SCIPR: statistics and preview of next Term

Posted on September 12, 2014 by rtushnet
Supreme Court Analytics on the Past Term
Professor Edward Lee, IIT Chicago-Kent College of Law
Professor David Schwartz, IIT Chicago-Kent College of Law
Small sample!  6 patent cases from Fed. Cir., 5 reversed and 1 affirmed; 2 reversals in © cases; 1 reversal/1 affirmance in Lanham Act cases.  Overall 73% reversal of all cases incl. non-IP. Fed. Cir. may be special case b/c circuit splits aren’t an issue so they may be more likely to take cases they’re going to reverse.  Alice was affirmed, but it was of a 6-6 ruling that upheld the district court.  And when Lanham Act case was affirmed, the Court rejected the test used by the circuit court.
All 6 patent cases and both Lanham Act cases were unanimous; both © cases were 6-3.  Overall, Court was 66% unanimous including non-IP.  Voting alignments: Ginsburg-Sotomayor-Kagan were 100% in majority and together; other axes were Roberts-Kennedy-Breyer and Scalia-Thomas-Alito. SG participation: SG on winning side 7 times, not in Pom Wonderful.  Except in Alice, respondent received more questions in oral argument (or the same number); losing side always got more questions.
Rise in IP cases over last few years.  Bounces around over last 50 years, but in last decade there’s a relatively large increase from 2-3 year to high water mark of 10 and 6-7 a few years in a row.  Growth especially in patent cases.
Q: why?
Schwartz: Patent law is more in the news, possibly. Justices think the Fed. Cir. is getting it wrong.  Patent bar is more active in persuading Court that patents matter—cf. Kappos’s statement about the importance of IP to the economy.
Preview of the Upcoming Term: Cert. petitions granted & to watch, Supreme Court IP practice
Hana Financial, Inc. v. Hana Bank (Whether the court or the jury determines if use of an older mark may be tacked to a newer one.)
B&B Hardware, Inc. v. Hargis Industries, Inc. (Whether the Trademark Trial and Appeal Board’s finding of a likelihood of confusion precludes respondent from relitigating that issue in infringement litigation, and, if not, what deference should the trial court give to the TTAB finding.)
Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. (Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires—and as the panel explicitly did in this case—or only for clear error, as Federal Rule of Civil Procedure 52(a) requires.)
Moderator: Professor Christopher Schmidt, Director, Institute on the Supreme Court of the United States (ISCOTUS), IIT Chicago-Kent College of Law
Panelists: Thomas Saunders, Counsel to POM Wonderful, Partner, WilmerHale LLP: Hana, TM tacking.  Priority of use is very important. Shouldn’t sacrifice rights from small adjustments to TM over time.  Very strict doctrine—some changes lead to lost ability to tack rights to prior mark.  Two marks should be “legal equivalents” for tacking purposes.  Question: who makes the determination, the judge or the jury?  9th Cir. says circuits take different approaches to whether confusion is an issue of law or fact; we think the same sort of issues come into play w/tacking so we say it’s an issue of fact.  Watch for: (1) Unlike IP cases without a split, this has a classic split and is harder to predict.  (2) Because of the likely confusion overlap, there’s a question of whether the back door issue of this case is how likely confusion should be treated. The way the case is being argued tends to delink those standards.  Emphasis on the particular aspects of tacking that might distinguish it.  (RT: But the Court in IP cases often goes beyond what the parties argued, as occurred in Wal-Mart, for example.)
B&B v. Hargis: TTAB deference.  Prevailing party in TTAB says you’ve had your chance to litigate so we win likely confusion if you don’t stop use.  8th Circuit says no.  One argument: if you give deference to another circuit whose confusion test differs somewhat, why wouldn’t you defer to the TTAB even if its confusion test differs somewhat as well?  So again, SCt may take up the broader issue of what the likely confusion standard is—whether all the circuits’ tests are essentially directed to the same thing even if they differ in wording.
Professor Peter Menell, University of California Berkeley School of Law: Teva v. Sandoz: very important case about case management.  Markmandéjà vu.  Fed. Cir. held to the idea that it was a question of law, though SCt called it “mongrel,” and treated it as subject to de novo review. This has been very controversial in the Fed. Cir.  Dct judges claim vehemently that this usurps their power/ability to put together a record and learn the science and tech. Resulted in very high reversal rate, at least initially; come down quite a bit, but not because the Fed. Cir. is now finding the dct gets the right answer but is rather losing interest.  Fed. Cir. is reviewing cases with mixed questions w/o much of a record, because dcts fear writing anything down.  A black box.  SCt will answer whether this is a Q of law.  Do dcts have a special role in finding factual Qs?  Dcts often don’t have special insight into what PHOSITA was like at the time of prosecution.
Strongest argument for affirmance: a lot of big tech companies don’t trust district judges and want second bite at apple.  He thinks that there should be a reversal but there’s a political element. Comes down to whether SCt thinks EDTex or Fed. Cir. is the more renegade jurisdiction.  He thinks: ultimate question is mixed question, and Fed. Cir. can always review that—if dct diverges from prosecution history, for example. But subsidiary questions like what a skilled worker would know are issues of fact. Issues are often not technical in a scientific sense but in a patent drafting sense, and the Fed. Cir. and SCt haven’t confronted that.  If reversed, dramatic effects on claim construction procedure: leeway to do evidentiary hearings and build a record.
Domenic Perella, Counsel to Highmark Inc.; Partner, Hogan Lovells LLP: Layman’s perspective on Teva.  Meaning of a document = generally a question of law.  If that’s not actually what goes on for people on the ground construing a patent, that’s important to educate the Court on, and he thought the topside briefs did a good job—what happened below was not legal interpretation but gathering of facts.
Mark Perry, Counsel to CLS Bank International, Partner, Gibson Dunn LLP: SCt has shown interest in nuts and bolts of federal procedure/practice, and all these cases are about proper allocation of authority of stakeholders in IP: jury/court, agency/court, dct/appellate court. Past Term: statute of limitations, discovery, tolling—Court has a renewed interest in these issues.
Jameson Jones, Counsel to Static Control Components, Partner, Bartlit Beck LLP: Ultimately Teva may not give a lot of guidance; it could say that the facts are very narrow—could be limited to “is molecular weight calculable in a number of different ways?”  How broadly you go with inferences from facts as legal ultimately will determine importance of case.
Menell: a lot of Markmancases are about ordinary terms interpreted in the context of the claim; scientists may read differently than we do, whereas they often agree on the meaning of exotic terms.  It may be true that statutory/contract interpretations rarely involve that kind of dispute over meaning of terms, but patents do.
Constantine Trela, Jr., Counsel to Alice Corp.; Partner, Sidley Austin LLP: Meaning of a term to a practitioner at the time is a legal issue b/c it’s the ultimate issue in the case.  If so, Fed. Cir.’s legal sails may not be much trimmed.
Menell: Ultimate Q is how you take what people think and nest it w/in the patent claim and specification. That’s where you get the room for Fed. Cir. to intervene.  Battle of experts is something dcts deal with all the time.
Q: why so many IP cases?
Menell: Court engaging in gap-filling exercises.  If you look at reform proposals from 10 years ago, the AIA only dealt with ½ the issues; the others were dealt with by the SCt or the Fed. Cir.  SCt had ignored patents but has now engaged; feel a responsibility to this area of the law. The beatings will continue until people behave/until the sense that the patent system is out of control dissipates.  Patent office has really cut back in the last year; there’s still enough mischief out there to see more patent cases.  Harder to see systematic source of cases for © and TM.
Perella: surges occur in many kinds of SCt cases—criminal, etc. Then the ripples dissipate.  Similar here.
Perry: disagrees. We’re watching a transformation of the economy into information-based, tech-based and the stakes are so high that an area of the law that used to be the province of subject matter experts in small regional firms is completely different now.  Multibillion-dollar cases being litigated w/huge downstream consequences. Congress has written into law a guarantee of litigation almost impossible to settle as part of Hatch-Waxman, so now it’s part of the business model.  Cellphones: at each other hammer and tongs.  So much economic incentive to sue.
Saunders: you get lots of reversals of the Fed. Cir. but with a vague standard, which puts authority back into the hands of the Fed. Cir. which has to interpret the standard in the average case. 

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SCIPR: false advertising

Posted on September 12, 2014 by rtushnet

Lexmark Int’l v. Static Control Components (Standard for determining standing for false advertising claim under the Lanham Act.)
POM Wonderful v. Coca-Cola (Standing under the Lanham Act to challenge food or beverage label as false or misleading though regulated by the Food, Drug, and Cosmetic Act.)
Moderator: Scott Burow, Partner, Banner & Witcoff Ltd.: is the new test in Lexmark, zone of interests plus proximate causation, better?
Panelists: Jameson Jones, Counsel to Static Control Components, Partner, Bartlit Beck LLP: Yes.  Focuses back on text and history of statute more than some unmoored 5-factor test.
RT: real Q is what proximate causation will mean. Will a competitor w/20% market share be able to plead proximate cause from false advertising by another competitor w/20% market share.
Thomas Saunders, Counsel to POM Wonderful, Partner, WilmerHale LLP: Static Control had huge market share according to SCt.  Big question mark remains.
Jones: definitely open-ended.  Background principle for all federal statutes.  Interesting parallel w/RICO cases.  Cts of appeals had developed theory of RICO standing, and SCt just decided that proximate cause was the right standard. Reputational interest in subject matter = generally proximate cause.  Small market player when someone else is falsely touting themselves = maybe you have trouble.  Suppliers to Static Control = not be able to establish proximate cause.
RT: worry about not allowing producers in competitive markets to sue, since they don’t have huge market share. Cause of action shouldn’t be reserved for monopolists/near monopolists.
Q: consumer standing?
Jones: SCt was clear, no. Defensible line in context of how Lanham Act came to be. Designed to enforce treaty obligations to protect people who entered the US market.  “Those engaged in commerce.” 
Saunders: “any person” language—as outside observer: opinion doesn’t like language of prudential standing.  Zone of interest = look at statute. But then you have very broad statutory language, to which they didn’t give effect.  What supplies the context/content?
Jones: text, context, history of statute. SCt has long history of saying “any person” doesn’t mean “any person.”
RT: protecting consumers was part of the text, context, and history. And consumers  also engage in commerce.
Jones: state consumer protection acts give protection anyway. Sellers need uniform federal remedy.
Q: will judges have more discretion to throw out claims?
Jones: not more than prior tests, especially reasonable interest circuits or Conte Bros.circuits.
RT: real issue is pleading standards. Some courts accept allegations of damage, others require further allegations.
Q: who’s in better position to enforce the law, FDA/private party?
Saunders: Private party. FDA is focused on health/safety, limited enforcement resources and information.
RT: not a competition. Some things FDA is needed for. Don’t want to denigrate FDA’s capabilities.
Saunders: complementary: not a preapproval regime where FDA looks at every label.  Pom has its own research surrounding pomegranate juice and a 100% product; Coca Cola’s cheaper product deceives consumers into thinking they’re getting the premium product not apple and grape.  Different from FDA’s separate health concerns.
RT: also FDA has interest in consistency/consumers’ ability to rely on statements being the same across different foods.  Adding information into the market.
Jones: if FDA requires something, Lanham Act couldn’t require its removal.
Q: Kennedy says competitors know more about the market.
Saunders: certainly right.  It’s really less about undermining FDA than national uniformity: what if one jury says label should’ve been larger and another says something different. Coca-Cola’s argument was let FDA be the centralized figure answering the question.
RT: FDA does know stuff about the market; they generalize: small print doesn’t work generally; don’t need a study specifically about yours.  Don’t threaten that!
Saunders: Preclusion remains. Express preemption for certain state law claims.  Opinion’s discussion of uniformity: standards based approach can be applied by individual juries but can be nationally uniform if it comes from one statute, like the Lanham Act.
Q: more cases?
Jones: modest uptick. Not necessarily huge.
Saunders: litigation economics matters. Still might not make sense to sue over low-level harm. Or more as an added claim in an existing case. The cases before the Court are big deals for the core businesses of the Ps.
RT: compare Dastarand Wal-Mart: Court sent strong signals about narrowness and here breadth of statute.  Seeing similar use of Pom Wonderful and Lexmark: introductory statements about breadth of statute are picked up in other cases not really about the same things.
Jones: publicity matters; being in the SCt matters.
Q: did Lexmark weaken reliance on prudential standing?  Declaratory judgments maybe.
Jones: Designed to give guidance across fed statutes.  Court signals that it hates prudential standing as a term because it suggests judicial freedom, but it’s a similar inquiry w/different words. Shift in focus/semantics. Proximate causation still remains an issue.
RT: lower courts are clearly ignoring that semantic shift.  Substance: Starting to see sporadic use of the zone of interests/proximate cause test in TM, but not much yet. Can imagine it increasing.
Ed Lee: is the bottle misleading?
Jones: yes. Surprised at how little pomegranate juice was in it.
RT: Justice Kennedy clearly thought it was a fraud.  Conventional wisdom: if the judge thinks it’s deceptive, it is, reasonable consumer standard aside.

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SCIPR: patents (Alice/Nautilus)

Posted on September 12, 2014 by rtushnet
Alice Corp. v. CLS Bank (Patentable subject matter of software-related inventions)
Nautilus v. Biosig Instruments (Patent indefiniteness)
Moderator: Thomas Pasternak, Partner, Steptoe & Johnson LLP
Panelists: Constantine Trela, Jr., Counsel to Alice Corp.; Partner, Sidley Austin LLP: Alice: We know that reciting computer components isn’t enough. Improving the operation of the computer, data handling, etc. seems to be PSM. Big area in between; not a lot of guidance on that. 
Mark Perry, Counsel to CLS Bank International, Partner, Gibson Dunn LLP: Is there enough guidance?  There is important guidance, but how much is enough?  SCt has been incremental.  Deliberatelytried not to craft a fit-every-case, answer-every-question standard.
Professor Rebecca Eisenberg, University of Michigan Law School: we need to go back to Diamondto find a clear statement of what isPSM (other than cDNA); hopefully this will eventually show up with software.  Not very illuminating.
Professor Ronald Mann, Columbia Law School: disappointing pattern: take big cases, then become scared that they’ll ruin the economy if they say something big and say as little as possible. Fed. Cir. then tries to deal with it and eventually the opinions from Fed. Cir. make no sense because each judge is trying to pick the language from  the previous SCt opinion that they think is really the test. 
Perry: problem is in part overthinking. Bugs in the forest = not patentable.  Bugs built in the lab = patentable.  Economic principles = not.  But, you can find sentences in every opinion that will support anything and throws it open to the litigators.
Trela: Fundamental problem: if abstract idea is the trigger, Court is incredibly unclear about what an abstract idea is. Economic principles everyone knows may be obvious, but does that make them abstract? Algorithms, formulas, natural laws: rationales given for unpatentability are about withdrawing things from the storehouse of human knowledge, inherent in nature/mathematical relationships. Makes sense doctrinally, but when you get to economic concepts, they may be obvious, but if I come up with a wild idea like “make energy from cigarette butts” I may have an implementation problem but I haven’t withdrawn anything from the storehouse of human knowledge.
Perry: Part of the problem is, as Prof. Eisenberg said, that they’re working through the problem by telling us what’s not PSM but not what is. Fear of foreclosing technologies they don’t understand (cf. Aereo discussion at oral argument).  Doing it with a computer = not inventive because they have computers.
John Vandenberg, Counsel to Nautilus, Inc., Partner, Klarquist Sparkman LLP: SCt sees patents as a two edged sword. Q is whether the benefit from allowing claims of this sort outweighs the risk. 
Eisenberg: inventive concept is an unfortunate term.  Leaves impression that it’s more like 103, not what the Court intended.  PTO’s guidelines have offered a bunch of alternative factors to see whether there’s enough there beyond excluded matter.  If we had a clearer understanding of what an abstract idea/natural law/natural product maybe we wouldn’t have to collapse 101 into a seat of the pants 103 analysis.
Mann: abstractness may provide a less institutionally well suited way to dispose of cases than the other bars.  Judges say “this doesn’t sound inventive” but what do they know about business software?  It’s inherently situational.  Could use more contextual knowledge.
Eisenberg: agree (on this).  More interested in that on the nature side than the abstractness side. 102 has a discipline for figuring out the state of human knowledge to guide decisions, provide source of information. By contrast there’s no guide to figuring out what nature knows—isolated DNA is naturally occurring, but cDNA isn’t, per amicus briefs.  Imagining a magic microscope, but how do we know what that reveals?  We only have real microscopes.
Perry: only a problem at the tail end of the distribution (general groaning results).
Vandenberg: software patents no longer make sense for a small business—even if you get through the PTO you might be challenged.
Eisenberg: the only cases we’ve seen have been computer implemented business methods rather than broader software, but her expectation is that broadly claimed software patents are in trouble.
Mann: some patents are very specific, and we haven’t had cases about electronic inventions. Smartphone patent—completely intangible/electronic, but actually applied—you might see the Court have the nerve to say something’s patentable.  The patent in this case seemed the same as the patent in Bilskito them. They think the case means ‘we really meant it in Bilski.’
Perry: Google, BSA, etc. filed on the Bank’s side; didn’t view the case as threat to their industry, though some of them aren’t patent-reliant companies.  (Note from someone, sorry, that Microsoft is a defendant in half the software patent cases.)
Q: turn to Nautilus.
Vandenberg: Fed. Cir. test: if claim was amenable to construction, and not insolubly ambiguous, that was enough.  That language was curious and sent a message to trial courts that they shouldn’t waste time on indefiniteness. Chance of being reversed on claim construction is high enough anyway.  Only in means plus function was Fed. Cir. rigorous.  SCt: no one defended insoluble ambiguity.  We think Nautilus means not a post hoc approach. Not can you figure out, but can a follow on innovator look at the patent the day after issue and have reasonable certainty what’s covered.
Trela: Claim construction in theory tells you what claim meant to person of ordinary skill at the time. It’s only post hoc in the sense that all litigation is post hoc. What’s wrong with looking at claim construction?
Vandenberg: our patent was out of reexamination; pretty established that if you have reexamination you get to use the history of that too.  You can’t have a crystal ball to figure out what will happen. Fed. Cir. said “it’s clear because the reexaminer accepted this argument.”  Claim construction can be very hard; fact that it can be done shouldn’t tip scales against a finding of indefiniteness. There’s always a right construction, even when there isn’t really: because the claim must be construed.
Eisenberg: in order to exercise active appellate review, Fed. Cir. and SCt want to attribute meaning to the claim language; it becomes hard to say “this is ambiguous” even when a dct assigns one interpretation and a split appellate panel gives 2 more.  That’s ambiguity; if 3 different views are possible after studying the patent closely, then, even if each one is confident, indefiniteness exists. Likes focus on claim language as central and important and something applicants can do better on.
Mann: example of legal sociology.  What’s the difference between SCt standard and Fed. Cir. standard?  Probably nothing. Just keep “insolubly ambiguous” out of it.  They’ve accomplished a change in the status quo: dcts were told that if they invalidated on indefiniteness grounds they’d be reversed; now they won’t (necessarily) be.
Perry: this, unlike Alice, is really designed to influence primary conduct of patentees. Encourages them to write better and more claims.  Eisenberg mentioned claim by claim approach; we’ll see some claims getting wiped out while others survive. This ought to produce better patents down the road.
Mann: best part of briefs were discussion of the incentive to write indefinite claims in the hope that 20 years from now it would cover something.  That had a real effect on the Court.
Vandenberg: praises Gibson & Dunn for partnering on the briefs, but as a patent lawyer he contributed, among other things, a book of advice to patent lawyers/treatises & articles about the importance of including ambiguous claims. More ambiguous = more powerful, harder to innovate around; the zone of uncertainty was deliberate, and the Fed. Cir.’s standard encouraged that kind of practice.

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SCIPR: David Kappos keynote

Posted on September 12, 2014 by rtushnet
Keynote Lecture: “Stalemate or Statesmen? What Is Needed to Move Forward Constructively with the Balancing of America’s IP System”
Speaker: David Kappos, Partner, Cravath, Swaine & Moore
We’ve demonstrated ability to achieve stalemate. Not likely to change unless we step back from political fray and bring diverse but not incompatible interests together.  IP-intensive industries provide millions of jobs.  But that doesn’t mean that all is perfect in the underlying system. They said the AIA couldn’t be done, but it was—now how do we fix patent litigation?
There’s no solution to stop all aggressive litigation tactics that won’t marginalize the patent system to the point of irrelevance. One person’s abuse is another’s defense of a right. Americans have always been litigious. 
Judges can do a good job within the system: we had hot debates over things like the standard for obviousness and royalties in patent cases.  We ultimately found ourselves at an impasse, but the Court stepped in and in major decisions completely solved various problems.  KSR (obviousness); Seagate(willful infringement); eBay(injunctions); etc. Same scenario now: Court is addressing remaining challenges in litigation.  Participants in the debate naturally want more.  Some say court decisions aren’t as permanent as legislation, but permanence improves over time as judicial precedent takes shape.  But legislation is needed to address problems the courts can’t.
Topic 1: fee-shifting.  Helpful decisions have emerged since Octane Fitness.  Cal. ct. ordered a company to pay fees after it filed an unreasonable infringement suit.  Judge considered whether P’s attys should be sanctioned for filing an unreasonable suit. The better part of valor is to let the system work. Don’t act preemptively.
Topic 2: demand letters. Pending troll bill substantially addresses this issue.  One person’s aggressive demand letter is another’s defense of her property. Troll bill does what reasonably can be done.
Topic 3: discovery.  Legislative provision should be aspirational (respect separation of powers)—heighten pleading requirements where sensible but using Judicial Conference as implementation vehicle for staging, etc.  Wouldn’t be panacea but would have virtue of leaving decisionmaking authority to those best suited to react to particular circumstances in front of them. It’s true courts have had time to deal with these issues but haven’t, but it’s also true that courts are more focused on these issues than in the past. Congressional encouragement would give reason to fix it themselves. 
Topic 4: covered customer stays. Retailers, coffee shop owners etc. want to be left out of suits targeting their off the shelf tech products.  Seems logical at first that such users should be dismissed. Problem: many technologies are highly customizable and it’s difficult for a fixed statute to figure out if an infringement is inherent in an acquired IT solution, or whether the situation is caused by aftermarket user modifications, in which case the user shouldn’t be permitted to walk away. A bright line can be drawn, but customer added modifications are too complex/varied for any bright line rule.  Fortunately, courts have stepped in.  June: Nintendo and 11 retailers won a writ of mandamus from Fed. Cir. instructing dct to sever and stay claims of patent infringement against retailers while case against Nintendo proceeds.  Drew a distinction b/t manufacturer of potentially infringing game and retailers.  Demonstrates the courts generally know how to deal with customer stay petitions and law already provides for proper handling—mere retailers have succeeded in 18 of 24 motions to stay filed in the last 15 years.  A calibrated solution is in order for the limited issues with covered customer stays.
Topic 5: CLS Bankand Myriad: While fixing law, why not deal with cases where courts have stuggled with policy and tech and provide guidance in what’s plainly legislative territory? Congress has declined for over 200 years to enact limits on PSM except in most extreme cases.  SCt has heard 9 cases in last 50 years over PSM, creating a hash of decisions that can’t be reconciled.  Bilski, Prometheus, and the other 2 finally appear to be circling around the best available standard, abstractness. This isn’t objective, admittedly, and hard to charge patent examiners with it.  Currently: A coarse test that eliminates only the clearest of infractions; overreliance on §101 is dangerous to our country’s economic health. Codifying abstractness narrowly could, in one step, steer away from overreliance on §101 and reassure innovators that breaking new ground in biotech, 3D visualization, etc. is every bit as inventive as others.
Topic 6: Nautilus: Decisive action where it is needed to reenergize requirement clear disclosure of claims and specifications as part of the bargained-for exchange that is the patent system.  Codification of claim definiteness would do as much to curb abuse as any of the proposals debated this year.
Topic 7: PTO funding.  Fees should be retained. This would do more for job creation/economic growth than any other patent reform proposal currently on the table. If granted access to user fees, USPTO is in position to hire, train and retain a quality workforce granting quality patents that are defensible and not used as tools of abuse.  Make the USPTO’s own resources available to the agency, increasing speed andcare.
Q: how can Chicago IP community get more involved in patent reform?
A: academics focused on data-driven research.  Study from last year, in part from Chicago-Kent, going through the so-called dramatic increase in litigation, revealed to the world that this wasn’t just trolls but was more complicated, was a breakthrough.  Raising your voice to support that.
Rebecca Eisenberg: codification of abstractness as imperfect but best we can do.  But it seems like it was the only thing the SCt could agree on because they didn’t want to adopt any new nonstatutory limits.  But if you’re going to Congress, Congress could do more than shovel computer programs into abstractness which previously was about E = MC2 and the like. Why codify something so flawed?
A: The most difficult issue that faces our patent system right now.  Big regret: shouldn’t have left §101 at the beginning of the patent statute, as if it was Contracts 101.  It should be the backstop and not the first stop.  102, 103, and 112 examination is sufficient—if you pass those, 101 should be no problem. 101 is the hardest place to try to craft clear standards.  You should almost never reach it, and PTO almost never does.  Abstractness is the best courts have come up with; if we try to move to something more precise and clear, we’ll find as we did in © that we can’t anticipate the future. Our great strength is flexibility—avoid the temptation to tie things down too quickly in patent law.  Flexibility means ambiguity; we have to come to grips with that. A very generic term like abstractness or something similar is about the best we can do; need to settle the issue and keep moving.

My one comment: it’s interesting that I’ve heard nothing about design patent here.  The cases haven’t (yet) reached the Supreme Court, but when we talk reform, design patent should probably be on the agenda too.

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SCIPR: Aereo

Posted on September 12, 2014 by rtushnet
ABC, Inc., v. Aereo, Inc. (Aereo’s Internet streaming of local TV broadcasts to individual subscribers is a public performance.)
Moderator: Bart Lazar, Partner, Seyfarth Shaw LLP
Panelists: David Frederick, Counsel to Aereo Inc.; Partner, Kellogg Huber Hansen PLLC: There’s a lot here for all sides. Plenty of broad language, but a lot of caveats that suggest that in the long run this is a one-trip only train ticket: for services that look like cable. Broad definitions of public performance get undercut by later parts of the opinion.  Surprised that J. Breyer was in the majority.
Paul Smith, Counsel to petitioner broadcasters; Partner, Jenner & Block LLP: Agreed about Breyer.  Statute is written very broadly to cover anyone who tries to build a business on retransmitting broadcast television.  Various caveats about the cloud.
Professor Peter Menell, University of California Berkeley School of Law, who co-authored an Amici Curiae brief in support of Petitioners ABC and others: also surprised about Breyer, famous for skepticism about ©. Saw it as statutory construction case—dueling about broader issue than ©–textualism v. purposivism.
Professor Rebecca Tushnet, Georgetown University Law Center: yep. Opinion somewhat at war w/itself b/c first part is textualist.
Q: language is unclear, according to majority. Agree?
RT: both views produced unacceptable results in some circumstances.  I think this is best explained as a copyright evasion theory, on the order of tax evasion v. tax avoidance.
Menell: statute is 40/50 years old (this language); would have been heroic to anticipate.  Congress also expected purposivism at that time. Judges trying their best—unusual leg. History intertwined w/two SCt decisions.
Smith: statute was written as broadly as it could have been incl. new technologies that might be invented.  Don’t get this kind of provision any more, but the function of retransmission ought to be licensed.  Don’t agree it’s ambiguous. Other tech used as scare tactic.
Frederick: 2d Cir.’s Cablevision case (great puzzle of this opinion is what’s going on w/Cablevision) had a great statutory analysis of the transmit clause and contradiction in position over whether what’s being transmitted is a performance or a copy of a performance. That inconsistency was fatal to transmit argument, we argued.  The statute itself doesn’t cohere in the same place/different places/different times clause—there’s a null set in the last part of the clause.  Which way does that cut? When there’s ambiguity in a property conferring statute, ordinarily the alleged infringer is given a pass and Congress can respond to powerful lobbying group to make changes.  Court flips: tie goes to party alleging infringement.
Q: Scalia cites Cablevision: doesn’t select what content subscribers view.  Volitional conduct required.  Is there volitional conduct here? Does majority repudiate Cablevision?
Smith: yes. (1) customer picking show to be watched means only secondary liability is appropriate—that’s gone. (2) transmit clause requires you to look at each transmission separately to see if it’s public—that’s clearly repudiated.  Looking at who pushes the last button: everything on the internet is on demand.  If there’s only indirect liability, there’s no public performance on the internet. Not different from POV of broadcasters or viewers.  You punch in the channel you want on Aereo or on your cable machine. Why should that make a difference for © policy?
Menell: Cablevision is now very shaky.  Volitional conduct isn’t in the statute.  Highlights creakiness of statute.  Netcom, pre-DMCA, had a thoughtful analysis but Congress didn’t codify that.
Smith: Scalia just made up the distinction between Aereo & Netflix. Both choose which shows to show.
Frederick: disagree. VOD chooses which programming to make available versus what Aereo did: antenna capability we all can get in our homes.  Networks choose what is put over the air.
RT: under this opinion, the statutory interpretation part clearly implicates the cloud.  I’m 100% sure that Dropbox has multiple copies of U2’s new album right now, from people who use both Dropbox and iTunes.  When someone uses Dropbox to stream their music to their phone, it’s just like what the SCt said was public performance.  If you say that Dropbox is different because it’s the user’s copy, so it was in Aereo.  If you say the standard is why people use the service, that’s really not in the Act, though you can certainly do it if you’re the Supreme Court.
Menell: can save Dropbox: it gets the content from the user, a sort of chain of custody analysis. That’s a way to draw the line Breyer sought to draw. Not sure how it works for broadcast TV though.  If I take my Netflix stream and DVR it, if it violates my Netflix agreement then the chain of custody doesn’t map to the current broadcast system. We can apparently “sling” these shows but that’s b/c we have our own copy. In the cloud it’s more complicated. 
Q: disruptive tech always creates headaches. Is this an issue that courts can apply?
Smith: remains to be seen. Distinctions might or might not be justified. Congress is dysfunctional now; courts will have to sort it out.
Q: dissent says there’s no standard for cable lookalike.
Smith: majority says performing this function = liability. Same function as cable co.
Frederick: So is Tivo.
Smith: not going to comment on that. Aereo: from the POV of the user, identical to cable.
Menell: true that Congress overruled Teleprompter and Fortnightlyand required CATV to operate under a license, but they got a low-cost convenient license, splitting the baby. CATV was more sympathetic than Aereo but Congress was willing to slap them down (people who can’t get signal and join together to form a nonprofit are sympathetic). There should be room for a sensible competitive regime.
RT: since Congress won’t act, and Court knows it, it’s not in the same situation as Teleprompterand Fortnightly; has to choose between two alternatives and can’t impose compulsory license.
Frederick: paying individual copyright owners for signal was unadministrable.  1992: retransmission rights were designed to solve the problem of broadcasters and cable cos. competing for ad revenues. But Aereo isn’t competing for ad revenues. It’s sending the advertising through complete. Not picking off signal and omitting ads. Networks are being hypocritical and saying Aereo isn’t cable either.  The networks want to monetize the internet and replace free over the air television with a paid service.  (Currently in dispute.)
Smith: the idea that networks aren’t licensing on the internet isn’t true. Hulu etc. allows licensed viewing. Issue was whether you could avoid a license.
Frederick: networks recognize they were slow to the market. Want to sell over the internet.
Smith: they own the rights.
Frederick: evades Sony.  I can have an antenna in my home and not pay.
Smith: Congress overruled that for CATV.
Frederick: then Congress also made local broadcasts royalty-free.
Menell: internet TV has a bright future. Early skirmish. Other companies will try to figure out how to function consistent with this. Public solution via legislation not Rube Goldberg would be better.
RT: I don’t make predictions about the future of the internet.  Net neutrality is of real significance to the future of TV online more than Rube Goldberg devices.
Ochoa: if sufficiently like cable to be publicly performing, why not enough to get a license?
Smith: transmit clause: satellite companies also transmitted, but weren’t authorized to get cable licenses. Do what satellite cos. did: go to Congress.

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SCIPR: Petrella v. MGM

Posted on September 12, 2014 by rtushnet
Petrella v. MGM (Can laches bar a copyright claim within the 3 year statute of limitations?)
Moderator: Scott McBride, Shareholder, McAndrews Held & Malloy Ltd.
Panelists: Paula Petrella, Petitioner and owner of rights to the screenplay (only individual plaintiff in these IP cases). Would never wish anyone the necessity of this trip, but it was surreal and wonderful. 
McBridge: MGM said that it hadn’t made money on Raging Bull, but in late 2000s it (perhaps) became profitable based on sales of DVDs etc. (details of the income stream are still subject to litigation).  MGM argued laches including the most recent 3 years before suit was filed, but SCt held that this equitable defense couldn’t bar the legal remedy of damages.
Professor Stephanos Bibas, Counsel to Petrella, University of Pennsylvania Law School Supreme Court Clinic:
Professor Tyler Ochoa, Santa Clara University School of Law: The statute does refer to the equitable doctrine of tolling.  Legislative history says “we won’t say anything about tolling, dcts do that anyway.” J. Ginsburg is right in that the legislative history doesn’t say anything about laches one way or another. J. Breyer is probably right that Congress didn’t consider laches one way or another. But the Lanham Act does specifically refer to laches; if you assume they gave roughly the same attention to both, maybe that’s meaningful.
Q: Lanham Act doesn’t have a statute of limitations and borrows/uses laches; does that matter?
Ochoa: general principle that if no SOL is specified federal courts will borrow from states, which suggests that limitations are so important that we don’t tolerate their absence. Federal SOL: Check on what otherwise might be nonuniformity/inequities from states. Here, for the first time, SCt says no laches if there’s a SOL, arguably inconsistent w/ previous cases despite J. Ginsburg’s distinctions.
Q: patent has slightly different situation—6 year statute of repose precluding recovery of damages. How will this impact Fed. Cir. in laches in patent?
Mark Perry, Counsel to MGM, Partner, Gibson Dunn LLP: Bad news for defendants.  Decision has greater potential impact for patent than for copyright. Laches has always been a bit of a sport for ©, only for the most egregious cases.  © has statutory damages, and economic nature of © tends to lessen value of cases in overall context of IP litigation—compared to the volume of $ in patent litigation.  In patent, laches has played an important role to cut off those kinds of sneaky claims that are the most problematic—very vague patents that lie there like alligators under the water.
Bibas: not an impact on TM, but in patent there’s a real question.  SCt says they haven’t had occasion to review the Fed. Cir. rule, which is not a ringing endorsement.  Patent Act has a particular phrase about “unenforceability,” a word that’s not present in the © Act.  Drafter of Act wrote a report saying it was supposed to carry forward the defense of laches. 
Ochoa: only applies to equitable relief unless there’s something very specific in the legislative history, and even then some textualists won’t like it.  In patent world, that isn’t the worst thing in the world—6 years is 2x as long as the © SOL, and the patent only lasts for 20 years.  © lasts a really long time, and so there’s a really long period where an action could come up 20, 40, 50 years after an allegedly infringing release. Has a really great impact in reviving what otherwise would be very stale claims.
Q: court brought up “separate accrual” rule. New cause of action created each time there’s a copying or dissemination of © work. So she could recover (if successful) for 2006 on. 
Ochoa: says w/o a separate accrual rule you force initiation of suit for relatively minor infringement immediately even if it’s not really worth doing so.  If people are allowed to wait until there’s something worth fighting over, we might have less litigation.  That’s an empirical question.  Watch out for the impact of this on joint authorship!  If you sue for dj, courts often say you knew about contested authorship 10-15 years ago, so the SOL has passed.  But if you sue for a share of the money through an accounting and say you’re a joint author, that’s something that will perhaps allow you to recover for the last 3 years. Or there will be an inconsistency.
Bibas: noteworthy that MGM didn’t dispute the separate accrual rule in general.  MPAA testified in legislative history that each showing of a movie would be a separate violation with its own 3-year period. The only Q was whether laches ought to truncate that.  US’s argument: laches implicitly moves the triggering event from the violation being sued on now (separate accrual) to the initial violation, which is in tension w/the principle that each violation is discrete.
Perry: sauce for the goose has to be sauce for the gander: the studios bring more copyright claims than we get sued for. Separate accrual makes sense for pirated video on YT.  If it goes viral after ten years, you may not be barred. But what laches did was to check the abusive cases.  He accepts the SCt’s ruling but just wants to make the point that you can have both laches and separate accrual.
Ochoa: SCt did help because circuits were all over the map in what they were doing. 9th Circuit was far more generous than any other circuit, and others were irrevocably split on what constituted laches.  Certain rule outweighs bad effects on a few damages cases; apportionment of profits is equitable for these purposes, so actual damages will be the rule for these cases.
Perry: Why can’t estoppel bar a damages claim now? It’s an equitable doctrine too.  But the SCt said that was different.
Bibas: Estoppel, tolling and discovery were established background principles in 1957 but it was clear then that laches couldn’t bar damages.  Those considerations can come into tailoring the scope of injunctive relief and its duration.  Court leaves open a few exceptional cases in which laches could bar equitable relief—retrospective rather than prospective equitable relief, e.g. when an architect asked for a condo constructed from infringing plans to be torn down. That’s not classic equitable relief anyway, but the Court says you can prevent the destruction of the infringing article.  Clear rule is a good idea.
Q: dissent talks about strategic waiting to file claims. This is an allegation in patent claims as well.  Is J. Breyer right?
Perry: yes.
Ochoa: classic situation: P is aware of cause of action, but D is not.  Here, as soon as Stewart v. Abend was decided, MGM was aware of the issue and knew she’d asserted rights in 1992.  MGM could’ve brought a declaratory judgment to resolve this issue. Not sympathetic here.  Surprised that none of the justices went for laches as a backstop even if inappropriate here.  Discovery doesn’t play a role here.  Extraordinary delays are often because of lack of discovery, and so those claims can pop up a long time after infringement began regardless. It’s extraordinary length of © + renewal provisions that create the most harm.
Perry: Philosophical core of this case—entities strive to get power and don’t relinquish it voluntarily. SCt considers centuries-old equitable doctrine that was a power of judges unfettered by legislators.  Majority decided to give up power the judges had, which is a fascinating aspect of the decision.
Bibas: separation of powers analysis has something to say. If Congress has registration provisions to deal with evidentiary concerns, limitations on damages reachback, then Congress has addressed this issue.  Not a flood of stale claims because most people bring them early, when the value of the work tends to be highest. Congress chose the long term and the Stewart v. Abend result.
Perry: footnote 13—The SCt creates the idea of a “cost-free royalty” as the consequence of a successful defense.  (“Assuming Petrella had a winning case on the merits, the Court of Appeals’ ruling on laches would effectively give MGM a cost-free license to exploit Raging Bull throughout the long term of the copyright. The value to MGM of such a free, compulsory license could exceed by far MGM’s expenditures on the film.”)  This framing is a bonus for plaintiffs.
Bibas: my client has a property right. The practical effect of denying her right to exclude MGM would be disastrous. MGM conceded it couldn’t make a remake; just wanted to continue its existing use. 
Ochoa: if as a factual matter LaMotta was a coauthor, MGM can continue to use it—he survived to the vesting period so Steward v. Abend didn’t divest MGM of any rights it had through LaMotta.  Also, if apportionment of profits is an equitable remedy, that has effects on jury award.
Petrella: big copyright owners have armies of lawyers watching expiration.  You should know you own something.
Ochoa: injunction, impoundment, apportionment of profits: delay can be taken into account.  Only damages are affected.
Perry: laches is still available at the remedial stage of the case.
Bibas: that does make a difference. If it’s part of the balance of injunctive equitable factors, it allows you to balance the equities between D and P, which you can’t do for a threshold defense.  (That’s not my understanding of laches, FWIW, but then I mostly see Lanham Act cases.)

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Dastar and design patent

Posted on September 12, 2014 by rtushnet

Deckers Outdoor Corp. v. J.C. Penney Co., No. 2:14-cv-02565 (C.D. Cal. Sept. 8, 2014)
This is going to sound bigger than it is: the court grants JCP’s motion to dismiss a false designation of origin claim under Dastar because JCP, and not Deckers, was actually the origin of the allegedly too-Ugg-like boots at issue. But the court doesn’t dismiss trade dress/unfair competition claims based on the same conduct. Mark McKenna has been talking about this Dastarissue for a while (avoiding Dastar by pleading that the content at issue has secondary meaning and thus causes confusion), but we haven’t really seen it in operation, and it only really becomes a problem when things like characters or whole works in the public domain are claimed to have secondary meaning.
Deckers makes Uggs and has two design patents on its Bailey Button design. Deckers sued JCP for trade dress infringement, unfair competition, and false designation of origin under the Lanham Act, as well as patent infringement and state-law unfair competition. “The Bailey Button boots are made of suede and feature overlapping front and rear panels, curved top edges on the overlapping panels, exposed fleece-type lining, and one or more buttons depending on the height of the boot placed on the lateral side of the boot shaft.”
JCP argued that, because it actually produced the goods at issue, there could be no false designation of origin under Dastar even if the goods allegedly embodied Deckers’ ideas or concepts. Deckers rejoined that it was bringing a passing-off claim, not a reverse passing-off claim. But that didn’t change the meaning of “origin,” on which Dastar turned; the Lanham Act can’t be used to create perpetual copyright or patent.
Deckers wasn’t alleging that JCP sold Uggs as its own products, but rather that JCP appropriated its trade dress and then caused consumer confusion as to the “origin” of JCP’s boots. “Regardless of whether Deckers accurately characterizes this scenario as passing off, it is crucial that the origin of the boots JC Penney has sold is JC Penney—not Deckers.” Trade dress misappropriation was immaterial, since Dastar made clear that “the phrase ‘origin of goods’ is . . . incapable of connoting the person or entity that originated the ideas or communications that ‘goods’ embody or contain.” Deckers couldn’t get a variety of perpetual patent protection from the Lanham Act. (Interesting effect of the design patent here: it apparently triggered the court’s caution about Deckers’ Lanham Act claims.)
As for design patent infringement, JCP argued that Deckers didn’t explain the alleged infringement and identified design differences. The court found that Deckers properly pleaded infringement, a question of fact. Comparison of the designs was improper. Plus, comparison of the designs with the accused products “demonstrates a sufficient visual similarity to at least render infringement of the ’189 Patent plausible.” That was enough.
As for willful infringement, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” The patentee must then show that the objective risk was either known or so obvious that it should have been known to the accused infringer.” California courts further hold that a plaintiff must plead presuit knowledge in order to adequately plead willful infringement.
JCP argued that Deckers only conclusorily alleged willfulness, but didn’t allege any supporting facts about JCP’s advance knowledge. Deckers only alleged widespread popularity and recognition of the Bailey Button boot style and the patent notice on the boots themselves. Deckers alleged that popularity plus patent notice on the products itself sufficed to show presuit knowledge. Not so. Deckers didn’t allege actual presuit awareness. Other cases involve allegations of actual knowledge, “not some form of bootstrapped constructive knowledge.” This claim was dismissed with leave to amend.
Finally, the court dismissed the California UCL claim as preempted, since there was no extra element that distinguished it from Deckers’ federal claims. Deckers alleged that its allegations of bad faith could avoid preemption, and that the UCL provided additional remedies such as punitive damages that weren’t available under the Lanham or Patent Acts. But alleging more elements or factual information than necessary isn’t enough; state claims must have an element not shared by the federal law. Deckers’ decision to plead bad faith didn’t make it an element of a UCL claim, since the UCL allows for liability in the absence of bad faith. And extra remedies are irrelevant (indeed, they may be a reason preemption is important if Congress has decided what the remedies for infringement should be).
Comment: Here too I think we’re seeing a side effect of the intervention of the design patent claim into what even a few years ago might’ve been just a Lanham Act claim. The Lanham Act, of course, doesn’t preempt most state laws, and trade dress confusion allegations should have distinguished the UCL claim from the patent infringement claim, but Deckers apparently didn’t argue that. Plus, it’s standard doctrine that bad faith isn’t an extra element that avoids preemption when the state claim is based on the acts that allegedly constitute infringement; bad faith narrows the set of copying/infringing activities that trigger state law, but that’s not enough.

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SCIPR, patents (Limelight/Medtronic)

Posted on September 12, 2014 by rtushnet

(Ed. note: as is clear from my notes, I have a somewhat Gingerly approach to patent law. My apologies for any inaccuracies.)

Limelight Networks v. Akamai Technologies (Induced infringement when defendants have not directly infringed.)

Medtronic v. Mirowski Family Ventures, LLC (Whether licensee or patentee has burden of proof in licensee’s declaratory judgment action.)
Moderator: Grantland Drutchas, Partner, McDonnell Boehnen Hulbert & Berghoff LLP
Panelists: J.C. Rozendaal, Counsel to Limelight Networks; Partner, Kellogg Huber Hansen PLLC: Remand: The Fed. Cir.’s actions indicated to him (personally, not his client) that the Fed. Cir. is not particularly interested in resolving the 271(a) issue, and sent it back to the panel, which just heard argument. 
Thomas Saunders, Counsel to Medtronic, Inc. (and Akamai); Partner, WilmerHale LLP: Two judges from original majority were pretty silent in the argument; new judge, Judge Moore, was quite active.  J. Moore expressed concern with a 271(a) rule that would leave patentee defenseless if people joined forces to perform separate steps, but much focused on the unique procedural posture of this case.
Professor Timothy Holbrook, Emory University School of Law, who filed an amici brief on behalf of 10 IP Professors in support of Petitioner Limelight on the issue of extraterritoriality: single party rule will come back to SCt. Fed. Cir. knows it’s already split; SCt is interested in the issue but realized it couldn’t get to the question on this procedural posture.  Believes we’ll get a vague rule drawn from common law on joint tortfeasors.
Professor Cynthia Ho, Loyola University Chicago School of Law: agrees it will be back. Usually SCt just makes more of a mess—gives a general rule and then doesn’t like what the Fed. Cir. does with it.
Rozendaal: not sure it’s going back because the law is not unclear.  At the en banc level, 10 of 11 judges en banc agreed with current rule of Muniauction and weren’t willing to change it.
Saunders: not sure they’re agreed, but they didn’t want to disturb it given the procedural posture they had. Lots of amici and the SG told the Court that this was an important issue.
Q: is it too simplistic to say no indirect infringement without direct?
Rozendaal: follows more or less inevitably from the all elements rule plus the fact that infringement is strict liability.  Prior art can be improved by adding steps; it would be wrong to have people doing parts of methods to suddenly face liability for standard activity. One of the activities in the patent is “serving a webpage.”  But people have been doing that as long as there have been webpages. That conduct is not wrongful on its own. Liability requires legal responsibility for all the steps: are they all attributable to a single individual? That rule at common law has always been determined by vicarious liability.
Saunders: no one disputes the all elements rule.  Fundamental dispute here is the contours of what the common law allowed.  In strict liability circumstances, there are still rules that don’t allow you to act in concert w/ another to divide up the steps or take action knowing that what you’re doing in conjunction w/ another is going to cause the ultimate harm.  Clever planning should not allow circumvention of property right. 
Ho: SCt may be attracted to simple rule.  Basically ignoring policy issues.  In other cases, they’ve looked to policy: e.g., Grokster.
Holbrook: SCt oral argument showed substantial concern for policy/destruction of enforceability of certain patents.  But a lot of joint tortfeasor common law principles say they have to know they’re causing a harm: how can you know that without knowing there’s a patent?  That’s the tension of going to joint tortfeasor concepts.  Is that intent/knowledge through the back door via 271(a), which hasn’t been and he thinks shouldn’t be there?
Rozendaal: Court is clear that direct infringement is required for inducement.  Why did the Fed. Cir. use 271(b) instead of 271(a)? The fact that they found themselves pushed to (b) shows it’s very hard to come up with any rule other than Muniauction that avoids a number of collateral problems with joint liability.
This is special for methods, since the last person who touches a complete apparatus is an infringer and others may be jointly liable. The person who completes the last step of a method is not in the same position.
Holbrook: but “use” may be a different issue. We could blend it together, though there are problems w/ control and beneficial use test, but it is a way to get around divided infringement.
Q: is this a claim drafting issue?  Can this be addressed and corrected by proper drafting?
Saunders: nope.  Hits especially hard on innovations that are drafted to have more than one person working together, but the loophole isn’t so limited.  Any method for which the steps can be divided is vulnerable.
Rozendaal: could have rewritten claims so they didn’t require two people: write from single actor’s POV (e.g., receiving a message X instead of sending and receiving it).
Ho: sometimes, but what’s controlled by one entity today may be multiple tomorrow. Help at the margins.
Holbrook: Agrees.  Shocked if anyone’s drafting a claim like these today given the litigation. But can’t completely solve it.
Saunders: example: method of coadministering two drugs as therapeutic.  Can be drafted as one person, but can always be performed by two.
Q: should Congress act?
Holbrook: not yet. Not as easy to fix.  Congress is bad at predicting weird situations, and we should let the case law develop.
Saunders: what’s missing from the SCt’s opinion is the right to exclude. He understands why the situation seems unaddressed in 271, but the right to exclude use of those steps to perform the method is important. Even if you narrow who’s held liable, there’s still a property right and the person who induces it causes the same harm—with inducement you have someone who’s clearly a driving force. The SCt just didn’t address that.
Holbrook: correct statutorily.  You now have an ambiguous term “infringement” in 271(b) that isn’t defined w/o reference to 271(a).  “All elements” doesn’t come from 271.  Courts aren’t free to create new forms of infringement.  If we have to give 271(b) meaning, it has to be based on the statute.  Doesn’t think you can refer back to the right to exclude, given the explicit wording of 271.
Q: On to Medtronic!
Holbrook: this is a blip.
Ho: Agrees, doubts it will make a big impact. Most licensees will not challenge solely validity.
Rozendaal: Reflects residual hostility to Lear v. Adkins rule: policy message from Supreme Court was that there’s a public interest in getting rid of bad patents, and sometimes the licensee is in the best position to do that. Fed. Cir. has been digging in its heels ever since.
Q: any change in bargaining power of licensees?
Ho: no.
Saunders: may increase incentive to get into settlement, with a better shot at a no-challenge provision.  Otherwise the license doesn’t prevent a challenge.
Rozendaal: if people try to contract around this through settlement, see if that flies under antitrust law.
Saunders: brewing division in circuits about no-challenge clauses: see Judge Lynch’s decision in 2d Cir., looking at Fed. Cir. and expressing skepticism.  If litigation didn’t get very far, skeptical of no-challenge clauses.
Ho: arbitration instead.  SCt has deferred to arbitration clauses even w/unequal bargaining power.
Holbrook: SCt likes settlement in every other context. Would suggest channeling to arbitration, but Lear and Medimmune emphasize great public value in having invalid patents knocked out.  Challenge clauses sometimes provide for penalty—license fee triples if you challenge—and Fed. Cir. is more sympathetic. 
Q: Fed. Cir. has upheld no-challenge clauses as part of settlements. Will we see more suits designed to reach this result?
Saunders: if one of the lines recognized is initiation of suit, then sophisticated entities will understand this. Prudent course for no-challenge clause may then be to start litigation, not just C&D and then negotiation.  People may agree to no-challenge clause if they think they won’t have a good challenge, or if the license fee is good.  If the patent claim is weak, they may want to keep their options open, and they may use negotiating leverage to reject the clause since ability to challenge is now the default.

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Supreme Court IP Review, Chicago-Kent: Patents

Posted on September 12, 2014 by rtushnet
Ed Timberlake: most IP cases in a term ever, 8 or 10 depending on whether you count the Lanham Act cases.
Octane Fitness v. Icon Health & Fitness Inc. (When is a case “exceptional” for award of fees under 35 U.S.C. § 285, when a defendant prevails in a patent infringement action?)
Highmark Inc. v. Allcare Health Management System (Standard of review of a court’s fee award pursuant to “objectively baseless” patent claims is abuse of discretion.)
Moderator: David Clough, Partner, Morgan Lewis & Bockius LLP
Dominic Perella, Counsel to Highmark Inc.; Partner, Hogan Lovells LLP: SCt didn’t have to delve too deeply into policy considerations to resolve this; Fed. Cir. was so obviously wrong.
Rudolph Telscher, Counsel to Octane Fitness; Principal, Harness Dickey PLC: the statute says “exceptional” and you start with the plain meaning, as it was when enacted. Dictionary: Out of the ordinary: a far cry from frivolous and subjective bad faith.  The latter was essentially an impossible standard. From 2005-2011 not a single fee award that related to the merits of the case was upheld, during a time when we all know that lawsuits were getting weaker.  Since Octane, 10 awards of fees in those few months. Already a litigation impact.
Constantine Trela, Jr., Counsel to Icon Health, Partner, Sidley Austin LLP: Statutory question: This was in the SCt’s view an instance where the Fed. Cir. treated patent as somehow different than regular law and reading statutes as you wouldn’t read them in other areas. Very similar to eBay.  Publicity/concern over patent trolls has had an impact.  Whether that’s true is another issue but that concern has gotten through to the Court.
Q: what effect on NPEs?
Professor David Schwartz, IIT Chicago-Kent College of Law: On balance, made it easier to affirm findings of fee awards.  Immediate narrative on NPEs is that those with weak claims, with cost of defense settlements, would encourage defendants to litigate rather than settle.  But the standard is not fee-shifting. Still has to be outlier/uncommon.  So still a lot of pressure on accused infringers if settlement offer is well under cost of litigation.
Perella: True, change only at the margins.
Telscher: legislative prospects?  Doesn’t see loser pays legislation going anywhere. Chilling effect on patent system of going up against a large company.  75% are small companies.  Other legislation possibility: fee shifting for NPEs unless NPE could show reasonability.  That in his view is basically no different from SCt’s standard: case has to stand out in substantive strength/weakness.
Trela: whether SCt intended to/did obviate need for legislation, Congress will see it as at least partial solution and will take a wait and see approach, so he wouldn’t expect a legislative return for a while.
Schwartz: not sure he agrees. Politically, proponents of reform made fee shifting central, and these cases took some wind from sails. But reform sought was much broader than these cases allowed. Proposal on table: default that fees shifted unless positions were reasonably justified. Proponents of patent reform think that’s important and will re-raise it soon.
Because of the way sj and trial are set up, there are more opportunities for accused infringers to be the prevailing party.
Trela: Agrees: likely that courts will view Ds and Ps a bit differently. Lack of meritorious defenses: dcts may think of willful infringement as the solution, but no counterpart for assessing fees against P.  (Also the case before.)
Telscher: if you win at sj, for Ps and Ds it will apply equally, but for a P who proves your case and a jury finds willful infringement, that emboldens the judge to feel more comfortable awarding fees.  It’s far easier to get a jury to buy into willful infringement than a judge, so that’s a P edge at actual trial.
Discussion over whether one could get fees without a sj motion: general agreement that you could, depending on how the expert opinions shook out, but that winning at sj was helpful.  Trela noted that Judge Dyk had said that failure to move for sj is a factor counseling against a fee award.
Q: what counts as exceptional?
Telscher: start with merits of the case. Abuse comes in two areas: big company suing small; NPE cases.  Not a troll-hater: a legit tech legitimately used in the marketplace can justify. But in the past 10 years the goods (patents) got picked over and the cases got weaker and weaker.  More like extortion.  Cases dragged out until defendants pay. Look at economics to explain motivation to judges.
Trela: ought to turn on weakness, not motivation.
Schwartz: district courts aren’t equally situated to evaluate merits v. litigation misconduct.  In some jurisdictions, judges see lots of patent cases, but in others, judge might not have a sense of ordinariness.  Litigation behavior is easier to evaluate for generally experienced judges.
Trela: if the standard is whether the case stands out, what does a new judge do? 
Q: if you’re in EDTex., where many of the cases are very weak, how could a case stand out?
Telscher: reasonable litigants. It’s not numerical.  EDTex. is separate issue: pro-plaintiff jurisdiction; you can expect it to be harder to get a fee award there.  Expect more forum shopping.  Has seen plaintiffs move to EDTex. to avoid transfer.
Q: recent findings by dcts that two prominent firms had abusive deposition practices: 198 objections/case.  Take a lesson!
Telscher: NDCal case from June, where judge found p had acted unreasonably in merits and litigation conduct; ds also acted unreasonably so judge denied fees. So be aware of your own conduct.
Schwartz: deference to dct judges in Highmark makes fee denial likely to be affirmed. Once there are differences in districts emerging from the data, ps will move there quickly.
Trela: if there’s variation among the judges in the district you’re taking a chance!
Telscher: reminder that the conduct doesn’t have to be independently sanctionable to affect the fee determination.  You can say: these lawyers were smart, they didn’t cross any line, but overall their conduct merits a fee award.
Trela: judges will be looking at conduct & litigation tactics of the other side, not necessarily to say a pox on both houses but to see whether effort put on other side is appropriate. If you really believe case is weak from the outset, do you need 10 lawyers and 5 experts?  Those arguments will sway some judges.
Telscher: judge doesn’t have to go all or nothing. Can award fees for one aspect of the case.  Keep billing records in condition to separate those out.
Peter Menell: may have effect on what cases are brought.  You might not be able to fund exploratory litigation. If the issues are tied together—you have a bad validity case, why not award fees on the infringement portion too?
Telscher: dct will always have discretion to decide whether one issue is fatal and affects the whole case, or whether it’s just one issue.
Schwartz: treble/enhanced damages: willfulness isn’t required by the statute. The Fed. Cir. has held that willfulness is required.  Not clear how this rule can survive after these cases.
Q: many of these rules were promulgated a while back. Would they be different with more former dct judges on the bench?
Trela: ct app judges sometimes lose sight of what happens in a trial court. Fed. Cir. has that problem in spades.  New judges may make a difference.  But some of the problems we see come from appellate judges w/out a good feel for trial court litigation.
Q: has a D recovered fees by killing a patent in reexamination?  If case is stayed in the interim, judge may perceive there’s not much in fees accrued/behavior in court so how could it be exceptional?
Telscher: If you go right to reexamination, hard to get fees.  But Octane may make the argument plausible if the case is more mature. 
Q: can you get fees for P not knowing of prior art?
Telscher: once you’re in litigation D will do a much bigger search for prior art; unreasonable to expect P to find it all for purposes of fees.
Q: well, has been involved in case where 30-minute search produced 35 pieces of prior art.
Q from audience: effect on declaratory judgment P?
Telscher: same rule.  3d Cir. just applied Octane to TM cases.

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Not the NAD: court won’t stop plaintiff from publicizing preliminary injunction

Posted on September 12, 2014 by rtushnet
Homeland Housewares, LLC v. Euro-Pro Operating LLC, No. 14-cv-03954 (C.D. Cal. Sept. 10, 2014)
Euro-Pro sought to keep Homeland from publicizing the court’s preliminary injunction against it (granted on Lanham Act false advertising grounds). Shortly after the preliminary injunction issued, Homeland sent letters to a number of retailers carrying Euro-Pro products. It notified retailers of the injunction, stated that retailers with notice of the injunction “must also comply,” and said that Homeland would bring contempt proceedings against violators. The letters also said that the injunction was based on a “finding” of literal falsity, said that the litigation was ongoing, and asserted that “[Plaintiff] will likely be entitled to monetary damages for every sale” and that “[i]f Euro Pro is unable to pay the damages, then any company in the sales chain can be held liable for the damages.” The letters also referenced another recent case in which a federal court in Pennsylvania also issued a preliminary injunction against Euro-Pro for false advertising.
Euro-Pro wanted this stopped, as well as a court-approved corrective notice. Euro-Pro didn’t bring a separate claim (e.g., defamation), but the court considered its inherent equitable power to protect its own orders from “evasion, abuse and misuse.” Here, the court found, justice and the public interest might require some sort of order if Homeland misrepresented the content of the injunctive order, “asserting unlikely or spurious claims in terrorem in order to chill market demand for Defendant’s products.” Euro-Pro argued that this was occurring.
Tthe court found that Homeland’s letter “accords, in at least a narrow sense, with the language of the injunctive order” in that the court did find literal falsity. Taken in isolation, however, the language about the court’s “finding” could create the impression that there was a final judgment on the merits. Yet Homeland’s letter didn’t fall into this trap. Before talking about the “findings,” the letter stated correctly that the injunction at issue was a “preliminary injunction.” The language wasn’t “a model of absolute clarity on this point—it might more advisably have included words like ‘ongoing’ or ‘pending’”—but it conveyed the procedural posture of the case. There was still some danger of misleading the unsophisticated, but “the facts presented seem to show that many of the retailers who have expressed concern following the letters are represented by competent, cautious counsel,” for example a letter from Costco mentioning discussions with in-house counsel and that Costco understood that a “preliminary” finding had been made.
Euro-Pro argued that Homeland misrepresented the scope of the injunction by advising retailers that those with notice had to comply with the court’s order. Euro-Pro contended that retailers were not bound, because they were neither parties nor nonparties who have notice of the injunction and were “in active concert or participation with” the enjoined party. But whether this was so was not clear. The Ninth Circuit had no precedent on retailers who sell a party’s enjoined product, while other circuits were split. Aevoe Corp. v. AE Tech Co., 727 F.3d 1375, 1384 (Fed. Cir. 2013) (yes); Paramount Pictures Corp. v. Carol Pub. Grp., Inc., 25 F. Supp. 2d 2, 376 (S.D.N.Y. 1998) (no). But the facts also differed: Aevoe involved a retailer’s exclusive distribution agreement with the enjoined party, while in Paramount retailers completed their purchases of the enjoined products prior to the injunction. “And in general the inquiry is likely to always be fact-intensive.”
Given the fact-specificity of the cases and the unsettled state of the law, the court couldn’t say for certain that Homeland misrepresented the scope of the injunction. Its liability theory might not be sustained in an actual contempt hearing, but lots of letters warning of potential legal action have that characteristic. “This does not mean that courts should enjoin or constrain such letters, where the party’s legal theory is at least plausible and the potential action is not purely frivolous or harassing.”
Finally, congressional policy providing for injunctive relief in Lanham Act cases didn’t favor relief here. Given that the purpose of the Lanham Act is to “protect[] persons engaged in [commerce within the control of Congress] against unfair competition,” Pom Wonderful, then the finding of likely success and entitlement to a preliminary injunction allows Homeland to “aggressively assert the injunction’s protection in the marketplace in order not to be subject to unfair competition.”
However, Euro-Pro had a point. “Plaintiff’s reference in its letters to an unrelated case in the Western District of Pennsylvania, involving a different plaintiff and different facts, served no purpose in asserting its theory of nonparty liability for contempt in this case. That portion of the letter strayed far beyond what was necessary to put retailers on notice of the injunction in this case.” The court wasn’t going to order Homeland to stop referring to this case “out of deference to potential speech concerns.” But if Homeland didn’t immediately delete the reference, the court would set a hearing on whether the preliminary injunction should be vacated. (… I’m not sure that avoids free speech issues.) Other than that, the preferred remedy was more speech. The court wouldn’t approve a Euro-Pro notice calling Homeland’s characterization of the injunction “erroneous” and stating that “retailers are not subject to the injunction.” But Euro-Pro was free to explain the lawsuit, the scope of the injunction, and its own theory of “active concert or participation” to retailers.

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