IP Update, Vol. 18, No. 9

Clarifying the Post-Nautilus Indefiniteness Standard

Addressing the post-Nautilus indefiniteness standard, the U.S. Court of Appeals for the Federal Circuit reversed a jury’s finding that the claims-at-issue are not indefinite and similarly reversed an associated order granting supplemental damages. The Federal Circuit’s reversal demonstrates how patent claims that were once held valid under the “insolubly ambiguous” standard (for determining indefiniteness) are no longer valid under the “reasonable certainty” standard. The Dow Chemical Co. v. NOVA Chemicals Corp. et al., Case No. 14-1431; -1462 (Fed. Cir., Aug. 28, 2015) (Dyk, J.)

Dow Chemical filed a suit against NOVA Chemicals alleging infringement of two patents directed to an ethylene polymer compositions with improved modulus, yield strength, impact strength and tear strength. In other words, the patents are directed to plastics that are made into thinner films without losing strength. The relevant element in two of the asserted independent claims requires “a slope strain hardening coefficient greater than or equal to 1.3.” NOVA argued that the patents were indefinite because they failed to teach one of ordinary skill in the art how to measure the “slope of strain hardening” which is necessary to calculate the strain hardening coefficient.

After a jury found the asserted claims to be infringed and not invalid, NOVA appealed and the Federal Circuit held the asserted claims were not indefinite. The pre-Nautilus jury instruction stated “[i]f the meaning of the claims is discernible, it is definite, even though the task may be formidable and even if the conclusion may be one over which reasonable persons will disagree.” The district court subsequently conducted a bench trial for the supplemental damages period through the expiration of the patents and granted Dow supplemental damages in the form of lost profits and reasonable royalties from January 1, 2010 through October 15, 2011, the date when the patents expired. After a final judgment was entered, NOVA again appealed.

While the appeal was pending, the Supreme Court decided Nautilus, holding the Federal Court’s standard for indefiniteness was contrary to 35 U.S.C. §112. Under the new standard, “a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” (See IP Update, Vol. 18, No. 5.) In this appeal NOVA argued that the supplemental damages award should be vacated because the patents-in-suit are not valid for indefiniteness in view of Nautilus or the supplemental damages award was not supported by the evidence.

The Federal Circuit explained that the change-in-law exception applies while the case is at the district court or on appeal. Three conditions must be satisfied before reopening a previous decision under the change of law exception for both laws of the case and issue preclusion. First, the governing law must have been altered. Second, the decision sought to be reopened must have applied old law. Third, the change in law must compel a different result under the facts of the particular case.

The Federal Court determined the answer to the first two questions was clearly “yes.” With respect to whether a different substantive result was compelled by the Supreme Court’s Nautilus decision, the Court had to assess whether the existence of multiple methods leading to different results, without guidance in the patent or prosecution history as to which method should be used, renders the claims indefinite. Here the Court found there were at least four different procedures for measuring the slope of the strain hardening, each of which could produce a different value. A review of the intrinsic record provided no guidance as to which method should be used. Thus, the Court found the claims invalid as indefinite under the “reasonable certainly” standard and reversed the supplemental damages award.

A Primer on Patent Damages

Addressing a panoply of damages issues, the U.S. Court of Appeals for the Federal Circuit affirmed a reasonable royalty, rejected the defendant’s laches defense and provided significant guidance on the application of the extraterritoriality bar to patent damages. Carnegie Mellon University v. Marvell Technology Group, Ltd., et al. Case No. 14-1492 (Fed. Cir., Aug. 4, 2015) (Taranto, J.).

Carnegie Mellon University (CMU) sued Marvell for infringing two patents related to hard-disk drives. A jury found for CMU on infringement and validity, awarding damages of approximately $1.17 billion in reasonable royalties based on a 50 cent per product royalty rate. The district court applied that 50 cent per product rate to all sales as of the date of judgment and awarded a 23 percent enhancement of the past damages for Marvell’s willful infringement. Marvell appealed.

The Federal Circuit affirmed the judgment of infringement and validity.

The Federal Circuit also affirmed the district court’s rejection of Marvell’s laches defense, finding that while the presumption of laches applied because CMU unreasonably delayed filing its lawsuit and Marvell suffered prejudice, on balance, the equities nevertheless favored CMU. The Court found it particularly egregious that Marvell had “copied CMU’s patents consciously and deliberately for an entire decade,” noting that its Aukerman precedent specifically instructed district courts to consider copying as one of the relevant factors in balancing the equities after the threshold requirements for laches were met.

However, the Federal Circuit reversed the enhanced damages based on willfulness. As the willfulness finding was not based on actual knowledge by Marvell, CMU was required to meet the Seagate threshold, namely showing through clear and convincing evidence that Marvell “acted despite an objectively high likelihood that its actions constituted infringement of a valid patent and this objectively defined risk was either known or so obvious that it should have been known.” The Court found that Marvell knew or should have known of the CMU patents and that Marvell did not establish a good-faith basis for believing it was not infringing. However, the Court nevertheless reversed the enhancement of damages because Marvell’s invalidity defense was objectively reasonable, negating the intent to infringe. The Court found that while the jury could properly reject Marvell’s invalidity defense, there was enough uncertainty about what was disclosed in the prior art that Marvell’s invalidity defense was not objectively unreasonable.

The Federal Circuit also explained that it was reversible error for the district court to have ruled that Marvell’s reasonableness was a factual issue to be determined by the jury. Rather, objective reasonableness is a legal matter to be determined by the Court and is reviewed de novo. The Court also held that it was immaterial whether Marvell knew of its invalidity defense at the time the alleged infringement began. The Federal Circuit also explained that Marvell’s objective reasonableness should be assessed based on all defenses presented in the proceeding and not limited to the evidence presented to the jury.

Finally, the Federal Circuit rejected Marvell’s challenges to the royalty rate, finding that CMU’s damages expert was qualified, and that a 50 cent per unit royalty rate was a reasonable result based on a hypothetical negotiation. The Court re-affirmed that central to the inquiry is a determination of what it would have been worth to Marvell to obtain a license to the patented technology taking into account the expected benefits and available alternatives. While past licensing practices of the parties and similar licenses can also provide useful evidence, the Court cautioned that “such evidentiary use must take careful account of any economically relevant differences between the circumstances of those licenses and the circumstances in the matter in litigation.” The Court rejected Marvell’s argument that a lump-sum payment would have been the result of the hypothetical negotiation, noting that there were economic justifications for a per-unit royalty as the royalty would have “allowed Marvell’s payments to vary with the sales its infringing activity produced, which are a good way of valuing what it was worth to Marvell to engage in that activity.”

Though affirming the reasonable royalty rate, the Federal Circuit vacated the damages award and ordered a partial new trial to determine whether chips that never entered the United States could nonetheless be considered sales that occurred in the United States for damages purposes. The Court explained that “[w]here a physical product is being employed to measure damages for the infringing use of patented methods, we conclude territoriality is satisfied when and only when any one of those domestic actions for that unit (e.g., sale) is proved to be present, even if others of the listed activities for that unit (e.g., making, using) take place abroad.” The Court noted that the “presumption against extraterritoriality” applies in a reasonable royalty context, and that only United States sales could be included in the damages calculation. The Court acknowledged that there was no settled definition for the location of a sale and urged the district court to consider where the contract to purchase the product was executed, the place of delivery, and the place where other substantial activities of the sales transaction occurred.

Finally, the Federal Circuit denied Marvell’s challenge to royalties assessed on products that were imported into the United States, finding no extraterritoriality bar to including those products.

Practice Note: Given the cross-border world of modern commerce, parties need to be very careful to provide evidence to support their sales location arguments so that only sales with a sufficient United States connection are included in the damages calculation.

Claimed Formulation Not Obvious Despite Recitations Falling Within Prior Art Ranges

Addressing obviousness issues, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s finding that patents were valid and infringed, despite undeniably including recitations falling within a prior art range. Allergan, Inc. v. Sandoz Inc., Case No. 14-1275 (Fed. Cir., Aug. 4, 2015) (Lourie, J.)

Allergan owns five patents related to Lumigan® 0.01% (“Lumigan 0.01%”), a glaucoma treatment product having 0.01% of bimatoprost and 200 ppm of benzalkonium chloride (BAK). Several companies filed Abbreviated New Drug Application (ANDA) applications for generic versions of Lumigan 0.01% (collectively ANDA applicants), causing Allergan to file a patent infringement lawsuit. After a bench trial, the district court held that Allergan’s patents were not invalid for obviousness, lack of written description or lack of enablement and were infringed, entitling Allergan to a permanent injunction. The ANDA applicants appealed.

Before the Federal Circuit, the ANDA applicants argued that the Allergan patents were invalid because the claimed amounts of bimatoprost and BAK in Lumigan 0.01% fell within prior art ranges and that there was no evidence of unexpected results. The ANDA applicants also argued that Allergan’s claims failed to meet written description and enablement requirements because they did not disclose any efficacy or hyperemia data of Lumigan 0.01%.

Addressing the obviousness issue, the Federal Circuit acknowledged that the asserted prior art disclosed a composition comprising 0.001%-1% of bimatoprost and 0-1000 ppm of a preservative, such as BAK, and that Lumigan 0.01% fell within the prior art ranges. However, the Court explained that even where a claimed invention falls within a prior art range, invalidity does not necessarily follow. Rather, the relevant inquiry is whether motivation existed to select the claimed composition. Here, the prior art taught away from the claimed invention, and the claimed invention exhibited new and unexpected results. Specifically, the prior art taught that BAK should be minimized in ophthalmic formulations to avoid safety concerns and that reducing the amount of bimatoprost below 0.03% would significantly diminish efficacy. Additionally, the prior art taught that an increase in BAK would result in hyperemia at high concentrations and would not increase the permeability of bimatoprost.

An inference of non-obviousness is especially heightened where the prior art’s teaching undermines the reason being proffered as to why one skilled in the art would have combined known elements. Here, although the prior art ranges covered the claimed invention, the prior art discredited and discouraged the use of 0.01% bimatoprost in combination with 200 ppm BAK for ophthalmic use. Furthermore, the unexpected results of enhanced bimatoprost permeability and reduced hyperemia without affecting efficacy were differences in kind, not merely degree, because the results were completely opposite to that taught by the prior art.

As for the ANDA applicants’ lack of enablement and written description arguments, the Federal Circuit again sided with Allergan. The specifications of Allergan’s patents described Lumigan 0.01%’s exact formulation as one of the best modes of the invention. Although the specifications did not explicitly describe the clinical efficacy and hyperemia profile of Lumigan 0.01%, the inherent properties of the formulation necessarily would produce the claimed clinical profile of lowering intraocular pressure and reducing hyperemia as compared to Lumigan 0.03%. Indeed, a claim that recites a property that is necessarily inherent in an adequately described formulation does not lack written description merely because the property itself is not explicitly described. Moreover, the Court observed that while a patent need not guarantee that the invention works to satisfy enablement and patents do not even generally require efficacy data, in this instance Allergan’s patents included specific composition formulations, actual in vitro and in vivo data, and a constructive example, all supporting enablement.

Claims Obvious Despite Contrary Jury Verdict *Web Only*

Addressing the issue of obviousness, the U.S. Court of Appeals for the Federal Circuit overturned the jury verdict of non-obviousness and focusing on the nature of the problem to be solved, concluded that the asserted claims were invalid as obvious. ABT Systems, LLC v. Emerson Electric Co., Case Nos. 14-1618; -1700 (Fed. Cir., Aug. 19, 2015) (Schall, J.).

The University of Central Florida owned a patent directed to an air conditioning system with a recycle control function where the fan is periodically operated a certain time after the system is deactivated. The inventor’s company, ABT Systems, was a licensee. Together they sued Emerson Electric for infringement based on the “Comfort Circulating Fan Feature” of Emerson’s Big Blue thermostat product.

Emerson argued that the asserted claims were obvious in light of four prior art references dating from as far back as 1931. Some of the references disclosed a single fan operation a certain time after deactivation, while other references disclosed periodic fan operation unrelated to the deactivation time. The case went to trial, and the jury found the claims valid and infringed, but awarded minimal damages. Emerson unsuccessfully moved for judgment as a matter of law (JMOL) that the claims were obvious. The court held that a reasonable jury could have concluded that the prior art did not disclose periodic fan operation dependent on the deactivation time, as recited in the claims. The district court also concluded that the jury could have credited ABT’s long-felt need evidence.

ABT appealed certain damages rulings and Emerson cross-appealed on obviousness.

On appeal, the Federal Circuit found all claims to be obvious and dismissed the damages questions as moot. The Court agreed that it should resolve all factual disputes in favor of the jury verdict, but concluded that there were few, if any, factual disputes other than with respect to secondary considerations. The parties had apparently agreed that the prior art included all claim elements other than the single element calling for periodic fan operation a certain time after deactivation, agreed that certain prior art references disclosed periodic fan operation for the same air stagnation problem addressed in the asserted patent, and agreed that other references disclosed a “single-shot” fan cycle after a predetermined delay following deactivation of the central air system. On that record, the Federal Circuit held that the motivation to combine the prior art arose from the nature of the problem to be solved and the combination would have been naturally implemented to yield predictable results. The Court dismissed ABT’s reliance on secondary considerations, such as commercial success and long-felt need because ABT failed to show the required nexus with the invention.

Claims Not Limited to Preferred Embodiment

In correcting the district court’s claim construction, the U.S. Court of Appeals for the Federal Circuit vacated the district court’s judgment of non-infringement and remanded, finding that the claims were improperly limited to a specific embodiment. Inline Plastics Corp. v. EasyPak, LLC, Case No. 14-1305 (Fed. Cir., Aug. 27, 2015) (Newman, J.).

Inline Plastics sued EasyPak for infringement of U.S. Patent No. 7,118,003 (the ‘003 patent), which is directed to tamper-resistant plastic food containers. The district court construed the claim term “frangible section” to mean “a removable tear strip, delimited by at least two severable score lines” and the term “tamper evident bridge” to mean a structure containing “a removable tear strip, delimited by at least two severable score lines.” Inline moved for entry of final judgement of non-infringement on the premise that the claims as construed are not infringed, since EasyPak’s accused product has only a single severable score line. The district court granted the motion and Inline appealed the district court’s claim construction.

On appeal, the Federal Circuit held that the invention as claimed is supported by the patent’s broader disclosure and concluded that the district court erred in limiting the claims to a specific embodiment. The ‘003 specification described the preferred embodiment as containing “a pair of parallel score lines,” but also explicitly disclosed an alternative embodiment containing “a single score line or perforation line.” The district court reasoned that the frequency with which the specification described the frangible section as having two score lines supported this limitation. The Court, however, was not persuaded by this argument, holding that “[a]bsent such traditional aspects of restrictive claim construction, the patentee is entitled to claim scope commensurate with the invention that is described in the specification.”

Despite the district court’s reliance on the prosecution history as justification for their construction, the Federal Circuit found no such support. The examiner did not require the limitation of at least two score lines and it was not a condition of patentability. During prosecution, Inline distinguished its invention from the cited art on the basis that “[n]owhere in [cited art] is there any disclosure, teaching or suggestion to modify the container therein to provide a tamper evident bridge that connects a cover portion to a base portion.” The Court found that this distinction “has no relation to the number of score lines on a tear strip, but rather to differences in the structure and opening mechanism as a whole.”

The Court also found the doctrine of claim differentiation applicable, since the limitation specific to the embodiment of two score lines only appeared in a dependent claim and not in any independent claim. Quoting& Phillips, the Court noted that “the presence of a dependent claim that adds a particular limitation gives rise to a presumption that the limitation in question is not present in the independent claim.” Therefore, the district court erred in requiring the asserted independent claim to have the limitation of two score lines.

Federal Circuit: PTAB's Claim Construction Standard is BRI, But Sometimes with an Obligation

In a decision with potentially far-reaching impact, U.S. Court of Appeals for the Federal Circuit concluded that the Board of Patent Appeals and Interferences (Board) in arriving at a claim constructions, is obligated to consider a prior district court construction of the same term. Power Integrations v. Lee, Case No. 14-1123 (Fed. Cir., Aug. 12, 2015) (Mayer, J.).

Power Integrations (PI) challenged the PTO’s decision affirming the final rejection of claims during an ex parte reexamination that Fairchild had filed against a patent directed to a technique of minimizing electromagnetic interference occurring in power supplies. PI had brought suit against Fairchild alleging infringement of the patent. During the district court claim construction proceedings PI argued that the claim term “coupled” required that two circuits be connected in a manner “such that voltage, current, or control signals pass from one to another” and that the recited coupling between circuit components must be “present for the purposes of control.” PI also made clear that its proposed construction did not require a direct connection between circuit elements. The district court adopted PI’s proposed construction. After a trial on validity, a jury found that the patent was not obvious over a primary reference, that verdict was affirmed by the Federal Circuit on appeal.

During the reexamination, the examiner rejected claims of the patent as being anticipated by the same reference found to not have rendered the claim obvious in the district court litigation. In affirming the rejection, the Board stated that PI “appear[ed] to argue that one of ordinary skill in the art would understand the term ‘coupled to’ to restrict device connections to exclude intervening components.” PI appealed.

On appeal, the Federal Circuit found that the Board’s patentability analysis was deficient under the Administrative Procedure Act (APA), providing too little for review. The Court explained that “[u]nder the APA, the board is obligated not only to come to a sound decision, but to fully and particularly set out the bases upon which it reached that decision.” The Court found that in this instance, the Board had “fundamentally misconstrued Power Integrations’ primary claim construction argument” namely that the term “coupled” did not exclude intervening components between circuit elements. Because so much of the Board’s analysis had focused on the issue of whether “coupled” required a direct connection between circuit elements, the Court explained that the Board had inadequately evaluated PI’s primary argument. The Federal Circuit further explained that while the Board uses a different claim construction standard, i.e., the broadest reasonable interpretation in light of the specification (BRI), than district courts, the Board should have reviewed the district court’s claim construction, since PI had advanced the same construction as the Patent and Trademark Office as it did in the parallel litigation: “[t]he fact that the board is not generally bound by a previous judicial interpretation of a disputed claim term does not mean . . . that it has no obligation to acknowledge that interpretation or to assess whether it is consistent with the broadest reasonable construction of the term.” The Court qualified its decision by noting “[w]e do not hold that the board must in all cases assess a previous judicial interpretation of a disputed claim term” but rather “only that the board on remand should carefully and fully assess whether the disputed claims of the . . . patent are anticipated by the prior art, setting out its reasoning in sufficient detail to permit meaningful appellate review.”

Practice Note: While this decision arose from an ex parte reexamination, it is likely that the same rational would apply to post-grant proceedings under the America Invents Act (AIA) in those situations where a prior district court construction, based on the same claim construction arguments, was available from a parallel litigation.

PTAB Findings Get Lots of Deference *Web Only*

In a non-precedential opinion, the U.S. Court of Appeals for the Federal Circuit heavily deferred to the factual findings of the Patent Trial and Appeal Board (PTAB or Board) in affirming the PTAB’s decision of invalidity in an inter partes review (IPR) proceeding. Trs. of Columbia University v. Illumina, Inc., Case No. 14-1550 (Fed. Cir., July 17, 2015) (Wallach, J.).

The three patents at issue in Illumina relate to methods of determining the sequence of DNA, a double stranded molecule that contains genetic code. Each strand is made up of units called nucleotides that include a sugar, one or more phosphate groups, and a base.

An early method of DNA sequencing involved use of a modified sugar and label attached to the base, but this method proved too slow to efficiently sequence an entire genome. Until, the discovery was made that a modified base improved stability, this sequencing method also presented difficulties in ensuring that the label remained attached to base. A later method of DNA sequencing achieved a higher rate of speed and efficiency by using removable, labeled “caps” on the sugar. However, this method produced poor results resulting from the use of a label on the cap. The claimed methods purported to address this problem by retaining the removable cap on the sugar and attaching the label to the modified base via a cleavable linker.

The claims at issue were directed to, in general, a method that involved a labeled, modified base, in which the label was attached to the base through a cleavable linker, and a removable cap on the sugar. After the PTAB ruled that the claims at issue were invalid as anticipated or obvious in view of the prior art, the patent owner appealed.

On appeal the patent owner argued that the claimed combination was not disclosed in the prior art, which only discussed a process involving use of a removable label on the sugar and not a modified base. The patent owner further argued that there would be no motivation to combine the prior art references to arrive at the claimed invention. The Federal Circuit rejected the patent owner’s arguments, citing the PTAB’s findings that the prior art disclosed using a removable cap on the sugar and a label on the base attached by a cleavable linker. The Court agreed with the PTAB’s finding that a skilled artisan would have been motivated to use a modified base in view of the teachings in other prior art references.

With respect to anticipation, the Federal Circuit rejected the patent owner’s argument that the prior art at issue did not disclose all of the claimed features arranged as in the claim. While acknowledging that the claimed method was not specifically disclosed as an embodiment in the prior art reference, the Court nonetheless affirmed the PTAB’s finding of anticipation because the claimed embodiment “could be envisaged clearly by one of ordinary skill in the art upon reading” the prior art reference.

Patent Owner’s Licensing Program Was Fatal to Its Patent Infringement Theory

Addressing whether an accused defendant infringed patents through the distribution of its software, the U.S. Court of Appeals for the Federal Circuit upheld the district court’s summary judgment that the defendant did not indirectly infringe the asserted standard essential patents (SEPs) because there was insufficient proof of direct infringement by end users. JVC Kenwood Corporation v. Nero, Inc., Case No. 14-1011 (Fed. Cir., Aug. 17, 2015) (Newman, J.)

JVC argued in the district court that “Nero’s software-implemented systems and methods, in conjunction with DVD and Blu-ray optical discs directly infringe” six of JVC’s patents. According to JVC, its patents are essential to comply with the DVD and Blu-ray standards, which are used in Nero’s software and “since Nero’s software customers are direct infringers, Nero is liable for induced or contributory infringement.” The district court, noting the extensive licensing of the asserted SEPs disagreed with JVC’s theory of indirect infringement based on the assumption of direct infringement by users and granted summary judgment for Nero. The district court explained that as a consequence of the widely licensed SEPs, “use of Nero software with DVD and Blu-ray optical discs licensed under” JVC’s patents is a complete, affirmative defense of patent exhaustion and so JVC could not prove direct infringement by end users. JVC appealed.

The Federal Circuit affirmed, explaining that “direct infringement of the patented systems, methods, and apparatuses, as ‘generally alleged’ by JVC, is negated by the ‘extensive licensing program, both as part of the DVD6C and One Blue patent pools as well as through JVC’s individual licensing program,’” and noted that “licensees cannot be infringers.” Furthermore, the Federal Circuit found that “JVC cited no ‘specific allegations and evidence’ of unlicensed discs and the district court correctly rejected JVC’s argument that it was not its burden to make such a showing.” According to the Federal Circuit, “JVC cannot have it both ways—either the Patent is essential and licensed or JVC cannot rely on the standards to show infringement as it has chosen to do.” Based on JVC’s theory of the case, the Federal Circuit concluded that “summary judgment of non-infringement was properly granted.”

With regard to the district court’s alternate theory based on patent exhaustion, the Federal Circuit found that “the record of this case does not clearly establish the conditions for patent exhaustion” because “it is silent as to some essential aspects.” According to the Federal Circuit, “[e]xhaustion is triggered only by a sale authorized by the patent holder,” and “whereby if the thing that is sold ‘substantially embodies’ patented subject matter owned by the entity that authorized the sale.” The district court found that “since the optical discs comply with the standards, and their use complies with the standards” to which JVC alleges its asserted patents are essential, the asserted patents are exhausted. JVC argued that exhaustion doctrine did not apply because “users of the Nero software could have been using unlicensed discs,” or alternatively, Nero’s software, not the disc sellers, infringes the patents. Because of “contradictory arguments, and undeveloped facts,” the Federal vacated the district court’s ruling with respect to this alternate theory of patent exhaustion.

Standing Requires the Transfer of All Substantial Rights, Regardless of Whether a Patent Is Expired *Web Only*

Addressing whether an exclusive licensee of an expired patent had standing to sue for patent infringement, the U.S. Court of Appeals for the Federal Circuit confirmed that a licensee has standing when it holds all substantial rights to a patent, regardless of whether that patent is expired. Keranos, LLC v. Silicon Storage Tech., Inc., Case Nos. 14-1360, -1500 (Fed. Cir., Aug. 13, 2015) (Chen, J.).

Keranos became the exclusive licensee of the asserted patents through an “Exclusive Patent License and Royalty Agreement” with United Module Corporation (UMC). Notably, the patents had expired prior to the license agreement and prior to Keranos’ filing of its complaints against 49 parties.

The defendants moved to dismiss the actions for lack of standing. In general, a licensee has standing to sue for patent infringement when it holds “all substantial rights” to the patent. If a licensee does not have all substantial rights, then it must join the patent owner to satisfy the standing requirement. The district court determined that the exclusive license agreement had transferred all substantial rights in the patents to Keranos, so Keranos did not need to join UMC for standing purposes. The defendants appealed.

The Federal Circuit concluded that Keranos had obtained all substantial rights to the patent. Specifically, the license agreement transferred to Keranos the exclusive past, present and future rights to sue for making, using, importing and selling products covered by the patents. The license agreement also transferred to Keranos the exclusive right to grant sublicenses. UMC did not retain the right to sue; and the agreement contained a catch-all grant of “any and all other substantial rights . . . necessary and sufficient . . . to confer standing.”

The Court also rejected the defendants’ argument that, because the patents had expired, transferring all substantial rights was insufficient to confer standing. Specifically, defendants argued that standing for expired patents should require legal title to the expired patents because substantial rights do not exist after a patent expires. The Federal Circuit disagreed, declining to create separate standing rules for expired and unexpired patents. As the Federal Circuit explained, standing requires that a party hold all substantial rights to a patent, regardless of whether the transfer of rights occurred on the day before a patent expired or a day later. A holder of patent rights has standing to sue for patent infringement when it holds all substantial rights to the patent. It does not also need legal title.

Google’s Strategic Purchase of Rights and Counterclaim Do Not Survive Delaware’s Statute of Limitations *Web Only*

Addressing the requirements for tolling the statute of limitations (SOL), the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s grant of judgment as a matter of law (JMOL), finding that the district court properly refused to toll the statute of limitations. Personalized User Model, LLP v. Google, Inc., Case No. 14-1841 (Fed. Cir., Aug. 18, 2015) (Lourie, J.).

In the mid-1990s, Yochai Konig signed an employment contract with SRI International (SRI) and agreed to disclose and transfer ownership rights to all inventions and software conceived or made by him during the course of his employment. In 1999, while still an SRI employee, Konig began independently creating new software, which led to the formation of his own company. Before leaving SRI, Konig incorporated the company in Delaware. Konig was later issued two patents which were ultimately assigned from Konig’s company to Personalized User Model (PUM).

In July 2009, PUM filed a patent infringement claim against Google. In response to PUM’s evidence showing that the invention was conceived in July 1999, while Konig was still at SRI, Google purchased SRI’s rights to the patents and brought a breach of contract counterclaim against PUM and Konig. PUM and Konig responded that the counterclaim was time-barred by the three-year SOL.

The jury determined that Google did not infringe PUM’s patents, that the three-year SOL for Google’s contract claim was tolled and that Konig breached his employment contract. PUM and Konig moved for JMOL on the breach of contract claim and the district court granted the motion, concluding that no reasonable juror could find that SRI was blamelessly ignorant to the injury or that the injury was inherently unknowable. The court also rejected Google’s argument that section 8117 of Title 10 of the Delaware Code (the “tolling statute”) was applicable in this case. The JMOL rendered the counterclaim time-barred. Google appealed.

The Court affirmed the district court’s holding that Google failed to prove that the injury was “inherently unknowable” or that SRI was “blamelessly ignorant” to Konig’s alleged breach of contract. The Court considered that SRI knew Konig was leaving the company to work at a start-up company, and his departure should have generated an inquiry into whether Konig had conceived an invention during his employment. In all, the record was deficient of any evidence that SRI did anything to protect its interest.

The Court also agreed that Delaware’s tolling statute was inapplicable, as there was no tie to Delaware at the time the cause of action accrued. The purpose of the Delaware tolling statute is to toll the SOL as to defendants who, at the time the cause of action accrues, are outside the state and not subject to service of process. By contrast, applying the tolling statute in any action in which the defendant is a non-resident would result in the demise of the defense of statutes of limitation. Google’s incorporation in Delaware did not provide sufficient ties to Delaware because the cause of action accrued in California with a California claimant and a California defendant, and was based on an employment agreement executed by California residents in California.

Special Circumstances Justify USPTO Release of Confidential Information About Pending Patent Applications

The U.S. Patent and Trademark Office (USPTO) can release confidential information about pending patent applications under special circumstances the U.S. Court of Appeals for the Federal Circuit decided. Hyatt v. Lee, Case No. 14-1596 (Fed. Cir., Aug. 20, 2015) (Moore, J.).

Gilbert Hyatt is a named inventor on nearly 400 pending patent applications filed before June 9, 1995. Hyatt’s pending applications have extremely large claim sets, averaging 119 independent claims and 299 total claims. It is estimated that Hyatt currently has about 45,000 independent claims and 115,000 total claims pending, all of which spring from 12 distinct invention disclosures.

In August 2013, the USPTO began to issue to Hyatt formal Office Actions, termed “Requirements.” Each Requirement required Hyatt to select a number of claims for prosecution, not to exceed 600 from a given patent family, absent a showing that more claims are necessary; identify the earliest applicable priority date and supporting disclosure for each selected claim; and present a copy of the selected claims to the USPTO. The Requirement is entered into the prosecution history of each application and includes information about related applications, including prosecution history and the full text of claims in related applications. In the ordinary course of business, applications having a filing date prior to November 9, 2000 are confidential until they issue. Once issued however, the entire prosecution history is open to the public. Thus, once an application with a Requirement is issued, confidential information about related pending applications included in the Requirement will also be available to the public.

Hyatt petitioned the USPTO to expunge confidential information in the prosecution history. 35 U.S.C. § 122(a) requires the USPTO to keep applications confidential unless “necessary to carry out provisions of an act of Congress or in such special circumstances as may be determined by the Director.” The director denied Hyatt’s petitions, deciding that circumstances surrounding these applications, including the number of related applications, the number of claims and the number of applications to which priority is claimed qualified as special circumstances.

Hyatt appealed to the district court under the Administrative Procedure Act (APA) and the district court granted the USPTO summary judgment, dismissing Hyatt’s complaint had observing that there was no judicially mandated standard of review and alternatively that § 122 did not prohibit the disclosure of confidential information in the Requirements because they were necessary for the examination of these applications and the extraordinary nature of Hyatt’s applications constituted special circumstances. Hyatt appealed.

On appeal, the Federal Circuit determined that the exceptions to confidentiality as provided for in § 122 were narrow and reviewable. The Federal Circuit explained that in order to avoid the secrecy requirements of § 122, the USPTO must not only determine that special circumstances exist, but also that the special circumstances justify the specific content to be disclosed. In this instance, noting the large number of claims that Hyatt had pending, which would have a term of 17 years from date of issue, and that the complex and overlapping priority relationships between the applications, the Court determined that the circumstances were not just special, but unique. Further, the Court found that the director did not abuse her discretion in Hyatt’s cases, and that the determination of special circumstances was narrow and not likely to affect other cases. Moreover, because of the extraordinary number and duplicative nature of the various applications, the Court found the rules justify the Requirements. 37 C.F.R. § 1.75(b) provides that, in a patent application “[m]ore than one claim may be presented provided they differ substantially from each other and not unduly multiplied.” Thus, the Requirements were necessary to ensure that Hyatt’s applications were in compliance with the rule.

Practice Note: The impact of this holding is very limited, as the number applicants prosecuting pending patent applications having a 17-year term from issue is dwindling, and no other applicants have been nearly as prodigious as Mr. Hyatt in filing claims that will have a term of 17 years upon issue.

Enablement: Multiple Measurement Methods Can Lead to the Same Result *Web Only*

Addressing the issues of indefiniteness and non-infringement for both utility and design patents, the U.S. Court of Appeals for the Federal Circuit reversed and vacated in part the district court’s grant of summary judgment in favor of defendants, finding factual issues that remain to be resolved. Ethicon Endo-Surgery, Inc. v. Covidien, Inc. Case No. 14-1370 (Fed. Cir., Aug. 7, 2015) (Chen, J.).

The patents-in-suit are directed to ultrasonic surgical devices. The defendants successfully moved for summary judgment of invalidity and/or non-infringement of the asserted claims following Markman proceedings and close of discovery. The plaintiffs appealed.

On appeal, the Federal Circuit reversed the district court’s finding that certain asserted claims of one patent was indefinite under 35 U.S.C. 112 ¶ 2. The asserted claims included limitations regarding a clamping pressure “that does not exceed” a certain amount or falls within a specific range. The question was how one measured the average clamping pressure. The district court focused on the plaintiff’s own product, noting that the plaintiff tested its product four different ways, which could lead to four different results. The Federal Circuit explained that the district court based its conclusions on mischaracterized testimony, and as a result, arrived at several clearly erroneous factual conclusions. Specifically, the district court ignored testimony that each of the four methods was designed to provide the same clamping force measurement and that any differences were simply due to natural variances in real-world testing conditions.

The district court also noted that the measurements could vary based on the position of the clamps, which it cited as additional evidence that the claims were indefinite. The Federal Circuit again disagreed, finding that the district court ignored testimony providing context for the differing force measurements at the proximal and distal ends of the clamping arm. As the Court explained, “the specification clearly discloses that the claimed clamping/coaptation pressures are average pressures on tissue disposed between the tissue pad and blade, and are measured when the clamping arm and blade are in a closed position. This disclosure is sufficient to inform skilled artisans as to where these average pressures should be measured.”

The Federal Circuit likewise vacated the district court’s finding of non-infringement for certain asserted claims of another patent. Although the Court affirmed the district court’s claim construction, it nevertheless found that the district court improperly resolved genuine disputes of material fact in favor of the moving party. According to the Court, summary judgment was not proper because there were disputed issues of material fact.

Concerning the design patents, the Federal Circuit reversed the district court’s grant of invalidity based on functionality but affirmed the grant of summary judgment of non-infringement. Here, the Court explained that the district court improperly discounted alternative designs that were still functional. Because alternatives existed, the design is more likely to serve a primarily ornamental purpose. The Federal Circuit affirmed, however, the district court’s grant of summary judgment of non-infringement of the accused design because the claimed and accused designs were plainly dissimilar to the ordinary observer.

Progressive Obtains No Insurance at Federal Circuit *Web Only*

In a non-precedential decision, the U.S. Court of Appeals for the Federal Circuit affirmed several formal written decisions of the Patent Trial and Appeal Board (PTAB or Board) invalidating the appellant’s patents, while also providing important America Invents Act (AIA) tips. Progressive Casualty Insurance Co. v. Liberty Mutual Insurance Co., Case Nos. 14-1466; -1538; -1549; -1586; -1636; -1637; -1639; -1656 (Fed. Cir., Aug. 24, 2015) (Taranto, J.).

The appellee had initiated seven overlapping proceedings against the appellant in the Patent and Trademark Office (PTO), challenging claims of insurance-related covered business method (CBM) patents. The challenged claims arose from five separate patents related to the online pricing of automobile insurance based on vehicle use and the adjustment of insurance policies.

As an initial matter, the appellant argued that, under 35 U.S.C. § 325(e)(1), the Board was estopped from instituting one of the subject CBM proceedings. Under § 325(e)(1), a petitioner in a post-grant review that results in a final written decision may not then request or maintain a proceeding on any ground that the petitioner raised or could have raised during that prior post-grant review. Here, the appellant argued that because the Board posted one of its CBM decisions to its electronic docketing system an hour after posting a related CBM decision, the second Board decision was barred.

In rejecting the appellant’s argument, the Federal Circuit highlighted two shortcomings. First, § 325(e)(1), by its terms, only limits certain actions by a petitioner. It does not prohibit the Board from reaching decisions. Second, the statute does not indicate precisely when a final decision has an estoppel effect. In the present case, the Board specifically stated that the two CBM decisions were being issued “concurrently.” As such, the Federal Circuit found that the precise posting times in the electronic docketing system did not warrant reversal.

The appellant also challenged the Board’s conclusion that all claims of one of its patents were anticipated by at least one piece of prior art. The appellant had previously argued to the Board that its patent was entitled to the benefit of an earlier priority date stemming from its immediate parent application. The Board rejected this argument, finding that a term found in all claims of the patent lacked written-description support in the parent application.

Noting that the adequacy of a written description is a question of fact, the Federal Circuit found “substantial evidence” supporting the Board’s determination. Significantly, the Federal Circuit pointed to the Board’s finding that while the parent application disclosed a broad genus, the application did not contain specific examples of the later claimed species: “the [appellant’s] disclosure of a component [genus] does not, without more, imply disclosure of the particular types of [species] required” by the patent’s claims. The result of the ruling was that the patent was not entitled to the earlier claimed priority date and the intervening prior art invalidated the claims. The Federal Circuit therefore affirmed the Board’s decisions.

Petitioner Wins Uncontested Alice Fight

In a decision to institute post-grant review, the Patent Trial and Appeal Board (PTAB or Board) clarified the importance of corroboration to establish the credibility of testimony relating to prior public use in a post grant review (PGR) proceeding. Netsirv v. Boxbee, Inc., Case PGR2015-00009 (PTAB, Aug. 4, 2015) (Saindon, APJ).

At issue was a patent that related generally to the tracking and delivery of storage containers. Unlike conventional storage systems, the challenged patent allowed users to identify individual items stored in one or more relatively small storage containers, and described a computerized method for coordinating the system.

In rendering its decision to institute, the Board first determined that the challenged patent was eligible for PGR. Under 37 C.F.R. § 42.201, a petitioner seeking PGR must not be the patent owner; have filed, or a real party-in-interest of the petitioner have filed, a civil action challenging the patent’s validity; and be estopped from challenging the claims on the grounds identified by the petition.

After the Board determined that the petitioner was eligible to request PGR of the challenged patent, it turned its attention to the subject-matter eligibility of the patent under 35 USC § 101. The petitioner argued that the patent claims were directed to ineligible subject matter, alleging that the claimed process was directed to an abstract idea and did not add elements that limited the abstract idea or amount to significantly more than the abstract idea itself.

The Board performed an Alice analysis, concluding that the challenged claims were more likely than not unpatentable under § 101. Under Alice, the court must first “determine whether the claims at issue are directed to [a] patent-ineligible concept.” If so, the second step in the analysis is to “search for an inventive concept—i.e., an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” (See IP Update, Vol. 17, No. 7.)

Noting that the patent owner had not rebutted the petitioner’s § 101 analysis, the Board first found that the challenged claims were directed to patent-ineligible abstract concepts that claimed subject matter utilizing “a fundamental economic practice long prevalent in our system of commerce” and then proceeded to find that the claims did not recite any meaningful limitation beyond the general abstract idea. Thus, the Board determined that the claims were “directed to routine, conventional, and/or well-known steps.”

The petitioner also argued that the subject matter of several claims was “in public use, offered for sale, or otherwise publicly known since before the effective filing date of the . . . patent.” As evidence, the petitioner submitted witness testimony generally explaining that a tracking system had been in use well before the patent was applied for. However, the Board emphasized that the testimony of a witness alleging prior use “must be corroborated to prove the credibility of the testimony by clear and convincing evidence.” Generally, whether testimony is sufficiently corroborated is analyzed using a “rule of reason” analysis.

The Board found that the petitioner failed to corroborate its witness’s testimony. First, the witness was the president and CEO of one of the petitioner entities, and therefore had an interest in the outcome of the proceeding. Further, the petitioner failed to point to any evidence to corroborate the testimony that the subject matter was in public use, nor did the petitioner offer a reason for its lack of corroborating evidence. As such, the Board found the witness’ testimony to be insufficient to establish prior public use. Thus, the Board limited its institution of post-grant review to the question of whether the subject matter was ineligible under § 101.

PTAB Continues to Evolve Its Covered Business Method Patent Jurisprudence

In two related decisions, the Patent Trial and Appeal Board (PTAB or Board) determined that patents directed to a personal computer interactive lottery/casino type game that allows players to purchase game tickets in the form of data storage media were eligible for covered business method (CBM) review under § 18 of the America Invents Act (AIA) and were more likely than not directed to patent ineligible subject matter under 35 U.S.C. §101. International Internet Technologies, LLC and Red Rock Investments, LLC v. Sweepstakes Patent Company, LLC, CBM2015-00105 (PTAB, July 29, 2015) (Pollock, APJ); CBM 2015-00106 (PTAB, July 29, 2015) (Ward, APJ).

The challenged patents are directed to “administering, operating and playing a game in which a player acquires a chance to win and the outcome of that chance is displayed in an interesting, fun, and exciting fashion.” In the game, a player acquires a gaming piece with a predetermined “destiny” code having data (unrecognizable to the player) indicating whether the player will win or lose the game. The code is entered by the player into a computer processor, and the processor then presents a game of chance (e.g., lottery tickets, a hand of cards, etc.) for interactive play with the user. Although the user inputs game parameters to the computer processor, the processor actually controls the outcome of the game based upon the data concealed in the destiny code.

Since the subject patents are expired, rather than affording the claims their broadest interpretation in light of the specification, as in the case of an unexpired patent, the Board applied a Phillips construction, by giving claim terms their ordinary and customary meaning as would be understood by a person of ordinary skill in the art at the time of the invention.

The Board then proceeded to determine whether the patents were eligible for CBM review. To be eligible for CBM review, the patent must be used in the operation of a “financial product or service” and not qualify for the “technological invention” exception. (See “Covered Business Patents Jurisdiction Continues to Develop,” IP Update, Vol. 18, No. 7.) A challenged patent need have only one claim directed to a covered business method for all of the patent’s claims to be eligible for review. The Board determined that the patents in issue here satisfied the “financial product or service requirement” because, as read in light of the specification, each contained at least one claim applicable to the situation where players would pay to acquire a game piece and receive a monetary payout when the computer displayed a winning ticket. The Board, in reaching its determination, considered the legislative intent and history of the AIA’s definition of a “covered business method patent” and a recent Federal Circuit decision in Versata Dev. Grp. v. SAP Am (IP Update, Vol. 18, No. 8), explaining that covered business method patents may “[cover] a wide range of finance-related activities” and are “not limited to products and services of only the financial industry”

The Board also determined that the asserted patents were not directed to a “technological invention” since the patents recite a generic computer system and processor to implement a well-known game of chance, and according to the specification, address non-technical problems associated with traditional lotteries.

The Board then turned to the question of subject matter eligibility by following the two-step analysis applied by the Supreme Court in Alice (IP Update, Vol. 17, No. 7), namely, whether the patents were drawn to a patent-ineligible concept, such as an abstract idea, and if so, whether the claims recited an “inventive concept” sufficient to ensure that the patent claims amounted to significantly more than the abstract idea. In considering the first step, the Board relied upon historical examples in which lotteries had been used for raising money, to determine that the patents were directed to the abstract concept of using an amusing game to reveal the results of a lottery. Next, the Board determined that the patents likely did not contain an inventive concept, and likened the claimed steps attributed to the processor as analogous to actions performed by a carnival pitchman. The Board therefore preliminarily concluded that the patent claims were more likely than not directed to patent ineligible subject matter under §101 and instituted CBM review.

Practice Note: A CBM patent may only to be challenged under the CBM review program by a party sued for, or threatened with, infringement. Very few of the CBM trials instituted to date have resulted in a finding that all of the challenged claims remained patentable or patent eligible. Thus careful consideration of such a risk should be given by patent owners prior to asserting a patent likely subject to CBM review.

Insurance Form Processing Qualifies As A “Financial Service or Product” for CBM Review

In a series of decisions addressing whether an abstract idea involves “financial product or service” in the context of covered business method (CBM) reviews, the Patent Trial and Appeal Board (PTAB or Board) found all of the challenged patents to be directed to financial products or services. Care N’ Care Insurance Company, Inc. and TriZetto Corporation v. Integrated Claims Systems, LLC, Case CBM2015-00062 (PTAB, July 30, 2015) (Jung, APJ); Care N’ Care Insurance Company, Inc. and TriZetto Corporation v. Integrated Claims Systems, LLC, Case CBM2015-00063 (PTAB, July 30, 2015) (Jung, APJ); Care N’ Care Insurance Company, Inc. and TriZetto Corporation v. Integrated Claims Systems, LLC, Case CBM2015-00064 (PTAB, July 30, 2015) (Jung, APJ).

The petitioner sought CBM reviews for patents directed to an attachment integrated claims system for preparing and processing forms with integrated attachments for digitally processing insurance claims. The parties disputed whether the patents were eligible for CBM review.

The petitioner argued that the claims were directed to insurance data (“an insurance claim form” in one of the challenged patents, and “insurance transaction data” in another of the challenged patents) and cited Board decisions equating insurance with a financial product or service. The patent owner argued that although the claims include the word “insurance,” the claims did not comprise a novel type of insurance policy and were a computer technology solution to a computer network problem rather than an improvement in the issuance, adjudication or payment of insurance.

The Board agreed with the petitioner concluding that the claims were for methods or corresponding apparatus for performing data processing used in the administration or management of insurance claims, and that insurance is a financial product or service. The Board explained that CBM review is not limited to novel financial products or services, but rather may include data processing or other operations used in the practice, administration or management of a financial product or service.

The petitioner further asserted that the claims did not add a technological feature but only recited generic computer hardware, noting that the challenged patents stated that the software needed to implement preferred embodiments could be developed within the framework of commercially available software packages. The Board agreed that reciting the use of known prior art technology to accomplish a process or method, even if that process or method is novel and non-obvious, typically does not render a patent a technological invention. Thus, the Board concluded that the challenged patents were subject to CBM review.

Standing Conferred Only to a Privy of the Petitioner

Addressing the issue of standing, the Patent Trial and Appeal Board (PTAB or Board) denied institution of a covered business method (CBM) patent review, finding that the petitioner failed to provide sufficient proof demonstrating it had standing to file its petition. Acxiom Corporation v. Phoenix Licensing, LLC, Case No. CBM2015-00068 (PTAB, Aug. 11, 2015) (Grossman, APJ).

Four entities—Acxiom Corporation, AT&T Mobility LLC, AT&T Services, Inc., and Ford Motor Company—filed a petition for CBM patent review, challenging all claims of Phoenix Licensing’s patent relating to the use of client information to automatically select products appropriate for the client. Acxiom became the sole remaining petitioner after the Board granted termination of the proceeding with respect to AT&T Mobility, AT&T Services and Ford Motor.

Analyzing 37 CFR § 42.302, the Board found that the remaining petitioner failed to present sufficient proof that it was either sued for infringement or charged with infringement at the time it filed its petition. (See IP Update, Vol. 18, No. 3 report on CBM 2014-00166.) The Board concluded it had found no persuasive evidence, or even allegations, indicating that the petitioner had been sued or was a real-party-in-interest or in privy with the entities sued by the patent owner. The Board concluded that there was not sufficient proof that either Ford Motor or AT&T Mobility, the parties sued for infringement, were real parties-in-interest or privies of the remaining petitioner.

The Board explained that the party sued for infringement must either be the petitioner or privy of the petitioner, not the converse; dismissing the petitioner’s argument that it was a privy of one or more parties who had been sued for infringement. The Board explained that a party having been sued for infringement does not confer standing on every customer of that party, finding that the word “privy,” in the context of § 18 of the America Invents Act (AIA), “effectively means customers of the petitioner.” The Board thus denied institution of the CBM patent review.

PTAB Clarifies Requirements for Claim Amendments

In an order perhaps indicating that the tide is turning for patent owners seeking to amend claims in inter partes review (IPR), an expanded panel of the Patent Trial and Appeal Board (PTAB or Board) provided clarification as to what is required of patent owners when seeking to amend claims. This order reinforces at least one recent decision by the Board and also statements by the director to the effect that the Patent and Trademark Office (PTO) will be relaxing the practical requirements for amending claims in IPR proceedings. MasterImage 3D, Inc. and MasterImage 3D Asia, LLC v. RealD Inc., Case IPR 2015-00040 (PTAB, July 15, 2015) (Lee, APJ.).

MasterImage 3D and its foreign affiliate filed an IPR petition challenging RealD’s patent directed to a polarization conversion system and method used for projecting images for 3D viewing. Agreeing that the petitioner had met its threshold showing, the Board instituted review of nine of the 20 challenged claims.

Two business days before its Patent Owner Preliminary Response and Motion to Amend were due, RealD requested a conference call with the Board. During the call, the parties and the Board discussed the requirements articulated by the Board in the Idle Free Systems v. Bergstrom, decision on motion to amend (IP Update, Vol. 17, No. 1), a decision previously designated as informative by the Board. Following the call, the expanded panel of the Board issued its order, expressly clarifying some of the language of the informative Idle Free decision.

The Board provided three points of clarification of its statement in Idle Free to in order to demonstrate patentability of proposed substitute claims over the prior art, “[t]he burden is not on the petitioner to show unpatentability, but on the patent owner to show patentable distinction over the prior art of record and also prior art known to the patent owner.” [Emphasis in original] According to the Board, the reference in Idle Free to “prior art of record” should be understood as referring to “any material prior art in the prosecution history of the patent,” “any material art of record in the current proceeding, including art asserted in grounds on which the Board did not institute review” and “any material art of record in any other proceeding before the Office involving the patent.”

The Board further explained that “prior art known to the patent owner” in the context of Idle Free should be understood as “no more than the material prior art that Patent Owner makes of record in the current proceeding pursuant to its duty of candor and good faith to the Office under 37 C.F.R. § 42.11.” Since claim amendments made during an IPR can only narrow the scope of challenged claims, the Board also reasoned that when considering its duty of candor and good faith in connection with a proposed amendment, “Patent Owner should place initial emphasis on each added limitation.”

Practice Note: The order in this case echoes the recent final decision in REG Synthetic Fuels LLC v. Neste Oil Oyj (IP Update, Vol. 18, No. 7) and, like that case, indicates a response by the Board to criticism by patent owners about the severe requirements imposed in early proceeding to successfully amend claims during IPRs. The Board’s stance here is more permissive than was the case in the final written decision in Idle Free, where the patent owner’s Motion to Amend was rejected for not meeting the “burden of proof in demonstrating patentability of the proposed substitute claims over the prior art in general.” With this new clarification, the Board seems to have reframed the burden placed on patent owners seeking to amend claims—a not-insubstantial change.

Patentee’s Admission that Certain Technology Is Prior Art, Without More, Is Not a Ground of Unpatentability in IPR Petition

Addressing the statutory requirements for prior art in an inter partes review (IPR) petition, the Patent Trial and Appeal Board (PTAB or Board) dismissed the IPR petition, finding that written admissions in the challenged patent, without more, were not a proper ground of unpatentability. Kingbright Elecs. Co. v. Cree, Inc., IPR2015-00746 (PTAB, Aug. 20, 2015) (Turner, APJ.).

The petitioner’s IPR validity challenge was based on statements made in the patent itself as applicant-admitted prior art. In response, the patent owner argued that this ground was not based on prior art patents or printed publications, and therefore the petition failed to comply with the applicable statutory requirements. Specifically, under 35 U.S.C. § 311(b), “[a] petitioner in an inter partes review may request to cancel as unpatentable 1 or more claims of a patent only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications.” Further, under 37 C.F.R. § 42.104(b)(4), the petition “must specify where each element of the claim is found in the prior art patents or printed publications relied upon.”

In denying the petition, the PTAB explained that, without more, a statement in the specification that certain technology is prior art was not a valid ground of unpatentability. According to the PTAB, “Petitioner does not identify any specific portions of the patent documents mentioned in the cited section of the […] Patent as a basis for any asserted grounds of unpatentability, as noted by Patent Owner. [. . .] As such, Petitioner has not shown that [the applicant admitted prior art] is, or otherwise evidences, a prior art patent or printed publication.”

The PTAB also rejected the petitioner’s reliance upon declarations of experts and inventors submitted on behalf of the patentee in other proceedings, which asserted that certain technology was publicly known at the time of the patent filing. The petitioner admitted that the declarations themselves were not prior art, but in some instances cited to portions of the prior art. For example, one of the declarations cited to a published journal article. The PTAB found that the declaration did “not describe any specific statements in the journal article” and, as such, was not a “prior art patent or printed publication.” Another declaration referenced a Japanese patent, but there the PTAB found that the “cited patent is used only to support the testimony of the declarant and is not applied against the challenged claims with sufficient specificity.”

Practice Note: Where a patentee has admitted that a patent or printed publication is prior art or that certain subject matter is within the prior art, do not simply rely upon the admission. The IPR petition should set forth in detail where each element of the challenged claims can be found in a prior art patent or printed publication.

Grrrr . . . Paw Print Trademarks Can Co-Exist

On appeal from the Trademark Trial and Appeal Board (TTAB or Board), the U.S. Court of Appeals for the Federal Circuit reversed the Board’s decision on the issue of likelihood of confusion with regard to two parties’ paw print trademarks explaining that the Board did not properly compare the parties’ marks as a whole and failed to give proper weight to “significant evidence” of paw prints appearing in third-party trademark registrations in connection with clothing. However, the court affirmed the Board’s dismissal of a cancellation claim. Jack Wolfskin Ausrüstung für Draussen GmbH & Company KGAA v. New Millennium Sports, S.L.U., Case No. 14-1789 (Fed. Cir, Aug. 19, 2015) (Chen, J.).

Outdoor apparel and clothing company, Jack Wolfskin, filed an application to register a “nonhuman paw print” design for use in connection with clothing goods and products for the outdoors. New Millennium Sports filed a Notice of Opposition at the TTAB opposing the registration of Jack Wolfskin’s trademark application alleging a likelihood of confusion with New Millennium’s prior trademark registration for its design mark comprising the stylized word “KELME” adjacent a paw print. In response, Jack Wolfskin filed a counterclaim for cancellation of New Millennium’s registration, claiming that the company had abandoned use of the KELME & Paw Print Design mark.

The TTAB rejected the trademark cancellation counterclaim, finding that New Millennium did not abandon its trademark registration, and sustained the opposition on the grounds that Jack Wolfskin’s paw print trademark was likely to cause consumer confusion with New Millennium’s prior registration. Jack Wolfskin appealed.

Abandonment

On appeal, Jack Wolfson argued that New Millennium ceased using the registered version of its KELME & Paw Print Design trademark because the company was using a modified or modernized version of the trademark that was arguably different from the mark as depicted in the company’s 1994 registration. The evidence before the Board suggested that the KELME & Paw Print Design trademark was used by New Millennium exactly as it appeared on its certificate of registration between the years 1994 to 2004, after which the design mark was changed slightly. In dismissing the cancellation counterclaim, the Board relied on the concept of “tacking,” which provides a trademark owner the ability to rely on an earlier form of a mark when later using a modified version, so long as the modified version creates the same, continuous commercial impression as the registered mark.

The Federal Circuit agreed with the TTAB finding that any changes to the word element of the mark were “minor stylistic alterations.” As for the paw print portion of the trademark, the court reaffirmed the Board’s conclusion that the design could not be interpreted as anything other than a paw and determined that the modernized version of the full trademark created the same, continuous commercial impression.

Likelihood of Confusion

On the issue of likelihood of confusion, the Board considered seven relevant DuPont likelihood of confusion factors and concluded that the Jack Wolfskin paw print design mark “so closely resembles opposer’s registered mark as to be likely to cause confusion . . . as to the source of applicant’s goods.” On appeal, Jack Wolfskin argued that the Board’s conclusion was erroneous due to a lack of substantial evidence supporting two DuPont factors, namely, the similarity of the marks and the number and nature of similar marks in use in commerce.

The Federal Circuit agreed, noting that the similarity or dissimilarity of the marks should be compared in their entireties, and that it is improper to dissect a mark when it contains both text and design elements. The court also stated that the “verbal portion of the mark is the one most likely to indicate the origin of the goods to which it is affixed.” In this regard, the court determined that the Board failed to account for the literal element of the KELME & Paw Print Design trademark and found no evidence to indicate that consumers recognize the paw print alone as being associated with New Millennium.

The Federal Circuit next looked at evidence demonstrating that numerous paw print design trademarks have been registered with the U.S. Patent and Trademark Office in connection with clothing goods. The Board gave this evidence little weight because there was no proof that such third-party marks were actually in use in commerce and because a large portion of the marks were used in connection with school athletic teams and pet-related goods. However, the Court found that the Board erred in its review of the evidence, and instead stated that the evidence of the third-party paw print trademarks demonstrates the degree to which such marks are used in “ordinary parlance.” Because of the ubiquitous use of paw print trademarks in connection with clothing goods, the Court found that consumers are conditioned to look for differences in such “weak” marks, as well as additional indicia of origin, such as the dominant KELME portion of New Millennium’s trademark. The Federal Circuit concluded that the Board’s likelihood of confusion analysis was not supported by substantial evidence and reversed and remanded for further consideration.

Practice Note: While a USPTO examining attorney or the TTAB may not always consider the existence of third-party trademark registrations to be persuasive in order to overcome a “likelihood of confusion” refusal, this case is an important reminder that such evidence can be highly effective when the marks at issue may be considered “weak” or relatively commonplace on the USPTO register and in commerce.

Thirty Years’ Use of Mark Is Not Enough to Prove Acquired Distinctiveness if Evidence Is Insufficient

Addressing the issue of distinctiveness, the Federal Circuit affirmed the Trademark Trial and Appeal Board’s (TTAB) decision to deny registration of a plaintiff’s mark due to the dearth of evidence supporting the plaintiff’s claims that its mark had acquired distinctiveness. In re Louisiana Fish Fry Products, Ltd., Appeal No. 13-1619 (Fed. Cir., August 14, 2015) (Reyna, J.) (Newman, J., concurring).

Plaintiff Louisiana Fish Fry Products, Ltd. (LFFP) filed a trademark application for the mark “LOUISIANA FISH FRY PRODUCTS BRING THE TASTE OF LOUISIANA HOME!” The examining attorney rejected the application, finding that the plaintiffs’ mark was generic and required a disclaimer with respect to the words “FISH FRY PRODUCTS.” In response, LFFP argued that a disclaimer was not required because its proposed mark was not generic and had acquired distinctiveness. As evidence, LFFP cited several of its other registrations containing the words “LOUISIANA FISH FRY PRODUCTS” and sales/advertising data for products bearing the mark “LOUISIANA FISH FRY PRODUCTS.” LFFP also provided declarations from its president, asserting that it had sold products for over 30 years under the mark LOUISIANA FISH FRY PRODUCTS. However, none of evidence demonstrated use of the words “FISH FRY PRODUCTS” alone. In fact, LFFP disclaimed FISH FRY PRODUCTS in several (but not all) of its prior registrations.

On appeal, the TTAB affirmed that the phrase “FISH FRY PRODUCTS” was generic, explaining that the genus of the goods-at-issue is “sauces, marinades and spices,” and it was shown by clear evidence that the relevant public understands FISH FRY PRODUCTS to refer to “a type of sauce, marinade or spice used for fish fries.” In other words, even when combined, “fish fry” and “products” retain their generic meanings. The TTAB also affirmed the examining attorney’s determination that LFFP did not meet its burden in proving acquired distinctiveness, as its evidence failed to show that, in the mind of the public, the primary significance of FISH FRY PRODUCTS was to identify the source of the product, rather than the product itself, using its discretion not to accept LFFP’s statement of acquired distinctiveness based on prior use.

Upon a de novo review, the Federal Circuit majority declined to address the genericness issue, holding that substantial evidence supported the TTAB’s decision and that LFFP failed to meet its burden of showing that FISH FRY PRODUCTS had acquired distinctiveness. Here, the Federal Circuit cited the same evidentiary failures as the TTAB, namely, that 30 years’ use of LOUISIANA FISH FRY PRODUCTS and multiple registrations that included the same phrase did not show that the phrase “FISH FRY PRODUCTS” alone had acquired distinctiveness. The Federal Circuit also found that the TTAB was within its discretion to reject the plaintiff’s evidence showing years of prior use.

In concurrence, Judge Newman agreed that the registration was properly denied, but for the reason that the mark is “the generic and common descriptive name” for the products. Since “[g]eneric terms cannot be rescued by proof of distinctiveness” and are “by definition incapable of indicating source,” and a disclaimer of FISH FRY PRODUCTS was properly required. Judge Newman also argued that the TTAB met its burden by clear evidence to show that FISH FRY PRODUCTS is understood by the relevant public to refer to a genus of goods (i.e., that either separately or combined, FISH FRY and PRODUCTS retain their generic meanings).

An Evaluation of Secondary Meaning Can Consider Both Parties’ Use of the Mark *Web Only*

Addressing when a descriptive mark acquires a secondary meaning, the U.S. Court of Appeals for the Fifth Circuit affirmed the district court, determining that neither party is entitled to a federal registration of the disputed mark. Test Masters Educ. Servs., Inc. v. Robin Singh Educ. Servs., Inc., Case No. 13-20250 (5th Cir., Aug. 21, 2015) (Southwick, C.J.).

The case involves a dispute between two competing test-preparation companies that use the same “TESTMASTERS” mark. The parties primarily use the mark for different types of tests in different geographic areas. When Test Masters Educational Services (TES) began, it primarily prepared students for engineering licensing exams in Texas. Robin Singh Educational Services (Singh) primarily prepares students for the LSAT in California. Both TES and Singh, however, had expanded their services and sought nationwide registration of the mark.

The parties have been litigating the issue for more than 10 years, and this is the fourth time they have appealed to the 5th Circuit. Previously, the court determined that neither party was entitled to nationwide registration of the TESTMASTERS mark because the mark was descriptive and had failed to acquire secondary meaning. To be registered as a trademark, a descriptive mark must have acquired secondary meaning through its use, such that it becomes “uniquely associated with a specific source.”

In the current suit, the district court again determined that neither party was entitled to nationwide use of the TESTMASTERS mark. In affirming the district court, the 5th Circuit determined that TES’s mark had not acquired “secondary meaning on a nationwide basis for all test preparation courses.” As support, the court pointed to the evidence for record showing that Singh had more business than TES outside of Texas and that both parties had advertised extensively in their respective subject matter areas (engineering students for TES and LSAT students for Singh). The court also found that TES’s customer survey evidence was unpersuasive because it was primarily from engineering students. According to the court, “[e]ach party’s evidence shows that, in its strongest subject matter area, it is well-known and there may be some consumer confusion.” So, while the TES mark may have acquired a secondary meaning for professional engineering examinations, it has not acquired a secondary meaning for any other, much less all, test preparation services.

The 5th Circuit also disagreed that the district court should not have considered Singh’s use of the mark when determining whether the TES mark had acquired secondary meaning. The secondary-meaning inquiry asks whether consumers associate the mark with one particular company, and it was proper for the district court to consider evidence that customers associated the mark with Singh, as opposed to TES. The court concluded its opinion by warning the parties that further litigation without substantial justification could result in sanctions.

The Complications of Copyrighted Images in the Yellow Pages

Reviewing a spectrum of copyright-related issues following the conclusion of a jury trial, the U.S. Court of the Appeals for the Eleventh Circuit affirmed the district court, concluding that willful copyright infringement under 17 U.S.C. § 504(c)(2) encompasses reckless disregard of the possibility that one’s actions are infringing a copyright and that the independent economic value test should be used to distinguish between individual photos and compilations for purposes of counting “works” subject to statutory damages. Yellow Pages Photos, Inc. v. Ziplocal, LP, Case Nos. 14-13355; -13401 (11th Cir., July 30, 2015) (Coogler, D.J., sitting by designation).

Plaintiff Yellow Pages Photos (YPP) and its principal Trent Moore sued former business partner Ziplocal for breach of contract and copyright infringement. YPP also sued Ziplocal’s subcontractor, Yellow Pages Group (YPG) for copyright infringement. YPP was the owner of an expansive library of stock photographs that were grouped into collections” or “headings” such as “Plumbers, “Roofers,” “Attorneys, or “Landscape.” The photograph collections were marketed and sold to publishers of Yellow Page phone book products because the collections were organized along the same headings as the Yellow Pages. This organization allowed YPP’s customers to efficiently select between many different photos for a given category.

YPP sold the photographs to Ziplocal pursuant to two agreements finalized in March 2004: a Site License Purchase Agreement (SLPA) and an End User License Agreement (EULA). In relevant part, the EULA prohibited transfer of the images sold to Ziplocal without YPP’s consent. In 2010, however, Ziplocal outsourced the assembly and pagination of its phonebook products to YPG. As part of the subcontracting arrangement, Ziplocal sent YPG the YPP photos without consent from YPP. YPG, although not a party to the earlier agreements between YPP and Ziplocal, promised in its outsourcing agreement not to infringe any third-party intellectual property rights.

Against Ziplocal, the jury awarded one dollar in actual damages and zero dollars in statutory damages. Against YPG, the jury awarded zero dollars in actual damages and $123,000 in statutory damages. Because the jury found that Ziplocal contributed to YPG’s infringement, it awarded YPP $100,000 against Ziplocal for contributory infringement. YPG appealed, challenging an array of legal and evidentiary rulings. YPP cross-appealed and sought a new trial on damages.

The 11th Circuit carefully analyzed YPG’s arguments that it was entitled to judgment as a matter of law (JMOL) that it was permitted to use YPP’s photo collections under the SLPA. However, because the panel agreed that there was sufficient evidence for the jury to conclude that the SLPA and the EULA should be understood together, YPG’s arguments were rejected. Properly construed, the EULA did not permit distribution of the images from Ziplocal to YPG without authorization of the copyright owner.

Having established liability, the 11th Circuit then considered whether the infringement was willful under § 504, thereby entitling YPP to enhanced statutory damages. The 11th Circuit characterized willful copyright infringement as a defendant as proceeding to infringe having knowledge that its actions constituted an infringement. Yet, based on the facts of this case, including the absence of any due diligence to determine who owned the photos, the 11th Circuit expanded the meaning of willfulness to include a defendant who “recklessly disregarded the possibility that it was infringing a copyright.” In so holding, the 11th Circuit’s position on reckless disregard of the copyright holder’s rights (rather than actual knowledge of infringement) now aligns with the Second, Fifth, Seventh and Eighth Circuits.

The 11th Circuit also considered whether the 178 collections of photos organized by heading name were—for purposes of calculating statutory damages—10,411 individual photo “works” or 178 compilation “works.” Finding the issue to be a mixed question of law and fact, the review proceeded de novo. The court concluded that § 101 of the Copyright Act (defining “compilation”), coupled with the factual record, warranted the conclusion that the infringement pertained to 178 compilations rather than 10,000+ individual photos. Not only did Mr. Moore (YPP’s principal) create, market and distribute his photos as collections organized by subject matter heading, but he also registered his photos with the Copyright Office as collections rather than individual photos. The court further considered YPP’s competing arguments under the independent economic value test and, in particular, whether individual photos had real-world value outside of the collection. Notwithstanding YPP’s contentions, the court determined that precedent compelled the conclusion that the district court was correct to treat each collection of photos as a compilation subject to only one award of statutory damages.

Practice Note: The 11th Circuit recognized that the jury’s award of zero dollars for statutory damages against Ziplocal was inconsistent with the monetary range proscribed in the Copyright Act. However, although it was legally erroneous for the jury to award zero dollars for statutory damages after finding infringement, the award was not disturbed on appeal because counsel agreed during trial—in response to a question submitted by the jury during deliberations—that the jury could award zero dollars in statutory damages to one defendant. By so endorsing that path, YPP had invited the legal error and thereby waived the opportunity to challenge the result on appeal.

Licensing Agent Has Standing to Bring Copyright Infringement Suit

Addressing the issue of whether a photograph licensing agent has standing to bring an infringement suit under the Copyright Act, the U.S. Court of Appeals for the Ninth Circuit reversed a district court decision, concluding the agent’s exclusive right to sublicense photographs to third parties was sufficient to establish standing though the photographers retained the copyright. Minden Pictures, Inc. v. John Wiley & Sons, Inc., Case No. 14-15267 (9th Cir., July 29, 2015) (Fletcher, J).

Minden Pictures is a stock photography company that serves as a licensing agent for dozens of photographers. The photographers entered into “Agency Agreements” with Minden. Under the terms of the agreements, the photographers appointed Minden as the sole and exclusive agent and representative with respect to licensing of the photographs. The photographers retained the right to personally use the photographs as well as the right to some commercial use. In addition, the photographers retained the copyright to the photographs. Minden licenses the copyrighted photographs for use by third parties. John Wiley & Sons is an educational publisher. Wiley acquired a license from Minden to print 20,000 copies of certain photographs for use in textbooks.

In 2012 Minden brought an infringement suit against Wiley alleging Wiley substantially exceeded the scope of the licenses granted by Minden by publishing far more copies of the books than permitted under the licenses. Wiley moved to dismiss the suit for lack of subject-matter jurisdiction (which the court noted should have been styled as a motion for failure to state a claim). Wiley alleged Minden lacked standing to sue because Minden did not have an ownership interest in the copyrighted photographs. The district court agreed with Wiley and it granted Wiley’s motion to dismiss. Minden appealed.

Minden argued on appeal the agreements with the photographers conveyed an ownership interest in the copyright sufficient to provide standing to bring suit; the 9th Circuit agreed.

Under the Copyright Act, the “legal or beneficial owner of an exclusive right” under a copyright is entitled to institute an infringement action even though the licensee does not hold legal title to the work. The Copyright Act enumerates six “exclusive rights” of the copyright owner. Under the divisibility principle, the Copyright Act permits a copyright owner to subdivide the interest in the exclusive copyright rights. Thus, a copyright holder may split the rights between parties. Any party to whom an exclusive right has been transferred has standing to bring an infringement action based on the right transferred. However, a party granted a “non-exclusive” right does not have standing bring an infringement suit.

The 9th Circuit found the “Agency Agreements” transferred the legally cognizable right to reproduce and to authorize the reproduction of the copyrighted photographs to third parties. The divisibility principle that allows division of rights granted under the Copyright Act applies with equal force when the interest granted is an exclusive license to grant licenses to others. As the “sole and exclusive agent” to license any and all uses of the photographs, Minden has the power to reproduce, distribute and display the photographs. The 9th Circuit found that when a licensee has been granted one or more exclusive rights, even though those rights may be shared with the copyright owner, the licensee has standing to sue based on the transferor rights. Thus, both Minden and the photographers may bring an infringement suit to prevent third parties from using the photographs.

Ray Charles Foundation Can Challenge Heirs’ Attempt to Reclaim Copyrights

The U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of a suit brought by the sole beneficiary of the Ray Charles estate, concluding that the Ray Charles Foundation had standing to challenge Charles’s heirs in their attempt to reclaim several copyrights to the late singer’s works because the Foundation’s right to royalties from such works would be affected. Ray Charles Foundation v. Robinson et al., Case No. 13-55421 (9th Cir. July 31, 2015) (Christen, J.).

The Ray Charles Foundation is the sole beneficiary of the Ray Charles estate. The Foundation relies on royalty income from Charles’s copyrights to fulfill its mission. In March 2010, seven of Charles’s children filed notices under §§ 203 and 304(c) of the Copyright Act to terminate grants of copyright Charles authorized during his career. If effected, the termination of such grants would revert, to Charles’s heirs, the copyrights in 51 compositions. In March 2012, the Foundation filed suit challenging the termination notices. The Foundation asserted a federal claim for declaratory and injunctive relief, asking the district court to determine whether the termination notices were valid, and to prevent the defendants from claiming ownership to, or the benefit of, the copyrights at issue. The heirs moved to dismiss the Foundation’s federal claims based on lack of standing. The district court agreed, holding that the Foundation’s right to receive royalties from the compositions did not fall within the zone of interests protected by the copyright termination provisions and the Foundation did not have third party standing to assert rights on behalf of the copyright owner, Warner/Chappell Music. The Foundation appealed.

At the outset, the 9th Circuit acknowledged that the Foundation met the requirements for Article III standing and found the suit to be ripe for adjudication. While the 9th Circuit rejected the Foundation’s argument that it had standing to bring its claims as a beneficial owner of the Charles copyrights, the court determined that the Foundation had standing to bring its claims as a “real party in interest.” The 9th Circuit reasoned that termination of the copyright grants would affect the Foundation’s right to royalties stemming from such grants, depriving the Foundation of the right to receive future royalty income.

The 9th Circuit also found that the Foundation’s causes of action did fall within the zone of interests contemplated by the copyright termination statutes. While the Court acknowledged the heirs’ argument that the interests of a copyright royalty recipient are not expressly addressed in the termination provisions, the Foundation’s alleged injury to its interest in the royalty stream generated by Charles’s works is one that Congress “contemplated, regulated, and protected in enacting the termination provisions,” as it is the same interest the heirs sought to acquire. The 9th Circuit continued that even if the Foundation’s interests aren’t among those Congress contemplated in enacting the termination statutes, the Foundation would still have standing to bring the subject action, as it was entitled to a declaration establishing when its right to receive royalties would revert to Charles’s heirs.

Chicken Sandwich Recipe, Name Not Eligible for Copyright Says First Circuit *Web Only*

Neither a chicken sandwich recipe nor its name is eligible for copyright protection. Colón-Lorenzana v. South American Rest. Corp., Case No. 14-1698 (1st Cir., Aug. 21, 2015) (Howard, C.J.).

The plaintiff, a worker at fast-food restaurant, suggested a concept for a new chicken sandwich, complete with recipe and name. The “Pechu Sandwich,” as he called it, would consist of a fried chicken breast patty, lettuce, tomato, American cheese, and garlic mayonnaise on a bun. Subsequently, the restaurant began selling the sandwich and obtained Puerto Rican and federal registrations for the trademark.

Mr. Colón-Lorenzana, the creator of the Pechu Sandwich, sued the fast-food restaurant, claiming that the restaurant had violated his copyright in the sandwich’s recipe and its name, and committed fraud on the U.S. Patent and Trademark Office in obtaining its trademark registration for the mark “Pechu Sandwich.” After the district court granted the restaurant’s motion to dismiss the federal claims, the plaintiff appealed.

The First Circuit affirmed the dismissal of the copyright claims, finding that neither the recipe nor the trade name fell into any of the eight enumerated categories of works available for copyright protection. The Court also affirmed the dismissal of the fraud claims as insufficiently pled because they contained only conclusory allegations and “courts ‘do not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.’”

Court Fashions Hybrid Approach to Determining Whether Garment Designs Are Copyrightable *Web Only*

Addressing for the first time the question of whether “cheerleading uniforms [are] truly cheerleading uniforms without the stripes, chevrons, zigzags, and color blocks” the U.S. Court of Appeals for the Sixth Circuit answered in the affirmative. The 6th Circuit vacated summary judgment entered in favor of the defendant and held that because the aesthetic designs of a cheerleading uniform are “separable” from the purpose of the uniform, which is to wick away moisture and permit the wearer to jump, kick and flip, Varsity’s designs are copyrightable. Varsity Brands et al. v. Star Athletica, Case No. 14-5237 (6th Cir., Aug. 19, 2015) (Moore, J., joined by Guy, J.) (McKeague, J., dissenting).

Under the Copyright Act, “useful articles” (i.e., articles having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information) is copyrightable “only if, and only to the extent that, such design incorporates . . . graphic . . . features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.” (17 U.S.C. §§ 101, 102.) Varsity sued Star for infringing Varsity’s registered copyrights on its cheerleading uniform designs. The district court (and the dissent) agreed with Star, finding that the aesthetic features of the uniform had merged with the functional purpose of the uniform, which is to identify the wearer as a cheerleader.

On appeal, the 6th Circuit first decided the Copyright Office’s determination that a design is protectable is only entitled to Skidmore—not Chevron—deference and that it is defendant’s burden to overcome the rebuttable presumption of validity.

Next, the 6th Circuit considered various approaches other circuits have formulated to determine whether a graphic incorporated into the design of a useful article can be identified separately from, and is capable of existing independently of, the functional aspects of the article when those graphical features cannot be removed physically from the article. The 6th Circuit fashioned a hybrid approach asking six questions:

• Is the design a pictorial, graphic or sculptural work?
• If the design is a pictorial, graphic, or sculptural work, then is it a design of a useful article? If not, then there is no need to ask about whether the design could be separated from the useful article.
• What are the utilitarian aspects of the useful article?
• Can the viewer of the design identify the graphic features separately from the utilitarian aspects?
• If not, then the design of the useful article is not copyrightable.
• If so, then can the graphic features of the useful article exist independently of the utilitarian aspects? For example, can those graphic features be ripped off the article without rendering the article useless? Can the graphic features be incorporated onto other articles?

Applying this hybrid approach, the 6th Circuit concluded that the uniforms have an “intrinsic utilitarian function” namely to “cover the body, wick away moisture, and withstand the rigors of athletic movements.” The court reasoned that the zigzags and chevrons did not enhance the functionality of the uniform since the wearer can still cheer, jump, kick and flip without those graphics. Moreover, the graphics could exist independently because they could be transferred onto other types of garments.

The dissent argued that the designs are integral to its function: to identify the wearer as a cheerleader and a member of a cheerleading squad. While clothing provides many functions, a uniform, argues the dissent, at its core, identifies the wearer as a member of a group such that separating the design from the useful article defeats the purpose of the garment.

Practice Note: Whether a garment design is copyrightable or not may turn on how the court chooses to define the function of the garment. Copyright owners should consider narrow definitions where the decorative elements of the garment may be characterized as intrinsic to the overall function, rather than separable from it.

Royalty Allocations for Royalty Pools Must Be Well Reasoned and Based on a Record

Addressing the reasonableness of the Copyright Royalty Board’s (Board) decision allocating a pool of royalties among several parties for the retransmission of copyrighted material by cable system operators, the U.S. Court of Appeals for the District of Columbia Circuit reversed the Board’s allocation decision as arbitrary and capricious, instructing the Board to present a well-reasoned allocation based on a reasonable record. Settling Devotional Claimants v. Copyright Royalty Board and Library of Congress, Case No. 13-1276 (D.C. Cir., Aug. 14, 2015) (Millett, J.).

Congress designed a compulsory licensing scheme for cable retransmission, allowing a cable system operator to retransmit to its viewers copyrighted materials initially aired on a broadcast station without obtaining permission of the relevant copyright owners for the second transmission. The cable system operators must deposit a statutorily prescribed royalty fee with the Register of Copyrights and the pool of funds is distributed annually by the Copyright Royalty Judges to copyright owners and their agents who file a claim asserting entitlement to those royalties.

This appeal challenges a determination of the Copyright Royalty Judges for the years 2000 to 2003, with respect to an allocation of royalties within the devotional programming category. Both Settling Devotional Claimants (Devotional Claimants) and Intervenor Independent Producers Group (IPG) filed petitions to participate in the proceedings, arguing entitlement to at least a portion of the royalties. The main issue in this appeal is the Royalty Judges’ ultimate royalty allocation.

The Royalty Judges found that there was at least “some degree” of agreement between the parties with respect to royalties from the year 2000 to the extent that IPG’s proposed allocation percentages fell within the range proposed by the Devotional Claimants and relied on this apparent agreement to reach a determination on royalty allocations. In subsequent years, the Royalty Judges either chose IPG’s proposed allocation solely because it was deemed to be close enough to the lower bound proposed by the Devotional Claimants or simply split the difference of the allocations, without providing any explanation for these decisions.

The D.C. Circuit found that any intersection of the two parties’ numbers in this case was the product of accident, not agreement, as evidenced by the fact that the Devotional Claimants were awarded almost 5 percent less of the total fund than they had requested. The court explained that the Royalty Judges failed to satisfy their obligation to make a reasoned decision supported by the written record before them, but presented a decision lacking even minimal foundation. Thus, the Court found the royalty allocation was arbitrary and capricious, vacated that portion of the determination and remanded the matter back to the Board.

Motion to Quash Service Is Not a Collateral Order and Therefore Not Appealable

The U.S. Court of Appeals for the Seventh Circuit concluded that the district court’s denial of defendant Sinovel’s motion to quash service of process is not an appealable order under the collateral order doctrine. The Court also concluded that the requirements for issuance of a writ of mandamus had not been meet and therefore denied Sinovel’s petition regarding mandamus. United States v. Sinovel Wind Grp. Co., Case Nos. 14-3013, -3105 (7th Cir., July 23, 2015) (Wood, C.J.)

In June of 2013 Sinovel, a Chinese corporation, and three individuals were indicted on charges of conspiracy to commit trade secret theft and criminal copyright infringement arising from Sinovel’s alleged scheme to steal computer source code from a company called AMSC. A summons was served on Sinovel USA’s registered agent and was also mailed to its office in Houston and served on its agent in Austin.

Sinovel filed a motion with the district court to quash service of the summonses, complaint and indictment, arguing that service of process on Sinovel USA and its registered agents was not equivalent to service on Sinovel itself. The district court found that Sinovel USA was the alter ego of Sinovel (the Chinese corporation) and that service on Sinovel USA was therefore sufficient for service upon Sinovel. The district court thus denied the motion to quash. Sinovel filed objections and a motion for reconsideration. The district court rejected the objections and denied the motion, concluding that Sinovel USA was not independent of Sinovel and that Delaware law governed the question whether Sinovel USA was Sinovel’s alter ego for service of process purposes. The district court further concluded that under Delaware law, alter ego status of Sinovel USA had been proven. Sinovel appealed the decision and also filed a petition for a writ of mandamus to the 7th Circuit.

The 7th Circuit concluded that it had no jurisdiction to hear Sinovel’s appeal. The 7th Circuit explained that the district court’s decision, denying Sinovel’s motion to quash service of process in action for criminal copyright infringement and theft of trade secrets, is not “collateral order” immediately appealable because it would impermissibly expand the “small class” of appealable collateral orders that are too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated. The 7th Circuit also concluded that the case did not meet the high standards for issuance of a writ of mandamus. The 7th Circuit explained that “defendant’s contentions that requiring it to stand trial will imperil foreign relations of United States, harm comity between United States and China, and interfere with ongoing civil litigation in Chinese courts does not compel finding that denial of motion to quash is reviewable under collateral-order doctrine.”