Patents / Claim Construction

De Novo Review of District Court Claim Construction Is Here to Stay—For Now

Paul Devinsky

In a closely watched case in which 38 amici participated, the en banc U.S. Court of Appeals for the Federal Circuit, in a 6–4 decision, invoked the doctrine of stare decisis and decided to retain the de novo standard for appellate review of district court claim constructions (as formulated in its 1998 en banc Cybor decision). Lighting Ballast Control LLC v. Philips Electronics North America Corp., Case No. 12-1004 (Fed. Cir., February 21, 2014) (Newman, J., joined by Lourie, Dyk, Prost, Moore, and Taranto, JJ.) (Lourie, J., concurring) (O’Malley, J., dissenting, joined by Reyna and Wallach, JJ., and Radar, CJ.). Judges Chen and Hughes took no part in the case.

The three published opinions cover 88 pages, but the distilled holding of the majority is that

…we apply the principles of stare decisis, and confirm the Cybor standard of de novo review of claim construction, whereby the scope of the patent grant is reviewed as a matter of law. After fifteen years of experience with Cybor, we conclude that the court should retain plenary review of claim construction, thereby providing national uniformity, consistency, and finality to the meaning and scope of patent claims. The totality of experience has confirmed that Cybor is an effective implementation of [the Supreme Court’s decision in Markman ], and that the criteria for departure from stare decisis are not met.


In 1998, in the wake of the 1996 Supreme Court of the United States claim construction decision in Markman v. Westview Instruments, the Federal Circuit (in Cybor) held that during appellate review, patent claim construction is subject to de novo review for correctness as a matter of law. The issue of whether the Cybor standard should be reconsidered en banc had been brewing for many years. In 2006, a fractured Federal Circuit denied en banc review of the issue in Amgen v. Hoechst Marion Roussel with then Chief Judge Michele joined by present Chief Judge Radar dissenting. Judge Moore also filed a dissenting opinion in Amgen. Even Judge Newman, who penned the majority opinion here, wondered if it was time for a change.

Again in 2011, in Retractable Technologies v. Becton Dickinson (IP Update, Vol. 14, No. 7) the panel decision revealed a deep split among its members in the context of claim construction where claims are drafted broadly, but the written description supports a far more narrow invention.

Finally, in 2013, in response to a petition filed by Lighting Ballast Control, the Federal Circuit granted rehearing en banc in this case and instructed the parties to address the following issues:

  • Should this court overrule Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir., 1998)?
  • Should this court afford deference to any aspect of a district court’s claim construction?
  • Is so, which aspects should be afforded deference?

The Majority Opinion

As explained by Judge Newman, the parties and amici urged three divergent views for review of district court claim construction on the Federal Circuit:

  • As argued by Lighting Ballast and several amici, Cybor was wrongly decided and should be discarded. Rather, appellate courts give deference to a district court’s fact-based rulings, such as claim construction, where the district court must wrestle with expert testimony and documentary evidence.
  • As argued by the United States, the American Bar Association and some amici, claim construction should be reviewed, as to underlying facts, based on the clearly erroneous standard. Only the legal conclusions should be subject to de novo review.
  • As argued by other amici and Philips, Cybor was correctly decided and is consistent with Markman, i.e., claim construction is a matter of law. To adopt either of the other approaches would not only abandon the principles of stare decisis, but would add “to the already complex laws of claim construction, a new and uncertain and contentious inquiry into which aspects of a particular construction falls on which side of the fact-law line.”

Focusing on the issue of stare decisis, the majority explored the history of the Markman and Cybor cases, noting that “Courts should be ‘cautious before adopting changes that disrupt the settled expectations of the inventing community.’” Finding no post-Cybor developments from the Supreme Court, Congress or the Federal Circuit “that may have undermined the reasoning of Cybor, or that implementation of Cybor has proved unworkable” over the past 15 years, the majority found no compelling reason to make a change in the law:

To the contrary, reversing Cybor or modifying it to introduce a fact/law distinction has a high potential to diminish workability and increase burdens by adding a new and uncertain inquiry, not only on appeal but also in the trial tribunal. No consensus has emerged as to how to adjust Cybor to resolve its perceived flaws. Despite probing questioning at the en banc hearing, and despite the extensive amicus curiae participation, there is no agreement on a preferable new mechanism of appellate review of claim construction; there is no analysis of how deference would be applied to the diversity of old and new technologies and modes of claiming, no clear exposition of fact or law as could be applicable to the millions of unexpired patents, each on a different new technologic advance.

Commenting on the dissent, Judge Newman questioned the presumption that a majority of the legal community believed Cybor was wrongly decided and noted that 21 of the amici briefs urged its retention. Judge Newman also noted that much of the research data cited by the dissent was “obsolete” and observed that Fed. R. Civ. Pro. 56(a)(6) does not go to the issue of the case—whether claim construction is a question of law or of fact.

The Concurring Opinion

In his concurring opinion, Judge Lourie explained that claim construction is, in its essence, a question of law, notwithstanding that it is a “mongrel” question (of law and fact) and noted the congressional purpose (in creating the Federal Circuit) was to “achieve uniformity in the patent law.” As Lourie explained, “[i]t is not rare that a patent is asserted against more than one defendant in different forums, with conflicting holdings on infringement. It would hardly promote uniformity of patent law for us to bless a claim construction in one district court, based on the court’s judging the credibility and demeanor of the expert witnesses in one case, when a different case might lead to a different result based on a different district judge’s appraisal of different witnesses.”

Part of the problem, in Judge Lourie’s view is that “[h]ired “experts” supporting the parties’ theories of infringement or non-infringement take positions that are also distinct and isolated from (and often different from) those originally taken by the inventor and attorney, who knew what the invention was and what positions were taken in the Patent Office during prosecution.” These “actors” who take the stage in the district court are “not those who made the invention.” The solution to the problem, in Lourie’s view, “does not lie in depriving the one institution charged with ensuring uniformity of part of its authority.”

Judge Lourie observed that even under the Cybor rule, Federal Circuit panels carefully consider the work of the district courts, but sometimes just do not agree with their claim construction conclusions. In other words, even operating under Cybor, there is substantial, albeit “informal,” deference. Notwithstanding the value of the district court’s work and its impressions of the witnesses, Judge Lourie noted that claim construction should be largely determined by the intrinsic evidence (which the hired witnesses, regardless of their demeanor in court, cannot override).

The Dissent

The dissent, insisting that criticism of Cybor has been overwhelming among legal scholars and practitioners as well as among members of the Federal Circuit, noted the “heated” debate within the court, and questioned whether stare decisis was the right answer to the tidal wave of criticism: “… the majority suggests, for the first time in the ongoing debate over it, that Cybor is too firmly established in our case law to be rethought.”

The dissent also pointedly noted Judge Newman’s dissent (as well as the concurrences by Judge Mayer and Judge Plager) in the Cybor case, in support of the fact/law dichotomy that is part and parcel of claim construction practice.

In an unusually sharply worded attack on the stare decisis basis articulated by the majority for retaining the Cybor standard of review, Judge O’Malley wrote:

The fact that we have been engaged in a flawed practice for too long does not, alone, create the type of settled expectations stare decisis is meant to protect. Because settled expectations will not be disrupted and no substantive rights will be reordered, stare decisis simply does not stand in the way of this court addressing the merits of Cybor and acknowledging that the rule of law pronounced therein is an incorrect one.

The dissent also faults Cybor as being in contravention of the standard of review for fact finding required by Fed R Civ Pro 52 (a)(6) to the effect that embedded findings of fact (as is entailed in claim construction) “… must not be set aside unless clearly erroneous … .” Said Judge O’Malley “[w]e should bring our case law in line with the directives of Rule 52(a)(6), as we are required to do … .”

Finally, the dissent criticizes the Cybor rule as creating “greater incentives for losing parties to appeal, thus discouraging settlement and increasing the length and cost of litigation, and also attacks the notion that Cybor review leads to greater uniformity or predictability, pointing to cases where different panels of the Federal Circuit have construed the same term of the same claim differently.

Practice Note: Given the sharp divergence of the en banc Federal Circuit in this case, and the fundamental nature of the claim construction issues involved, it would not be surprising to see the Supreme Court, which has in the last few years demonstrated a proclivity to tackle controversial intellectual property issues, take this case for review.

Patents / Priority

Failure to Clearly List Intermediate Applications Breaks Chain of Priority

Addressing the issue of whether a failure to specifically reference each earlier filed patent applications will result in a loss of claim of priority to the omitted application, the U.S. Court of Appeals for the Federal Circuit affirmed a summary judgment of anticipation based on intervening prior art as a consequence of the priority date to which the asserted claims were entitled. The Court concluded that the chain of priority for the asserted claims was broken because the priority claims of two parent applications omitted reference to earlier parent applications, so that the flawed parent applications failed to make “specific reference” to earlier filed applications as required by 35 U.S.C. § 120. Medtronic CoreValve, LLC v. Edwards Lifesciences Corp., Case No.13-1117 (Fed. Cir., Jan. 22, 2014) (Prost, J.).

Medtronic sued Edwards Lifesciences (Edwards) for infringement of certain claims of its patent directed towards prosthetic valves. The application for the patent was filed on January 5, 2009 and claimed priority to several U.S. and international patent applications. Edwards moved for partial summary judgment that the earliest priority date of the asserted claims was April 10, 2003, due to failure to comply with 35 U.S.C. §§ 119 and 120’s requirement to include intermediate applications in the priority claim. Medtronic filed a cross-motion for partial summary judgment that the asserted claims were entitled to a priority date of October 31, 2000. After the district court granted Edwards’ motion for summary judgment, holding that the patent was not entitled to the earlier priority date because various applications in the chain of priority did not comply with 35 U.S.C. §§ 119 or 120, Medtronic appealed.

The Federal Circuit addressed the domestic priority issue under 35 U.S.C. § 120, determining whether the patent “contains or is amended to contain a specific reference to the earlier filed application . . . submitted at such time during pendency of the application.” Federal Circuit precedent stood for the proposition that the “specific reference” requirement of § 120 meant that each intervening application in the priority chain must refer to the prior applications. Although the application in issue properly claimed the entire chain of priority, certain U.S. applications in the chain of priority failed to specifically reference earlier filed applications. At issue were two applications that simply stated “this application is also a continuation-in-part of [the international application].” Medtronic argued that “this application” referred to an intervening application in the priority chain and thus did not leave out the intervening application. Edwards argued that “this application” had a plain language meaning and referred to the present application, thus leaving out the intervening application.

The Court agreed with Edwards and held that “this application” is to have its plain language meaning, consistent with M.P.E.P., Section 201.11, to refer self-referentially to the present application. Therefore, the two intervening applications failed to identify the ultimate parent application, resulting in a loss of the right to claim priority back to April 10, 2003. As a consequence, the later-filed application for the patent in suit was not entitled to claim priority back to the original October 31, 2000 priority date.

Practice Note: While the Federal Circuit’s pronouncement is not a new concept, this case is a reminder that patentees will be held accountable for the accuracy and completeness of their priority claim.

Patents / Injunction Contempt

Not So Fast … New Claim Construction Required Contempt Proceeding

Paul Devinsky

Applying the TiVo standard on finding of contempt when an infringer releases a new or modified product, the U.S. Court of Appeals for the Federal Circuit vacated the district court’s contempt order, concluding that a new claim construction was required because a disputed claim term, contested in connection with the product now in issue, had not been construed the previous infringement proceedings. Proveris Scientific Corp. v. InnovaSystems, Inc., Case Nos. 2013-1166; -1190 (Fed. Cir., Jan. 13, 2014) (Prost, J.).

In a previous infringement proceeding, InnovaSystems conceded infringement of a claim of Proveris’s patent and the district court entered a permanent injunction against InnovaSystems. Subsequently, InnovaSystems released a modified product, which it contended rendered its new device non-‎‎infringing. Proveris disagreed and filed a ‎motion for contempt of the injunction. The district court ‎concluded that the modified product was not more than “colorably different” from InnovaSystems’ previous product. Further, InnovaSystems’ non-infringement argument relied on a limitation in the preamble of the claim—a limitation that was not construed in the prior infringement action. The district court found that InnovaSystems could not raise new claim construction issues during the contempt proceedings. InnovaSystems appealed.

In reviewing the district court’s contempt order, the Federal Circuit applied the two-step TiVo test, i.e., ‎whether the newly accused product is not more than colorably different from the product found to infringe; and if it is not colorably different, whether the newly accused product in fact infringes the relevant claims. First, on the “colorably different” issue, the Federal Circuit agreed with the district court that InnovaSystems’ modification was not significant. The Court noted that even though InnovaSystems did make some small changes to the product’s software, a comparison of the user manuals showed that the two products were functionally identical.

Next, the Federal Circuit considered whether InnovaSystems’ modified product in fact infringed the claim in issue. The key dispute between the parties was whether InnovaSystems’ modified product met a limitation in the preamble of the claim. The Federal Circuit explained that the district court erred in refusing to construe the ‎disputed claim language, noting that while “the ‎district court is bound by any prior claim construction that it had performed in the ‎case,” here there was no prior claim construction because InnovaSystems had ‎conceded ‎infringement. Therefore, it could not simply conclude as a matter of law that the ‎preamble was ‎not a claim limitation. ‎ Considering the preamble dispute, the Federal Circuit concluded that the preamble was indeed limiting, for the reason that the inventors relied on the preamble to define the invention, and that the body of the claim relied upon and derived antecedent basis from the preamble. With respect to the proper construction of the disputed claim term within the preamble, however, the Federal Circuit stated that it did not have enough information to resolve the question and remanded the case to the district court for a new claim construction and infringement analysis. However, the Court noted that InnovaSystems would not be entitled to present new invalidity arguments at the contempt stage as ‎ InnovaSystems ‎already had a full and fair opportunity to present its invalidity arguments in the previous infringement proceeding.

Patents / IPR

Reference with Missing Pages May Be Used in Reexamination

Addressing the issue of whether, in a patent reexamination, a reference with missing pages may be submitted and relied upon by the patent examiner in rejecting patent claims, the U.S. Court of Appeals for the Federal Circuit agreed with the Patent and Trademark Office (PTO) that “the consideration of selected portions of prior art references” is permissible “so long as the missing portions are not necessary to fully understand the submitted portions.” Presumably, the same rule will apply in current post issuance proceedings such as inter partes review. In re Enhanced Security Research, LLC, Case No. 13-1114 (Fed. Cir., Jan. 13, 2014) (Dyk, J.) (O’Malley, J., dissenting).

Enhanced Security Research (ESR) owned a patent related to network security and sued several defendants, including Cisco, Juniper Networks and Fortinet, alleging infringement of its patent. Fortinet requested ex parte reexamination, and the district court stayed the litigation pending the outcome of the reexamination proceeding. The patent examiner concluded that the claims of ESR’s patent were obvious over the combination of two references—a software manual describing a product called NetStalker and a scholarly article. The manual was provided by Fortinet’s expert witness, who claimed that it was available to members of the public who requested information about the NetStalker product prior to the filing date of ESR’s patent.

A central issue in the case is whether the patent examiner’s reliance on the manual as prior art was proper. In order for the manual to be properly relied upon as prior art, the manual must qualify as a “printed publication” and must be “available to the public” prior to the filing date of the patent application. ESR argued that the version of the manual submitted to the Patent Office may have been a draft rather than a final version available to the public, as there were missing pages and several places marked with question marks, and there is no proof of the date when the manual was available other than the date written on the cover of the manual. Furthermore, ESR argued that the patent office could not consider a document with missing pages, as the missing pages may provide an interpretation of the teachings of the manual different from that of the examiner or may teach away from the claimed technique of the patent. After the PTO found the claims to have been obvious, relying on the manual, ESR appealed.

The Federal Circuit Court affirmed the PTO, concluding the expert witness’ declaration coupled with advertisements for the NetStalker product and the date on the cover of the manual was sufficient evidence that the manual was available to the public before the filing date of the application for the ESR patent. The Court also concluded that submission of a partial prior art document for consideration in a reexamination procedure was proper under the Manual of Patent Examining Procedures (MPEP) and upon 37 C.F.R. § 1.510(b)(3) which states that, in submitting a foreign language document, a reexamination requester is only required to submit the “pertinent parts” of any non-English translation. In this case, while the manual was completely in English, by analogy to the translation situation, the pertinent parts of the manual on which the patent examiner relied in making the rejection were submitted.

In a vigorous dissent, Circuit Judge O’Malley cited the constitutional requirement of due process to disagree with the majority’s holding. O’Malley noted that a patent right is a property right to which due process is applicable. In her view, since the manual was proffered by an interested party who had control over all information related to the manual, due process required the interested party to have the burden of providing the missing information in the manual or proving that the missing information does not support the patentability of the claims. Furthermore, O’Malley doubted that the manual qualified as publicly available as the declaration of the sponsoring expert witness only stated that the manual would have been provided to a member of the public requesting information, but did not state that the manual was ever actually provided to any customers who purchased the NetStalker system or that an interested member of the public would have known to request the manual.

Patents / Obviousness

Claim Term “Adapted to” Means “Configured to” — Not Just “Capable of”

The U. S. Court of Appeals for the Federal Circuit reversed an obviousness rejection by the U.S. Patent and Trademark Office (PTO) Patent Trial and Appeal Board’s (the Board) of application claims directed to a row pulling exercise machine where the prior art reference was directed to a bench press pushing exercise machine. In re Giannelli, Case No. 13-1167 (Fed. Cir., Jan.13, 2014) (Lourie, J.).

The abstract of the application explained that the invention was directed to a rowing exercise machine that “includes an input assembly which enables a user to maintain biomechanical alignment of the user’s wrist and forearm during performance of the exercise, while maintaining a consistent torque applied to the shoulder joint.” The abstract further explained that the input assembly “defines a declining, substantially linear path, where the user’s forearms remain substantially parallel to the ground as the input assembly is draw back.” The original claims of the application recited an input assembly mechanism that was “adapted to” be moved from a first to a second position.

During prosecution, the examiner rejected the application claims as anticipated by a prior art patent directed to a chest press exercise machine whose input assembly “travel[s] along a . . . path which simulates . . . [an] outward pushing motion.” In response to the rejection, the patentee amended the application claims to recite that the input assembly mechanism was “adapted to” be moved from a first to a second position “by a pulling force exerted by a user . . . in a rowing motion.”

The examiner issued a final rejection of the claims under 35 U.S.C. §102(b) and §103(a) based on the same prior art. On appeal, the Board affirmed, broadly construing the “adapted to” language of the application claims to mean “capable of.” In other words, the Board characterized the dispositive issue as whether the prior art chest press machine was “capable of” being used by exerting a pulling force on the handles and affirmed the obviousness rejection. The Board did not address the anticipation rejection. The applicants appealed.

The Federal Circuit reversed, explaining that the written description of the application described the physical location of the pulling handles relative to other machine components as “structural attributes that enable[d] performance of the rowing motion.” The Court explained that the proper dispositive issue was whether the prior art chest press machine was “made to,” “designed to” or “configured to” allow the user to perform a rowing exercise. The Court answered that question in the negative, stating emphatically that “[p]hysical capability alone does not render obvious that which is contraindicated,” that “[a] chest machine is not a rowing machine” and that “a sure-fire way to cause injury is to use a machine in a manner not intended by the manufacturer.”

Patents / § 112, ¶ 6

Patent Powered Back on By Restrictive Reading of § 112, ¶ 6

Reversing the U.S. Patent and Trademark Office Board of Patent Appeals and Interferences, the U.S. Court of Appeals for the Federal Circuit held that EnOcean’s patent claims for a self-powered wireless switch did not invoke Section 112, ¶ 6 and were disclosed over a year before the prior art relied on by the Board for its obviousness finding. EnOcean GmbH v. Face International Corp., Case No. 12-1645 (Fed. Cir., Jan, 31, 2014) (Prost, J.).

EnOcean owns the rights to a U.S. patent application that contains claims to a self-powered switch which can be used to turn on and off lights, appliances and other devices without a battery or electrical connection. The inventors originally filed a German application disclosing the new switch on May 24, 2000; on May 21, 2001 the inventors filed a PCT application with similar disclosures.

Based on EnOcean’s formal suggestion, the Board declared an interference on June 25, 2010 between EnOcean and a patent owned by Face. Face’s patent also claims a self-powered switch. The Board found the Face patent claims obvious in light of a combination of prior art references, including a PCT application published in September 2001. The Board then applied a presumption (operable in interference practice) that EnOcean’s claims would be unpatentable for the same reasons. EnOcean’s sole argument for rebutting the presumption required a determination that it could benefit from the May 2000 German application and May 2001 PCT application. The Board rejected EnOcean’s argument, finding that the disclosure of “receiver” in the German application did not support the “means for receiving” limitation in EnOcean’s U.S. application. The Board went on to find that various claims were means-plus-function claims despite the lack of “means for language.” The Board found that EnOcean’s claims defined “receiver” solely in terms of functional language and creating no difference between a “receiver” and “signal receiving means.” As a consequence, the Board did not ascribe priority to the receiver claims, finding all of EnOcean’s claims obvious. EnOcean appealed.

The Federal Circuit reviewed the receiver claims and the means-plus-function claims and analyzed whether the Board erred in finding that the receiver claims invoked § 112, ¶ 6, as well as whether the Board erred in refusing to grant priority back to the German and PCT applications. The Federal Circuit reversed, concluding that (in terms of the claim term in dispute) the absence of the word “means,” coupled with the term “receiver” “presumptively connotes sufficiently definite structure to those of skill in the art” and to avoid application of § 112, ¶ 6 to the claim element. The Court went on to find that “a person of ordinary skill in the art could understand the bounds of the invention merely by reading the term receiver, which is present in EnOcean’s German and PCT applications.” Accordingly, EnOcean was entitled to claim the benefit of the German and PCT application priority dates—and thereby defeat the September 2001 PCT application the Board relied on as a basis for its obviousness conclusion.

Patents / Term Adjustment

A Minor Shift in Patent Term Adjustment Calculations

Presented with a challenge to patent term adjustments as determined by the Patent and Trademark Office (PTO) under 35 U.S.C. § 154(b), the U.S. Court of Appeals for the Federal Circuit held that post-allowance delays are attributable to the PTO, and therefore, where there is a request for continued examination, the post-allowance period must be included in the patent term adjustment calculation. Novartis AG v. Lee, Case Nos. 13-1160, -1179 (Fed. Cir., Jan. 15, 2014) (Taranto, J.); Exelixis, Inc. v. Lee, Case No. 13-1175 (Fed. Cir. Jan., 15, 2014) (per curiam).

The 1994 statute changing the manner of calculating a patent’s effective term (from 17 years from the date of issuance to 20 years from the earliest claimed priority date) occasioned a need to account for Patent and Trademark Office (PTO) delays that effectively reduced a patent’s term. In 1999 Congress enacted 35 U.S.C. § 154(b)(1), guaranteeing patent applicants a pendency period of no more than three years and providing for a patent term adjustment (PTA) system to mitigate the effects of unreasonable delays in application processing times at the PTO.

Novartis challenged the PTO method of calculating PTAs associated with applicant-requested continued examination. Novartis’ argument focused on the statutory guarantee of no more than a three-year application pendency, and specifically the provision that the three-year pendency period does not include time consumed by continued examinations requested by the applicant. Novartis argued that once three calendar years from the application filing date have passed, further time spent in the PTO must be added to the patent term, even if it is time spent on a request for continued examination. Moreover, Novartis argued that the time consumed by a continued examination should be limited to the time before allowance, as long as no later examination occurred.

The PTO contended that time consumed by continued examination under § 154(b)(1)(B)(i), no matter when initiated, did not count towards the depletion of the three-year PTO examination time allotment. Further, the PTO argued that the time after allowance and until issuance was time consumed by continued examination, and therefore excluded from PTA credited to the patentee.

On the first point, the Federal Circuit agreed with the PTO, finding that the language of the statutory provision indicated that time spent in a continued examination does not deplete the PTO’s allotment of three years for application processing, no matter when the continued examination begins. Such a reading ensured that the applicants recovered for any delays due to a failure of the PTO to promptly process an application without allowing the applicant to recover time consumed by continued examination.

However, the Federal Circuit agreed with Novartis as to the issue of post- allowance PTO delays, concluding that time consumed by continued examination is limited to the time before allowance, as an “examination” under § 154(b)(1)(B) presumptively ends at allowance. Therefore, the Court reasoned that post-allowance delays are attributable to the PTO. The Court vacated the judgments as to PTA calculations for the patents in both Novartis and Exelixis, and remanded the cases for redetermination.

Practice Note: Novartis represents a slight modification to PTO calculations of patent term adjustments. Recently issued and soon-to-be issued patents that include a request for continued examination in their file history are likely due some additional PTA.

Patents / Eligibility

Computer-Aided Method Determined Ineligible Under Section 101 *Web Only*

The U.S. Court of Appeals for the Federal Circuit, in a decision providing a glimpse into a panel’s post-Alice position with regard to patent-eligibility of computer-implemented inventions (under 35 U.S.C. § 101), determined that patent claims directed to “a method, a system, and a computer program, respectively, for guiding the selection of a treatment regimen for a patient with a known disease or medical condition” was not patent eligible. SmartGene, Inc. v. Advanced Biological Lab., Case No. 13-1186 (Fed. Cir., Jan. 24, 2014) (Taranto, J.) (non-precedential).

In the present matter, SmartGene brought an action against Advanced Biological Laboratories and ABL Patent Licensing Technologies (collectively, ABL), seeking a declaratory judgment that it did not infringe two of ABL’s patents and that both patents were invalid.

Both ABL patents include independent claims directed to a method, a system and a computer-readable medium, respectively, “for guiding the selection of a treatment regimen for a patient with a known disease or medical condition.” SmartGene moved for summary judgment on the issue of patent eligibility, asserting that that “for the purpose of the § 101 analysis, claim 1 of … is representative of all of the claims of the patents-in-suit.” Notably, each step of claim 1 is tied to a “computing device.” The district court granted the motion based solely on its analysis of claim 1, explaining that “the differences between the various method and system claims within the patents-in-dispute are immaterial with respect to whether the patents constitute eligible subject matter under 35 U.S.C. § 101.” ABL appealed both the grouping of the claims in the district court analysis, and the eligibility decision.

The Federal Circuit panel affirmed, both with regard to the representative claim grouping and patent-eligibility. Notwithstanding the recitation of a computing device, the Federal Circuit determined that the claims covered only “mental steps of comparing new and stored information and using rules to identify medical options.” The Court explained that the computing device recitation was only invoked to perform its basic functionality of comparing the stored and input data and rules. The panel cited the Supreme Court Mayo decision, explaining that if a claim involves an abstract idea, the claim must include enough that is beyond well-understood, routine, conventional activity to be patent-eligible. Here, the panel concluded that the claim did not meet the requirement of Mayo since the recited computer did not even arguably advance the physical implementations of routine mental information-comparison and rule-application processes. Thus, the Federal Circuit found the claim was directed to a patent-ineligible mental process.

Practice Note: The Federal Circuit’s en banc decision in Alice is now pending at the Supreme Court (IP Update, Vol. 16, No. 12). A decision is expected this term.

Post-Grant Proceedings

Patents / CBM Review

Covered Business Method Review Is All or Nothing

In the final written decision of the second covered business method (CBM) patent review, the Patent Trial and Appeals Board (PTAB) cancelled all claims under review, noting that instituting a CBM review based on a patent-eligible subject matter challenge is an all-or-nothing proposition; as long as the subject matter of at least one claim is directed to a covered business method, then all of the claims of the patent are eligible for covered business method patent review. Liberty Mutual Insurance Co. v. Progressive Casualty Insurance Co., Case CBM2012-00002 (PTAB, Jan. 23, 2014) (Lee, APJ).

Petitioner Liberty Mutual filed for CBM review of a patent, which Progressive asserted against Liberty Mutual in a district court action. The invention relates to a method of determining a premium for automobile insurance based on data concerning a vehicle’s monitored operational characteristics and also the driver’s monitored driving characteristics—and allegedly provides a more fair and precise way to determine the premium.

After institution of the proceeding, Progressive argued that the Board exceeded its statutory authority, urging that the decision should have been made on a claim-by-claim basis. Progressive argued that “[a]n analysis of one claim in a patent sheds no light on whether any other claim in the patent is directed to a covered business method.”

In the final written decision, the Board disagreed with Progressive’s claim-by-claim argument for CBM review, explaining that it erroneously equated the word “patent” in the authorizing statue to “claim.” Analyzing the relevant portion of Section 18(d)(1) of the America Invents Act (AIA), the Board explained that the statute defines the term “covered business method” to mean “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” The Board reasoned that Congress would have used the term “claim” if it had indeed intended that CBM review was to be conducted on a claim-by-claim basis. The Board also noted that nothing in the legislative history of the AIA or other parts of the AIA required it to deviate from the plain meaning of the language of Section 18(d)(1) and that Progressive had not identified any statutory provision or legislative history that mandated that each claim subject to CBM review must meet the statutory test for a covered business method claim.

Practitioner Note: Because CBM review is “all or nothing” and hinges on the character of just a single claim, petitioners may be able to overcome time-bar issues for inter partes review (IPR) under Section 315(b) by characterizing the most favorable claim in a target patent as a covered business method. CBM review also admits additional grounds of challenge as compared to IPR, such as ineligible subject matter, lack of written description and enablement.

Patents / Eligible Subject Matter

Well-Known Technology Is Not a “Substitute Fulfillment” for Patent Eligible Subject Matter

In a Covered Business Method (CBM) post-issuance review, the Patent Trial and Appeal Board (PTAB) cancelled all claims under review, concluding that the challenged claims were directed to non-eligible subject matter directed to a well-known process, merely implementing it in a networked computing environment. In doing so, the Board offered an extensive review of Supreme Court and U.S. Court of Appeals for the Federal Circuit precedent on the issue of patent-eligible subject matter. CRS Advanced Technologies, Inc. v. Frontline Technologies, Inc., Case CBM2012-00005 (PTAB, Jan. 21, 2014) (Medley, APJ.).

Responding to litigation commenced by Frontline, CRS filed a petition for CBM review of the asserted Frontline patent, which relates to human resources management, in particular temporary staffing or “substitute fulfillment.” The patent explains the invention as being directed to “automating the performance of substitute fulfillment to assign a replacement worker to substitute for a worker during a temporary absence, performing placement of floating workers, tracking absences and entitlements of workers, notifying interested parties regarding unexpected events and daily announcements, and bidding for temporary worker.”

CRS contended that the challenged claims were proper subject matter for CBM review and unpatentable under Section 101 as covering the abstract idea of a method hiring temporary workers. Frontline argued in response that the claims were not directed to “business methods” because “[t]here are no claim elements directed to money, financial transactions, or any type of activity that is inherently a financial product or service.” The Patent and Trademark Office (PTO), in instituting a CBM proceeding, noted that the legislative history of the America Invents Act (AIA) explained that the definition of covered business method patent encompassed patents “claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.”

In its final written decision, the Board recounted Supreme Court and Federal Circuit precedent defining the boundaries of eligible subject matter under Section 101. In particular, the Board looked to the machine-or-transformation test endorsed by the Supreme Court in Bilski II and the analysis in SiRF where the Federal Circuit explained that claims were directed to patent-eligible subject matter only computing technology was integral to the claimed process. The Board concluded that the challenged claims were directed to abstract methods of substitute fulfillment that simply took the known, pre-existing process of substitute fulfillment and implemented it in a networked computing environment.

The Board dismissed Frontline’s argument that the challenged claims were similar to the eligible GPS-based claims in SiRF because its claims utilized “one or more computers,” “Internet communication link” and “website.” The Board noted that those terms recite technology that was employed only for the purpose of creating more efficient communication and data storage, which were the basic functions of those components: “[i]n other words, the claims here, even with the recitation of computing technology, are not part of a ‘technological advance’ of any sort.” Applying its method claim analysis to the challenged system claims, which essentially tracked the method claims but added a “database” and “system” for performing the method, the Board noted that these claims were simply an alternative claim format and were patent ineligible for the same reasons: “[a]s the Supreme Court has explained, the form of the claims should not trump basic issues of patentability.”

Practice Note: Because subject matter eligibility is available as a ground for challenging claims under CBM review (unlike inter partes review) and is statistically relatively successful if a proceeding is instituted by the Board, petitioners (who are defendants in district court litigation) may consider whether any claims in an asserted patent may be subject to CBM, even claims that are not asserted in the related litigation.

Patents / Patentable Subject Matter

Claims Directed to Real Estate Appraisal Techniques Not Patent-Eligible

Addressing the issue of whether claims directed to real estate appraisal techniques were patent-eligible, the Patent Trial and Appeal Board (Board), in a Covered Business Method (CBM) post-grant review, determined the claims in issue were non-statutory under §101. While the claims recited a “computer-implemented process,” the Board explained that the mere recitation of a computer “is not a per se indicator of patentability.” Rather, as the Board explained, in order to be patent eligible, a patent claim “must incorporate enough meaningful limitations to ensure that what is clamed is more than just an abstract idea and is not a mere drafting effort designed to monopolize an abstract idea itself.” Interthinx, Inc., v. CoreLogic Solutions, LLC, Case CBM2012-00007, Patent 5,361,201 (PTAB, Jan. 30, 2014) (McNamara, APJ.)

In a patent infringement lawsuit between Interthinx, and CoreLogic Solutions, the district court found that the CoreLogic patent in issue was directed to patent-eligible subject matter under 35 U.S.C. §101 and was not infringed by Interthinx. While the district court case was pending, Interthinx initiated a CBM review of the patent. After the judgment was entered by the district court and the lawsuit was settled, Interthinx and CoreLogic moved to terminate the pending CBM review proceeding. However, the Board simply terminated Interthinx’s involvement in the proceeding, but not the CBM review itself.

CoreLogic argued that, under the principles of res judicata and collateral estoppel, the Board should not review its patent under the CBM proceeding because the patent eligibility issue was already decided by the district court.

Res judicata precludes a legal claim from being raised in a second proceeding if the legal claim could have been raised in an earlier first proceeding. For res judicata to apply, the legal claims of the second proceeding must have been raised (or could have been raised) in the first proceeding, and the parties in the second proceeding must be identical to the parties of the first proceeding. In this case, the Board found that the legal claims were different since the district court, in its summary judgment decision, reviewed the validity of the challenged patent claims under a clear and convincing evidence standard. In contrast, the Board, in a CBM proceeding, reviews issues relating to patentability (and the underlying factual determinations) under the lower threshold preponderance of the evidence standard. Thus, because the Board applies a different evidentiary standard, the Board concluded that the legal claims in the second (CBM) proceeding were different from the legal claims in the district court proceeding. Furthermore, the Board found that the parties to the lawsuit included only Interthinx and CoreLogic, while the parties to the CBM proceeding also included the government, represented by the Patent Office. Thus, the Board concluded that parties to the second proceeding were not the same as the parties to the first (district court) proceeding, and therefore that the principles of res judicata did not apply.

Collateral estoppel requires that where an issue was decided in a first proceeding, the issue must be treated as decided, without further proof, in a later in time proceeding. For collateral estoppel to be applied in a second proceeding, there must have been an earlier proceeding where the issue was considered, the issue must have been actually litigated in the first proceeding and the party against whom collateral estoppel is being asserted must have had a full and fair opportunity to litigate the issue in the first proceeding, and the issue must have been decided in the first proceeding. Here, the Board concluded that the issues before the Board and the district court were different due to the difference between validity and patent eligibility and the different evidentiary standards used in a CBM review versus a district court proceeding. Also, reiterating that inclusion of the Patent and Trademark Office (PTO) as a party resulted in different parties vis–à–vis the district court, the Board concluded that collateral estoppel did not apply either.

Turning to the patent eligibility issue, the challenged claims were generally directed to a computer-implemented process for appraising a real estate property. The claims were directed to a computer-based method that generally recited the steps of creating a predictive statistical model, generating a signal indicative of an appraised value of the real estate property and then generating a signal indicative of an error range for the appraised value using the predictive statistical model. CoreLogic argued that the challenged claims were directed to patent-eligible subject matter since “a computer is central to all the [patent] claims and the processes cannot be done manually.” The Board rebuffed that argument, concluding that the presence of the computer “is not a per se indicator of patentability.” Rather, a challenged patent claim “must incorporate enough meaningful limitations to ensure that what is claimed is more than just an abstract idea and is not a mere drafting effort designed to monopolize an abstract idea itself.”

The Board explained that the creating a predictive statistical model, as claimed in the patent, is an abstract concept that is commonly applied in the statistical field. The Board noted expert testimony that the predictive model, as recited in the challenged claims, could be developed manually, as well as by computer, using a limited number of observations. In sum, the Board found the challenged patent claims to not be patent eligible since they were directed to an abstract idea rather than to a novel computerized technique: “a [patent] claim is not patent eligible where it merely recites a law of nature and adds additional steps that merely reflect routine, conventional activity of those who work in the field.”

Practice Note: To avoid similar problems, practitioners may consider drafting claims that clearly recite the role of the computer and its components—e.g., processor, memory, network interface, etc. —as a part of the inventive technique.

Patents / IPR

Arbitration Proceeding Do Not Trigger One-Year SOL for Inter Partes Review

In response to a patent owner’s post-institution motion to terminate an inter partes review (IPR) proceeding, an expanded panel of the Patent Trial and Appeal Board (PTAB) gave further definition to the triggering events of the time bar under 35 U.S.C. § 315(b), concluding that the statute does not apply to arbitration proceedings. Amkor Technology, Inc. v. Tessera, Inc., Case CBM2013-00242 (PTAB, Jan. 31, 2014). (De Franco, APJ)

Petitioner Amkor filed for IPR of a Tessera patent on 18 grounds. The claimed invention relates to a method and apparatus for encapsulating semiconductor chips and related assemblies by adjusting ambient pressure during application and curing of an encapsulant material. In its preliminary response, Tessera argued that Amkor was served with a “complaint” that came within the ambit of 35 U.S.C. § 315(b) by way of Tessera’s response to Amkor’s request for arbitration in 2009. Tessera contended that its response to the arbitration demand, specifically asserted that Amkor continued to infringe the patent. The Board instituted the IPR on most, but not all, grounds of view. After Tessera’s petition for rehearing of the decision to institute the proceeding was denied, Tessera filed a motion to terminate the proceeding.

The Board also denied Amkor’s petition for rehearing of the institution decision on fewer than all asserted grounds, noting that it was not necessarily bound by the Manual of Patent Examining Procedure (MPEP) provision cited by Amkor regarding the cumulative nature of technical references. The Board found unpersuasive Amkor’s argument that not instituting the IPR on all of the proffered grounds of invalidity was unjust due to estoppel considerations, with the Board noting the competing demands of speedy and inexpensive resolution and providing dispositive determinations of the patentability of claims all within the § 42.1(b) statutory one-year time frame.

Responding to Tessera’s motion to terminate the IPR, the Board held that the earlier arbitration, including Tessera’s allegation of infringement, did not operate as a trigger for the § 315(b) one-year time period for filing. According to the Board, in the context of § 315(b), the “action” by the patent owner that triggers the one-year filing deadline is service of a complaint alleging infringement of the patent. The Board noted that the key terms of that statute, “complaint” and “served,” are ordinarily used in connection with a civil action, not arbitration proceeding. The Board also noted that (unlike § 315(b)) other sections of Title 35 that were introduced by the American Invents Act (AIA) specifically addressed arbitration proceedings, such as the provision dealing with derivation proceedings. The Board concluded “[t]hus, had Congress intended for arbitration, ITC, or other non-judicial proceedings to trigger the time bar of § 315(b), it would have used more encompassing language than Patent Owner’s Action and served with a complaint, which are harmonious with a civil action.” The Board reasoned that the plain meaning of the term “action” in the narrowing context of the phrase “served with a complaint” dictates an interpretation that limits its applicability, consistent with Supreme Court precedent, to when the patent owner brings a civil action for patent infringement.

Patents / IPR

Declaratory Judgment Dismissed Without Prejudice Does Not Bar Later IPR

In an institution decision by the Patent Trial and Appeal Board (Board), the Board made it clear that a prior declaratory judgment action filed by the petitioner, if voluntarily dismissed without prejudice, does not bar a subsequent inter partes review (IPR) proceeding. However, even though IPR was instituted, the Board granted review of a just a single claim (out of multiple challenged claims) and only on one ground (out of multiple grounds proffered by the petitioner). Clio USA, Inc. v. The Procter and Gamble Company, Case IPR2013-00438 (PTAB, Jan. 9, 2014) (Kamholz, APJ.).

P&G filed a civil action asserting that Clio infringed its patent, which relates to an oral care delivery system in which a flexible strip is coated with an oral care substance such as a gel containing hydrogen peroxide or sodium fluoride for application to teeth or gums. Clio sought declaratory judgment that the patent was invalid. Prior to filing a petition for IPR of the patent, the declaratory judgment action was dismissed voluntarily by Clio and without prejudice.

In its patent owner’s preliminary response to the IPR petition, P&G argued that the petition was ineligible for IPR consideration because of the prior declaratory judgment action brought by Clio. According to P&G, the controlling statue, 35 U.S.C. § 315(a)(1), is clear and unconditional in that it proscribes an IPR “if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of the patent.” P&G argued the statutory language admitted no exceptions or qualification and prevents any IPR petition (by Clio) of the subject patent. P&G argued that Congress intended to place limits on IPR to prevent its use for harassment or delay. P&G also argued that § 315(a) was designed to force the challenger to choose between a declaratory judgment action and IPR, and that once a challenger choose the former, the latter was no longer available.

The Board noted that P&G’s argument ignored relevant case law, including that of the Supreme Court, under which federal courts treat a civil action that is voluntarily dismissed without prejudice as something that de jure never existed. When an action is voluntarily dismissed without prejudice, the parties are free to litigate the matter in a subsequent action, as though the dismissed action had never existed. The Board agreed with P&G’s description of Congress’s intent behind the language of § 315(a), but clarified that “[w]hen a court permits the challenger to dismiss the declaratory judgment action voluntarily and without prejudice, the petition effectively unmakes the choice” of choosing declaratory judgment over IPR, “because the action is considered never to have existed.”

After finding the subject patent-eligible for IPR, the Board addressed the proffered grounds of review, finding all but one deficient. The Board underscored that Clio’s proffered grounds of invalidity, based on inherent disclosure and obviousness over a number of cited references, were based on bare contentions that the cited references disclosed or made obvious a particular claimed structural stiffness, without any supporting evidence or arguments.


Trademark / Right of Publicity

Experience Jimi Hendrix, Post-Mortem Publicity Rights

The U.S. Court of Appeals for the Ninth Circuit, reversing a district court’s ruling finding unconstitutional the provisions of the Washington Personality Rights Act pertaining to post-mortem publicity rights, qualified that its reversal was based on the “narrow set of non-speculative circumstances” at issue in the case. Experience Hendrix LLC et al. v. LTD et al., Case Nos. 11-35858; -35872 (9th Cir., Jan. 29, 2014) (Ebel, J.) (Rawlinson, J. concurring-in-part, dissenting-in-part).

Plaintiffs Experience Hendrix and Authentic Hendrix (collectively, Experience Hendrix), formed by the sole heir of rock legend Jimi Hendrix, own trademark rights in Hendrix’s name, signature and images incorporating Hendrix’s likeness. Defendant (HendrixLicensing) owns, or has rights to use, certain imagery and artwork depicting Hendrix, and licensed the use of such properties for profit, including through the websites and In 2009, Experience Hendrix sued HendrixLicensing for trademark infringement under the Lanham Act and Washington state law. Experience Hendrix was awarded $1.7 million in damages by a jury, which was later reduced by the district court to $60,000. Meanwhile, HendrixLicensing sought a declaratory judgment from the district court that Washington’s right of publicity statute, the Washington Personality Rights Act (WPRA) did not afford the plaintiff Hendrix’s post-mortem rights of publicity. The district court granted summary judgment in defendant’s favor, holding that while the WPRA did recognize post-mortem rights of publicity, such provisions of the statute were unconstitutional. Appeals followed.

As amended in 2008, the WPRA broadly applies to “all individuals and personalities, living and deceased, regardless of place of domicile or place of domicile at time of death.” The WPRA recognizes a publicity right “regardless of whether the law of the domicile, residence, or citizenship of the individual or personality at the time of death or otherwise recognizes a similar or identical property right.” A deceased personality’s publicity rights are infringed by any person who uses or authorizes the use of such rights without written or oral, express or implied consent of the owner of such publicity rights.

While acknowledging that the WPRA “raises difficult questions” regarding whether other states must recognize the broad publicity rights created by the Washington statute, the 9th Circuit concluded that under the specific circumstances of the subject case, the provisions of the WPRA pertaining to post-mortem personality rights were not unconstitutional. The narrow WPRA controversy at issue was HendrixLicensing’s “reasonable apprehension” that Experience Hendrix would rely on the WPRA to interfere with defendant’s and its licensees’ business in Washington. The court held that it was proper to apply the WPRA to the case at hand, even though Hendrix died in New York (a state that does not recognize post-mortem rights of publicity), reasoning that the plaintiff had enough ties to Washington such that Washington had an interest in applying its own law to the controversy. The court also disagreed that the application of the WPRA would violate the Commerce Clause because the controversy at issue did not affect transactions occurring “wholly outside” Washington and would not impermissibly burden interstate commerce. Thus, the 9th Circuit held that the WPRA could be constitutionally applied to the controversy in the case and remanded defendant’s declaratory judgment claims to the district court with instructions to enter summary judgment in favor of Experience Hendrix.

Addressing the other issues on appeal, the 9th Circuit held that the defendant’s use of the domain names and did not constitute nominative fair use of the plaintiff’s “Hendrix” trademark, as use of the trademark was not in relation to plaintiff’s products. In addition, the court both reinstated the jury damage award and affirmed the district court’s decision to grant a new trial on the issue of damages if the jury award was reinstated.

In dissent, Circuit Judge Rawlinson stated that while concurring with the majority’s opinion on most points, he disagreed that a new trial on the issue of damages was warranted.

Copyright / Fair Use

Release of Earnings Call Audio Recording Qualifies As Fair Use News Reporting

The U.S. Court of Appeals for the Second Circuit has concluded that when a copyrighted work itself is considered to be news, dissemination of that work for public information purposes can be regarded as news reporting and receive immunity as fair use. The plaintiff, Swatch, a publicly traded company in Switzerland, held a private conference call with an invited group of outside financial analysts to discuss its 2010 earnings report that was just released. The entire conference call was recorded at the request of Swatch so that Swatch could make the recording available to other financial analysts who were unable to attend the call. The defendant Bloomberg is a financial news and data reporting service. Neither Bloomberg nor any other news organization was invited to Swatch’s conference call. Nevertheless, Bloomberg obtained a copy of the conference call recording as well as a written transcript of the call and made them both available online, without edits or comments. After Swatch sued Bloomberg for copyright infringement, Bloomberg asserted a fair use defense. The district court granted summary judgment to Bloomberg, dismissing Swatch’s claim on fair use grounds, and Swatch appealed. The Swatch Group Management Services Ltd. v. Bloomberg LP, Case No. 12-2412 (2d Cir., Jan. 27, 2014) (Katzmann, J.).

In affirming the fair use defense and the dismissal of Swatch’s copyright claim, the 2d Circuit deemed Bloomberg’s dissemination of the call recording to be “news reporting,” which constitutes a fair use of copyright material. Swatch contended that the recording was “data” rather than “news” and Bloomberg’s activity was data delivery rather than news reporting (noting that Bloomberg has described itself as providing both “news” and “data”). The 2d Circuit rejected this argument as making a semantic rather than factual distinction. The court stated that there can be no doubt that Bloomberg’s purpose in obtaining and disseminating the recording was to make important financial information about Swatch available to investors and analysts—a use that serves an important public purpose and, as such, is very closely analogous to “news reporting.”

The 2d Circuit also rejected Swatch’s argument that Bloomberg did not make any transformative use of the recording because it disseminated the recording without commentary or analysis. The court noted that a transformative use is not absolutely necessary for a finding of fair use and that in, the context of news reporting, the need to convey information to the public accurately may in some instances justify a defendant faithfully reproducing an original work rather than transform it. The court viewed that to be the case here because, by disseminating not just a written transcript but also the actual audio recording, Bloomberg was able to convey with precision not only what Swatch’s executives said, but also how they said it. This latter type of information, the court noted, is just as valuable to investors and analysts as the former, “since a speaker’s demeanor, tone, and cadence can often elucidate his or her true beliefs far beyond what a stale transcript or summary can show.”

Notably, the 2d Circuit distinguished this case from three prior cases cited by Swatch where the 2d Circuit rejected fair use arguments from defendants who purported to be serving the public by providing access to important financial information. In the first case, the defendant had simply translated the plaintiff’s Japanese business articles into English. In the second case, the defendant recounted the critical conclusions and predictions from the plaintiff’s research reports about major industrial and financial corporations. In the third case, the defendant had copied information about municipal bond redemptions compiled by a competing financial publisher. According to the 2d Circuit, the defendants in those cases appropriated works in which the plaintiffs had transformed raw financial information by compiling it from multiple sources or by mixing it with their own commentary and analysis. In this case, the statements captured in the recording, including the particular modes of expression used by Swatch’s executives, were themselves pieces of financial information. In other words, the earlier cases dealt with the appropriation of secondary sources that had compiled or commented on financial news, whereas this case concerns the use of a primary source that itself was financial news.

After affirming the “purpose and character” of Bloomberg’s use as “news reporting,” the 2d Circuit proceeded to address the remaining fair use factors, finding two of them also in favor of Bloomberg. Focusing on the “nature of the copyrighted Work,” the court determined the conference call recording to be a factual work which favors fair use and deemed the “unpublished” nature of the recording to be immaterial. In terms of the “effect upon the market for or value of the original,” the court found that the possibility that financial news or research organizations might be willing to pay to obtain this kind of recordings (in other words, Swatch might be able to earn licensing royalties for this kind of recordings) to be irrelevant because such possibility is not the reason for Swatch and other similarly situated companies to hold earnings calls. Rather, companies use earnings calls to disseminate financial information about their companies to investors and analysts. According to the court, by making the recording available to analysts who did not participate in the call, Bloomberg simply widened the audience of the call (drawing an analogy to the “timeshifting” fair use upheld in Sony—recording a television program in order to view it at a later time—which enlarges the television viewing audience and therefore would not impair the value of the plaintiffs’ copyrights).

In terms of the “amount and substantiality of the portion used,” the court conceded this factor did not favor Bloomberg since it used the entire recording. However, the court nevertheless concluded this factor to be “neutral”—neither favoring nor disfavoring fair use—because of the public interest in the information embodied in the recording. According to the court, copying a work in its entirety is sometimes necessary in the context of a fair use, which is the case here.

Copyright / Joint Authorship

Copyright / Utilitarian Functionality