First, Ventura argued that content at Motherless was made available “at the direction” of Motherless itself, and not its users. Citing § 512(m) of the DMCA, as well as its 2013 decision in UMG Recordings, Inc. v. Shelter Capital Partners LLC (IP Update, Vol.16, No.4), the Ninth Circuit disagreed and concluded that material at Motherless is in fact posted at the direction of users, and that Motherless did not forfeit safe harbor protection by screening for and removing illegal content, such as child pornography, or by organizing content into various categories, including “Most Popular.”

The Ninth Circuit again cited UMG when rejecting Ventura’s claims that Motherless had actual or apparent knowledge of infringing content on the website, stating that “hosting material capable of copyright protection, with the general knowledge that the site could be used to share infringing material is not enough to impute knowledge.” Despite the fact that Motherless reviewed user uploads before posting them, the court determined that because the Ventura clips had no copyright ownership notice or any other indication that Ventura owned the copyright, it would not be obvious to a reasonable person that the Ventura clips were infringing to impart such actual or apparent knowledge of infringement. Moreover, the Court found that Motherless’s removal of the Ventura content after being served with the lawsuit was sufficiently “expeditious” to comply with the safe harbor requirements.

The Ninth Circuit also quickly dismissed Ventura’s claims that Motherless had the “right and ability” to control the infringing activity and received a financial benefit “directly attributable” to the infringing activity, finding no evidence that Motherless made any money directly from the Ventura clips. The Court also determined that the record included evidence that Motherless adopted and reasonably implemented a policy of terminating repeat infringers, despite having no written “details of the termination policy” and no employees to share the details with. Ultimately, the Court concluded that Motherless qualified for the DMCA safe harbor defense to copyright infringement, and affirmed the grant of summary judgment in favor of Motherless.

Judge Rawlinson issued a dissent, stating that there were triable issues of material fact as to whether Motherless properly complied with the requirements under the statute regarding the existence of a repeat infringer policy and the reasonableness of actions taken by Motherless to terminate repeat infringers.

Practice Note: Various elements in this case pertaining to Motherless’s compliance with safe harbor requirements seemed to turn on the fact that Motherless is largely run by a single individual. Therefore, activities taken by Motherless to comply with the DMCA safe harbor provision may not be sufficient for a larger service provider. It is always a good idea to review your safe harbor policies and practices with a lawyer.