IP Update, Vol. 15, No. 9, October 2012
In This Issue:
Patents
A Licensee Can Sometimes Bear the Burden of Proof on Non-Infringement
No Permanent Injunction if Plaintiff and Defendant Did Not Directly Compete; Ongoing Royalty to Be Applied Instead
Obviousness-Type Double Patenting Requires a Reason to Modify with a Reasonable Expectation of Success
Knowledge of a Reference’s Materiality Does Not Prove a Deliberate Decision of Non-Disclosure
Federal Circuit Side-Steps Issue of Whether False Affidavit Is Per Se Material Under Therasense
Patents Not Obvious Due to a Lack of Motivation to Combine Prior Art
Prior Art’s Disclosure of Result-Effective Variables that Overlap Claimed Ranges Is Sufficient to Support a Finding of Obviousness
Thou Shall Describe a Reason for Negative Claim Limitations
Agreeing to License Standard-Essential Patents on RAND Terms May Bar Foreign Injunctive Relief
Federal Circuit Affirms Finding of Obviousness in DNA Patent Application
The Federal Circuit Finds Declaratory Judgment Jurisdiction Exists Only with Immediacy and Reality
Monsanto v. Bowman to Be Heard at the Supreme Court
**WEB ONLY**The Federal Circuit Finds that Section 282 Is Not a Safety Net to Protect Against Failure to Disclosure Relevant Information During Discovery
Trademarks
**WEB ONLY** ARecall Notice Directed to “6 Hour” Energy Shots Could Constitute False Advertising
No Trademark Infringement Where Contractor Listed Manufacturer’s Product in Municipal Bid
Broad Reading of Executory Contract when Trademark License Obligations Are Unfulfilled
The Eleventh Circuit Finds No Fraud on the PTO Where Declarant Had No Personal Knowledge of Use of Similar Marks
Copyrights
Eleventh Circuit Holds Not All “Internet” Distribution Is Worldwide Publication, Giving Rise to a United States Work
Eighth Circuit Approves Damages Against Individual Music Downloader
No Compulsory License for Internet Streaming
Fifth Circuit Looks to Totality of Parties’ Conduct to Determine Implied License
Right of Publicity
A Public Icon: Marilyn Monroe Estate Loses Appeal for Publicity Rights
**WEB ONLY** Chuck Yeager’s Right of Publicity Suit Will No Longer Fly in the Ninth Circuit
Trade Secrets
For a Product to Be “Derived from” Another, It Must Copy Novel Aspects of the Original Product
Patents / Burden of Proof
A Licensee Can Sometimes Bear the Burden of Proof on Non-Infringement
by Babak Akhlaghi
The U.S. Court of Appeals for the Federal Circuit found that in the limited circumstances when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of non-infringement bears the burden of proof. Medtronic Inc. v. Boston Scientific Corp., Case Nos. 11-1313, -1372 (Fed. Cir., Sept. 18, 2012) (Linn, J.).
Mirowski Family Ventures (MFV) licensed the reissue patent-at-issue to Medtronic. The license agreement allowed Medtronic to challenge the patent via declaratory judgment. Medtronic began paying royalties and at the same time sought a declaratory judgment of non-infringement. Throughout the course of litigation the parties disagreed over whether the licensee carried the burden of proving non-infringement or the licensor carried the burden of proving infringement. The lower court held that the licensor carried the burden of proving infringement and ruled in favor of Medtronic because of MFV’s failure to carry its burden. MFV appealed.
On appeal, MFV argued that because Medtronic is the party seeking relief and because MFV is foreclosed from filing a counterclaim of infringement by virtue of the license agreement between the parties, Medtronic carries the burden of proving non-infringement. Medtronic, on the other hand, argued that the burden of proof in patent infringement cases always rests with the patentee, and such burden does not shift to the accused infringer. The Federal Circuit agreed with MFV, and held that the party seeking relief bears the burden of proving the allegations in his complaint.
The Federal Circuit recognized that the burden of proof generally rests with the patentee to prove infringement, even in a declaratory judgment action. However, the Federal Circuit noted that there exists an exception to this general rule—where a license agreement prevents the licensor from asserting a counterclaim of infringement in the declaratory judgment action. In such a scenario, the licensee bears the burden of proving non-infringement.
Here, the Federal Circuit noted that the agreement requires Medtronic to pay royalties or sue for declaratory judgment for non-infringement. Medtronic filed such declaratory judgment and is the party seeking relief, whereas MVF is only seeking to be discharged from the suit and continue to receive payment under the agreement. To this end, the Federal Circuit determined that Medtronic is asking the Court for relief or change of status quo, and therefore Medtronic should set forth the necessary evidence showing it is entitled to such relief. As a result, the Federal Circuit vacated and remanded the case to the lower court.
Patents / Permanent Injunction
No Permanent Injunction if Plaintiff and Defendant Did Not Directly Compete; Ongoing Royalty to Be Applied Instead
by Robert J. Walters
Addressing a lower court’s decision to impose a permanent injunction, the U.S. Court of Appeals for the Federal Circuit reversed the lower court, finding that an ongoing royalty for future infringement was the appropriate remedy. ActiveVideo Networks, Inc. v. Verizon Communications, Inc, et al., Case Nos. 11-1538, -1567, 12-1129, -1201 (Fed. Cir., Aug. 24, 2012) (Moore, J.).
ActiveVideo, a seller of video-on-demand products, sued Verizon for patent infringement based on video services sold by Verizon. Verizon counterclaimed that ActiveVideo infringed certain of its patents. At trial, a jury found that Verizon infringed four ActiveVideo patents and that ActiveVideo infringed two Verizon patents. The district court entered a permanent injunction against Verizon, but delayed imposition of the injunction for six months during which Verizon was ordered to pay a sunset royalty for infringing activity.
On appeal the Federal Circuit reversed the grant of a permanent injunction, finding that the district court erred in its treatment of three of the four factors that must be met to demonstrate that an injunction should issue.
The Federal Circuit first observed that the issues of irreparable harm and adequacy of remedies at law are “inextricably intertwined” and accordingly discussed them together. The district court had found irreparable harm based on loss of customers by ActiveVideo’s customer Cablevision, which the district court reasoned lead to “a loss of market share by Activision and Cablevision,” and also found irreparable harm from litigation costs incurred by ActiveVideo.
The Court summarily rejected the district court’s finding that litigation costs supported irreparable harm and quoted its Innogenetics decision in observing that if the rule were otherwise, “injunctive relief would be warranted in every litigated patent case.”
The Court also found no proof of loss of market share for ActiveVideo. Verizon and ActiveVideo do not compete, noted the Federal Circuit, and reliance on loss of customers by one of ActiveVideo’s customers could not support a finding of irreparable harm to ActiveVideo. The actual harm to ActiveVideo—loss of royalties that should have been paid by Verizon—is readily quantifiable. The Court thus concluded that the district court committed clear error in its findings on irreparable harm and adequacy of remedy at law.
As to the balance of hardships, the Federal Circuit rejected the district court’s emphasis on the small size of ActiveVideo as favoring an injunction and concluded there was no proof that the hardships supported an injunction. The Court did not, however, find error in the district court’s treatment of the public interest factor, noting that customers’ interests in entertainment did not outweigh the public interest in allowing patentees to enforce their right to exclude. In its holding on the injunction issue, the Federal Circuit vacated the permanent injunction and remanded for determination of an ongoing royalty rate for future infringement.
The Court approved and found no error in the district court’s calculation of a sunset royalty to be paid by Verizon during the stay of the injunction. The lower court had focused on “the much better bargaining position” enjoyed by ActiveVideo post-verdict, and the Court found this to be a valid factor and accurate view of the relative strength of the parties’ positions. The Court also rejected Verizon’s argument that the royalty rate from the jury’s damages award conflicted with the sunset royalty calculation.
Finally, the Federal Circuit noted that the district court’s calculation on remand of an ongoing royalty for prospective damages would involve much the same inquiry as the sunset royalty calculation, although ActiveVideo’s bargaining position would be “even stronger after this appeal.”
Patents / Obviousness
Obviousness-Type Double Patenting Requires a Reason to Modify with a Reasonable Expectation of Success
by Christopher L. May
Addressing the issue of obviousness-type double patenting, the U.S. Court of Appeals for the Federal Circuit reaffirmed its earlier rulings that obviousness must be judged by whether the differences in subject matter between the new claim and the earlier claim are patentably distinct. Eli Lilly and Co. et al. v. Teva Parenteral Medicines et al., Case Nos. 11-1561, -1562 (Fed. Cir., Aug. 24, 2012) (Lourie, J.).
The appeal arose from the filing of an Abbreviated New Drug Application (ANDA) by Teva for regulatory approval of the anticancer agent pemetrexed. At trial, Teva conceded infringement of U.S. Patent No. 5,344,932, but argued that the patent was invalid for obviousness-type double patenting based on two parent references—a predecessor to pemetrexed shown in U.S. Patent Nos. 5,028,608 and an intermediate in making pemetrexed shown in U.S. Patent No. 5,248,775. The district court found the patent was not invalid, ruling that one of ordinary skill in the art would not have been motivated to change the portion of pemetrexed that differed from the compound shown in the ’608 and ’775 references and that, because the ’932 patent did not claim the use of the ’775 patent’s compound, the teachings of the ’775 patent were irrelevant to an obviousness-type double patenting analysis.
On appeal, the Federal Circuit affirmed the district court, ruling that proof of obviousness-type double patenting requires identifying some reason that would have led a chemist to modify the earlier compound with a reasonable expectation of success. The Federal Circuit found that the district court’s factual findings in this regard with respect to the predecessor compound showed no clear error. With respect to the precursor intermediate, the Court rejected Teva’s argument that because the precursor claimed in the ’775 patent is used to make pemetrexed, the ’932 patent claims a previously disclosed use for a patented compound. Holding that for an obviousness-type double patenting analysis, only the claims of the prior art reference may be considered, not the specification itself, the court distinguished earlier holdings in In re Byck and Sun Pharmaceutical Industries, by finding that those cases involved situations in which the patentee attempted to claim a method of using a composition after disclosing the use in an earlier patent claiming the composition itself. Here, the ’775 patent never claimed pemetrexed, only an intermediate along the path to synthesizing pemetrexed, and therefore Byck and its progeny did not apply.
Finally, the panel rejected the district court’s refusal to examine secondary indicia of non-obviousness, finding that such evidence applied to an obviousness-type double patenting analysis as equally as any other obviousness argument.
Patents / Inequitable Conduct
Knowledge of a Reference’s Materiality Does Not Prove a Deliberate Decision of Non-Disclosure
by Michael G. Dreznes
In a case analyzing the intent requirement for proving inequitable conduct after Therasense, the U.S. Court of Appeals for the Federal Circuit reversed a district court ruling of inequitable conduct, emphasizing that an applicant’s knowledge of a reference’s materiality cannot prove by itself that any subsequent non-disclosure was based on a deliberate decision. 1st Media LLC v. Electronic Arts Inc., Case No. 10-1435 (Fed. Cir., Sept. 13, 2012) (Linn, J.).
The patent-at-issue covered an entertainment system for use in purchasing and storing songs, videos and karaoke information. Joseph Sawyer was the attorney who filed the patent application, and Scott Lewis was the named inventor who subsequently assigned the patent to 1st Media. After receiving a notice of allowance but before paying the issue fee, Sawyer and Lewis received a search report for a corresponding European application that listed a category “Y” reference (meaning it was particularly relevant if combined with another category “Y” reference), and Office Actions for related U.S. cases that cited two additional references that were alleged to disclose similar elements as those recited in the claims of the patent-at-issue. None of the three references had been cited by the examiner of the patent-at-issue, and Sawyer and Lewis did not disclose any of three references to the U.S. Patent and Trademark Office (PTO).
1st Media subsequently filed a patent infringement lawsuit against several defendants, including Electronic Arts Inc. The defendants asserted a defense of inequitable conduct on the basis that Sawyer and Lewis did not disclose the three references to the PTO. Sawyer and Lewis testified that they did not appreciate the materiality of any of the references and that their failure to disclose the references was due to an oversight with regard to the search report, and due to the fact that they believed that the technology of the related cases was distinct from the patent-at-issue with regard to the Office Actions. The district court found that their explanations for non-disclosure were not credible and that it was appropriate to infer that they intended to deceive the PTO. Accordingly, the district court concluded, prior to the Federal Circuit’s en banc ruling in Therasense, that the patent was unenforceable because Sawyer and Lewis had committed inequitable conduct. 1st Media appealed.
On appeal, the Federal Circuit reviewed the district court’s ruling under Therasense. The Court stated that under Therasense, a defendant must prove that “(1) the patentee acted with the specific intent to deceive the PTO; and (2) the non-disclosed reference was but-for material.” The Court explained that intent to deceive from non-disclosure of a reference can not be inferred solely from knowledge of the reference and its materiality, but rather by showing that the applicant knew of the reference, knew that it was material and made a deliberate decision to withhold it. The Court stated that it was not enough to argue carelessness, lack of attention, poor docketing or cross-referencing, or anything else that might be considered negligent or even grossly negligent.
The Court reversed the district court and held that Sawyer and Lewis did not commit inequitable conduct because even if the record supported that Sawyer and Lewis “(1) knew of the references, (2) may have known they were material … and (3) did not inform the PTO of them,” it would still not be enough to prove that Sawyer and Lewis made a deliberate decision to withhold the references from the PTO. Since the intent requirement of Therasense was not met, the Court did not address the materiality requirement.
Patents / Inequitable Conduct
Federal Circuit Side-Steps Issue of Whether False Affidavit Is Per Se Material Under Therasense
by Christina A. Ondrick
In a case assessing inequitable conduct after Therasense, the U.S. Court of Appeals for the Federal Circuit reversed a lower court’s decision holding a parent patent and its continuation unenforceable. The Court found that pending litigation involving the parent was not material to the continuation where the parent’s invalidity was not contested in the litigation and that it need not address the issue of whether an affidavit improperly claiming small entity status was material where there was no evidence of intent to deceive. Outside the Box Innovations, LLC v. Travel Caddy, Inc., Case No. 09-1171 (Fed. Cir., Sept. 21, 2012) (per curiam) (Newman, J., dissenting).
The case was a declaratory judgment suit filed by Outside the Box Innovations, which was seeking to invalidate two patents, a parent and a continuation thereof, owned by Travel Caddy. The district court found that Travel Caddy’s failure to disclose the existence of litigation involving a parent patent during prosecution of a continuation application was a material omission. Further, the district court inferred deceptive intent from the act of non-disclosure itself and found that the patentee’s assertion that it believed the prior litigation to be irrelevant to the continuation application lacked credibility. The district court also found that Travel Caddy filed a false affidavit claiming small entity status that was material to patentability. The district court also inferred intent to deceive from the act of filing the affidavit itself.
The Federal Circuit reversed the lower court’s inequitable conduct findings. With regard to the failure to disclose pending litigation, the Federal Circuit found that the record lacked clear and convincing evidence that the litigation was material to patentability, since no allegations of invalidity had been provided in the litigation. The Court noted that, although a later challenge to the parent patent’s validity was possible during the litigation, no validity allegations existed at the time the continuation was being prosecuted. The issue was not relevance of the earlier litigation, but whether the existence of the litigation was material to prosecution of the continuation application. The Federal Circuit also found no clear evidence of intent to deceive when the record lacked any suggestion of how the withheld information could have deceived the examiner.
Regarding the affidavit mistakenly claiming small entity status, the Federal Circuit found no clear and convincing evidence that small entity status was deliberately falsely claimed. The Court did not squarely address whether a false small entity declaration is material, but noted that Therasense supported, generally, the rule that “a false affidavit or declaration is per se material.”
Judge Newman, writing in dissent, would have gone further. Judge Newman argued that the filing of an incorrect small entity affidavit does not render the statement “per se material.” According to Judge Newman, a patent should not be extinguished based on misrepresentations, such as incorrect small entity statements, that do not affect patentability.
Patents / Obviousness
Patents Not Obvious Due to a Lack of Motivation to Combine Prior Art
by Donna M. Haynes
Addressing the validity and infringement of three patents in an Abbreviated New Drug Application (ANDA) case, the U.S. Court of Appeals for the Federal Circuit affirmed a decision of a lower court finding the patents not obvious and infringed. The Court issued an injunction. Pozen, Inc. v. Par Pharmaceuticals, Inc., Case Nos. 11-1584, -1585, -1586 (Fed. Cir., Sept. 28, 2012) (Wallach, J.) (Clevenger, J., dissenting-in-part).
The three patents-in-suit relate to the drug Treximet®—a combination of sumatriptan, a known 5-HT agonist effective against migraines, and naproxen, a known non-steroidal anti-inflammatory drug (NSAID). Pozen developed a method of treating migraines using this combination and received approval from the FDA to market the drug. The defendants filed ANDAs with the FDA seeking approval to market generic forms of the drug. Thereafter, Pozen filed suit.
The district court construed two important claim limitations. First, the court construed “concomitant administration” to mean “simultaneous administration,” based on the patents’ use of the term “unit dose.” Second, the court construed the term “substantially all” to mean “at least 90%, and preferably greater than 95%.”
After claim construction the district court held a bench trial, after which it found the claims valid and infringed and issued an injunction against the generic manufacturers. The generics appealed.
On appeal, the Federal Circuit found that the prior art clearly disclosed a 5-HT agonist administered simultaneously with a NSAID, but did not disclose any additional details of the combination. The Court found that the combination was not obvious because the prior art failed to disclose the relative success of the combination of reducing migraine relapse or producing longer efficacy or the dosage of the combination treatment. Thus, even though the prior art taught the claimed combination, the Court held that there was no motivation to combine the two elements.
The Federal Circuit, considering infringement, stated that the ANDA filings disclosed a multilayered tablet wherein each distinct layer contained 85 percent of either sumtripan or naproxen. The Court found infringement of the “substantially all” limitation based on the doctrine of equivalents (DOE). While recognizing precedent that the doctrine of equivalents cannot be relied on to broaden claims when a patentee has brought what would otherwise be equivalents of a limitation into the literal scope of the claim, the same was not true for the construed claim language. Since the patentee never stated that the claims should be limited to the construed language, DOE was properly applied to find that 85 percent was an insubstantial change from 90 percent.
The dissent argued that the majority failed to quantitatively evaluate whether 85 percent and 90 percent could be equivalent and further asserted that such equivalence would be impossible because they are “numerically nonequivalent.”
Patents / Obviousness
Prior Art’s Disclosure of Result-Effective Variables that Overlap Claimed Ranges Is Sufficient to Support a Finding of Obviousness
by Vinu Raj
In affirming a finding of obviousness by the U.S. Patent and Trademark Office’s Board of Patent Appeals and Interferences (the Board), the U.S. Court of Appeals for the Federal Circuit found that the prior art’s disclosure of dimensions that overlapped claimed ranges was sufficient to support a finding of obviousness, where the disclosed dimensions were result-effective variables. In re Applied Materials, Inc., Case Nos. 11-1461, -1462, -1463, -1464 (Fed. Cir., Aug. 29, 2012) (Linn, J.) (Newman, J., dissenting).
This case involved four patents with claims directed to “sufficiently rigid” polishing pads for “planarizing” or flattening the surface of a substrate during the formation of an integrated circuit. The claimed polishing pads had grooves with specific ranges of depth, width and pitch dimensions. The claims covering these pads in all four patents were rejected by the examiner in separate ex parte reexaminations. The Board affirmed the examiner’s obviousness rejections, and the four appeals from the Board’s decisions were consolidated before the Federal Circuit.
The patentee argued on appeal that the claimed invention was patentable over the prior art cited by the examiner because “the prior art did not specify the result of each purported result-effective variable.”
The Federal Circuit affirmed the Board’s conclusions that the dimensional values disclosed in the prior art overlapped the claimed ranges and that there was substantial evidence to support the Board’s finding that the disclosed dimensions were known to be result-effective variables. The Court explained that the overlap itself provides sufficient motivation to optimize the ranges. The Court found that the prior art need only recognize that a property is affected by a variable in order for it to be result effective and that it is not necessary for the prior art to provide the exact method of optimization for the variable.
The Court mentioned that evidence that the claimed range is critical because it achieves unexpected results that can be used to rebut a prima facie case of obviousness established by the overlap of prior art values with the claimed range. However, the patentee was unable to provide any such evidence. The Court also found that the patentee failed to provide sufficient evidence showing a nexus between the patentee’s commercial success in the market and the patented subject matter.
In dissent, Judge Newman argued that despite the art of polishing pads being crowded, there was no other product in the market that had the combination of width, depth and pitch of the inventions claimed in the patents. Further, Judge Newman noted that the patented product had achieved commercial success by displacing the very prior art pads that are now being used to render the patents obvious. Judge Newman accused the majority of “simply rubber-stamping agency fact-finding,” as the PTO offered no suggestion in the prior art of changing the parameters in the manner done by the patentee.
Patents / Written Description
Thou Shall Describe a Reason for Negative Claim Limitations
by Atabak Royaee, Ph.D.
In addressing a written description issue relating to the adequacy of support in the specification for including a “negative limitation” in the claims, the U.S. Court of Appeals for the Federal Circuit established a standard requiring the specification to describe a reason for the negative limitation. Santarus, Inc., et al., v. Par Pharmaceutical, Inc., Case No. 10-1360 (Fed. Cir., Sept. 4, 2012) (per curiam) (Newman, J., concurring-in-part and dissenting-in-part).
The patent-at-issue was one of several patents asserted by Santarus against Par Pharmaceuticals after Par filed an Abbreviated New Drug Application (ANDA) for FDA approval to sell a generic counterpart to Santarus’ Zegerid® products. The claims of the asserted patent were directed to a method for treating an acid-caused gastrointestinal disorder by administering to a subject suffering from such disorder a solid composition of omeprazole and sodium bicarbonate, wherein the composition contains no sucralfate. The only support in the specification of the asserted patent for this negative limitation was the statement that “omeprazole represented an advantageous alternative to the use of H2 antagonists, antacids, and sucralfate as a treatment for complications related to stress-related mucosal damage.” The priority document on which the asserted patent is based was a continuation-in-part that had even less direct support for the negative limitation, merely mentioning that the only patient whose death was attributed to stress-related upper gastrointestinal bleeding was in the sucralfate arm.
The district court found that neither the priority application nor the specification of the asserted patent supported the no sucralfate limitation, stating that the disclosures did not show why a person of ordinary skill in the art reading the application would believe that sucralfate was contraindicated, making treatment inadvisable, in the claimed composition. The lower court held that the asserted parent was invalid on written description grounds.
The Federal Circuit reversed. The Court disagreed that the specification must include evidence of contraindication. Rather, in what appears to be a new rule for negative claim limitations, the Court stated that negative claim limitations are adequately supported when the specification describes a reason to exclude the relevant limitation. Such written description support need not rise to the level of disclaimer. The Court stated that it is possible for the patentee to support both the inclusion and exclusion of the same material. The Court found that the claim limitation directed to the lack of sucralfate is adequately supported by statements in the specification expressly listing the disadvantages of using sucralfate.
In dissent, Judge Newman agreed that the district court had clearly erred in its finding. However, the dissent criticized the majority for setting a new rule, calling it a “gratuitous fillip … that creates a new and far-reaching ground of invalidity, a ground that received no deliberation and advice from the concerned communities.
Practice Note: The Manual of Patent Examining Procedure (MPEP), in relevant part at §2173.05(i), states that a negative limitation must have “a basis” in the original disclosure. Whether the difference between a basis, in the MPEP, and “a reason” will have an impact on the jurisprudence in this area remains to be seen. In the meantime, practitioners should provide a reason in the original disclosure to support a negative limitation. The Court explained in this case that a listing of the disadvantages of a negative limitation element can be a reason that supports the negative limitation.
Patents / Licensing
Agreeing to License Standard-Essential Patents on RAND Terms May Bar Foreign Injunctive Relief
by Charles J. Hawkins and Darryl Ong
Addressing an anti-suit injunction in the context of patent licensing, the U.S. Court of Appeals for the Ninth Circuit affirmed a preliminary injunction issued by a district court temporarily enjoining the enforcement of a German patent injunction. Microsoft Corp. v. Motorola, Inc., Case No. 12-35352 (9th Cir., Sept. 28, 2012) (Berzon, J.).
As a condition of incorporating Motorola’s patented technology into the International Telecommunications Union (ITU) H.264 video compression standard, Motorola submitted declarations to the ITU agreeing to license its patents on reasonable and non-discriminatory (RAND) terms. Motorola subsequently offered to license its H.264 standard-essential patents to Microsoft for a 2.25 percent royalty, “based on the price of the end product” and not on the component software. Microsoft filed a breach-of-contract action against Motorola in Washington. Microsoft asserted that Motorola had breached its contractual RAND obligations to the ITU by proposing unreasonable royalty rates for its H.264 standard-essential patents and that, under Washington contract law, Microsoft was entitled to enforce the agreement as a third-party beneficiary.
While the domestic litigation was pending, Motorola sued Microsoft in Germany, alleging infringement of two European patents included in its H.264 standard-essential portfolio. The German court held that Microsoft had infringed Motorola’s European patents and issued an injunction preventing Microsoft from selling its allegedly infringing products in Germany. In district court in Washington, Microsoft sought and was granted a preliminary injunction barring Motorola from enforcing any injunctive relief it might receive in the German action. Motorola then made an interlocutory appeal to the 9th Circuit.
Employing a three-part inquiry to analyze the propriety of a foreign anti-suit injunction, the 9th Circuit panel focused on the threshold inquiry: whether or not the first action was dispositive of the action to be enjoined. Although acknowledging the territorial nature of patent law, the court found the Washington action dispositive of the German patent action because the district court had based its injunction on Microsoft’s Washington state contract claims. Specifically, because Motorola had included its European patents in its initial licensing offer, a favorable decision to Microsoft in the Washington action would preclude enforcement of the German injunction. Even if Motorola did not breach its RAND commitment, the court noted injunctive relief against infringement was a remedy arguably inconsistent with the licensing commitment.
Concluding its inquiry, the court upheld the injunction, finding no abuse of discretion in the district court’s finding that Motorola’s German action was vexatious and oppressive and that the injunction did not intolerably impact comity norms.
Patents / Obviousness
Federal Circuit Affirms Finding of Obviousness in DNA Patent Application
by Aamer S. Ahmed
Addressing a decision out of the U.S. Patent and Trademark Office (PTO) Board of Patent Appeals and Interferences (Board), the U.S. Court of Appeals for the Federal Circuit affirmed the Board’s ruling that there was substantial evidence supporting a determination that a person of ordinary skill in the art would have a reasonable expectation of success when combining prior art references. Inre Droge et al., Case No. 11-1600 (Fed. Cir., Sept. 21, 2012) (Moore, J.).
Droge et al. filed an application having a representative independent claim directed to a “method of sequence specific recombination of DNA in a eukaryotic cell” and including steps of “providing said eukaryotic cell” and “providing to said cell a modified bacteriophage lambda integrase Int, wherein said modified Int is Int-h or Int-h/218 which induces sequence specific recombination through said attB and attP or attR and attL sequences.”
The Board affirmed the rejection of the claim as obvious over a patent to Crouzet and an article by Christ and Droge, two of the three inventors of the instant application. The Board found that Crouzet disclosed a method that used bacteriophage lambda and wild-type Int protein to insert foreign DNA into a host cell using the attB and attP recognition sites and that this method may be carried out in any type of cell host, whether eukaryotic or not. Although the Board found that Crouzet did not disclose the use of modified integrases, it determined that the article by Christ and Droge teaches Int-h and Int-h/218 can function even in the absence of the integration host factor (IHF) that is absent in eukaryotic cells.
In an attempt to rebut the assertion of obviousness, Droge supplied a declaration setting out reasons why a person of ordinary skill in the art would not have had a reasonable expectation of success in using the claimed modified integrases in eukaryotic cells. However, the Board found that an article written by Lange-Gustafson et al. refuted the assertions made in the declaration, and thus found that the independent claim would have been obvious over Crouzet in view of the Christ and Droge article.
Droge challenged the Board’s decision, arguing that a person having ordinary skill in the art would not have had a reasonable expectation of success in combining the teachings of the references. In particular, Droge argued that because the Christ and Droge article stated recombinant activity of the modified integrases decreases in the absence of IHF, which is present in prokaryotic but not in eukaryotic cells, that the Christ and Droge article teaches away from the claimed invention. In addition, Droge argued that its declaration provided evidence that at the time of the invention, it was unclear whether the modified integrases would work in mammalian (eukaryotic) cells.
Acknowledging that Droge did not dispute that the references, taken together, teach every limitation of the claimed method, the Federal Circuit found the Board’s determination to be supported by substantial evidence, holding that obviousness does not require absolute predictability of success, all that is required is a reasonable expectation of success. The Court found that the Lange-Gustafson article directly contradicted Droge’s arguments because it stated that Int-h recombines DNA “identically” regardless of whether its three-dimensional structure is super coiled (prokaryotic DNA) or is topologically relaxed (eukaryotic DNA), and further found that the Christ and Droge article similarly stated that neither supercoiling nor IHF are necessary.
Patents / Declaratory Judgment
The Federal Circuit Finds Declaratory Judgment Jurisdiction Exists Only with Immediacy and Reality
by Charles J. Hawkins
Addressing the standard for declaratory judgment jurisdiction, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s dismissal of claims for declaratory and injunctive relief, concluding that the claims lacked immediacy and reality. Matthews Int’l Corp. v. Biosafe Engineering, LLC and Digestor, LLC, Case No. 12-1044 (Fed. Cir., Sept. 25, 2012) (Mayer, J.).
The case was initiated by Matthews, a company that marketed cremation products, including an environmentally friendly alternative to incineration that utilized an alkaline hydrolysis process to cremate human remains. Matthews filed suit against Biosafe, the owner of patents related to the application of alkaline hydrolysis to disposal of medical waste and hazardous materials. Prior to the lawsuit, the parties engaged in a telephone conversation and exchanged three letters regarding vague assertions by Biosafe that Matthews’ product would infringe Biosafe’s intellectual property.
Matthews filed suit seeking a declaratory judgment of non-infringement, invalidity and unenforceability of method patents owned by Biosafe. Matthews also asserted state-law claims of trade libel, defamation and tortious interference with contractual relations. About a month later, a patent directed to a system issued to Biosafe. Matthews thereafter filed an amended complaint, adding a request for a similar declaratory judgment for the newly issued system patent.
Biosafe moved to dismiss the amended complaint for lack of declaratory judgment jurisdiction and failure to adequately plead state-law claims. The lower court dismissed the patent claims, finding a lack of the necessary immediacy and reality to satisfy declaratory judgment jurisdiction. The lower court also dismissed the state-law claims for failure to plead bad faith. Matthews appealed.
The Federal Circuit affirmed. Addressing the method patents, the Federal Circuit found that Matthews’ claims lacked both immediacy and reality. The Court noted that Matthews had sold only three units to customers and that the units had not been installed. The Court further noted that the equipment was capable of being used with a variety operating parameters, such as temperature, pressure and pH, some of which would not infringe the claims of the method patents. Matthews failed, however, to allege facts regarding whether its customers would operate the equipment in an infringing manner, and, if so, when such alleged conduct would occur.
The Federal Circuit found that Matthews’ dispute with Biosafe was too remote and speculative to support the exercise of declaratory judgment jurisdiction. The Court stated that, until some specific and concrete evidence regarding how customers planned to use the equipment was available, any judicial determination regarding whether such use would infringe the method patents would be premature.
Based on the finding that the lower court lacked jurisdiction over the method patents, the Federal Circuit found that the lower court was without jurisdiction over the system patent as well. Absent predicate jurisdiction based on the method patents, the lower court had no authority to exercise jurisdiction over the system patent that had not yet issued as of the filing of the original complaint.
Finally, the Federal Circuit affirmed the lower court’s dismissal of the state-law claims. The Federal Circuit found that Matthews failed to allege the bad-faith element of the causes of action, and, in any event, even if bad faith had been alleged, Matthews’ state claims would not be ripe for review until more particularized evidence became available about the operation of the equipment.
Patents / Certiorari
Monsanto v. Bowman to Be Heard at the Supreme Court
by Kristin Connarn
The U.S. Supreme Court has granted a certiorari petition filed by Bowman in a case involving the issue of whether sale of second-generation seed by an authorized seller did not exhaust the patentee’s rights in its genetically altered seed.
Bowman purchased commodity seed containing Roundup Ready seeds from one of Monsanto’s licensed seed producers, used it for planting and then saved and replanted the seeds he harvested. All sales to growers, whether from Monsanto or one of its licensed producers, are subject to a standard form limited-use license. Under the license agreement, growers who buy the seeds can only use them for one crop season and cannot replant the progeny of the licensed seeds.
In December 2010, the Federal Circuit ruled in favor of Monsanto and found that while farmers have the right to use commodity seeds as feed, or for any other conceivable use, they cannot replicate patented technology by planting the seeds in the ground to create newly infringing genetic material, seeds and plants.
In his petition for certiorari, Bowman argued that the ability to make second-generation seed is an inherent characteristic of seeds and that his natural and foreseeable use of the seeds to produce second-generation seeds is permitted under the first sale doctrine, regardless of whether he sells the seeds for use as feed or replants them.
The solicitor general filed a brief in support of Monsanto, advising against granting cert and agreeing with the Federal Circuit that the first sale doctrine does not extend to second-generation seed and that the second-generation of a self-replicating patented invention is a “newly infringing article.” The Federal Circuit and solicitor general recognized that the interpretation of the first sale doctrine advocated by Bowman would severely limit the ability of biotechnology companies like Monsanto to recoup their sizable investment in developing agricultural traits.
Patents / Discovery
The Federal Circuit Finds that Section 282 Is Not a Safety Net to Protect Against Failure to Disclosure Relevant Information During Discovery
by Jeremy T. Elman
In a case addressing the issue of untimely disclosure of evidence to show the state of the art at the time of invention, the United States Court of Appeals for the Federal Circuit affirmed a district court’s evidentiary ruling excluding the prior art, finding that 35 U.S.C. § 282 could not be used to argue timelines of discovery. Woodrow Woods et al. v. Deangelo Marine Exhaust, Inc., Case No. 10-1478 (Fed. Cir., Aug. 28, 2012) (Linn, J.).
In a case involving marine exhaust systems, the plaintiff Woodrow Woods licensed co-plaintiff Marine Exhaust Systems, Inc. (MES) under the asserted patents. During discovery, MES propounded an interrogatory that sought all prior art, including identification of the claims that were anticipated or rendered obvious. On the day before the close of fact discovery, defendant Deangelo located several engineering drawings that predated the priority date of the asserted patents. Deangelo sent the drawings to MES in an email stating that they may anticipate the asserted patents, but failed to supplement its interrogatory response with the new materials. MES did not object at that time, but later moved to strike the art at the start of trial under Rule 26(e) as untimely. The district court found the untimely disclosure unjustified and harmful to plaintiffs and excluded the drawings. Deangelo appealed this ruling, in addition to rulings relating to claim construction, invalidity, non-infringement and Rule 11.
While it was undisputed that the drawings were disclosed more than 30 days prior to trial under 35 U.S.C. § 282, the Federal Circuit found that section 282 applied only to defenses at trial and did not relate to untimely disclosures made during discovery under Rule 26(e). The Federal Circuit held that contention interrogatories, such as the one at-issue here seeking identification of prior art, are key aspects of patent litigation, and the supplementation requirements serve an important purpose to help parties discover facts and shape theories at trial. As a result of defendant’s untimely disclosures, MES was unable to follow-up in discovery regarding these drawings. The Federal Circuit found that the trial court exercised its discretion properly to exclude the evidence, and the Federal Circuit found no error.
The Federal Circuit also affirmed the district court’s claim construction, finding that the constructions were consistent with plain meaning, while the rejected constructions required adoption of limitations not defined or required by the specification. The Federal Circuit also affirmed the district court’s denial of Deangelo’s requests for judgment as a matter of law (JMOL) on the grounds of invalidity and non-infringement. Finally, the Federal Circuit affirmed the denial of Deangelo’s Rule 11 motion, finding that the pre-suit investigation was adequate because plaintiff took pictures of the infringing systems and studied those pictures before filing suit.
Practice Note: Section 282 cannot be used as a “backdoor” to allow the use at trial of materials that were untimely disclosed during fact discovery.
Trademarks / False Advertising
A Recall Notice Directed to “6 Hour” Energy Shots Could Constitute False Advertising
by Lauren Martin
Addressing the issue of whether a recall notice issued by a competitor constituted false advertising and anti-competitive conduct in violation of Section 2 of the Sherman Act, the U.S. Court of Appeals for the Sixth Circuit reversed a district court’s judgment dismissing false advertising claims and affirmed the district court’s dismissal of Sherman Act claims. Innovation Ventures, LLC D/B/A Living Essentials v. N.V.E., Inc., Case Nos. 10-2353, -2355 (6th Cir., Sept. 13, 2012) (Boggs, J.).
Plaintiff Living Essentials (LE) asserted that defendant N.V.E.’s “6 Hour POWER” energy shot infringed its trademark on its “5 Hour ENERGY” energy shot. Before filing suit against N.V.E., LE had been involved in a trademark and trade dress dispute with another competitor over the competitor’s “6 Hour Energy Shot.” LE succeeded in obtaining a preliminary injunction and recall order against the “6 Hour Energy Shot” product based on its trade dress claims. In addition to the court-mandated recall notice promulgated by the defendants in that action, LE issued its own recall notice to retailers. While the preliminary injunction only involved the “6 Hour Energy Shot” product, LE’s recall notice announced that a preliminary injunction had issued ordering the immediate recall of the “6 Hour” product. The recall instructed retailers to return the product immediately if they had any of the “6 Hour energy shots” in stock.
On appeal, N.V.E. argued that LE’s recall notice constituted false advertising. In analyzing N.V.E.’s claim, the 6th Circuit stated that if statements are literally true yet deceptive or too ambiguous to support a finding of literal falsity, a violation can only be established by proof of actual deception. However, if a statement is literally false, actual deception is presumed. The Court found that LE’s recall notice was on the cusp between ambiguity and literal falsity in two main respects—descriptive and grammatical. For example, the Court noted that instead of identifying the recalled product by name, “6 Hour Energy Shot,” the notice referred to a “6 Hour” energy shot. The court also stated that the use of the indefinite articles “a” or “any” in the notice could suggest that more than one energy shot with the words “6 Hour” in the title was subject to the recall. Recognizing that it was a close question, the Court declined to find the recall notice literally false, instead finding that a genuine factual dispute existed regarding whether the notice was misleading and tended to deceive its intended audience. The 6th Circuit found that the district court erred by dismissing the false advertising claim.
The 6th Circuit upheld the district court’s dismissal of N.V.E.’s antitrust claim. The court explained that in order for false advertising to rise to the level of an antitrust violation, the false advertising must be so difficult for the allegedly harmed party to counter that it could potentially exclude competition. Since N.V.E. could counter the recall notice by informing retailers that its product was not subject to the recall, the court found that N.V.E. could not succeed on its antitrust claims.
Trademarks / Likelihood of Confusion
No Trademark Infringement Where Contractor Listed Manufacturer’s Product in Municipal Bid
by Alesha M. Dominique
Analyzing the issue of trademark infringement in the context of a municipal bidding process, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s denial of summary judgment of trademark infringement where a contractor published a manufacturer’s trademark in its bid proposal pursuant to bidding instructions. Suntree Techs. Inc. v. Ecosense Int’l Inc., Case No. 11-13916 (11th Cir., Sept. 5, 2012) (Alarcón, J.).
Suntree manufactures baffle boxes for removing organic debris, trash, oil and other pollutants from storm water before it reaches lakes, rivers and streams. In 2008, a town in Florida began soliciting bids for a storm water retrofit project. The bidding documents required that Suntree baffle boxes be installed for the project.
Derrico Construction submitted a bid for the project listing Suntree as the supplier for the baffle boxes. After its bid was accepted by the county, Derrico requested approval to use baffle boxes manufactured by Ecosense International as a substitute to the Suntree boxes, as was permitted in the bidding documents. The municipality approved the substitute, and Derrico installed Ecosense baffle boxes. Ecosense prepared a PowerPoint presentation to train personnel on the proper cleaning and maintenance procedures for its baffle boxes. The presentation showed photographs of municipal workers cleaning and maintaining both Ecosense and Suntree baffle boxes. Suntree’s name, however, was not included.
Suntree sued Ecosense, Ecosense’s president and Derrico, alleging that their use of the Suntree trademark in bidding documents and in the PowerPoint presentation was likely to cause confusion as to the origin of the products to be installed, was false and misleading, and was likely to deceive consumers. Suntree filed a motion for summary judgment of trademark infringement, arguing that the undisputed facts in the record established the same.
After Derrico and Suntree settled, Ecosense and its president filed motions for summary judgment arguing that Derrico alone made the decision to list Suntree on the bidding documents, that the express terms of the bid documents required the contractor to list Suntree and that the bid documents expressly permitted post-bid substitutions of alternative suppliers. Ecosense also argued that the PowerPoint presentation was created for the training of existing customers and that there was no evidence that it caused any consumer confusion.
The district court granted summary judgment in favor of Ecosense and its president and denied Suntree’s motion for summary judgment. Suntree appealed.
On appeal, the 11th Circuit found that Derrico had not directly infringed Suntree’s mark by using it in its bid because Derrico was required to do so pursuant to the bidding documents. The court determined that there was no infringement by requesting a substitution of Ecosense baffle boxes after being awarded the contract because the bidding documents allowed for the substitution. The 11th Circuit further found that Ecosense did not infringe Suntree’s mark when it showed Suntree baffle boxes in its PowerPoint presentation because Suntree failed to present evidence that Ecosense had any intention to portray Suntree's product as its own. Thus, the 11th Circuit affirmed the district court's denial of Suntree’s motion for summary judgment and affirmed the grant of Ecosense’s motion for summary judgment.
Trademarks / Licensing
Broad Reading of Executory Contract when Trademark License Obligations Are Unfulfilled
by Ulrika E. Mattsson
In a case originating out of bankruptcy court, the U.S. Court of Appeals for the Eighth Circuit affirmed the bankruptcy court’s finding that a perpetual, royalty free, assignable, transferable, exclusive license granted as part of the sale of the business operations, assets and intellectual property associated with two bread baking brands was an executory contract. Lewis Bros. Bakeries Inc. v. Interstate Brands Corp., Case No. 11-1850 (8th Cir., Aug. 30, 2012) (Bye, J.).
In 1996, Interstate Brands sold its Butternut Bread baking business operations and assets in the Chicago area and its Sunbeam Bread baking business operations and assets in the Central Illinois territory to Lewis Brothers Bakeries. The parties entered into a license agreement, granting Lewis Brothers a perpetual, royalty-free, assignable, transferable, exclusive license to the brands and trademarks in certain parts of Illinois. In 2004, Interstate Brands filed for bankruptcy protection and later asserted that the license that was included with the sale of the two baking businesses was an executory contract because there were performance obligations on both sides, which if not performed, would excuse performance by the other side. Interstate Brands also asserted it would have the power to maintain or reject the deal in bankruptcy court. Lewis Brothers had previously agreed that it would be a material breach if it failed to maintain the character and quality of the goods sold under the trademarks in the license agreement and Interstate Brands had the standard obligations of notice, forbearance of licensing, and defense of the marks.
Lewis Brothers filed an adversary proceeding within the bankruptcy case for a declaratory judgment that the license agreement was not an executory contract. The bankruptcy court disagreed, holding that Lewis Brothers maintained obligations to, among other things, defend the trademarks and control the quality of the goods under the license agreement. The district court affirmed the bankruptcy court’s decision.
The 8th Circuit affirmed, holding that the license agreement was an executory contract because the parties maintained at least one remaining material obligation. The court followed Countryman for analyzing executory contracts, that is, the court analyzed whether obligations remain on both sides so underperformed that the failure of either party to complete performance of those obligations would constitute a material breach excusing the performance of the other. The 8th Circuit found that the obligations remaining on a license agreement entered into as part of the sale of a business was an executory contract. The court distinguished precedent from the U.S. Court of Appeals for the Third Circuit, Exide Technologies, on the grounds that Lewis Brothers, the non-debtor, maintained the obligation of the non-debtor to maintain quality standards.
Trademarks / Fraud on the U.S. PTO
The Eleventh Circuit Finds No Fraud on the PTO Where Declarant Had No Personal Knowledge of Use of Similar Marks
by Jeremy T. Elman
Addressing the cancellation of four word marks based on alleged fraud on the U.S. Patent and Trademark Office (PTO), the United States Court of Appeals for the Eleventh Circuit found that a district court clearly erred in ruling that the plaintiff, a religious organization, committed fraud where a declarant had no awareness that any other organization was using marks for which protection was sought. Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and Malta v. Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, Knights of Malta, The Ecumenical Order, Case No. 11-15101 (11th Cir. September 11, 2012) (Wilson, J.) (Pryor, J., concurring-in-part and dissenting-in-part).
The plaintiff is a religious order of the Roman Catholic Church that offers charitable services, while defendant is also a charitable organization, having an ecumenical, rather than Roman Catholic, association. The plaintiff filed trademark infringement and false advertising claims under the Lanham Act and state law claims based on the defendant’s use of word marks that were confusingly similar to the plaintiff’s registered marks. The plaintiff also claimed defendant falsely claimed a connection to plaintiff dating back to the 11th century. The defendant counterclaimed, asserting that the plaintiff committed fraud on the PTO for failing to disclose the existence of other organizations that used similar word marks.
The district court ruled in favor of the defendant on all counts, finding that the plaintiff committed fraud on the PTO based on the defendant’s use of a similar mark before the plaintiff. The plaintiff appealed.
The 11th Circuit affirmed in part, reversed in part and remanded for further proceedings. The fraud holding was based on a declaration in support of registration submitted by the applicant’s representative attesting that there were no similar marks under 15 U.S.C. § 1051 (a)(3). The 11th Circuit found that the representative could not have intended to deceive the PTO in attesting to an oath that he believed was entirely accurate, as he was personally unaware that any other organization was using the marks for which plaintiff sought a trademark.
The 11th Circuit found that it was error for the district court to rely on Global-Tech Appliances, a patent case, for the applicable standard for a claim of fraud on the PTO for a trademark. The 11th Circuit found that standards cannot be imported between different intellectual property, such as patents and trademarks. The appeals court also found that if a declarant subjectively believed the applicant has a superior right to use the mark, there is no fraud, even if the declarant was mistaken, such as in this case, where the defendant did not put forth evidence to establish that the declarant knew or believed that the defendant had a superior right to use the mark. The plaintiff’s relevant service mark registrations provided that the marks were first used in commerce in 1926 and 1927, well before defendant claimed to use its similar marks in 1983.
The 11th Circuit reversed the finding of fraud on the PTO and also remanded the trademark infringement claims because there were not sufficient factual findings by the district court as a result of the fraud finding. The 11th Circuit dismissed the false advertising claim because the defendant truthfully had represented that it shared a common predecessor with the plaintiff.
Copyrights / Publication
Eleventh Circuit Holds Not All “Internet” Distribution Is Worldwide Publication, Giving Rise to a United States Work
by Rose Whelan
In a suit involving allegations that Nelly Furtado’s song Do It illegally copied the musical work Acidjazzed Evening, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment for defendants based on plaintiff’s failure to register the copyright or prove it was exempt from that requirement as a foreign work. Kernel Records Oy v. Mosley, Case No. 11-12769 (11th Cir., Sept. 14, 2012) (Black, J.).
Prior to filing a lawsuit for copyright infringement of a United States work, the work must be registered with the Copyright Office. Owners of foreign works, however, may bring suit without first registering. A United States work includes works that are published either first in the United States or simultaneously in the United States and other countries. “Publication” is a term of art. A determination of where a work was first published requires both an examination of the method, extent and purpose of the alleged distribution to determine whether that work was sufficient for publication, and an examination of both the timing and geographic extent of the first publication to determine whether the work was published abroad.
In 2002, Glenn Rune Gallefoss created the musical work Acidjazzed Evening, which first appeared in the Australian disk magazine Vandalism News Issue #39. Plaintiff Kernel Records subsequently acquired the copyright on Acidjazzed Evening and brought suit against Furtado, music producer Timbaland, whose legal name is Timothy Mosley, and others alleging copyright infringement without first registering the copyright.
Defendant Mosley subsequently filed a motion for summary judgment alleging that Acidjazzed Evening was a United States work because Vandalism News was an internet publication and therefore Acidjazzed Evening was simultaneously published worldwide. Kernel opposed this motion by arguing that Acidjazzed Evening was first published in Australia on a physical computer disk and uploaded to the internet months later, i.e. not simultaneously. The district court granted summary judgment, finding that the record was clear enough to affirmatively establish internet publication. Given that Acidjazzed Evening was published on the internet, the district court found that it was published simultaneously worldwide, making it a United States work.
The 11th Circuit disagreed with the district court’s underlying rationale, but agreed with its ultimate finding. The 11th Circuit found that Mosley did not meet his burden of showing that Acidjazzed Evening was undisputedly first published on the internet. Even if he did, the court found, this alone could not definitively establish worldwide simultaneous distribution. In its reasoning, the court noted that “online” or “internet” distribution could occur through a number of methods, including through public websites, restricted websites, peer-to-peer networks or email, not all of which would constitute simultaneous worldwide distribution.
Although it disagreed with the district court’s rationale, the 11th Circuit affirmed its finding on alternative grounds. As plaintiff, Kernel bore the burden of proof that it had satisfied the registration prerequisite, or that it was exempt as a foreign work. Kernel did not adequately develop the record to establish that distribution of the Australian disk magazine was sufficient to constitute foreign publication. Accordingly, because Kernel did not satisfy the registration requirement or put forth sufficient evidence that it was exempt, the 11th Circuit affirmed summary judgment.
Copyrights / Statutory Damages
Eighth Circuit Approves Damages Against Individual Music Downloader
by Melissa Nott Davis
Addressing the issue of the due process clause’s interaction with statutory damages under the Copyright Act, the U.S. Court of Appeals for the Eighth Circuit ordered a private music downloader to pay $9,250 per downloaded song for a total of $222,000 in statutory damages. Capitol Records, Inc., et al., v. Thomas-Rasset, Case Nos. 11-2820, -2858 (8th Cir., Sept. 11, 2012) (Colloton, J.).
In 2005, six recording companies undertook an investigation of suspected infringement of their copyrighted music. The recording studios identified Jammie Thomas-Rasset as an unauthorized downloader utilizing KaZaA to share music. After settlement negotiations failed, the recording companies sued Thomas-Rasset seeking statutory damages and injunctive relief for willful copyright infringement. They alleged that Thomas-Rasset violated their exclusive right to reproduction and distribution under the Copyright Act by impermissibly downloading, distributing and making available for distribution 24 copyrighted songs.
The first jury found Thomas-Rasset liable for willful infringement and awarded the recording companies statutory damages of $9,250 per work, a total of $222,000. Thomas-Rasset moved for a new trial arguing that the amount of the statutory damages award violated her due process rights. At the second trial the jury again found Thomas-Rasset liable and awarded statutory damages of $80,000 per work, a total of $1,920,000. Post-trial, Thomas-Rasset argued that any amount of statutory damages was unconstitutional. The court declined to rule on the constitutionality issue and remitted the damages to $2,250 per work, a total of $54,000. The recording companies declined the remitted award and exercised their right for a new trial. The third jury awarded $62,500 in statutory damages per work, for a total of $1,500,000. The court again reduced the award to $2,250 per work, ruling that this was the maximum allowed under the due process clause. The court also entered a permanent injunction against Thomas-Rasset, but refused to include language enjoining her from “making available” copyrighted works for distribution to the public.
The recording companies appealed the limitation of statutory damages to $2,250 per infringed work. The recording companies asked the 8th Circuit to reinstate the original $222,000 damages award and remand with instructions to enter an injunction prohibiting Thomas-Rasset from making the copyrighted works available to the public. Thomas-Rasset cross-appealed, arguing that even an award of the minimum statutory damages authorized by the Copyright Act would be unconstitutional as against her.
The 8th Circuit held that the first jury’s statutory damages award of $9,250 per work did not contravene the due process clause, noting that statutory damages only violate due process if they are “so severe and oppressive as to be wholly disproportionate to the offense and obviously unreasonable.” The court noted that with the advancements in technology, copyright infringement through online file-sharing has become a serious problem for the recording industry. The court went on to note that Congress was “no doubt” aware of file-sharing when it revised the statutory awards authorized by the Copyright Act in 1999. The court rejected Thomas-Rasset’s argument that as an individual consumer illegally seeking free access to music for her own use, any award against her would be oppressive. The court similarly rejected Thomas-Rasset’s argument that the damages award was not based on any evidence of harm caused by her specific infringement. The court found that the damages award is “imposed as a punishment for the violation of a public law” and does not require a comparison to the actual damages caused by the violation.
Lastly, the Court remanded the case with directions to enter an injunction that forbids Thomas-Rasset from making any of the plaintiffs’ recordings available for distribution to the public through an online media distribution system.
Copyrights / Preliminary Injunction / Compulsory License
No Compulsory License for Internet Streaming
by Clifford R. Lamar II (Dale)
In an appeal of a preliminary injunction against ivi, Inc., the U.S. Court of Appeals for the Second Circuit found that internet streaming services are not entitled to compulsory licenses under 17 U.S.C. §111 of the Copyright Act for broadcast TV retransmissions. WPIX, Inc. v. ivi, Inc., Case No. 11-788-cv (2d Cir., Aug.27,2012) (Chin, J.).
In 2010, ivi began streaming live, broadcast TV signals over the internet to subscribers without consent of copyright owners. In response to cease-and-desist letters, ivi justified its service as being a “cable system” entitled to a compulsory license under §111. After less than six months in operation, the district court granted the copyright owners’ motion for a preliminary injunction to halt ivi’s internet streaming. ivi appealed.
On appeal, the parties did not dispute that ivi’s streaming internet retransmissions violated valid copyrights of the broadcast programming. Thus, the 2d Circuit considered whether ivi constitutes a cable system under §111. Section 111 defines a “cable system” as “a facility [that makes retransmissions of] signals or programs by wires, cables, microwave, or other communications channels.”
The 2d Circuit addressed ivi’s likelihood of success on the merits by applying the two-step Chevron test to determine whether §111’s compulsory licenses extend to streaming internet retransmissions. In step one, the court determined that the statutory language was ambiguous as to whether the internet could be a “facility” because the internet is not located in one place and the streaming retransmissions would inevitably flow through multiple servers. The court further determined that the legislative history was of little help for “other communications channels” because Congress had expressly codified other specific retransmission vehicles in §§111 and 119 without addressing the internet. The 2d Circuit found, however, that Congress did not intend for §111 to extend to the internet because doing so would not further the statute’s purpose of addressing issues of reception and remote access through a local service. Specifically, ivi’s streaming internet service merely addressed subscriber convenience through a national or international service.
In step two, the 2d Circuit determined that the Copyright Office has maintained that §111’s compulsory license is intended for localized retransmission services and that the internet should not be read into “other communications channels.” Since the Copyright Office does not have authority to make rules carrying the force of law, the weight afforded to its interpretation of §111 is based on the thoroughness of its consideration, reasonableness of its conclusions, and the consistency of its pronouncements. The 2d Circuit found that an analysis of all of these factors weighed heavily in favor of accepting the Copyright Office’s position as persuasive.
The court also found that the copyright owners would be irreparably harmed by ivi’s continued streaming internet service under a compulsory license because it would undermine the entire industry’s bargaining power with retransmission service providers. The 2d Circuit concluded that the final two injunction factors also supported the district court’s issuance of the injunction.
Copyrights / License
Fifth Circuit Looks to Totality of Parties’ Conduct to Determine Implied License
by Adam Auchter Allgood
Analyzing when an implied non-exclusive license can be granted, the U.S. Court of Appeals for the Fifth Circuit clarified that an implied license can arise not only in the context of a work-for-hire agreement, but wherever the totality of the parties’ conduct supports such an outcome. Baisden v. I’m Ready Productions Inc., Case No. 11-20290 (5th Cir., Aug. 31, 2012) (King, J.).
Author and nationally syndicated radio host Michael Baisden brought suit alleging that defendants infringed the copyrights in his books Men Cry in the Dark and The Maintenance Man by distributing videos of adapted stage plays of the same names. Baisden and I’m Ready Productions Inc. (IRP) entered into an agreement in 2001 that entitled IRP to distribute copies of the Men Cry DVDs for three years, which could later be extended by negotiation or by finalization of a third-party merchandizing agreement. In the summer of 2005, Baisden and IRP orally agreed to a second tour of Men Cry that would be governed by the same 2001 agreement. Later that year, IRP entered into a merchandizing agreement with distributor Image Entertainment, several months after the original three-year period concluded.
At trial, a jury found that valid agreements existed allowing the distribution of the videos and that no further money was due to Baisden. Baisden appealed.
Baisden argued that § 204(a) of the Copyright Act does not allow a transfer of copyright ownership without a written instrument; therefore any oral modification or agreement did not convey his copyrights to IRP. The 5th Circuit agreed, but pointed to its prior decision in Lulirama, observing that § 101 expressly excludes non-exclusive licenses from the § 204(a) writing requirement. Baisden attended showings of the 2005 stage play and autographed copies of the DVDs, had conversations regarding the DVD sales and also orally agreed to continue the relationship with IRP under the 2001 agreement. Since, under Lulirama, consent for an implied license may take the form of permission or lack of objection, the Fifth Circuit determined that Baisden’s knowledge and actions were sufficient for the jury to find that Baisden granted an implied non-exclusive license for continued DVD sales, which was not subject to the §204(a) writing requirement.
The 5th Circuit rejected Baisden’s argument that the test for implied licenses, as described in Lulirama, is restricted to work-for-hire agreements in which a licensee requests the creation of a work, a licensor makes the particular work and delivers it to the licensee who requested it and the licensor intends that the licensee-requestor copy and distribute the work. While those were the elements applied in Lulirama, the 5th Circuit determined that implied licenses could also arise in other circumstances if the totality of the parties’ conduct supported such an outcome. The 5th Circuit relied on a U.S. Court of Appeals for the Ninth Circuit decision, Food Consulting Group, for support that a copyright holder grants another a non-exclusive license if the totality of the parties’ conduct indicates intent to grant such permission.
Since there was an express license for distribution of The Maintenance Man recordings and an implied non-exclusive license for the Men Cry recordings, and because Baisden’s other arguments were unpersuasive, the 5th Circuit determined that the jury’s verdict was supported by substantial evidence and affirmed the district court’s judgment.
Right of Publicity / Judicial Estoppel
A Public Icon: Marilyn Monroe Estate Loses Appeal for Publicity Rights
by Elisabeth (Bess) Malis
Addressing the issue of judicial estoppel, the U.S. Court of Appeals for the Ninth Circuit affirmed that Marilyn Monroe’s estate is estopped from asserting the late actress’ rights of publicity under California law, finding that 40 years of judicial proceedings supported the late actress being domiciled in New York at the time of her death, a state which does not recognize posthumous publicity rights. Milton Green Archives Inc. v. Marilyn Monroe LLC, Case Nos. 08-56471, -56472, -56552 (9th Cir., Aug. 30, 2012) (Wardlaw, J).
In March 2005, Marilyn Monroe’s estate and its licensee sued Milton Greene Archives Inc. in Indiana claiming ownership of Marilyn Monroe’s rights of publicity and alleging that Milton Greene violated such rights by commercially exploiting Monroe’s image and likeness without authorization. Milton Greene countersued in California, seeking declaratory judgment that the estate did not own Monroe’s publicity rights. The cases were consolidated in California, where the lower court granted summary judgment in favor of Milton Greene. The lower court found that while California’s right of publicity statute would have permitted Monroe’s right of publicity to pass to the estate through the residual clause of Monroe’s will, the estate was judicially estopped from advocating that Monroe was domiciled in California when she died. Monroe’s estate appealed.
The 9th Circuit affirmed. Describing the case as a textbook case for judicial estoppel, the 9th Circuit found that Monroe’s estate was precluded from taking a plainly inconsistent litigation position that Monroe died domiciled in California when it had consistently argued that Monroe was a domiciliary of New York in 40 years of judicial proceedings. From 1962 until his death in 1989, the original executor of Monroe’s will, Aaron Frosh, repeatedly argued in judicial proceedings that Monroe was a New York domiciliary at the time of death. Following his death, Anna Strasberg (a party in the instant case) became executor of Monroe’s estate and successfully defended the estate against an inheritance lawsuit in 1992 by representing that Monroe died domiciled in New York. Reasoning that privity lies between an administrator of an estate and the beneficiaries of the estate for estoppel purposes, the 9th Circuit held that the representations made by Frosch and Strasberg are attributable to the estate. The 9th Circuit also found that the lower court’s conclusion that permitting the estate to assert that Monroe died a domiciliary of California would unfairly allow it to obtain a second advantage by gaining the immense value of Monroe’s publicity rights, which were valued at $27 million in 2011, was supported.
The 9th Circuit affirmed the lower court’s grant of summary judgment in favor of Milton Greene, to dignify the several decades of judicial proceedings and to discourage litigants from “playing fast and loose with the courts.” The court found that, as Monroe died domiciled in New York, and as New York does not recognize a postmortem right of publicity, the estate did not inherit such rights through Monroe’s will and cannot enforce them against others.
Right of Publicity
Chuck Yeager’s Right of Publicity Suit Will No Longer Fly in the Ninth Circuit
by Sarah Bro
Addressing several claims stemming out of an allegedly unauthorized publication of signed memorabilia on a website, the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s summary judgment ruling in favor of the defendants with respect to numerous claims, finding Chuck Yeager’s submitted declaration to be a sham. Yeager et al. v. Bowlin et al., Case Nos. 10-15297, -16503 (9th Cir., Sept. 10, 2012) (Tashima, J.).
General Charles E. “Chuck” Yeager is a recognized figure in aviation history—most notably for his status as the first person to fly faster than the speed of sound. In 2008, after the breakdown of an agreement between Yeager and the defendants regarding various items signed by or affiliated with Yeager that were sold through the defendants’ memorabilia website, Yeager brought 11 claims against the defendants accusing them of exploitation of Yeager’s name and image.
In the district court, the defendants moved for summary judgment, arguing that the right of privacy and Lanham Act claims were barred by the statute of limitations due to California’s single publication rule. Under California law, the single publication rule provides that no person shall have more than one cause of action for damages for invasion of privacy or any other tort founded upon any single publication or exhibition or utterance, such as any one issue of a newspaper or book or magazine or any one presentation to an audience.
In opposition to the summary judgment motion, Yeager filed a declaration containing facts that Yeager did not provide during his deposition. During the deposition, Yeager claimed that, even after reviewing numerous exhibits to refresh his memory, he did not recall facts necessary to answer approximately 185 different deposition questions, including information regarding high-profile events such as a plane crash.
On appeal, Yeager argued that the district court improperly dismissed his declaration as a sham affidavit that contradicted his prior deposition testimony. The 9th Circuit, however, affirmed the district court’s striking of the affidavit, noting that the new facts and information recalled in the declaration were so extremely different from Yeager’s deposition answers that the two had to be viewed as contradictory. Thus, the 9th Circuit found that no juror would believe Yeager’s “weak explanation for his sudden abilities to remember the answers to important questions about the critical issues of his lawsuit.”
With respect to the statute of limitations issue, Yeager claimed that the two-year limit on bringing claims under California’s common law right to privacy and California’s statutory right to publicity was not exceeded despite the fact that the “publication” of the statements at issue on the memorabilia website occurred five years before Yeager filed suit. Yeager argued that the defendants’ website was “republished,” thereby restarting the statute of limitations, each time the defendants added to or revised the content of the website, even if the new or revised content did not pertain to Yeager.
After reviewing numerous prior decisions regarding republication on the internet, the 9th Circuit found that, under California law, a statement on a website is not republished unless the statement itself is substantively altered or added to or the website is directed to a new audience. Since the defendants were able to prove that they had not taken any substantive action with respect to the website content regarding Yeager since 2003, Yeager’s 2008 claims were barred by the statute of limitations, and the Court affirmed the district court’s summary judgment ruling.
Trade Secrets / Non-Disclosure Agreement
For a Product to Be “Derived from” Another, It Must Copy Novel Aspects of the Original Product
by Melissa Nott Davis
Evaluating claims of a breach of a non-disclosure agreement, the U.S. Court of Appeals for the First Circuit reversed a district court’s issuance of an injunction as to certain products, finding that violation of a non-disclosure agreement (NDA) required appropriation of a novel aspect of the underlying technology. Contour Design, Inc. v. Chance Mold Steel, Co., Case Nos. 12-1110, -1185 (1st Cir., Sept. 4, 2012) (Dyk, J., sitting by designation).
In 1995, plaintiff Contour and defendant Chance entered into contract negotiations for Chance to manufacture ergonomic computer mice for Contour. The parties executed a non-disclosure agreement in which Chance agreed not to disclose Contour’s confidential information related to ergonomic computer mice and not to duplicate, produce, manufacture or otherwise commercially exploit products derived from Contour’s products. From 1995 to 2009, Chance manufactured products for Contour. As part of the product development, Chance would work from a prototype supplied by Contour to create electronic files that could be used to create molds for mass production. Contour stopped placing orders with Chance in 2009 after Chance began to sell its own competing product, the ErgoRoller. Contour alleged that Chance’s ErgoRoller product violated the terms of the NDA and that Chance misappropriated Contour’s trade secrets.
At trial, the jury found for Contour on its trade secret misappropriation and contract claims, awarding $7.7 million in compensatory damages. The district court also entered a permanent injunction for the breach of the NDA, barring Chance from selling any products, including the ErgoRoller, derived from Contour’s products until the expiration of the NDA in 2015. Chance appealed.
The 1st Circuit reversed the injunction as applied to Chance’s ErgoRoller, finding it did not violate the terms of the NDA. The 1st Circuit considered district court’s finding that the ErgoRoller was “derived from” a Contour product, which was the sole basis of the injunction. The 1st Circuit, looking to patent law to determine the meaning of the term “derived from” as used in the NDA, found that it was clear that the ErgoRoller is not simply a copy of Contour’s product. The size, shape and number of buttons were different, and the parties had stipulated that the software, electronics and electrical design were independently developed by Chance. The court found that, absent more explicit language in the NDA, for a product to be “derived from” confidential information at the very least requires appropriation of some novel property of Contour’s products. The 1st Circuit found that Contour failed to introduce any evidence of a novel property that had been incorporated into Chance’s ErgoRoller product, and, accordingly, failed to prove that the ErgoRoller was derived from a Contour product in violation of the NDA.