Fair Use Doctrine

By Michael Small

 

The Copyright Office defines Copyright as the exclusive right for a person (mainly the author) to reproduce, publish, sell, or claim ownership of his or her original works of creation under Section 106 of the Copyright Act of 1976.[1]  The copyright symbol (©) identifies the work as protected to the copyright owner and the audience.  This intellectual property right grants protection to the author’s creative works such as literature, music, drama, arts, or architecture upon the creation of his or her product in a fixed media.  This protection remains valid until the owner’s death plus 70 years.  Afterwards, the work becomes public domain, which allows for anyone to use the work for any purpose.  However, to prevent potential conflict with the First Amendment’s grant of freedom of speech, religion, and the press, the court created the fair use doctrine as a check and balance to copyright’s power.

The Fair Use Doctrine is a declaration that allows the usage of copyrighted works without permission from the author under certain conditions.  If the court determines fair use, then a court will void a copyright infringement and dismiss the case.  The fair use doctrine applies mainly to transformative works, which either comment upon, criticize or make a parody out of the existing work.  It also provides protection for limited usage of copyrighted works, such as using the material with intent for educating, broadcasting in news, or for researching purposes. The court weighs four factors in a fair use determination/assessment:

  1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
  2. The nature of the copyrighted work;
  3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
  4. The effect of the use upon the potential market for or value of the copyrighted work.[2]

 

Another set of guidelines monitor the usage of copyright material in education.[3]  For fair use to apply in an educational setting, the usage must take place in a classroom setting or similar area of instruction, occur face-to-face with the instructor in person, and take place in a non-profit educational institute.  Therefore, the fair use defense protects copyrighted works displayed or performed in a classroom setting.  However, it is prohibited to distribute copyrighted work unless the first sale took place between the teacher and publisher/owner of the copyrighted good.[4]

Purpose and character of the use

The intent to use a copyrighted work by anyone other than the owner is the first determinant.  This factor takes into consideration several aspects: whether the user of the work intended to receive a profit; if it was distributed for free or sold in commerce; if it was derived/transformed by changing the meaning of the original work; or if value was changed by adding in different information, aesthetics, and point of view.  The more a work comments/critiques or radically transforms and differentiates itself from the original work, the more viable the fair use defense.  For example, in Campbell v. Acuff-Rose Music, Inc., Campbell sued the 2 Live Crew over unauthorized usage of Roy Orbison’s “Oh, Pretty Woman,” in the defendant’s song, “Pretty Woman.”  Although the Defendant frequently used the ‘heart’ of the song “pretty woman,” the court ruled in favor of Acuff-Rose Music Inc.[5]  The court classified the Defendant’s song as a parody of “Oh, Pretty Woman.”  Specifically, the court found that 2 Live Crew took a more comical, raunchier approach to the song, changing lyrics beyond the first few lines, and mocking the original version in its context.  Therefore, the court found the work protectable under the fair use defense as a parody, despite its commercial nature.

Nature of the copyrighted work

The court also considers the type of information that the individual copies for fair use.  In this context, a court will likely find that information that is factual in nature, such as biographies, scientific information, and research is less likely to be infringing compared to more creative, original works like art, music, and entertainment.  In addition, whether the author publicized the work or not is also added in as a weighing factor, with the usage of unpublished work being a higher risk of copyright infringement due to the author’s right for first to publicize.[6]

Amount and sustainability of work taken

The amount of the copyrighted work that one takes from the creator also plays a factor in determining fair use.  Small portions of a work, such as a quote or a few seconds of a video, are generally considered fair use, unless argued otherwise.  The larger the proportions of the taken work, the more likely a court will find that someone infringed a work.  The type of media (music, painting, etc.) in which infringement took place all have different limits of toleration for used content, most of which can be argued for or against proof of infringement, depending on the case.  If the portion of a taken work is minimal in comparison to the overall work, a copyright case could be dismissed as de minimis.  For example, a developer copying 30 characters from a work that contains 70 pages worth of code would be de minimis.  However, if the portion used is from the ‘heart’ of the work, such as a major passage in the book or the chorus of music, it will be more likely that the material is infringing a copyright, regardless of the quantity taken.

Impact on the market for the owner

Similar to a trademark, judging how much of an impact a good produced outside of the owner’s jurisdiction may have an effect on the market the owner does business in.  This is the last major factor that contributes to judging whether infringement took place.  If the reproduced good is sold outside of the owner’s knowledge for profit, it is very likely that infringement took place because the owner is deprived of the profit earned from the sale outside his jurisdiction.  This infringement remains consistent even if the copyright owner had not considered making the good in a different media and market of the original work.[7]  For example, a painting based off a photograph may be at risk for infringing the photographer’s rights because the photograph’s existence revealed a potential market for future painters.

Other factors

A judge or jury’s opinion will vary from case to case because the determination for copyright infringement is based off subjective analysis of the four factors.   The most common factor for this judgement is whether the infringer takes the copyrighted material in good or bad faith.  Courts consider whether the individual takes a work with the knowledge that someone else created it or uses a work when the copyright holder directly denied the individual permission to use the work.  In the above scenarios, the court would likely find infringement in bad faith.

In contrast, when an individual acknowledges the source material (citations, references, etc.) or provides a visible disclaimer to the ownership of the copyrighted work that he/she uses, a court will likely find infringement in good faith, which may positively impact the jury’s determination of fair use.  However, the judgment between the value of faith is subject to change depending on the context of the lawsuit and the morality of the judge and jury.

Fair use outside of copyright

Fair use is not exclusive to copyright.  In commerce, a company can use another trademark without permission from the owner under the Lanham Act.  The Lanham Act outlines the following conditions for fair use:

  1. Any fair use, including a nominative[8] or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person’s own goods or services, including use in connection with—
    1. advertising or promotion that permits consumers to compare goods or services; or
    2. identifying and parodying, criticizing, or commenting upon the famous mark owner or the goods or services of the famous mark owner.
  2. All forms of news reporting and news commentary.
  3. Any noncommercial use of a mark.[9]

 

Therefore, a company using another company’s mark is fair use if the infringer uses the taken mark for comparative advertising with their own mark, commentary, news reporting, or parody, similar to the fair use doctrine in copyright.

For patents, a limited fair use is applicable only for pharmaceutical patents under the Hatch-Waxman exemption.[10]  Originally known as the Drug Price Competition and Patent Term Restoration Act of 1984, this Act proclaims that there is no infringement for patents that are government regulated generic drugs.  The court ruling of Merck KGaA v. Integra Lifesciences I, Ltd[11] further extends this protection to preclinical studies such as pharmaceutical research and experimentation using said drugs.  A court will likely find that usage of pharmaceutical patents in these conditions by inventors or companies are fair use and thus exempt from patent litigation.

Degradation of fair use concern

There is concern that the term and usage of fair use is misrepresented from its original use as free speech to an excuse for infringement, especially in the court system.  For example, in Cariou v. Prince,[12] the district court found that the defendant’s artwork infringed on the plaintiff’s copyright because the work did not comment upon the Plaintiff’s book of photographs,[13] causing a major backlash in the art community regarding transformed works.  The major concern found in the backlash focused on arguing what degree an artist’s work would have to be modified to comment upon the original copyrighted material.  The Second Circuit eventually repealed the decision, holding in favor of Prince because the initial reading neglected measuring the transformative degree the defendant’s work went through in comparison to the plaintiff’s photographs.[14]  Despite the reversal of the initial court’s decision, it did not change the fact that the district court ignored the transformative nature of Prince’s work when considering the fair use defense, exposing evidence of the fair use defense’s degradation in the court system.

Conclusion

            Copyright’s main purpose is to promote the progress of science and useful arts through granting owners exclusive control of their works.[15]  The fair use doctrine offers a challenge to copyright’s intent by questioning whether the promotion is best served by allowing the use of copyrighted material rather than preventing it.  The public views both sides with a negative reception.  Some argue that copyright gives too much control to copyright owners, with its creators restricting the usage of their work to avoid criticism or negative reception affecting their productivity.  Others argue that fair use is nothing more than an excuse for infringement, allowing anyone to take credit from the work of others will little to no drawback.  Despite the negative public view on both intellectual property rights, both views share the same purpose of benefitting the public and promoting the arts and sciences.  The dispute between copyright and the fair use doctrine is a reoccurring conflict of check and balances between protection of property and freedom of expression.  By debating these intellectual property rights in the courts, there is both innovation and further amendments to the legal system regarding copyright and fair use, along with an introduction to new creative works that challenge their validity.  Therefore, regardless of the outcome, the fair use defense is key to allow both businesses and the public to benefit from the use of a copyrighted work.

[1] See U.S. Copyright Office, Circular 1, Copyright Basics, 1 (May 2012).

[2] 17 U.S.C. § 107.

[3] See 17 U.S.C. § 110.

[4] Once a copyrighted good is sold to a consumer, the consumer is free to sell, display, perform, or dispose of the copy without the copyright owner’s permission.  See 17 U.S.C. § 109.

[5] See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994).

[6] See Deborah R. Gerhardt and Diane K. Kjervik, Protect Your Right to Write Again: Tips for Assuring that Your Publication Agreement is a Comfortable Fit, 12 J. Nursing L., 124, 124 (2008).

[7] See Rogers v. Koons, 960 F.2d 301 (2d Cir. 1992) (holding that defendant’s sculpture, which was based on plaintiff’s photograph, infringed the plaintiff’s rights, as the photograph’s existence marked a potential market for sculptures, despite the plaintiff’s use of photography).

[8] Nominative fair use is identified as the following: The use must accurately refer to the owner of the trademark or the goods or services sold under the trademark; The use must not imply any endorsement or sponsorship by the trademark owner; There should be no easier way to refer to the owner or its products; and Only so much of the trademark can be used as is needed to identify the trademark owner and no more.  See Chad J. Doellinger, Nominative Fair Use: Jardine and the Demise of a Doctrine, 1 Nw. J. Tech. & Intell. Prop. 66 (2003).

[9] See 15 U.S.C. § 1125.

[10] See 35 U.S.C. § 271 (e)(1) (“It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention … solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.”).

[11] See Merck KGaA v. Integra Lifesciences I, Ltd., 125 S. Ct. 2372 (2005) (noting that Section 271(e)(1) does not exclude experimentation on drugs under FDA submission or use of patented compounds for experimenting on drugs).

[12] See Cariou v. Prince, 714 F.3d 694 (2d Cir. 2013).

[13] See Cariou v. Prince, 714 F.3d at 704 (discussing the decision of the lower court).

[14] Id. at 707-08.

[15] U.S. Const. art. 1, § 8, cl. 8.

THE DEFEND TRADE SECRETS ACT

by

Michael Small

The Defend Trade Secrets Act (DTSA) of 2016 has allowed the protection of trade secrets to expand towards the federal court system, making it one of the most dynamic changes to intellectual property protection in years (Goldman, 2015).  Signed in 2016 under the Obama Administration, the Act has provided an avenue for trade secret owners to use private federal lawsuits/court to challenge those that have allegedly stolen their trade secret.  Prior to this Act, only state law could have been applied to trade secret violations, with punishments/costs varying between state courts due to the protection granted by the Uniform Trade Secrets Act[1] (UTSA).  Both have set a foundation for trade secret definition and fines for conviction, but the DTSA grants more power for trade secret owners to protect their company’s profits.

The DTSA builds upon the 1996 Economic Espionage Act (EEA), which specializes in dealing with industrial espionage.  It has intensified the fines for convicted trade secret appropriators to be greater than $5 million plus three times the value of the stolen trade secret.  In addition, it grants the trade secret owner the right to request the U.S. government to acquire any and all assets deemed necessary to prevent further spread of the stolen secret through the process of applying for an ex parte seizure[2] (Congress, 2016).  Although a hearing is required after a week of filing the seizure for proof of the intention to use, distribute, or destroy the secret, no notification is required to be given to the accused (unlike the UTSA), which greatly reduced the odds of the valuable trade secret being devalued or tampered/destroyed.  This has given trade secrets owners a larger edge in power in terms of defending their intellectual property.

In addition to giving trade secret owners more control over their intellectual property, it has also given the accused party certain levels of protection as well depending on the trade secret involved.  If the business model of the secret could be deemed illegal or unethical, the individual/party with that secret could seek a pardon under the DTSA upon revealing the information.  Under normal circumstances, they would have been considered whistleblowers who would have been convicted to the fullest extent of the law along with the company. However, the DTSA grants legal immunity to those that release the information to government officials (in confidence) of the trade secret if it is proven that the secret violates U.S. law (Congress, 2016).  Notably, companies must now inform and/or educate their employees about this immunity, or else forfeit their right for winning exemplary damages or attorney fees against an employee regarding trade secret violation[3] (Morning, 2016, p. 22).  This protection granted towards whistleblowers acts as a check and balance for trade secret owners should the secret not comply with the U.S. law.

While it has granted trade secrets owners greater protection against trade secret theft, there have been a number of criticisms regarding the DTSA’s usage.  Some argue that it gives trade secret owners too much control, as trade secrets are intertwined with a large part of any business, particularly in the hiring/firing phase of the workplace.  In addition, the seizure usage could give trade secret holders an anti-competitive advantage to other companies.  For instance, Goldman (2015) cites multiple incidents of the Immigration and Customs Enforcement’s (ICE) frequent seizures of domain names as proof of the damages caused by ex parte seizures, causing damage to about 84,000 different websites[4] (p. 302).   This led to him making a conclusion about this power, in that “because ICE’s erroneous seizures are tantamount to shutting down legal speech, the seizures of completely legal domain names raise obvious Constitutional problems” (p. 300).  Ultimately his argument points out that the grant of ex parte seizures to trade secret owners could lead to equal, if not more damages like the incident above to smaller, innocent businesses, and can lead to abuse and/or suppression of Amendment 1 against other competitors if granted to trade secret holders. The legal immunity granted to whistleblowers is also argued to be a problem, as the whistleblower in mind would still have to go through reputational damage regardless of the outcome of the federal case.  In general, the allocation of resources to federal lawsuits would also make court costs go up significantly compared to keeping the case at the state level.  Goldman, Levine, Sadine and Seaman (2015) argue against the DTSA in their letter,[5] regarding that “median litigation costs through the end of discovery ranged from $250,000 in cases where less than $1 million was at stake, to over $1.6 million in cases where over $25 million was at risk” (p. 6).   Although there have been many criticisms over the Act, the impact and execution of the DTSA has yet to be fully realized because of its recent ratification as of 2016.  More cases will need to apply the DTSA before its overall impact can be fully analyzed.

In conclusion, the DTSA could be considered a spiritual successor to the UTSA, which gave each state the power to enforce trade secret violations.  However, there are significant difference between the DTSA and the UTSA.  In particular, the DTSA can be considered a specialization of the UTSA, focusing primarily on trade secret cases that involve out-of-state and foreign commerce, allowing for companies to protect trade secrets against out-of-state and foreign rivals.  Unlike the UTSA, it also has the potential to grant whistleblowers legal immunity if the trade secrets they have stolen were reported to be illegal to government officials.  The decision to use UTSA or DTSA comes with notable benefits and challenges for all sides involved, though DTSA appears to be a very promising extension to the protection that trade secrets need to give itself an equal level of protection with the other aspects of intellectual property.

Difference Between the Defend Trade Secrets Act and Uniform Trade Secrets Act
  Defend Trade Secrets Act Uniform Trade Secrets Act
Trade Secret Definition/Coverage “All forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if — (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information,” [6] (Cornell, 2016). “Information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy,” [7] (Uniform Law, 1985, p. 5).
Prosecution Trade secret lawsuit can be prosecuted up to Federal court.  State procedural hurdles are ignored, except for the following condition:

·         If jurisdiction law does not permit restriction of practicing in a lawful profession, trade, or business[8] (Cornell, 2016).

Trade secret lawsuit can be prosecuted up to State court.  Conflict for prosecution can occur when states have different UTSA standards.
Injunctions Available for employer against employee or former employer, except in situations below:

·         Cannot prevent accused from entering employment relationships

·         Cannot conflict with state law that does not permit restriction of practicing in a lawful profession, trade, or business (Cornell, 2016).

Available for both employer and employee.
Whistleblower Immunity Status Guarantees whistleblower protection if trade secret contains information that violates U.S. law (and is reported to government official in confident). Does not guarantee whistleblower protection.
NDAs in Court Trade secret owners can file a case under seal before going to court to avoid secret disclosure Trade secret disclosure protection will vary state by state.  Not always guaranteed due to differing UTSA standards in each state.
Ex Parte Seizure Grants an ex parte seizure for trade secret owners under certain conditions; prevents the accused from being notified about seizure. Unavailable; requires the accused party to be notified of any seizure of assets before execution.

Conditions vary with each state due to differing UTSA standards.

Attorney Fees and Damage Rewards Available for proven and/or threatened counts of misappropriation, though employer/plaintiff must take into consideration:

·         If employer has not made employee aware of whistleblower immunity status granted by DTSA, attorney fees and damages may not be awarded.

Available for proven and/or threatened counts of misappropriation.

 

 

 

Trials Involving the DTSA

The following is a summary of some of the trials that have occurred with the implementation of the DTSA.

Bonamar v. Turkin and Supreme Crab

Bonamar, a crab supplier, accused his ex-VP Turkin for sharing trade secrets (customer and pricing information) to Indonesian rival, Supreme Crab, after receiving phone calls from customers about receiving cheaper crab meat prices after Turkin’s departure and employment into Troy at Supreme.[9]  Bonamar sued under the DTSA and the Florida UTSA for breach of contract.  Turkin argued that the information was not secretive.  Both reached a settlement before a final decision was reached.[10]

Ooo Brunswick Rail Mgmt. v. Sultanov

After Brunswick noted suspicious behavior in the defendant and confirmed that defendant’s work email showed messages sent to his personal email containing confidential documents, in combination with his refusal to return the company owned laptop/phone and prohibited contact with a former employee and a creditor of the company, Brunswick sued under DTSA and ordered an ex parte seizure of the defendant’s assets, one of the first times the order was requested.[11]  The ex parte seizure request was denied,[12] and instead ordered a temporary restraining order to the defendant to cease spreading of information.  This case is still ongoing.

Henry Schein, Inc. v. Cook

In the case of Henry Schein, Inc. v. Cook, a temporary restraining order was granted for the plaintiff against the defendant from accessing misappropriated data and contacting former clients involved with the business upon leaving the job and joining a rival competitor’s business.[13]  The reasoning for the restraining order was argued by the judge himself,[14] noting a likelihood of damage that Cook can cause to the plaintiff beyond a reasonable doubt.  This case has concluded.

M.C. Dean, Inc. v. City of Miami Beach

M.C. Dean filed a DTSA lawsuit against City of Miami Beach for exchanging confidential employee records to Local 349.[15]  The lawsuit was dismissed as the plaintiff was unable to show proof that he took reasonable measure to keep his trade secret confidential.[16]

 

 

 

References

Bonamar v. Turkin and Supreme Crab, 1:16-CV-21746 (Federal Court, FL. 2016).

Congress. (2016). S.1890 – Defend Trade Secrets Act of 2016. Retrieved from https://www.congress.gov/bill/114th-congress/senate-bill/1890

Cornell University Law School. (2016). 18 U.S. Code § 1836 – Civil proceedings. Retrieved from https://www.law.cornell.edu/uscode/text/18/1836

Cornell University Law School. (2016). 18 U.S. Code § 1839 – Definitions. Retrieved from https://www.law.cornell.edu/uscode/text/18/1839

Deakins, O. (2016). California court declines to issue DTSA Seizure order.  Lexology. Retrieved from http://www.lexology.com/library/detail.aspx?g=eebcad49-339a-4faa-88d1-9a73bb6a1a76

Goldman, E. (2015). Ex Parte Seizures and the Defend Trade Secrets Act. Washington and Lee Law Review Online, 72 (2-4), 284-307.

Goldman, E., Levine, D., Sadine, S., & Seaman, C. (2015). Professors’ letter in opposition to the Defend Trade Secrets Act of 2015. Stanford University. Retrieved from https://poseidon01.ssrn.com/delivery.php?ID=7931160040731200161070200841150000991220220370160060650771160130051240100951190050270000611190430190591240980230290791121241010270530580760460070250920640930660710410390340090750890840991131131111271090850291060

Henry Schein, Inc. v. Cook, 16-cv-03166-JST (Federal Court, N.D. Cal. 2016).

M.C. Dean, Inc. v. City of Miami Beach (Federal Court, FL. 2016).

Mornin, J. D. (2016). What you need to know about the Defend Trade Secrets Act. Intellectual Property & Technology Law Journal28 (9), 20-23.

Ogletree, D. (2017). California court declines to issue DTSA seizure order. Lexology. Retrieved from http://www.lexology.com/library/detail.aspx?g=eebcad49-339a-4faa-88d1-9a73bb6a1a76

Ooo Brunswick Rail Mgmt. v. Sultanov, 5:17-cv-00017-EJD (Federal Court, N.D. Cal. 2017).

Smith, D. (2016). Bonamar, ex-VP Turkin reach settlement in trade secret theft suit. Under Current News. Retrieved from https://www.undercurrentnews.com/2016/08/05/bonamar-ex-vp-turkin-reach-settlement-in-trade-secret-theft-suit/

Tigar, J. (2016). Henry Schein, Inc. v. Cook. Trade Secrets Institute. Retrieved from http://tsi.brooklaw.edu/cases/henry-schein-inc-v-cook

Toren, P. J. (2016). The Defend Trade Secrets Act. Intellectual Property & Technology Law Journal28 (7), 3-12.

Uniform Law. (1985). Uniform Trade Secrets Act with 1985 Amendments. Retrieved from http://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf

 

 

[1] Each state that verified the UTSA into law made their own interpretations as to what is enforced, such as the California Uniform Trade Secrets Act (CUTSA), the Florida Uniform Trade Secrets Act (FUTSA), and so forth.

[2] An ex parte seizure allows for a company to request a federal judge to approve a seizure of assets without the presence of the other party.

[3] See Joseph Morning, What you need to know about the Defend Trade Secrets Act. Intellectual Property & Technology Law Journal, 28 (9), (Sep. 2016).

[4] Although the assets seized by ICE were labeled under copyright and trademark infringements, the same ex parte seizure procedure had been applied, and it has been proven that the seized assets were not infringing on any rights, a reoccurring error with ICE’s request (Goldman, 2015, pp. 300-301).  See Eric Goldman, Ex Parte Seizures and the Defend Trade Secrets Act, 72 (2-4), Washington and Lee Law Review Online, (Nov. 30, 2015).

[5] Professors’ letter in opposition to the Defend Trade Secrets Act of 2015, in which 42 law professors state their argument against the DTSA, ranging from ex parte seizure abuse to damages to smaller companies, in an attempt to persuade the chairman to not approve of the bill. For more details, see Goldman, Levine, Sadine & Seaman. Professors’ letter in opposition to the Defend Trade Secrets Act of 2015., Stanford University, (Nov. 17, 2015), https://poseidon01.ssrn.com/delivery.php?ID=7931160040731200161070200841150000991220220370160060650771160130051240100951190050270000611190430190591240980230290791121241010270530580760460070250920640930660710410390340090750890840991131131111271090850291060

[6] See U.S. Code § 1839 – Defines trade secrets in terms of DTSA.

[7] See Section 1.4 of the Uniform Trade Secrets Act – defines trade secrets in terms of the UTSA.

[8] See 18 U.S. Code § 1836 – Civil proceedings that affect DTSA’s application in certain states depending on job practice

[9] See Bonamar v. Turkin and Supreme Crab, 1:16-CV-21746 (Federal Court, FL. 2016).

[10] Turkin agreed to “return and destroy any and all data, documents, and materials pertaining to Bonamar’s business in his possession … Supreme and Turkin must not use any information received” (Smith, 2016, para. 6).  See Jason Smith, Bonamar, ex-VP Turkin reach settlement in trade secret theft suit. Under Current News (Aug. 5, 2016), https://www.undercurrentnews.com/2016/08/05/bonamar-ex-vp-turkin-reach-settlement-in-trade-secret-theft-suit/

[11] See Ooo Brunswick Rail Mgmt. v. Sultanov, 5:17-cv-00017-EJD (Federal Court, N.D. Cal. 2017).

[12] The court argued that “its preservation order, along with its directive that the employee not access the disputed devices and the requirement that the employee bring the devices to the next court hearing, was sufficient protection of the evidence” (Deakins, 2017).  See Ogletree Deakins, California court declines to issue DTSA Seizure order.  Lexology. (Jan. 17, 2017), http://www.lexology.com/library/detail.aspx?g=eebcad49-339a-4faa-88d1-9a73bb6a1a76

[13] See Henry Schein, Inc. v. Cook, 16-cv-03166-JST (Federal Court, N.D. Cal. 2016).

[14] Judge Tigar (2016) argued for the restraining order, noting that “(1) there was a likelihood of irreparable injury to HSI, (2) HSI was likely to succeed on the merits, (3) Cook was not likely to suffer undue hardship, and (4) public interest would be served by protecting trade secrets” (para. 4).  See Jon Tigar, Henry Schein, Inc. v. Cook. Trade Secrets Institute, (Jun. 10, 2016), http://tsi.brooklaw.edu/cases/henry-schein-inc-v-cook

[15] See M.C. Dean, Inc. v. City of Miami Beach (Federal Court, FL. 2016).

[16] The contracts M.C. Dean presented to the case were nonbinding and therefore were not enough to prove that he went through significant means of protecting his trade secret.

Patent and Copyright Reform Update

by

Michael Small

Congressman Bob Goodlatte, Chairman of the House Judiciary Committee, has announced that he will reveal a number of proposals to take place through the year during his speech at the 115th Congress that would reform intellectual property, targeting patent litigation cases and the Copyright Office.[1]  This reform is built upon his reflection of what is hindering American business.  In his perspective, he argues that the rising number of regulations and ‘red tape’ placed on businesses are causing a greater hindrance on entrepreneurs and companies with regard to innovation and competition.  Therefore, he will put his focus on making America competitive again by making the legal system fair and efficient.  In particular, he emphasized on making it more difficult for lawyers to ‘game’ the legal system by discouraging abusive patent litigation cases or ‘truly frivolous lawsuits,’ from occurring or accumulating high damage costs, often caused by aggressive ‘patent trolls.’[2]

One of the first proposals to reflect his speech in the 115th Congress[3] has already been submitted at the end of 2016, in which he targeted a total reform of the Copyright Office’s management of power.  The proposal stated that the Copyright Office should maintain its own autonomy over budget and needs for technology (while still being included as part of the Library of Congress).  In addition, he requested that the Copyright Office be reorganized to have the same nominational progress as government officials,[4] such as having the Register of Copyright elected, serving a 10-year term before re-elections, and being advised by a committee (Goodlatte, 2016).  He argues that these positions will allow the American population to provide input as to who will represent the copyright process.  Goodlatte also proposed for the Copyright Office to create and maintain a digital, searchable database of filed copyrighted work in the U.S.  Along with this establishment, he proposes that the Copyright Office make their database open for public use and browsing, with the option to charge users a fee for using its database or for letting copyright owners add extra metadata into their registered goods.  This proposal is a reference to the rapid advancement and popularity of technology in the 21st century and of how to accommodate this movement effectively without being ‘left behind.’  According to Goodlatte, this is just the beginning of many policy proposals he will make and support throughout the year in order to fully reform copyright law into the environment that is needed to make American businesses remain leaders in creativity and innovation.

Although so far Goodlatte’s proposal for changing the Copyright Office has been met with positive reception, efforts to enforce copyright reforms in the past have been met with numerous levels of backlash.  For instance, the last attempt at proposing bills that would have strengthened copyright protection, the Stop Online Piracy Act (SOPA) and Protect Intellectual Property Act (PIPA), has gathered very negative reception all throughout the U.S.  SOPA in particular would have allowed the government to seize foreign website domain names that aimed at online piracy.[5]  However, several loopholes were located within the Act, such as holding search engines liable for infringement and allowing internet service providers to remove infringing websites from their domain name system, preventing users from accessing the website[6] (Yoder, 2016).  This would have bypassed previous protections granted by the approval of the Digital Millennial Copyright Act[7] (DMCA), to the point that SOPA could have granted internet service providers the power of censorship.  Over 115,000 websites, including Google and Wikipedia, protested against the bill,[8] gathering support and persuading government officials to withdraw their support until the bill failed to pass the Senate.  The negative reception SOPA and PIPA gathered had also left an influence on the congressmen, who had not proposed any other law that would affect copyright up until Goodlatte’s agenda for the 115th Congress.  Whether a similar backlash will be present with any of Goodlatte’s future proposals involving copyright will be unknown until more are announced and made aware to the public.  The reorganization of the Copyright Office, if passed by Congress, may be a gauge into the possibility of future reforms and modifications of copyright law depending on its reception to the public.

This is not the first time Goodlatte has called for reforms of intellectual property.  Previously he had attempted to modify how patent cases were processed by proposing the Innovation Act of 2013.  In an attempt to target and reduce the power that ‘patent trolls’ had on defendants, the regulation set by the act would have increased the transparency taking place between the plaintiff and defendant regarding the infringed material.  This meant that plaintiffs would have had to specify what part of the patent was being infringed, notably the following:

Each claim of each patent allegedly infringed, including each accused process, machine, manufacture, or composition of matter … alleged to infringe the claim; for each claim of indirect infringement, the acts of the alleged indirect infringer that contribute to, or are inducing, a direct infringement; the principal business, if any, of the party alleging infringement; the authority of the party alleging infringement to assert each patent and the grounds for the court’s jurisdiction; each complaint filed that asserts any of the same patents; and whether a standard-setting body has specifically declared such patent to be essential, potentially essential, or having potential to become essential to that body, as well as whether the United States or a foreign government has imposed any specific licensing requirements.[9]

As a further extension to the specified requirements, it would also require plaintiffs to pay for the defendant’s court costs should they lose the case, going as far as to affect the parties involved with supporting the plaintiff should they be unable to afford the costs, including shell companies.[10]  However, the bill has received some criticism among the audience it aimed to protect, especially from small businesses and independent inventors.  They argue that the proposal “places an unfairly high burden on patent holders, making it too difficult for small businesses or individual inventors — rather than large companies — to protect their patents … make money from research … [and inventor’s point of view] was missing” (Robertson, 2013).  This would mean that only larger companies would be able to properly benefit from the Innovation Act, as they could afford the investment of resources required to prove the legitimacy of their patent(s) should their patents be legitimately infringed.  In addition, the decline of patent cases in 2014 has made support for the bill reach a stalemate, ultimately being rejected by the Senate in the 114th Congress.

A similar bill was announced in 2015 known as the Protecting American Talent and Entrepreneurship (PATENT) Act.  While it addresses similar issues brought up by the Innovation Act of 2013, it also adds protection to the values of patent and/or trade secret IP that would have eroded under the Innovation Act and provides some level of protection involved with parties that are supporting the plaintiff.  However, this bill faced opposition as the language for the customer stay is unclear.[11]  This uncertainty once again provided potential favorability towards larger corporations, thus receiving little support and not being able to move forward in congress.  It may be possible for Goodlatte to reintroduce the Innovation Act or the PATENT Act in some form as part of the promises he made in the 115th Congress, but to what extent will be up to discretion.

It is possible for other congressmen and senate members to introduce bills that would also reform patent and copyright to their preference.  However, there appears to be limited interest in Congress to move the bills forward for approval.  For instance, Senator Chris Coon made a proposal in response to America’s patenting system switching to the first-to-file system[12] known as the Support Technology and Research for Our Nation’s Growth (STRONG) Patents Act. This bill, if approved, would have allowed the Federal Trade Commission to target ‘patent trolls’ that make abusive demand letters and monitor the impact the patent system has on smaller businesses.  Michael Burgess’s Targeting Rogue and Opaque Letters (TROL) Act would have targeted demand letters made in bad faith in terms of representations, compensation requests, or omissions.  Jared Polis’s Demand Letter Transparency Act would have made an archive of all demand letters sent by ‘patent trolls,’ or (companies that sent many), with some exceptions such as original works or educational centers.  All of these bills have stalled in Congress, with few of them, if any, being reviewed in a timely manner.

In conclusion, should Goodlatte’s copyright reform proposal be put forward and approved by the senate, his speech at the 115th Congress may have provided the inspiration needed to resurge interest within congressmen to partake in the reformation of the copyright system and for members to compromise with each other to find the best solution to deal with ‘patent trolls’ while providing proper support for patent protection for individuals, small and large businesses.  With the majority of congress now held by a Republican majority after the elections of 2016, there may be a greater chance for congressmen to make a unified decision and/or consensus regarding the handling of copyright and patent reforms.

 

[1] See Gene Quinn, Goodlatte pledges to pursue patent litigation reform, copyright reform in 115th Congress, IPWatchdog, (2017), http://www.ipwatchdog.com/2017/02/01/goodlatte-patent-litigation-reform-copyright-reform/id=77879/

[2] A patent troll is defined by Chief Judge Rader as “any party that attempts to enforce a patent far beyond its actual value or contribution to the prior art.”  See Peter Calcara, Patent trolling: What it is and why it is important to CPAs, (Apr. 18, 2016), https://www.picpa.org/articles/cpa-now-blog/cpa-now/2016/04/18/patent-trolling-what-it-is-and-why-it-is-important-to-cpas

[3] See Bob Goodlatte, Goodlatte announces agenda for 115th Congress. House of Representatives: Judiciary Committee, (2017), https://judiciary.house.gov/press-release/goodlatte-announces-agenda-115th-congress/

[4] “The Copyright Office should also add several positions to advise the Register including a Chief Economist, Chief Technologist, and a Deputy Register.” See Bob Goodlatte, Reform of the U.S. Copyright Office, House of Representatives: Judiciary Committee, (2016), https://judiciary.house.gov/wp-content/uploads/2016/12/Copyright-Reform.pdf

[5] See H.R.3261

[6] “Some parts of the legislation, for example, would hold search engines that led their users to pirated content liable for infringement … permitted internet service providers (ISPs) to remove allegedly infringing websites from the domain name system.”  See Christain Yoder, A post- SOPA (Stop Online Piracy Act) shift in international intellectual property norm creation. Journal of World Intellectual Property, 15(5/6), (2012)

[7] See 17 U.S. Code § 512.

[8] See Jenny Wortham, Public outcry over antipiracy bills began as grass-roots grumbling, New York Times, (2012), http://www.nytimes.com/2012/01/20/technology/public-outcry-over-antipiracy-bills-began-as-grass-roots-grumbling.html?pagewanted=1&ref=technology

[9] See H.R. 3309.

[10] Shell companies are generally identified as “companies that don’t manufacture anything but hold a number of patents … sending threatening letters to companies claiming they have been violating one or more of their (often vaguely defined) patents.”  See Jonathan Griffin, Patent trolls’ hefty tolls: Lawmakers target shell companies that threaten small businesses with bogus claims of patent violations, State Legislatures, 10, (2014).

[11]  “… language in the proposed legislation does not so limit stays … The concern consistently raised by the Innovation Alliance is that anyone could be a customer, including large corporations.” See Gene Quinn, Mixed Reviews for the PATENT Act in the Senate, IPWatchdog, (2015), http://www.ipwatchdog.com/2015/05/04/mixed-reviews-for-the-patent-act-in-the-senate/id=57457/

[12] In 2011, Obama signed the Leahy-Smith America Invents Act, which shifted patent right permissions in the U.S. from a first-to-invent system to first-to-file.

 

References

Calcara, P. (2016). Patent trolling: What it is and why it is important to CPAs. Pennsylvania Institute of Certified Public Accountants. Retrieved from https://www.picpa.org/articles/cpa-now-blog/cpa-now/2016/04/18/patent-trolling-what-it-is-and-why-it-is-important-to-cpas

Congress. (2012). H.R.3261 – Stop Online Piracy Act. Retrieved from https://www.congress.gov/bill/112th-congress/house-bill/3261

Congress. (2014). H.R.3309 – Innovation Act. Retrieved from https://www.congress.gov/bill/113th-congress/house-bill/3309

Cornell University Law School. (2010). 17 U.S. Code § 512 – Limitations on liability relating to material online. Retrieved from https://www.law.cornell.edu/uscode/text/17/512

Goodlatte, B. (2016). Reform of the U.S. Copyright Office. House of Representatives: Judiciary Committee. Retrieved from https://judiciary.house.gov/wp-content/uploads/2016/12/Copyright-Reform.pdf

Goodlatte, B. (2017). Goodlatte announces agenda for 115th Congress. House of Representatives: Judiciary Committee. Retrieved from https://judiciary.house.gov/press-release/goodlatte-announces-agenda-115th-congress/

Griffin, J. (2014). Patent trolls’ hefty tolls: Lawmakers target shell companies that threaten small businesses with bogus claims of patent violations. State Legislatures, 10, 28-31.

Quinn, G. (2015). Mixed reviews for the PATENT act in the senate. IPWatchdog. Retrieved from http://www.ipwatchdog.com/2015/05/04/mixed-reviews-for-the-patent-act-in-the-senate/id=57457/

Robertson, A. (2013). House of Representatives passes widely supported bill to fight patent trolls. The Verge. Retrieved from http://www.theverge.com/2013/12/5/5177802/house-of-representatives-passes-goodlatte-patent-troll-act

Wortham, J. (2012). Public outcry over antipiracy bills began as grass-roots grumbling. New York Times. Retrieved from http://www.nytimes.com/2012/01/20/technology/public-outcry-over-antipiracy-bills-began-as-grass-roots-grumbling.html?pagewanted=1&ref=technology

Yoder, C. (2012). A Post- SOPA (Stop Online Piracy Act) shift in international intellectual property norm creation. Journal of World Intellectual Property15 (5/6), 379-388.

[1] See Gene Quinn, Goodlatte pledges to pursue patent litigation reform, copyright reform in 115th Congress, IPWatchdog, (2017), http://www.ipwatchdog.com/2017/02/01/goodlatte-patent-litigation-reform-copyright-reform/id=77879/

[2] A patent troll is defined by Chief Judge Rader as “any party that attempts to enforce a patent far beyond its actual value or contribution to the prior art.”  See Peter Calcara, Patent trolling: What it is and why it is important to CPAs, (Apr. 18, 2016), https://www.picpa.org/articles/cpa-now-blog/cpa-now/2016/04/18/patent-trolling-what-it-is-and-why-it-is-important-to-cpas

[3] See Bob Goodlatte, Goodlatte announces agenda for 115th Congress. House of Representatives: Judiciary Committee, (2017), https://judiciary.house.gov/press-release/goodlatte-announces-agenda-115th-congress/

[4] “The Copyright Office should also add several positions to advise the Register including a Chief Economist, Chief Technologist, and a Deputy Register.” See Bob Goodlatte, Reform of the U.S. Copyright Office, House of Representatives: Judiciary Committee, (2016), https://judiciary.house.gov/wp-content/uploads/2016/12/Copyright-Reform.pdf

[5] See H.R.3261

[6] “Some parts of the legislation, for example, would hold search engines that led their users to pirated content liable for infringement … permitted internet service providers (ISPs) to remove allegedly infringing websites from the domain name system.”  See Christain Yoder, A post- SOPA (Stop Online Piracy Act) shift in international intellectual property norm creation. Journal of World Intellectual Property, 15(5/6), (2012)

[7] See 17 U.S. Code § 512.

[8] See Jenny Wortham, Public outcry over antipiracy bills began as grass-roots grumbling, New York Times, (2012), http://www.nytimes.com/2012/01/20/technology/public-outcry-over-antipiracy-bills-began-as-grass-roots-grumbling.html?pagewanted=1&ref=technology

[9] See H.R. 3309.

[10] Shell companies are generally identified as “companies that don’t manufacture anything but hold a number of patents … sending threatening letters to companies claiming they have been violating one or more of their (often vaguely defined) patents.”  See Jonathan Griffin, Patent trolls’ hefty tolls: Lawmakers target shell companies that threaten small businesses with bogus claims of patent violations, State Legislatures, 10, (2014).

[11]  “… language in the proposed legislation does not so limit stays … The concern consistently raised by the Innovation Alliance is that anyone could be a customer, including large corporations.” See Gene Quinn, Mixed Reviews for the PATENT Act in the Senate, IPWatchdog, (2015), http://www.ipwatchdog.com/2015/05/04/mixed-reviews-for-the-patent-act-in-the-senate/id=57457/

[12] In 2011, Obama signed the Leahy-Smith America Invents Act, which shifted patent right permissions in the U.S. from a first-to-invent system to first-to-file.

Prior Use Rights v. Patent Protection

By Julie Shursky

Before the enactment of the Leahy-Smith America Invents Act (“AIA”), the prior user rights defense was limited to business method patents.  35 U.S.C. § 273 (2006) (restricting the defense to patent claims for “a method of doing or conducting business”), amended by Leahy-Smith America Invents Act, Pub. L. No. 112-29, sec. 5(a), 125 Stat. at 297.  The AIA, however, amended the language of Section 273, such that the defense is now applicable to any “process” or any “machine, manufacture, or composition of matter used in manufacturing or other commercial process.”  35 U.S.C. § 273(a) (2011).  Further, Section 273 states that an accused infringer must prove, by clear and convincing evidence, that the patented subject matter was “commercially used” in the United States at least a year prior to the effective filing date of the claimed invention.  35 U.S.C. § 273(a)(2).  This expanded prior user rights defense under the AIA applies to any patent issued on or after September 16, 2011.  Pub. L. No. 112-29, sec. 5(c), 125 Stat. 284, 299 (2011).  To qualify for the defense, the accused infringer must establish strict requirements that limit the defense’s applicability to very rare situations:

  • The use must be a good faith commercial use in the United States. Since the commercial use must be in the United States, some foreign commercial activity will not qualify.
  • The use must occur at least one year before the earlier of (1) the effective filing date of the asserted patent; or (2) the date on which the claimed invention was disclosed to the public in a manner that qualified for the prior art exception from under AIA. 35 U.S.C. 102(b); 35 U.S.C. 273(a), (e)(2) & (4).
  • The use must be in connection with (i) an “internal commercial use” or (ii) an arm’s length sale or transfer of a useful end result of the internal commercial use. 35 U.S.C. § 273(a)(1).

The AIA also sets forth several important limitations to the defense:

  • The prior commercial use defense is “personal,” which means it cannot be separately licensed, transferred, or assigned to a third party, except that the defense can be transferred as part of a good faith transfer of an entire business or relevant line of business.
  • In the event that the defense is transferred as part of such a good faith transfer, the defense may only be asserted for use at sites where the use occurred prior to the later of the date of the transfer or the effective filing date of the claimed invention. If the purchaser begins practicing the commercial use at the new sites after the effective filing date and after the transfer takes place, those uses will not qualify for the defense.
  • The defense is not a “general license,” which means that it does not provide a general license to all the claims of the asserted patent. For example, if a party qualifies for the defense, but only has practiced claims 1-5 of a patent, that does not mean the party can also practice claims 6-10 of the same patent without being liable for infringement.
  • The defense is not available if the commercial use is derived from the patentee or persons in privity with the patentee.
  • If the commercial use is abandoned, the defense may not be relied upon with respect to activities that occur before the abandonment. Certain legislative history, however, suggests that processes that are used periodically or seasonally may still qualify for the defense (i.e., the periodic or seasonal use does not render them abandoned), even though they are not continuous.

Although the prior user rights defense under the AIA is a powerful tool to defend against patent infringement claims, there is a caveat to the defense, which is that the accused infringer must maintain sufficient records of its prior use.  The records should be detailed enough to preserve the defense with respect to each claim that may be asserted.

 

Since the law is new, there is a lack of clarity on limitations, such as the ability of the prior user to expand the capacity of the use, the ability to implement improvements, the requirements of the continuousness of the use, and what constitutes a “commercial use” as required under the statute.  The intention behind the prior user defense, however, is not only to provide for fairness to a prior inventor, but also to boost the rights of a trade secret holder against the rights of a later patent holder.  See 157 Cong. Rec. S5319 (daily ed. Sept. 16, 2011) (statement of Rep. Smith).  Specifically, the sponsors of the AIA intended to broaden the amendment in order to insulate businesses from having to disclose their internal processes or manufacturing materials.  See, e.g., 157 Cong. Rec. H4483 (daily ed. June 23, 2011) (statement of Rep. Smith) (“The prior-use defense is not overly expansive and will protect American manufacturers from having to patent the hundreds or thousands of processes they already use in their plants.”); 157 Cong. Rec. S5426 (daily ed. Sept. 8, 2011) (statements of Sen. Blunt and Sen. Leahy) (discussing that “the prior user rights provided under section 5 of H.R. 1249 will allow developers of innovative technologies to keep internally used technologies in-house without publication in a patent”).  Therefore, a major driving factor behind broadening the prior-user defense was to shield manufacturers who owned trade secrets from subsequent patent-infringement claims.

 

 

Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015)

By Julie Shursky

Facts:

  • Proxyconn, Inc. (“Proxyconn”) filed suit against Microsoft Corporation (“Microsoft”), accusing Microsoft of infringing its U.S. Patent No. 6,757,717 (“the ’717 patent.”) Microsoft, 789 F.3d at 1295.  This appeal arises from the inter partes review (“IPR”) of the ’717 patent.  Id.
    • The ’717 patent “relates to a system for increasing the speed of data access in a packet switched network.” at 1295.
  • The United States Patent and Trademark Office, Patent Trial and Appeal Board (“Board”) issued a final written decision, finding all but one of the instituted claims (claim 24) to be unpatentable under 35 U.S.C. § 102 and additionally under 35 U.S.C. § 103.  Id. (citing to Microsoft Corp. v. Proxyconn, Inc., IPR2012-00026 and IPR2013-00109, Paper No. 73 (PTAB Feb. 19, 2014).  The Board further denied Proxyconn’s motion to amend.  Id.
  • Microsoft appeals the Board’s determination that claim 24 is patentable. Proxyconn cross-appeals, “challenging the Board’s use of the broadest reasonable interpretation (“BRI”) standard of claim construction during IPRs, its unpatentability determinations, and its denial of Proxyconn’s motion to amend.”  Id.

BRI Standard for Claim Construction:

  • At issue was the Board’s construction of the phrase “a gateway . . . connected to said packet-switched network in such a way that network packets sent between at least two other computers” recited in claim 6. Id. at 1298 (citing to ’717 patent, col. 10 l. 64-col. 11. l. 12) (emphasis in original).
  • Before the Board, Proxyconn argued that the term “two other computers” referred only to the sender and receiver computers, while Microsoft contended that the term “two other computers” could represent any two computers that are connected on the network to a gateway, including a caching computer. Id. at 1298.  The Board agreed with Microsoft’s interpretation, finding that “the ‘two other computers’ were not limited just to the sender/computer and the receiver/computer,” and therefore concluded that the reviewed claims were not patentable.  Id.
  • Upon review, the Federal Circuit disagreed with the Board’s conclusion, finding that the phrase “two other computers” could not include the caching computer. Id. at 1299.  First, the panel noted that claim 6 of the ’717 patent separately recited the “two other computers” and the caching computer.  Id. (citing to ’717 patent, col. 10 l.54- col. 11 l. 12).  Specifically, the panel reasoned that, “[n]ot only are the ‘two other computers’ recited independently from, and in addition to, the gateway and caching computers, the word ‘other’ denotes a further level of distinction between those two computers and the specific gateway and caching computers recited separately in the claim.”  Id.  The Federal Circuit further found that “in each instance where [two other computers] is used, the phrase . . . describes components that are separate and distinct from the gateway and the caching computer.”  Id.
  • Accordingly, the court found that the specification clearly identified that caching computer and the “two other computers” to be “separate and distinct components of the overall system.” Id.  To expand “two other computers” to include the separately identified caching computer unreasonably broadens the language in the claims and specification.  Id.  Therefore, the Court “vacate[d] the Board’s findings of unpatentability of claims 6, 7, and 9 and remand[ed] for proceedings consistent with [the] opinion.”  Id.
  • For similar reasons, the panel disagreed with the Board’s conclusion “that the terms ‘sender/computer’ and receiver/computer’ were broad enough to include the intermediary gateway and caching computers.” Id. at 1300.  Rather, the Court concluded that such an interpretation “does not reasonably reflect the language and disclosure of the ’717 patent.”  Id.  Accordingly, the Court also vacated the Board’s findings of unpatentability of claims 1, 3, 10, 22, and 23 and remanded back to the district court.

Claim 24 is Patentable:

  • Ultimately at issue in claim 24 is whether the term “comparing” is the same as the term “searching. Id. at 1301-02.  The Federal Circuit concluded that the two terms were not identical, and thus agreed with the Board.  Id. at 1302 (“Based on the clear language of the specification, the Board was correct in concluding that the broadest reasonable interpretation of ‘searching for data with the same digital in said network cache memory’ includes searching in a set of potentially many data objects.”).

Anticipation:

  • The Court also agreed with the Board that “the download requests that DRP’s client sends to the server after receiving the index from the server and comparing it to the local index meets the ‘receiving a response signal’ limitation of claim 11,” and thus concluded that DRP anticipates claims 11, 12, and 14 of the ’717 patent. Id. at 1303.

Board’s Denial of Proxyconn’s Motion to Amend Claims 1 and 3:

  • Proxyconn also challenged “the Board’s denial of its motion to amend claims 1 and 3.” Id. at 1303.  Proxyconn argued that the Board exceeded its own authority “by imposing the additional requirements of [a prior Board opinion] and by relying on the DRP reference” rather than exclusively relying on statutes and regulations governing motions to amend.  Id. at 1305-06.
  • Proxyconn sought to substitute claims 35 and 36 with claims 1 and 3 respectively. Microsoft argued that the substituted claims were not patentable for anticipation by the DRP reference.  Id. at 1305.  Proxyconn made several other arguments, but failed to argue that substitute claims 35 and 36 were patentable over the DRP reference.  Id.
  • Prior to addressing the arguments on either side, the Federal Circuit reviewed the legal framework governing amendments during IPR proceedings. Id. at 1303.
    • Under the America Invents Act (“AIA”), Congress granted specific authority to the Board in relation to IPR proceedings. Id. 1303-04.  Specifically, the Board promulgated two regulations under the AIA that are relevant to this case: (1) “37 C.F.R. § 42.20, which applies generally to motions practice,” and (2) “37 C.F.R. § 42.121, which imposes specific requirements on the amendment process.”  Id. at 1304.
    • In addition to the two regulations, the Board also issued a six-member panel decision in Idle Free Systems, Inc. v. Bergstrom, Inc., IPR012-00027, 2013 WL 5947697 (PTAB June 11, 2013), where it provided further recitation of several important requirements for a patent owner’s motion to amend. Id. at 1304.  According to Idle Free, the Board requires a patentee to show that the substitute claim is patentable over prior art that is “known to the patent holder.”  Id.  Although the Idle Free decision is not binding, the Board frequently relies on that decision in denying motion to amend.  Id.
  • First, the Federal Circuit agreed with the Board that “§ 42.121(a)(2) is not an exhaustive list of grounds upon which the Board can deny a motion to amend.” Id. at 1306.  Next, the Court determined that it is in the Board’s discretion to choose between rulemaking and adjudication.  Id. at 1307.  Given the Board’s lack of experience with motions to amend, the Federal Circuit agreed that the Board should retain the ability to deal with such motions on a case-by-case basis to ensure an effective administrative process.  Id.   As such, the Court recognized that “there is merit to [the Board’s] arguments,” in not creating a black letter rule on motions to amend, and thus held that the Board has not “abused its discretion in choosing adjudication over rulemaking.”  Id. at 1307.
  • Finally, since the Board’s reliance on the DRP reference “was front and center throughout the course of the proceedings” and Proxyconn “was [not] taken by surprise,” the Federal Circuit found that “the Board acted permissibly in requiring Proxyconn to establish the patentability of substitute claims 35 and 36 over the DRP reference.” Id. at 1308.

Lessons Learned:

  • In this decision, the Federal Circuit provides guidance on how the BRI standard should apply during IPR proceedings. Further, by affirming the Board’s denial of a patentee’s motion to amend, the Federal Circuit resolved the issue of whether the patentee bears the burden of proving patentability of proposed claim amendments during an IPR proceeding.  Specifically, the Federal Circuit determined that the Board has discretion in adjudicating that a patentee must show that its proposed substitute claims are patentable over prior art.

SCOTUS grants Certiorari for Apple Inc. v. Samsung Elecs. Co.

Written by  Chitakone Arounlangsy

 

On January 2007, Apple Inc. patented the iPhone design which set forth subsequent litigation based on alleged utility and design patent infringement. http://fortune.com/2015/12/05/samsung-apple-timeline-settlement/.  Apple Inc. sued Samsung Electronics Co., on April 2011, for alleged infringement of patents based on user interface, and the Galaxy S and Infuse phones’ similarity in appearance to Apple’s iPhone line. Id. Apple Inc.’s lawsuit has caught the attention of the United States Supreme Court, and the appeal from Samsung has been officially put on hold while SCOTUS examines the merits of the case. http://www.macobserver.com/tmo/article/apple-v-samsung-damages-retrial-officially-on-hold Samsung was ordered to pay $548 million in damages last year, which was the basis of the appeal. http://www.macobserver.com/tmo/article/apple-v-samsung-damages-retrial-officially-on-hold.

Apple Inc. filed suit on April 2011, alleging that Samsung infringed upon its D618,677, D593,087, D504,889, and US 7,469,381 patents. Apple, Inc. v. Samsung Elecs. Co., No. 11-cv-1846, 2011 U.S. Dist. LEXIS 139049 (N.D. Cal. Dec. 2, 2011).  Apple Inc. requested a preliminary injunction against Samsung’s Galaxy S 4G and Infuse 4G smartphones. Id. The district court used four factors in determining whether an injunction would be appropriate. The factors were: whether the movant is likely to succeed on the merits; whether the movant is likely to suffer irreparable harm in the absence of an injunction; whether the balance of the equities favors the movant; and whether the public interest would be served by the grant of injunctive relief. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1319 (Fed. Cir. 2012). The design and utility patents that Apple alleged Samsung infringed upon are as follows:

The D593,087 design patent claims a bezel surrounding the perimeter of the phone’s front face and extending from the front of the phone partway down the phone’s side. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1317 (Fed. Cir. 2012). The parts of the side beyond the bezel, as well as the phone’s back, are disclaimed, as indicated by the use of broken lines in the patent figures. Id.

The D618,677 design patent is substantially the same as the D593,087 patent, and discloses an additional element of a transparent and glass-like front surface. Apple, Inc. v. Samsung Elecs. Co., No. 11-cv-1846, 2011 U.S. Dist. LEXIS 139049 (N.D. Cal. Dec. 2, 2011). The D618,677 patent disclaims the sides and back of the device. Id.

The D504,889 design patent is directed towards the design of a tablet computer. The patent depicts a rectangular tablet with a surface extending to the edge of the front side of the device. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1318 (Fed. Cir. 2012). Within that surface, broken lines delineate a slightly smaller rectangular display area. Id. The front face of the patented design has rounded corners, and a thin bezel surrounds the front surface along its perimeter. Id. The front surface has no ornamentation, buttons, speaker slots, holes, or raised surfaces. Id. The back and sides of the design are also claimed; the figures depict a flat, unadorned back transitioning into the sides through a rounded-over edge. Id. Apple contends that the design patent is embodied by its iPad tablet line. Id.

US 7,469,381 is a utility patent that claims a software feature known as the “bounce-back” feature, which is found on Apple’s smartphones and tablets. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1318 (Fed. Cir. 2012). The bounce-back feature is activated when the user is scrolling through a document displayed on the device. Id. If the user attempts to scroll past the end of the document, an area beyond the edge of the document is displayed to indicate that the user has reached the document’s end. Id. Once the user input ceases, the previously visible part of the document “bounces back” into view. Id.

On the D593,087 patent, the court ruled that it was unlikely to succeed on the merits because questions were raised about the patent’s validity, in it being similar and anticipated by a similar Japanese patent. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1319 (Fed. Cir. 2012).

Samsung’s Galaxy S 4G and Infuse 4G smartphones were found to be substantially similar to the claimed D618,677 patent. However, Apple was unable to show that it was likely to suffer irreparable harm from the importation and sale of Samsung’s infringing smartphones while the case was pending in the district court. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1320 (Fed. Cir. 2012).

The same was said about the D504,889 patent for lack of showing irreparable harm, and the court declined to issue an injunction with respect to the D504,889 patent. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1321 (Fed. Cir. 2012). The court also declined to issue an injunction with respect to the US 7,469,381 patent. Id. The court ruled that it failed to establish a relationship between any alleged loss of market share, customers, or goodwill between the Samsung phones and the claimed design. Id.

Apple appealed the denial of a preliminary injunction, and the Federal Circuit Court affirmed the denial based upon the D593,087, D618,677, and US 7,469,381 patents. Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1328 (Fed. Cir. 2012). As for the D504,889 patent, the circuit court vacated and remanded the lower court’s decision for further review because it incorrectly determined the validity of the claimed patent. Id.

The basis of SCOTUS’s decision to grant Certiorari is based on Samsung’s appeal of requiring to pay $548 million in damages. http://www.marinij.com/general-news/20160321/us-supreme-court-to-hear-apple-v-samsung-patent-feud/9. SCOTUS will be answering the question of how damages should be assessed for patent violations when the technology involved is just one of many ingredients that go into a device like an iPhone. SCOTUS will hear the case on its next term beginning in October.

Are 102, 6th Paragraph and 102, 2nd Paragraph the New 101 in Patent Eligibility?

Williamson v. Citrix Online Makes One Wonder:  Part 1 of a 2 Part Series

By Michael Stein, Stein IP LLC

July 6, 2015

This is part 1 of a 2 part series addressing the growing use of 112, 6th and 2nd paragraphs to invalidate claims in the USPTO and the courts, and what the standards are for implementation and application of these sections of 35 USC.  Part 2 of this article will explore possible strategies to minimize the impact of 112, 6th and 2nd paragraph, and likely assist in avoiding 101 rejections as well.

Up until about 2010 or 2011, very few patent applications, such as in the fields of computers,communications and business methods, were at risk of being deemed patent ineligible because of 35 USC 101.  The same held true of patent claims of issued patents, whether under re-examination or during litigation.  Further, patent eligibility under 35 USC 112, 2nd paragraph (112, 2nd paragraph pre-AIA is the same as 112(b) post-AIA, but for the sake of simplicity, only 112, 2nd paragraph will be used in this article since the present patent was a pre-AIA patent) was rarely raised, whether due to the specific language being deemed indefinite directly or because a claim term was deemed to be a means-plus-function term under 35 USC 112, 6th paragraph (112, 6th paragraph pre-AIA is the same as 112(f) post-AIA, but for the sake of simplicity, only 112, 6th paragraph will be used in this article), and then there was insufficient structure in the specification to render the claim term definite.  Times have really changed.

As set forth in the Mayo v. Prometheus, 132 S. Ct. 1289 (2012), AMP v. Myriad, 132 S. Ct. 2107 (2013) and most recently, the Alice v. CLS Bank,   134 S.Ct. 2347 (2014) US Supreme Court decisions,  it has been held that 101 is a threshold determination as to patent claim eligibility, and then 102, 103 and 112 are to be considered for patentability.  Numerous Federal. Circuit and Inter Partes Review decisions and office actions by examiners have deemed claims to be patent ineligible under 101 in fields like computers, communications, business methods and biotechnology in particular.  New examination guidelines under 101 were issued in 2014 and January 2015 to determine patent eligibility of claims under 101.   Claims that were never previously considered to be at risk of patent eligibility, especially in these fields, are now ripe for attack by examiners or third parties.  But even assuming that your patent claims get through the increased hurdles of 35 USC 101, which is no small feat these days, there is now becoming an increasingly potent alternative attack against the validity of claims using 35 USC 112, 6th paragraph and 2nd paragraph.

How does 112, 6th paragraph, which appears to explicitly provide a path to patent eligibility for means-plus-function claims, come into play with respect to 101 and 112, 2nd paragraph, and is 112, 6th paragraph becoming increasingly used as a hammer to smash the eligibility of patent claims?  To assist in arriving at an answer, one needs to look no further than the en banc Federal Circuit decision of Williamson v. Citrix Online, LLC, 13-1130 (Fed. Cir. 2015) involving US Patent No. 6,155,840 (hereinafter the ‘840 patent).

Analysis of Decision

How does one know if a claim limitation is to be interpreted as a means-plus-function limitation?

Initially, the Federal Circuit pointed out that “to determine whether 112, 6th paragraph applies to a claim limitation, our precedent has long recognized the importance of the presence or absence of the word ‘means’,” citing Personalized Media Comm. V. Int’l Trade Commission, 161 F.3d 696 (Fed. Cir. 1998).

The Federal Circuit continued by saying that “our cases have emphasized that the essential inquiry is not merely the presence or absence of the word ‘means’ but whether the words of the claim are understood by persons of ordinary skill in the art to have sufficiently definite meaning as the name of the structure.”  The court said that in their opinions in Lighting World 382 F.3d 1354 (Fed Cir. 2004), Inventio AG v. ThyssenKrupp Elevator Americas Corp. 649 F.3d 1350 (Fed. Cir. 2011), Flo Healthcare Solutions, LLC v. Kappos, 697 F.3d (Fed. Cir. 1367), and Apple Inc. v. Motorola, Inc. (757 F.3d 1286), it was established that there was a heightened bar to overcoming the presumption that a limitation expressed in functional language without using the word “means” is not subject to 112, 6th paragraph.

The court then overruled those previous decisions by stating that “such a heightened burden is unjustified and that we should abandon characterizing as ‘strong’ the presumption that a limitation lacking the word ‘means’ is not subject to 112, 6th paragraph.  The characterization that the presumption of not using the word ‘means’ to indicate that 112, 6th paragraph should not be invoked is strong is overruled, as well as the strict requirement of “a showing that the limitation essentially is devoid of anything that can be construed as structure.”

The new standard is “whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name of the structure.”  When a claim term lacks the word “means”, the presumption can be overcome and 112, 6th paragraph will apply if the challenger demonstrates that the claim term fails to ‘recite sufficiently definite structure’ or else recites ‘function without reciting sufficient structure for performing that function.’”

Claim 8, which was one of the claims in question, recites:

distributed learning control module for receiving communications transmitted between the presenter and the audience member computer systems and for relaying the communications to an intended receiving computer system and for coordinating the operation of the streaming data module.

In its analysis, the court felt that the language was consistent with traditional means-plus-function claim limitations asserting that such phrasing replaces the term “means” with the term “module” and recites three functions performed by the “distributed learning control module.”  Further, the court stated that “module” is a well-known nonce word that can operate as a substitute for “means” in the context of 112, 6th paragraph, as can other generic terms like “mechanism,” “element,””device,” and other nonce words that reflect nothing more than verbal constructs that typically do not connote sufficiently definite structure, citing Mass. Inst. of Tech. v. Abacus Software (Fed Cir. 2006).

Going into further explanation, the court said that the prefix “distributed learning control” does not impart structure into the term “module” and that these words do not describe sufficiently definite structure.  Interestingly, the court then goes to the specification, not initially to determine whether the claim comports with 112, 2nd paragraph, but to determine whether the claim limitation should be construed under 112, 6th paragraph in the first place, even before looking whether the specification provides sufficient structure for the claimed limitation.  The court said that “although the ‘distributed learning control module’ is described in a certain level of detail in the written description, the written description fails to impart any structural significance to the term.  While portions of the claim do describe certain inputs and outputs at a very high level, the claim does not describe how the distributed learning control module interacts with other components in the distributed learning control server in a way that might inform the structural character of the limitation in question or otherwise impart structure to the distributed learning control module as recited in the claim.”

The court ignored a declaration by a Dr. Shukri Souri that as one of ordinary skill in the art, he would know exactly how to program a computer to perform the recited function.  The court stated that was not enough, and held that “but the fact that one of ordinary skill in the art could program a computer to perform the recited functions cannot create a structure where none is otherwise disclosed.”  The court said that “we conclude that the ‘distributed learning control module’ limitation fails to recite sufficiently definite structure and that the presumption against the means-plus-function claiming is rebutted,” so this limitation is subject to 112, 6th paragraph. Later, the court indicates that the prohibition against using expert testimony to create structure where none otherwise exists is a direct consequence of the requirement that the specification adequately disclose corresponding structure.

It is very interesting to note that the court went to the specification to determine whether the limitation should be construed under 112, 6th paragraph, particularly in view of the fact that it overturned other claim language interpretations by warning not to read limitations from the specification into the claims and under this analysis, how does one then go on to determine whether the limitation meets 112, 2nd paragraph requirements.  In otherwords, how does the 112, 6th paragraph analysis differ from that of the 112, 2nd paragraph analysis?

To construe a means-plus-function claim term requires a two-step process according to the en banc Federal Circuit.

  1. The court must first identify the claimed function; and
  2. Then, the court must determine what structure, if any, disclosed in the specification corresponds to the claimed function.

The court agrees with the district court that the specification of the ‘840 patent fails to disclose corresponding structure.  The written description of the ‘840 patent makes clear that the distributed learning control module cannot be implemented in a general purpose computer, but instead must be implemented in a special purpose computer – a general purpose computer programmed to perform particular functions pursuant to instructions from program software, according to the court.

Two issues arise with this analysis.  First, the Federal Circuit, in numerous other cases, goes out of its way to say that many computers, even when performing specific functions, are general purpose computers to invalidate claims under 101.  Now, the court goes to the other end of the spectrum to hold that the claims meet 101, but do not meet 112, 2nd paragraph.  Second, would not every single computer be a special purpose computer under the court’s definition of general vs. special computer?

The court, towards the end of the end of decision asserts “we require that the specification disclose an algorithm for performing the claimed function.  The algorithm may be expressed as a mathematical formula, or as a flow chart, or in any other manner that provides sufficient structure.”

The court concludes with “because the ‘840 patent fails to disclose any structure corresponding to the “coordinating” function of the “distributed learning control module,” we affirm the judgment that claims 8-16 are invalid for indefiniteness under 112, 2nd paragraph.

What the Federal Circuit has done is create uncertainty whether any claim limitation invokes 112, 6th paragraph, since the presumption of not using the term “means” is not very strong.  The court has also used the specification to assess whether a claim limitation has sufficient structure in the specification in part 2 of its test for whether 112, 6th paragraph has been invoked, thus seemingly making any analysis whether the claim limitation complies with 112, 2nd paragraph a self-fulfilling prophecy, as the answer has seemingly already been determined in the 112, 6th paragraph analysis.

Still yet further, the court seemingly provides a definition of a special purpose computer so that every computer is a special purpose one, resulting in 101 never being invoked, but from multiple decisions, we know that 101 is very alive and kicking.  It would appear that the aspects that make a claim limitation not be considered 101 ineligible, push the claim limitation straight towards a 112, 6th paragraph interpretation and a 112, 2nd paragraph rejection.

Overcoming these rejections is extremely difficult since the court has used the specification in its analysis and a patent owner is very limited to the extent to which it can amend the specification after filing, unlike amendments that are possible with respect to the claims.

While we hold our breaths and hope that a claim, such as one involving computers, communications or business methods, does not invoke 101, we now must also be concerned that even if we overcome this increasingly higher 101 hurdle, 112, 6th paragraph and 112, 2nd paragraph are coming into play more and more frequently, thereby providing yet additional hurdles thrown in the path of patent applicant and holders to keep their claims valid, and this is even before 102 and 103 are applied. I see more and more office actions where 112, 6th paragraph and 112, 2nd paragraph are cited one after the other, as a basis to reject particular claims of a given application.

It is clear that it is becoming increasingly common for claims to be struck down on issues other than novelty and obviousness and steps should be considered to be taken when drafting patent applications to avoid getting sucked up in the vortices of 101, 112, 6th and 2nd paragraphs, even though the language of these sections of 35 USC has not changed in decades.

So, what is one to do?

Part 2 of this 2 part series of this article will explore possible strategies to minimize the impact of 112, 6th and 2nd paragraph, and likely assist in avoiding 101 rejections as well.

IANA Transfers Power to ICANN

By Dennis Collins

The US government has decided to not renew its contract of 17 years which gave it the authority to oversee the Internet Assigned Numbers Authority (IANA). There will be a transition from the IANA to the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN is a nonprofit corporation under contract with the US Department of Commerce. The House of Representatives is concerned about the usefulness of switching power from IANA to ICANN, because this forces the US government to relinquish its control over the internet. The UN is the driving force pushing for a change in the governance of the internet. The Secretary-General Ban Ki-Moon is pushing for a, “single, open, free, secure, and trustworthy internet.” ICANN will be the “caretaker of the internet”; however ICANN has been accused of being an illegal entity and violates both the Constitution and federal statutes by many in the legal field.

The House of Representatives passed the Domain Openness through Continued Oversight Matters (DOTCOM) Act in December of 2014 to slow the transition so it isn’t done too hastily. The Act will slow down the transition from IANA to ICANN and the transition will not done without addressing as many of the potential problems that could arise as possible. The Senate has yet to vote on the bill, but they have until the end of July of 2015 to make a final decision. Senator Ted Cruz (R-TX) has come out in strong opposition against the bill, and he seeks a full reinstatement of the IANA.

Recent Controversy

The problem with the transferral with ICANN is the accountability of the Board of Directors. There is exceptional and extensive coverage of managing the private sector on the Internet. Recent controversy has come up in a dispute for the domain name “.africa” and the bidding process to control it. ICANN has been accused of helping one of the two parties vying for the domain name. DotConnectAfrica (DCA) and the African Union Commission (AUC) were the 2 bidders for “.africa.”

AUC privately asked ICANN for help in its bid for the domain name. ICANN drafted a letter for AUC supporting South Africa’s ZA Central Registry (ZACR), the company that AUC was supporting. ICANN gave the letter to AUC, and had AUC submit it showing their support for ZACR. This letter was evidence of the approval for ZACR, and seemingly showed that ICANN did not act “neutrally and objectively” in their decision process. Such action appears to go against the grain of ICANN’s purpose and its neutral party stance.

ICANN was asked to file a report on its process for determining its inevitable choice of ZACR. The process was undermined when the committee redacted 39 paragraphs from its final report on why ICANN picked one party over another. The redaction in the ICANN report puts the ZACR application at risk of now being denied. ICANN has claimed it has done nothing wrong and was acting in an objectively interested way. However, by failing to properly apply its procedures, ICANN appears to have breached its own Articles and Bylaws. To many, this experience indicates that there does need to be a slow and cautious transfer that makes sure everything is done correctly before the US relinquishes control over the Internet. For some concerned about the transition, ICANN is not a viable body to oversee the internet if it cannot act as a neutral party when making its decisions.

Amazon Dispute

Another recent case involves Amazon, the online retailer. Amazon has been trying to buy the domain name of .Amazon, but ICANN has denied the request due to objections made by several South American countries. ICANN claims that it has the right to the name because of the Amazon River and the Amazon River valley contains many countries. ICANN has rules allowing government to object to applications, and the objections made by South American countries complied with the organization rejecting Amazon’s application. ICANN follows the guidance of its Government Advisory Committee (GAC) when making decisions about domain names. ICANN can reject the advice of the committee, but it requires significant evidence and reason for doing so. Subsequently, Congress and ICANN have gotten into a feud over the domain name and allowing the internet retailer to use it. The crux of the problem with the .Amazon rejection, despite Amaxon being a very large US based company, is that the US government will be turning over all oversight to ICANN within the coming months, and the US government is afraid that it will lose all control of the decision making processes, and therefore will not be able to help its own domestic businesses.

Despite being rejected twice already, including an appeal, Amazaon has not given up the fight for .amazon. Rep. Randy Forbes (R-VA) and Rep. Suzan Delbene (D-WA) have written a letter to ICANN arguing that the South American countries don’t have the rights to the term “Amazon.” The company claims that ICANN’s rejection of the Amazon (the company) application has no legal basis and sets a bad precedent for international trademark law. The case is currently pending with Amazon’s third attempt before ICANN in determining its claim to “.amazon.”

Patent Reform Series: Part 3 of 3 “The PATENT Act”

By Dennis Collins

This is the third and final installation in the three part series on patent reform. On June 4th, 2014, the Senate Judiciary Committee voted and approved the PATENT Act. Senator Charles Grassley (R-Iowa), introduced the Protecting American Talent and Entrepreneurship Act of 2015 (PATENT), S. 1137, and it is expected to move forward in the Senate with bipartisan support. This Act is the Senate’s specific response to the Innovation Act that was introduced into the House by Congressman Bob Goodlatte. While many institutions are happy to see some changes made to the patent environment, many detractors believe that it is best to move forward cautiously. The Act does not go as far as the Innovation Act with some of its provisions, but it is a solid move in the direction for patent reform.

The PATENT Act includes a provision for demand letters sent to parties and their required specificity before they can be delivered to the alleged infringing party. The current patent environment has allowed essentially vague and anonymous letters to be delivered to parties for alleged patent infringement, and leaving those parties oblivious. This has caused uproar among parties receiving the demand letters. Unlike in the past, demand letters will need more information that clarifies what exactly is being sought. The demand letters will require:

  • The identification of the patent being infringed;
  • The claim for alleged infringement;
  • Each product or process believed to be infringing; AND
  • An explanation of that infringement.

Failing to meet any of the requirements, gives the letter recipient an extension of 30 more days to respond to the complaint.

The party sending the demand letter must also provide notice to the party with the potential right to seek a stay, and the letter must identify each person with the right to enforce that patent. A stay is when the judge issues an order that stops all judicial proceeding. This is used to protect the targeting of end users of a product that has a patent. An end user could be a small business, like a coffee shop that has purchased a Wi-Fi router from an electronics store, and is now faced with the threat of federal court litigation. The stay can be sought by that coffee shop if the manufacturer of the router is also involved in federal court litigation over the same patent.

Patent trolls have been blamed for demand letters that were sent in bad faith. These letters include those sent out threatening litigation when there is a track record of false threats to file suit by those sending the letters. The letters are sent out as a calculation to extract settlements from the recipients to avoid the expense of litigation with no reasonable expectation of having meritorious cases. Any letters sent that lack an objectively reasonable can be found to be abusive. A letter sent that may mislead the recipient because they fail to identify the person seeking to enforce the patent, identify the patent, or identify the product or process that they violate are abusive.

Patent trolls, the crux for the call for patent reform, have in the past sent out abusive demand letters to alleged patent infringers. These parties were not aware which patents are being infringed, even after receiving the demand letters, forcing them to devote resources and hire an attorney, etc. This creates a problem within the system, because not answering the complaint can be held to be evidence of willful infringement by that party. Demand letters that are abusive, such as an overwhelming amount of letters, or ones that are deceptive in nature can lead to a significant fine by the Federal Trade Commission (FTC).

The PATENT Act does not have the normal default rule of “loser-pays,” otherwise known as “fee shifting,” when the patent is determined either valid or invalid. Other patent reform acts introduced in Congress have the prevailing party automatically receiving an award of fees. However, under the PATENT Act, the party that prevails bears the burden to demonstrate that it is entitled to attorneys’ fees from the opposing party. The Act requires the shifting of attorney’s fees if the prevailing party can show the losing party’s position during litigation was objectively unreasonable. The Act seeks to balance the rights of the patent holder and to deter any abuses in patent litigation following closely with the Supreme Court’s decision in the Octane Fitness, LLC v. Icon Health & Fitness, Inc. 134 S. Ct. 1749 (2014). The rule also extends to those parties seeking to unilaterally withdraw from a case on the eve of the trial. The Act does not allow the joining of any parties later in a suit in order to help fund the awarded attorneys’ fees.

The Act requires that the patent holders disclose to the court and the adverse parties, any and all interested parties within 14 days of the suit being filed. The interested parties can include parent entities, sublicensed entities, and those with a financial interest in the patent itself. The financial interest of a party is defined by if they received earnings or have more than 20% control in the patent. In order to better track for patent trolls, the disclosure requires a listing of all complaints made by the patentee and its affiliates from the three years since before the suit was filed.

Bob Krause, a candidate in Iowa for the US Senate race in 2016, has recently come out against the PATENT Act and warns of its unintended consequences. Krause, in a possible political move, has argued that the Act itself will destroy small businesses, startup companies, and patent owners who try to fight to protect their patents. Krause is not the only naysayer against the PATENT Act however. Contingencies on both sides of the aisle, have argued against not only the PATENT Act, but the Innovation Act and STRONG Act as well.

As a result of the misunderstanding of the complexity of the patent environment, and the glut of both accurate and inaccurate information available, there have been some speed bumps in Congress. Most recently, the well-received Innovation Act has received push back and a coalition of Congressmen known as the “Anti-Innovation Coalition” has been able push the consensus vote from the House floor for the summer. The earliest the bill will be considered is September of this year. Congressman Thomas Massie (R-KY) has led the charge in the Anti-Innovation Coalition. Massie, a patent holder himself, he has had personal experience with patent trolls. Wary to enact any laws which could potentially damage patent holders, the coalition believes that all the provisions in the Innovation Act that seek to target patent trolls will also hurt genuine inventors.

The ultimate goal is to make the life of patent holders easier and to avoid unnecessary litigation. However, there is no clear path to the correct answer for improvement. The general wide spread feeling, nonetheless, is that reform should be brought in to sweep out certain NPE’s who are taking advantage of the system. The only problem is determining which of the three Acts or some other legislation going through Congress will have the greatest impact without undermining the current patent system.

Patent Reform Series: Part 2 of 3 “The STRONG Patent Act”

By Dennis Collins

Continuing into part two of this series on patent reform, another attempt hit the floor of the Senate March 3rd of 2015. The Support Technology and Research for Our Nation’s Growth (STRONG) Patents Act, (S. 632) was introduced and is still pending before the Senate Judiciary Committee. Presented by Senator Christopher Coons (D-DE), this act, according to certain critics, is much weaker than the House bill known as the Innovation Act (H.R. 9) and some critics feel it will not create as substantial of a change, in other words, it does not go far enough. These critics claim the Act fails to address the “patent troll problem” which is the ultimate goal of most seeking patent reform. The STRONG Act itself proposes to deal exclusively with “patent trolls,” but beyond that, there are no provisions to tackle directly a lot of the hot button issues that are dealt with by some some of the other patent reform bills, such as the Innovation Act discussed in Part 1 of this series.

The most powerful provision of the STRONG Act is the empowerment given to the Federal Trade Commission (FTC). The FTC’s expanded power would target firms that abuse startup companies with incessant demand letters claiming patent infringement. These companies claim the rights to patents and send letters to businesses, including small ones, demanding payment for licenses or threaten to file suit for the infringement of their patents. The provision attempts to tackle rogue and opaque letters that have been sent in bad faith. Bad faith is when the company sends the demand letters knowing that they are intentionally fraudulent or just for nuisance purposes to induce a quick settlement. These targeted firms of the Act, who unlawfully send misleading demand letters to startups claiming that their patents were being used without permission and demand payment for the patents or threaten litigation. These parties are commonly known as “patent trolls.” The FTC will be able to target those patent trolls found acting in bad faith are punishable with up to $5 million in fines. The court has the discretion to treble any of the damages if it has any evidence of a party willfully infringing in bad faith.

One of the more significant provisions included in the STRONG Patent Act is the reform of the proceedings before the Patent Trial and Appeal Board (PTAB). The act addresses inter partes review and post-grant review. Post-grant review is used by parties to challenge the validity of a patent that has recently been approved by the USPTO. Inter partes review is a procedure used by the PTAB that allows a party to challenge another party for the legitimacy of their patent until a period of 9 months has passed since the USPTO registration. Both types of review are available for challenges to patent validity instead of going through Federal District Courts which may be drawn out and more expensive, and to reduce the number of issues being litigated by the Courts. Any patents being challenged will be presumed to already be valid.

In order to reform these two types of reviews, the PTAB would be required to increase the standard of evidence when proving if a patent is valid or not. The PTAB currently applies a standard known as the “broadest reasonable interpretation” that sets a lower bar for the reviewing examiner in determining the validity of the patent. The new standard is a higher one of “clear and convincing evidence” which is currently applied by the Federal Court. The higher standard level requires that the evidence presented by the challenging party to be highly and substantially more probable than not that the patent claims are not lawful. All ex parte reexaminations by a party in the case must be filed within one year after the requester is served with the original complaint alleging infringement. This will be beneficial to both parties, because the chance of a review of the decision by the court is both helpful and decisive.

One of the more positively received provisions is the push for an expansion in micro-entity status. Having a micro-entity status lowers the fees for inventors and small companies. In order to qualify for micro-entity status the applicant needs to have:

  • Filed four or less US patent applications;
  • An income for the past year of less than $150,000, or less than three times the current gross median income; OR
  • The rights in the application are licensed to only that micro-entity.

The expanded micro-entity status would be given to certified universities as well as their related tax exempt patent commercialization entities. Those micro-entities would receive a 75% reduction in USPTO fees.

Another provision of the STRONG Act enforces the blocking of any anonymous demand letters. The parent entity filing the demand letters must identify itself before an official suit can be filed. This is due to the large amount of demand letters from shell companies served on businesses. The purpose of a shell company is to hide the identity and possibly the assets of the company/entity and its directors that is/are ultimately seeking the lawsuit. By hiding behind the veneer of the corporation seeking to extract money from small fledgling companies, the larger corporations can keep their public appearance in a positive spotlight. If the plaintiff can prove that its suit is founded on good faith or can prove a track record of good faith, the suit will be determined to not be deceitful, and therefore will allow for trial proceedings to continue. Nonetheless, if there is any proof of abusive demand letters done in bad faith by the plaintiff, the District Courts are free to award increased damages to the prevailing party.

The STRONG Act will also give the USPTO the ability to access and spend fees it collects without regard to any fiscal year budgets or limitations. This, allegedly, will give the USPTO more flexibility and enforcement against duplicitous patent claims, because of the increased budget. All patent and trademark fees would be credited to the revolving fund in the Treasury, known as the USPTO Innovation Promotion Fund. The Director of the USPTO can use these fees collected from the current year and past years until they are ultimately depleted.

In conclusion, the STRONG Patent Act could have a large and sweeping effect, but doesn’t go far enough according to critics who seek more robust patent reform. Many believe that due to the political atmosphere of the current Senate, this bill has little chance of being enacted when compared to its counterpart of the PATENT Act because of how narrowly the bill is tailored. The concern over the perceived abuses of the US Patent System is a major driving force behind the push for reform in the system. Any attempt at actual patent reform should make patent owners wary about the potential effects of any enacted law on the current patent environment. Next up: the PATENT Act, the 3rd and final part of this series.