State Bar of Wisconsin

Message from the Chair

By Amy Lindner

My year as your chair is coming to an end, but I'm leaving you in fantastic hands. Dave Cross of Quarles and Brady will take over as chair on July 1. One project we are all working on together is the Third Door County Intellectual Property Academy. It takes place on July 24-25 and we're heading back to the Stone Harbor Resort in Sturgeon Bay.

The board is very excited about the program the committee has arranged. In response to your requests, we have made an effort this year to include a broader array of topics, while still having multiple sessions the patent prosecutors will want to see. Sessions this year include copyright issues, litigation topics – including a session with Judges Crabb and Griesbach – as well as licensing and management issues. If you missed your invite in the mail, see the online brochure.

I'd also like to take this opportunity to thank our outgoing board members for their service. Heather Cross of Godfrey and Kahn; Joe Leone of Dewitt, Ross and Stevens; and Steve Wietrzny of Quarles and Brady all made significant contributions to this section in the last six years. We are excited to welcome the new members you've elected: Elisabeth Bridge of Whyte Hirshboeck Dudek; Laura Dable of Ryan Kromholz & Manion; and Thomas Otterlee of Michael Best and Friedrich begin their service July 1. Please feel free to contact me, Dave Cross, or any of your board members at any time with questions or thoughts as to how the board can better serve your interests.

Hope to see you all at the Academy!

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KSR International Co. v. Teleflex Inc.

U.S. Supreme Court, April 30, 2007

Summary by Renee Metzler

An invention is not patentable “if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.”  35 U.S.C. § 103.

The driver of an automobile controls the automobile’s speed by depressing or releasing the gas pedal.  In automobiles with engines lacking computer-controlled throttles, a cable or other mechanical link connects the pedal to the throttle.  The design of the gas pedals allows a driver to push them down or release them, not to adjust the position of the pedal in the footwell.  As a result, smaller drivers in cars with deep footwells have to move their seat closer or reposition themselves in the seat, neither of which may achieve the desired result. 

Beginning in the 1970s, inventors began to design pedals that could be adjusted, allowing drivers to change the location of the pedals in the footwell; two United States patents disclose such an invention.  Asano’s ‘782 patent discloses a support structure that houses the pedal so that even when the pedal location is adjusted relative to the driver, one of the pedal’s pivot points stays fixed.  In addition, the force needed to push down Asano’s pedal is the same regardless of the pedal’s location.  Redding’s ‘061 patent discloses a sliding mechanism that adjusts both the pedal and the pivot point.

Newer cars contain engines with computer-controlled throttles.  Instead of a cable or other mechanical link connecting the pedal to the throttle, an electronic sensor provides the link between the pedal and the computer by translating the mechanical operation into digital data.  United States patent ‘936 showed that it was preferable to detect the pedal’s position in the pedal assembly, not in the engine, and disclosed a pedal with an electronic sensor on a pivot point in the pedal assembly.  Smith’s ‘936 patent showed that it was desirable to put the sensor on a fixed part of the pedal assembly rather than in or on the pedal’s footpad.

Another series of patents, e.g. patent ‘068, disclosed inventions for modular sensors designed independently of the pedal.  Modular sensors can be attached to various mechanical pedals enabling them to be used in automobiles with computer-controlled throttles.  In 1994, Chevrolet manufactured a line of trucks using modular sensors “attached to the pedal support bracket, adjacent to the pedal and engaged with the pivot shaft about which the pedal rotates in operation.”

In addition to patents involving placement of sensors on fixed pedals, there are patents involving the placement of sensors on adjustable pedals.  Rixon’s ‘593 patent discloses an adjustable pedal assembly with an electronic sensor for detecting the pedal’s position placed on the pedal footpad.

KSR, a manufacturer and supplier of pedal systems, developed an adjustable mechanical pedal for Ford and obtained a patent, ‘976, for its design.  Subsequently, in 2000, KSR added a modular sensor to the ‘976 pedal in order to make it compatible with adjustable pedals systems for Chevrolet and GMC light trucks, which used engines with computer-controlled throttles.

On August 22, 2000, Engelgau filed a continuation for patent ‘241, which was filed on January 26, 1999, claiming that he had invented the disclosed invention on February 14, 1998.  Claim 4 of Engelgau’s patent discloses a position-adjustable pedal assembly with an electronic pedal position sensor attached to the support member of the pedal assembly, i.e., a fixed pivot point.  The PTO had denied a similar, broader claim, but allowed claim 4 because Engelgau included a fixed pivot point element, which distinguished his design from Redding’s.  Asano’s patent, which disclosed an adjustable pedal with a fixed pivot point, was neither included in Engelgau’s prior art references nor mentioned in the patent’s prosecution.

Teleflex, the exclusive licensee of Engelgau’s patent, sued KSR for infringement upon learning of its design for GM.  KSR counterclaimed, arguing that claim 4 was invalid under § 103.  The district court found that Teleflex’s patent was invalid for obviousness and granted KSR summary judgment.  The district court determined that Asano taught everything in claim except the sensor; however, that aspect was revealed in other sources—e.g. ‘068 patent and the sensors used by Chevrolet.  The district court also applied the teaching-suggestion-motivation (TSM) test and held that KSR satisfied the test.  “It reasoned (1) the state of the industry would lead inevitably to combinations of electronic sensors and adjustable pedals, (2) Rixon provided the basis for these developments, and (3) Smith taught a solution to the wire chafing problems in Rixon, namely locating the sensor on the fixed structure of the pedal.”

The Federal Circuit reversed, stating that the district court had not been strict enough in applying the TSM test because it “failed to make findings as to the specific understanding or principle within the knowledge of a skilled artisan that would have motivated one with no knowledge of the invention to attach an electronic control to the support bracket of the Asano assembly.”

The Supreme Court granted KSR’s petition for review and reversed the Federal Circuit’s decision, concluding that the district court had correctly determined that the patent was invalid for obviousness.  The Court returned to theobviousness analysis set forth in Graham v. John Deere Co., acknowledging that for over a half century, it has held that a “patent for a combination which only unites old elements with no change in their respective functions . . . obviously withdraws what is already known into the field of its monopoly and diminishes the resources available to skillful men.”  Great Atlantic & Pacific Tea Co. v. Supermarket Equipment Corp.  In other words, the combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results.

The Court has applied the obviousness doctrine, set forth in Graham,in three cases.  In United States v. Adams, the Court recognized that when a patent claims a structure already known in the prior art and that structure is altered by the mere substitution of one element for another known in the field, the combination must do more than yield a predictable result.  In Anderson’s-Black Rock, Inc. v. Pavement Salvage Co., the Court found the patent did not meet the requirements of § 103 because the disclosed invention was a combination of two elements that did no more in combination than they would in separate, sequential operation.  Finally, in Sakraida v. Ag Pro, Inc., the Court concluded that a combination arranging old elements was obvious because each element performed the same function it had previously performed and not more than one would have expected from such an arrangement.

The Court, in reaffirming the more expansive and more flexible obviousness framework set forth in Graham, rejected the Federal Circuit’s rigid and formalistic application of the TSM test.  The Court found the Federal Circuit had erred in four ways.  First, “by holding that courts and patent examiners should look only to the problem the patentee was trying to solve,” the Federal Circuit “failed to recognize that the problem motivating the patentee may be only one of the many addressed by the patent’s subject matter.”  Whether the combination was obvious to the patentee is irrelevant; the relevant inquiry is whether the combination was obvious to a person with ordinary skill in the art.

Second, the Federal Circuit erred when it assumed that a “person of ordinary skill attempting to solve a problem will be led only to those elements of prior art designed to solve the same problem.”  The Court found that regardless of Asano’s primary purpose, it provided an example of an adjustable pedal with a fixed pivot point.  Other prior art indicated that such a location would be a good place for a sensor—a person of ordinary skill would be able to fit these pieces together.

Third, the Federal Circuit erred in concluding “that a patent claim cannot be proved obvious merely by showing that the combination of elements was ‘obvious to try.’”  The Court reasoned that when there are a finite number of predictable solutions to a problem, and an attempt to solve the problem succeeds, it was likely not the product of innovation, but of ordinary skill and common sense.  Lastly, the Federal Circuit overemphasized the “risk of courts and patent examiners falling prey to hindsight bias.”  The Court determined that rigid preventative rules that deny factfinders recourse to common sense, were neither necessary under the case law nor consistent with it.

The Court found that when it applied the standards discussed above, claim 4 of Engelgau’s patent must be found obvious—“a person having ordinary skill in the art could have combined Asano with a pedal position sensor in a fashion encompassed by claim 4, and would have seen the benefit of doing so.”  In addition, the Court determined that the district court’s finding of summary judgment was appropriate.

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MedImmune, Inc. v. Genentech, Inc.

U.S. Supreme Court, Jan. 9, 2007

Summary by Matt Deering

Where a patent licensee’s avoidance of injury is coerced by a private party, he is not required to terminate or breach a license agreement thereby exposing himself to liability before seeking a declaration of patent invalidity.

MedImmune, Inc. manufactures Synagis, a drug preventing respiratory tract infection in small children and infants.  In 1997, MedImmune entered into a patent license agreement with Genentech, acting on behalf of itself and its coassignee, covering an existing patent and a then-pending patent regarding “the coexpression of immunoglobulin chains in recombinant host cells.”  In 2001, the “coexpression” patent matured into the “Cabilly II” patent. 

Soon after this maturation, Genentech wrote MedImmune stating its belief that Synagis, a drug that has represented more than eighty percent of MedImmune’s sales revenue since 1999, was covered under the “Cabilly II” patent and that royalties must be paid to Genentech beginning March 1, 2002.  MedImmune believed not only was the “Cabilly II” patent invalid and unenforceable, but also that its claims were not infringed by Synagis.  However, MedImmune treated the letter as a threat to enforce the “Cabilly II” patent. 

Unwilling to risk a possible injunction, treble damages and attorney’s fees in an infringement action, MedImmune paid Genentech the royalties “under protest and with reservation of all of [its] rights.”  MedImmune then instituted this action for declaratory-judgment claiming that it owes Genentech no royalties because the “Cabilly II” patent is invalid and no infringement of the patent occurred.   

The United States District Court for the Central District of California dismissed the claims for lack of subject-matter jurisdiction under Gen-Probe, Inc. v. Vysis, Inc., 359 F.3d 1376 (2004).  Gen-Probe held that a patent licensee “cannot establish an Article III case or controversy with regard to validity, enforceability, or scope of the patent” because the license agreement destroys apprehension that the licensee will subsequently be sued for infringement.  MedImmune appealed and the Federal Circuit affirmed the District Court’s decision under Gen-Probe.  The U.S. Supreme Court granted certiorari.

Before deciding the issue of subject-matter jurisdiction, the Court addressed certain arguments made by Genentech and sought initially to define the nature of the dispute.  Genentech first contends that MedImmune did not seek to have its contractual obligations interpreted because there was no dispute that Synagis infringed the “Cabilly II” patent, making royalties payable and because the contract calls for royalties on an infringing product whether or not the underlying patent is valid.  However, the first count on MedImmune’s amended complaint requested “Declaratory Judgment on Contractual Rights and Obligations.”  Further, although the license agreement required payment by MedImmune until a patent claim had been held invalid, the Supreme Court, in Lear, Inc. v. Adkins, 395 U.S. 653, 673 (1969), had rejected the argument that a licensee seeking repudiation must pay royalties until its claim is vindicated in court.  Genentech further contended that MedImmune had waived its contract claim by failing to argue it in its appellate brief.  However, as the Court noted, the record indicated that MedImmune had wisely limited its contractual argument because the Federal Circuit had no authority to overrule Gen-Probe.  Thus, the Court held that MedImmune alleged and properly preserved a contract claim.

Next, the Court visited the jurisdictional question.  The Declaratory Judgment Act provides “in a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration.”  The Court upheld the Constitutionality of this Act in Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937) interpreting the phrase “case of actual controversy” in the Act to refer to justiciable “cases” and “controversies” under Article III.  However, the line between declaratory-judgment actions satisfying and not satisfying this case-or-controversy requirement had been blurred by the line of cases following Aetna. 

The Court, turning to its explanation in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270 (1941), summarized that the inquiry regarding declaratory judgment actions as justiciable controversies under Article III is whether the facts alleged show that there is a substantial controversy between adverse legal interests that is “of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”   The Court observed that as long as the royalty payments are made to Genentech, there is no risk they will enjoin MedImmune’s sales; thus, MedImmune’s own action, namely the payment of the royalties to Genentech, is preventing the complained-of injury, the threat of Genentech enjoining sales of Synagis, from occurring.  There was no dispute that had MedImmune refused to make its royalty payments under the licensing agreement the issue would have been justiciable.  The Court noted little Supreme Court case law as to whether this particular situation satisfies the Article III case-or-controversy requirement.

In situations where action is threatened by the government, the Court has not required a plaintiff seeking declaratory-judgment to expose himself to liability before bringing suit.  For example, a plaintiff wishing to challenge the Constitutionality of a law but does not violate that law extinguishes the imminent threat of prosecution under that law.  The Court has held that in this situation a plaintiff has not eliminated Article III jurisdiction by failing to break the law.  Supreme Court cases where a plaintiff’s own avoidance of injury is coerced by a private party and not the government are rare, but lower federal and state courts interpreting declaratory judgment acts had long accepted jurisdiction in such situations.  Further, the only Supreme Court decision on point, Altvater v. Freeman, 319 U.S. 359 (1943), had a similar factual scenario.  In Altvater, the Court held in that a dispute over patent validity was justiciable even though the licensee did not stop payment under the patent’s license stating “the fact that royalties were being paid did not make this a ‘dispute of a hypothetical or abstract character.’”  The Court held that “[t]he requirements of a case or controversy are met where payment of a claim is demanded as of right and where payment is made, but where the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or to challenge the legality of the claim.”

Contrary to the Federal Circuit’s Gen-Probe decision which mistakenly distinguished Altvater on the grounds that the requisite coercion in Altvater was governmental rather than private, the Court declared Altvater controlling and held that MedImmune need not breach the licensing agreement in order to make its case a justiciable controversy under Article III.  The Court stated that a rule requiring a plaintiff to “bet the farm,” risking treble damages and eighty percent of its business prior to bringing and action for declaratory judgment “finds no support in Article III.”

Genentech asserted that MedImmune had purchased “an insurance policy” by entering into the licensing agreement immunizing it from suits for infringement from Genentech so long as it pays royalties and does not challenge the patents.  Allowing them to challenge the patents while still being protected was not part of the bargain. However, as the Court points out, it is not at all clear that the parties agreed upon a prohibition against challenging patent validity; “[p]romising to pay royalties on patents that have not been held invalid does not amount to a promise not to seek a holding of their invalidity.”

Genentech further argued that the common law rule stating that a party to a contract cannot both challenge its validity and continue to benefit from it.  However, the cases cited by Genentech involved the repudiation of the contract and MedImmune did not repudiate the license agreement while continuing to benefit from it.  Thus, the Court failed to see its application but noted that even if it did apply, it would result in a victory on the merits for Genentech not that the Article III jurisdiction is somehow defeated.

Lastly, Genentech urged the Court to affirm the Federal Circuit’s judgment on a discretionary basis since the Declaratory Judgment Act provides that courts “may declare the rights . . . of any interested party.”  However, the Court gave no consideration to discretionary dismissal stating that it was more consistent with the Act to give district courts that discretion and that the District Court had given no consideration to discretionary dismissal since it felt bound by the now-abrogated Gen-Probe decision. 

Thus, where a plaintiff’s avoidance of injury is coerced by a private party, the plaintiff need not expose himself to liability before bringing suit.  Accordingly, the Court reversed the Court of Appeals’ judgment finding subject-matter jurisdiction and remanded it for further proceedings.

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Microsoft Corp. v. AT& T Corp.

U.S. Supreme Court, Apr. 30, 2007

Summary by Creighton Macy

The petitioner Microsoft’s liability does not extend to computers made in another country when loaded with Windows software copied abroad from a master disk or electronic transmission dispatched by Microsoft from the United States.  This case concerns the applicability of 35 U.S.C. § 271(f) to computer software first sent from the United States to a foreign manufacturer on a master disk, or by electronic transmission, then copied by the foreign recipient for installation on computers made and sold abroad.

AT& T holds a patent on an “apparatus for digitally encoding and compressing recorded speech.”  This case ensued because once Windows became “incorporated software,” it allowed a computer to process speech in a manner claimed by an AT& T patent.  Although installed software results in infringement, uninstalled software does not infringe AT& T’s patent.  Therefore, an infringement only occurs after Windows is loaded into a computer and “rendered capable of performing as the patented speech processor.”   

Microsoft acknowledged that infringement of AT& T’s ‘580 patent did occur after it installed Windows on its own computers during the software development stage.  Microsoft further acknowledged that infringement occurred when it licensed copies of Windows to manufacturers that sold computers in the United States.  Though Microsoft stipulated liability for infringing AT& T’s patent within the United States, it denied all liability based on the “master disks and electronic transmissions” it dispersed to foreign manufacturers.

Thus, the main issue arose over transmissions dispatched to foreign manufacturers.  AT& T argued that Microsoft violated § 271(f) because it supplied “components” of AT& T’s patented speech processor from the United States.  Microsoft countered that § 271(f) frustrates this argument because unincorporated software is intangible information; therefore, it cannot be labeled a “component.”  Additionally, Microsoft argued that “foreign-generated” copies of Windows actually were not “supplied” from the United States.

The Court noted that under United States patent law, no infringement occurs when a patented product is made and sold in another country.  35 U.S.C. § 271(f) of the Patent Act represents an exception to this rule though.  Under § 271(f), an infringement will occur when one “supplies . . . from the United States,” for “combination” abroad, a patented invention’s “components.”

When evaluating this issue, the Court drew reference from Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 92 S.Ct. 1700, 32 L.Ed.2d 273 (1972).  In Deepsouth, the Court held that an infringement would not occur when a patented product was made or used outside the United States.  Therefore, a company that assembled and used the patented product outside the United States would not be liable for infringement.  Finally, the Court in Deepsouth held that the United States “patent system” should not operate “beyond the limits of the United States.”

After discussing the implications of Deepsouth, the Court evaluated two issues.  First, it evaluated what qualified software as a “component” under § 271(f).  Microsoft and AT& T offered different arguments on what a “component” under § 271(f) encompassed.  AT& T argued that software should be considered “abstractly;” thus, more than the actual copy of software should qualify under § 271(f) as a component.  The Court analogized that AT& T would argue that the notes of Beethoven’s Ninth Symphony were a “component.”

Conversely, Microsoft argued that only the actual copy of software, not software in the abstract, can be a component.  As opposed to the notes of Beethoven’s symphony, the Court analogized that Microsoft would argue that the actual sheet music for the Beethoven’s Ninth Symphony would be a component.

First, the Court determined what a “component” is.  Section 271(f) states, “components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components.”  The Court held that AT& T’s abstract argument was not valid within the context of § 271(f) because an abstract software code is an idea without “physical embodiment;” therefore, it cannot fit into § 271(f)’s categorization, which requires “components amenable to combination.”  The Court compared Windows to a blueprint which offers instructions on components and combination, but not the actual components.  Accordingly, the Court held that a blueprint is not a “component;” it is simply instructions on how to combine components.

Further, the Court held that a “physical copy” of software is necessary to “interface” with a computer.  For instance, software such as a CD-ROM must be interfaced with a computer before it can be updated or deleted.  Additionally, retailers and consumers buy and sell actual copies of software that allows direct interfacing with the computer.  Finally, the Court recognized that Congress consciously chose not to include “information, instructions, or tools from which those components readily may be generated” within the meaning of 271(f).  Therefore, the Court held that AT& T’s speech processing computer is not abstract and is tangible.

The second question evaluated was whether Microsoft supplied components, from the United States, to the computers involved in this case.  This question was clearly answered “no,” as the copies of Windows actually installed on foreign computers were not themselves supplied from the United States.  Foreign-made copies of Windows, not the masters Microsoft dispatched from the United States, were installed on the various computers.  Accordingly, § 217(f) only prohibits the supply of components from the United States; therefore, Microsoft’s actions did not result in infringement.

The Court proceeded to note that any doubt Microsoft’s conduct fell within § 271(f)’s purview would be resolved by the “presumption against extraterritoriality.”  Although the United States Patent law “governs domestically,” the Court noted that these laws in particular do not apply to the “rest of the world.”  Accordingly, foreign law alone “governs the manufacture and sale of components of patented inventions” outside the United States.  Therefore, the Court recommended AT& T should seek remedies in the foreign countries in which it has patents.

Finally, the Court addressed AT& T’s argument that the United States creates a “loophole” for software makers.  AT& T argues that software makers avoid liability by making copies of their software in foreign countries through a master supplied in the United States.  The Court leaves this debate with Congress stating, “our precedent leads us to leave in Congress’ court the patent-protective determination AT& T seeks.”  Accordingly, the Court deferred to Congress to make appropriate alterations based on a “focused legislative consideration.”

The District Court held Microsoft liable under § 271(f).  On appeal, the Federal Circuit affirmed the ruling. This Supreme Court granted certiorari and reversed.

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In re Seagate Technology, LLC

U.S Court of Appeals, Federal Circuit, Aug. 20, 2007

Summary by Melissa Benko

The United States Court of Appeals for the Federal Circuit en banc clarified and partially overruled its prior ruling in Underwater Devices, Inc. v. Morrison-Knudson Co. with respect to the standard showing for willful patent infringement as well as a defendant’s obligation to obtain opinion of counsel and whether disclosure of that opinion counsel’s work-product to trial counsel constitutes waiver.

First, the Court clarifies itself by stating that in order to prevail on a claim of willful patent infringement, a patent holder must show at least objective recklessness as well as demonstrate by clear and convincing evidence that defendant infringednotwithstanding an “objectively high likelihood” that their actions constituted infringement of a valid patent.

Second, the Court overrules itself by stating that in defense of a claim of patent infringement, there is no obligation of defendant to obtain an opinion of counsel.  However, if defendant does obtain an infringement opinion, the disclosure of that opinion to trial counsel does not waive the attorney-client privilege, nor does use of opinion counsel’s work-product waive work-product immunity with respect to trial counsel.

Conlove, Inc. and the Massachusetts Institute of Technology together sued Seagate Technology, LLC alleging willful infringement of three patents.  Prior to the filing of the suit, Seagate retained counsel in order to obtain opinions regarding Conlove’s patents.  Seagate’s counsel prepared three opinions which in their final form essentially stated that several of the claims in the patents were invalid and that one of the patents was potentially unenforceable.  It was noted in the present case, that Seagate’s patent infringement counsel worked separately from Seagate’s trial counsel in the infringement cases.

In the trial court case, Seagate notified Conlove of its intent to rely on their patent infringement counsel’s opinions in its defense against the charge of willful infringement and disclosed their opinion counsel’s work-product in addition to making their opinion counsel himself available for deposition to Conlove.  In response, Conlove moved to compel additional discovery of communications and work-product of Seagate’s trial counsel.

The trial court determined the attorney-client privilege had been waived for any communications between Seagate with respect to Seagate’s opinion counsel’s determinations concerning infringement, invalidity and enforceability, to its trial counsel and in-house counsel and that such waiver began upon Seagate’s notification of its potential infringement of Conlove’s patents and would continue until the alleged infringement concluded.  Pursuant to this ruling, the court ordered production of any requested documents and testimony concerning Seagate’s infringement counsel’s opinions. The court also allowed in camera review of documents relating to Seagate’s trial strategy, but stated that any advice from trial counsel that diluted the rationality of relying on patent infringement counsel’s opinions would necessitate full disclosure.  Finally, the court ruled that any work-product communicated to Seagate was also waived and thus discoverable.

In response to the court’s order, Seagate brought a motion to stay and certification of an interlocutory appeal which the trial court denied.  After denial, Seagate petitioned to the United States Court of Appeals for the Federal Circuit for a writ of mandamus directing the United States District Court of New York to vacate its orders compelling disclosure of materials and testimony that it claimed is covered by the attorney-client and work-product protection privilege.

Pursuant to Seagate’s petition for a writ of mandamus, the United States Court of Appeals for the Federal Circuit stayed the trial court’s orders and ordered en banc review of the petition.  The en banc order set out three questions.  First,“should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel? Second, what is the effect of any such waiver on work product immunity? Finally, given the impact of the statutory duty of care standard announced in Underwater Devices, Inc. v. Morrison-Knudson Co. on the issue of waiver of attorney-client privilege, should the court reconsider the decision in Underwater Devices and the duty of care standard itself?”

In its analysis of its prior doctrine regarding willful infringement, the Court overrules itself in Underwater Devicesby stating that the standard should be a showing of objective recklessness, which is a higher standard than set forth in the Underwater Devices case, which set the threshold for willful infringement closer to negligence. Also, because the standard is higher the Court discards the affirmative duty of due care and clarifies that there is no affirmative obligation to obtain opinion of counsel.

When a patent infringement defendant does obtain opinion counsel, however, the court concludes that the attorney-client and work-product privilege standard per its ruling in Underwater Devices v. Morrison-Knudsen Co. must be overruled because the prior standard essentially forced willful infringement defendants to choose between “waiving the privilege in order to protect itself from a willfulness finding, in which case it may risk prejudicing itself on the question of liability, and maintaining the privilege, in which case it may risk being found to be a willful infringer if liability is found.”

The Court in consideration of the new willfulness standard of objective recklessness concluded that extending waiver of privilege to trial counsel in willful infringement cases would be repugnant to the demands of our ‘adversarial system of justice’ and further, that willfulness will likely depend on an infringer’s pre-litigation conduct thus negating the necessity of disclosure of post-litigation conduct.

With regard to work-product waiver, the Court reasons its analysis on the same premise and states that waiver cannot extend to trial counsel’s work-product without exceptional circumstances.  Because the work-product doctrine is intended to balance the needs of allowing an attorney’s preparation in representing a client be protected versus the general interest of full disclosure in order to resolve a dispute, it can be waived, but the level of “need and hardship required for discovery depends on whether the work product is factual or the result of mental processes.”  The Court goes on to say that factual work product is discoverable upon a showing of substantial need and undue hardship, but mental process work-product is given greater and ‘nearly absolute’ protection.

The court granted the writ of mandamus to vacate the order from the United States District Court of New York to compel disclosure of Seagate’s counsel’s materials and ordered the district court to reconsider its discovery orders in consideration of the new opinion.

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In re Comiskey

U.S. Court of Appeals, Federal Circuit, Sept. 20, 2007

Summary by Jeremiah Bryar

On Sept. 20, 2006, in an opinion authored by Circuit Judge Timothy B. Dyk, the Court of Appeals for the Federal Circuit held that business method claims which rely entirely on the use of mental processes do not contain patentable subject matter.

On Dec. 16, 1999, Comiskey filed patent application No. 09/461,742 with the United States Patent and Trademark Office. The application claimed a method and a system for the arbitration of disputes involving legal documents. The invention was embodied in a number of independent and dependent claims which required either only mental processes or machine apparatuses, such as general purpose computers or communication devices, in addition to mental processes.

Upon first office action, the examiner rejected the claims for obviousness under 35 U.S.C. § 103 over three prior art references. In response, Comiskey modified the claims of his invention to more specifically point out his invention and to differentiate it from the prior art references. Upon further examination, the examiner issued a final rejection on the same basis. Comiskey then filed a request for continued examination. The examiner thereafter withdrew the final rejection and mailed a non-final rejection on the same grounds. Comiskey responded by submitting a declaration of long felt need. The examiner issued another final rejection on the same grounds. Following the second final rejection, Comiskey promptly appealed to the Board of Patent Appeals and Interferences. The Board upheld the examiners rejection and Comiskey filed this appeal to the Court of Appeals for the Federal Circuit.

The Court of Appeals for the Federal Circuit never reached the question of obviousness confronted by the Board of Patent Appeals and Interferences. Rather, the Court raised, sua sponte, an additional question of patentability. Specifically, the court focused on whether the patent met the threshold 35 U.S.C. § 101 requirement for patentability. The Court relied on earlier decisions such as State Street Bank, Rubber-Tip Pencil Co., Flook, Bensen, and In re Warmerdam which held that processes that rely solely on mental processes do not constitute patentable subject matter.

With regard to its authority to raise additional grounds of rejection, the Court did not look to a statutory basis for its power. Rather, the Court relied on the Supreme Court decision, SEC v. Chenery Corp. This case established the power of a reviewing court to affirm an agency’s decision on a legal ground not relied on by the agency where it would both be wasteful to send the case back to the agency and where there is no issue of fact, policy, or agency expertise.

The court concluded by applying the above principles to the patent application. In doing so it found that only those claims that recited both the mental process and a machine apparatus fulfilled the 35 U.S.C. § 101 requirement. The Court then remanded to the Office for a determination as to whether the addition of general purpose computers or communication devices, as recited in the application, would have been obvious to a person with ordinary skill in the art under 35 U.S.C. § 103.

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In re Petrus A.C.M. Nuijten

U.S. Court of Appeals, Federal Circuit, September 20, 2007

Summary by Karyn Behling

Whether a patent is invalid for failure to claim statutory subject matter under 35 U.S.C.S. § 101 is a matter of both claim construction and statutory construction.  If a claim covers material not found in any of the four statutory categories, that claim falls outside the plainly expressed scope of § 101 even if the subject matter is otherwise new and useful.

The appellant filed a patent application with the United States Patent and Trademark Office disclosing a technique for reducing distortion induced by the introduction of “watermarks” into signals.  This ability to encode additional data into a signal is useful to publishers of sound and video recordings, who can use watermarks to embed in the media they distribute information intended to protect against unauthorized copying.  Thus, a key goal of watermarking techniques is to minimize the distortion so that the resulting diminution in signal quality is as minimal as possible.

Appellant’s technique improves existing watermark technology by further modifying the watermarked signal in a way that partially compensates for distortion introduced by the watermark.  The issue before the U.S. Court of Appeals is whether or not a signal is patentable subject matter.  The Board of Patent Appeals and Interferences rejected claims 14, 22, 23, and 24 of the appellant’s patent application stating that the claims were unpatentable subject matter outside the scope of 35 U.S.C. § 101.  The claims seek to patent any “signal” that has been encoded in a particular manner.  The applicant appealed the Board’s decision.

Several of the appellant’s claims to the process he invented were accepted; including, a device that performs that process and a storage medium holding the resulting signals.  The claims on appeal seek to cover the resulting encoded signals themselves.  Claim 14 of the patent application is the only independent claim of the four rejected by the PTO.  Claims 22, 23, and 24 depend on Claim 14, respectively adding requirements that the embedded data be a watermark, that the signal be a video signal, and that the signal be an audio signal.  The claims were rejected by the Examiner on the basis that they were nonstatutory subject matter under § 101. 

The Board affirmed the Examiner’s § 101 rejections of Claims 14, 22, 23, and 24 on two grounds.  First, it noted that “the signal . . . has no physical attributes and merely describes the abstract characteristics of the signal and, thus, it is considered an ‘abstract idea’” which is unpatentable.  Second, the Board determined that the claims at issue fell into none of the four statutory categories of patentable subject matter: “process, machine, manufacture, or composition of matter.”  The Board stated that the claims were not directed to a process because they did not “recite acts”; not a machine because “the signal . . . has no concrete tangible physical structure”; and “not composed of matter and [therefore] clearly not a ‘composition of matter.’”  Finally, the Board noted that “[t]he signal does not have any physical structure or substance and does not fit the definition of a ‘manufacture’ which requires a tangible object.”  Accordingly, the Board rejected Claims 14, 22, 23, and 24 solely on the basis of unpatentability under § 101.  The applicant timely appealed the Board’s decision to the U.S. Court of Appeals.

The U.S. Court of Appeals considered whether the claims were valid in light of § 101 which is a question of law that they reviewed de novo.  The court first considered the issue of claim construction.  The claim construction dispute between the appellant and the PTO involves whether the claims are limited to covering only physical instances of signals, or do they also cover intangible, immaterial strings of abstract numbers?  The PTO argues that Claim 14 can be read to claim a signal that is merely numerical information without any physical embodiment.  The appellant disagrees arguing that a signal can be sensed and received by some physical apparatus, if not directly by a person.  The U.S. Court of Appeals agreed with the appellant, stating that so long as some object or transmission carries the information specified by appellant’s claim, it falls within that claim’s scope regardless of its physical form.  Accordingly, some physical form for the signal is required, but any form will do, so long as a recipient can understand the message, the nature of the signal’s physical carrier is totally irrelevant to the claims at issue.

Secondly, the court considered whether a transitory, propagating signal is encompassed by any of the four statutory categories: “process, machine, manufacture, or composition of matter.”  (1) Process: the appellant suggests that his signal is a process under the term’s statutory meaning, arguing both that a process need not be defined by reference to an act or series of steps, and that his signal claims do refer to the performance of acts.  He also notes that his signal claims recite acts, noting that the claimed signal must be “encoded in accordance with a given encoding process.”  Such claims are still directed to the ultimate product, not the underlying process.  The presence of acts recited in the claim does not transform a claim covering a thing, the signal itself, into one covering the process by which that thing was made.  Since a process claim must cover an act or series of acts and the appellant’s signal claims do not, the claims are not directed to a process.  (2) Machine: the Supreme Court has defined the term “machine” as “a concrete thing, consisting of parts, or of certain devices and combination of devices.”  A transitory signal made of electrical or electromagnetic variances is not made of “parts” or “devices” in any mechanical sense.  A propagating electromagnetic signal is not a “machine” as that term is used in § 101.  (3) Manufacture: the Supreme Court has defined “manufacture” as “the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand-labor or by machinery.”  This definition addresses articles of manufacture as being tangible articles or commodities.  A transient electric or electromagnetic transmission does not fit within that definition.  Thus, the court held that the appellant’s signals, standing alone, are not manufactures under the meaning of the term in § 101.  (4) Composition of matter: a signal comprising a fluctuation in electric potential or in electromagnetic fields is not a “chemical union,” nor a gas, fluid, powder, or solid.  The appellant’s signals are not compositions of matter.  Therefore, a transitory, propagating signal like the appellant’s is not a “process, machine, manufacture, or composition of matter.” 

The U.S. Court of Appeals agreed with the Board that the signal claims in the patent application are not directed to statutory subject matter, and thus they affirmed the Board’s decision.

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International Gamco, Inc. v. Multimedia Games, Inc.

U.S. Court of Appeals, Federal Circuit, Oct. 15, 2007

Summary by Jon Schulman

In an issue of impression, the Court held that a party with an exclusive enterprise license on a patent, does not have “all substantial rights” of the patent holder as required under 28 U.S.C. § 1292(b) in order to confer standing such that the part may sue in its own name.

In December 2001, Oasis Technologies, Inc. assigned U.S. Patent No. 5,324,035 to International Gamco, Inc. (Gamco).  One year later, in February 2003, Gamco assigned all rights to the patent to International Game Technology (IGT) with the exception that Gamco would maintain the right to sublicense the ‘035 patent in the “New York State Lottery Market,” including the right to pursue legal action against infringing activity in that market.

The claims in the ‘035 patent describe a networked gaming system designed to distribute interactive games to various consoles from one master unit.  Included in claim 14 of the patent is a lottery-type game, the subject of this case.  In May 2004, Gamco, purporting to exercise the rights it withheld from its assignment to IGT, sued Multimedia Games, Inc. (Multimedia) for alleged infringing activity involving the New York State Lottery, for which Multimedia is the “sole contractor of lottery games.”

The suit was dismissed for lack of standing by the district court, which found that Gamco no longer held the right to sue in its own name following its assignment of the ‘035 patent to IGT.  Gamco then entered into a new agreement with IGT specifying that Gamco would be given “the exclusive right and license, within [New York’s authorized State Lottery system], to make, use, sell, and offer to sell, with the right to sublicense others to make, use, sell and offer to sell game system networks covered by the ‘035 Patent. . . .”  Gamco then filed an amended complaint against Multimedia.  Multimedia then filed an interlocutory motion to dismiss for Gamco’s lack standing.  In taking a second look at Gamco’s new complaint, the district court found that under its modified agreement with IGT, Gamco “held an ‘exclusive enterprise’ license – a hybrid between a territorial license and a field of use license,” with restrictions on both the geographic area (New York) and the field of use (lottery game systems).  As an issue of first impression, the trial court certified the question of whether the license agreement between IGT and Gamco was “sufficient to confer standing on the exclusive license to bring a patent infringement action in its [Gamco’s] own name only under 28 U.S.C. §1292(b).”

In answering the question, the Court of Appeals took guidance first from the U.S. Supreme Court decision in Pope Manufacturing Co. v. Gormully & Jeffery Manufacturing Co., 144 U.S. 248, 12 S.Ct. 641, 36 L.Ed. 423 (1892).  In that case the Court held that where the scope of a licensee’s exclusive rights were limited to only one claim out of four in a patent, the licensee does not have standing to sue in its own name.  Lurking behind the Pope decision was a concern that if each individual licensee of each individual aspect of a patent could sue separately, it may result in a single defendant being bombarded by “a multiplicity of suits instead of one.”  The Court of Appeals found that the “claim-by-claim license” in Pope was analogous to an exclusive field of use license “insofar as both types of licenses divide the scope of a patent right by its subject matter,” and because of this cleavage of rights an “exclusive field of use licensee does not have standing to so in its own name without joining the patent holder.”

Having reviewed the issue of a field of use license, the Court went on to the matter of an exclusive territorial license.  After admitting that an exclusive territorial license does not present the same risk of multiple-suits, the Court noted that simply “adding a geographic restriction” on to an exclusive field of use license does not grant standing in a case where, like Gamco, a party holds a hybrid, exclusive territorial/field of use license (i.e. an exclusive enterprise license).  The Court still feared that allowing Gamco to sue under its own name, without IGT might subject Multimedia to additional suits from IGT regarding non-lottery related infringement but on the same ‘035 patent.

Finding that Gamco’s license was a an exclusive enterprise license, and holding that such a licensee does not have standing to sue in its own name without the patent holder, the Court of Appeals reversed the district court’s denial of Multimedia’s motion to dismiss Gamco’s complaint for lack of standing.

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Paice LLC v. Toyota Motor Corp.

U.S. Court of Appeals, Federal Circuit, Oct. 18, 2007

Summary by Tiffany Baack

In a court proceeding, a particularized testimony standard does not require the witness to restate the previous testimony in order for it to apply to another question. In addition, when determining the reliance on the doctrine of equivalents, it is not excluded unless the patent clearly excludes the equivalent structure either implicitly or explicitly. Finally, a court does not remedy the violation of rights guaranteed by a patent by permitting use of a patented invention in exchange for a royalty imposed by the court. 

The patents at issue are held by plaintiff, Paice LLC, and relate to the drive train for hybrid vehicles.  U.S. Patent No. 5,343,970 (the ‘970 patent) was for the controllable torque transfer unit (CTTU) while U.S. Patent No. 6,209,672 (the ‘672 patent) (which includes U.S. Patent No. 6,554,088) (the ‘088 patent)) differs because it employs a clutch rather than a CTTU and it also uses a percentage of the torque output to determine the percentage needed from the electric motor. The defendant, Toyota, began to market the Prius II, Highlander, and Lexus RX 400h in 2003 featuring a drive train designed around a planetary gear unit. The planetary gear unit’s primary difference from the patents at issue was its output shaft’s location.

The plaintiff filed an action against the defendant on June 8, 2004, alleging infringement of three patents (the ‘970, ‘672, and ‘088 patents) and requesting a permanent injunction and compensatory damages. A ten-day jury trial ensued on December 6, 2005. During the jury trial, both the plaintiff and the defendant brought in extensive evidence and expert testimonies. The plaintiff’s theory of the case was that the planetary gear unit, the chain/sprocket arrangement, and the shaft to the counter drive gear of the drive train satisfies the CTTU limitation. The defendant’s theory of the case was that the planetary gear unit operated before the input from the ICE, and therefore the defendant did not have a device that was characterized as multi-input. The jury found that the defendant did not literally infringe the plaintiff’s patents, but that there was infringed under the doctrine of equivalents. The jury awarded the plaintiff with $4,269,950 as a royalty for use of the patent.

Both parties filed motions after the jury award. The defendant’s motion for judgment as a matter of law sought to overturn the jury’s finding of infringement. The plaintiff’s motion for judgment as a matter of law sought to overturn the jury’s finding of no literal infringement. The United States District Court for the Easter District of Texas denied both motions. The plaintiff also moved for a permanent injunction to prevent the defendant from making and selling the infringing vehicles. The court followed the four factor test mandated by the Supreme Court in eBay Inc. v. MercExchange, L.L.C.: (1) the plaintiff has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction. The court decided that the plaintiff did not fulfill the standard necessary for a permanent injunction, and instead imposed a royalty payment of $25 per vehicle sold by the defendant with the infringing technology. The defendant appealed the denial of its JMOL motion, and the plaintiff appealed the denial of its JMOL motion and the imposition of an ongoing royalty for use of the patented material.

The United States Court of Appeals for the Federal Circuit first analyzed the defendant’s claim that the expert witness’s testimony of the plaintiff’s was not sufficient for the doctrine of equivalents, but the court upheld the district court’s decision. The defendant claimed that plaintiff’s expert testimony only applied to the literal infringement claim, and therefore there was not a proper testimony for the doctrine of equivalents claim. The Court mentioned that a patentee must provide a particularized testimony about the function, way, result test when evidence is presented to sustain a finding of doctrine of equivalents infringement. However, the Court clarified that the particularized testimony does not need to be repeated if it carries over from the literal infringement testimony into the doctrine of equivalents.

The Court of Appeals also analyzed the defendant’s claim that the plaintiff’s patent disavowed the prior art of the Berman/TRW patents to which the defendant’s drive trains are similar, finding that the plaintiff’s comments were not a complete disavowal. The defendant’s claim that the plaintiff’s disavowed the Berman/TRW patents by mentioning its disadvantages. However, the way the plaintiff overcame the disadvantage was to use a microprocessor, which is what the defendant did as well. The Court of Appeals also found that it was not enough to disavow the defendant’s drive units by criticizing other patents and mentioning the advantages of one patent over another and later equating the defendant’s units to the criticized patents.

The Court of Appeals briefly addressed the plaintiff’s appeal of the district court’s denial of JMOL, upholding the district court’s decision. The plaintiff argued that the evidence did not support the jury’s determination of no literal infringement. However, the Court held that the testimonies provided by the expert witnesses provided the jury with enough evidence to base its finding of no literal infringement.

Finally, the Court of Appeals addressed the plaintiff’s appeal to the mandatory imposition of an ongoing royalty agreement between the plaintiff and the defendant. The plaintiff argued that the district court did not have statutory authority to order such a royalty agreement, and, in the alternative, the plaintiff was denied its right to a jury trial under the Seventh Amendment. The Court of Appeals addressed the question as whether an order permitted use in exchange for a royalty prevented a violation of the plaintiff’s rights in the patent. After analyzing various cases, the Court took the stance that in some circumstances it is acceptable to award an ongoing royalty in lieu of an injunction. However, the court found that awarding an ongoing royalty does not justify a Court to impose the amount the royalty payments should be. Furthermore, the Court of Appeals found no evidence as to how the district court determined $25 per vehicle to be the appropriate amount of royalty fees. In addressing the plaintiff’s alternative Seventh Amendment argument, the Court of Appeals held that, as the issue of the case was monetary relief, it did not warrant a jury trial standing alone.

Overall, the Court of Appeals upheld the district court’s decisions regarding the defendant’s claims and the plaintiff’s JMOL and jury trial claims. However, the Court of Appeals vacated and remanded the district court’s decision in awarding $25 per vehicle sold as an ongoing royalty because there was no evidence for its determination.

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Top Tobacco, L.P. v. North Atlantic Operating Co, Inc.

U.S. Court of Appeals, Seventh Circuit, Dec. 4, 2007

Summary by Corey Wright

Absent evidence of consumer confusion about the origin of a product, a court will not utilize proxies for likelihood of consumer confusion in a trademark infringement action.  Additionally, trademark rights in a commonly used word are too limited to create a cause of action for trademark dilution against any use of the word by anyone other than the trademark owner.

Plaintiff has been a seller of loose tobacco in the roll-your-own/make-your-own (RYO/MYO) cigarette business for over 100 years.  Plaintiff’s mark, the word TOP printed above the image of a spinning top, is well known in the tobacco industry.  Defendant has also been in the RYO/MYO cigarette business for over 100 years as the manufacturer cigarette rolling paper.  In 1999, Defendant began to sell its own loose tobacco for RYO/MYO cigarettes.  In 2001, Defendant began selling its tobacco in a sealed container bearing the phrase “Fresh-Top Canister.”  Plaintiff brought suit against Defendant under the Lanham Act contending that Defendant’s use of the word “top” was in violation of Plaintiff’s trademark rights and was a dilution of Plaintiff’s mark.  The district court granted summary judgment for Defendant and Plaintiff appealed.

First, regarding Plaintiff’s claim of exclusive use of the word “top” in the tobacco industry, it was noted that “top” has three meanings depending on the context in which the word is used.  It could refer to something being the best, a spinning child’s toy, or the lid of a container.  Plaintiff used the word in reference to the depiction of the child’s toy on its container, but also in the hope that use of the word would implicitly convey the meaning that their product was the best.  Defendant used the word in the third sense in reference to its pull-tab container designed to keep tobacco fresh.  Although looking solely at the language it appeared that there could have been consumer confusion, a comparison of pictures of Plaintiff’s canister and Defendant’s canister revealed that no consumer could have been confused.  The phrase “Fresh-Top Canister” did not stand out on Defendant’s canister the way “TOP” stands out on Plaintiff’s canister.  Further, the trade dress of each was so distinctive that no consumer could miss the difference between the two.

Additionally, Plaintiff presented no evidence that any consumer was actually confused by Defendant’s use of “top.”  Plaintiff, in effect, asked the court to ignore the context of the use of the word “top” on the canister and the lack of evidence and to focus strictly on Defendant’s mere use of ”top.”  Plaintiff wanted the court to utilize a factor test for assessing the probability of confusion by consumers of the products.  However, the court, citing Plaintiff’s lack of even “a shred of evidence “that any consumer was confused, indicated that there was no need to consult a proxy for confusion.  The statutory inquiry is whether a consumer is confused and when no evidence of confusion is presented, there is no need to consult a list of factors designed as proxies for the likelihood of confusion.

Finally, regarding Plaintiff’s claim that Defendant’s use of the phrase “Fresh-Top Canister” dilutes its “famous” brand under 15 U.S.C. §1125(c)(2)(a), the court acknowledged that “TOP” is an old and recognized brand name in the loose-cigarette-tobacco market.  However, “top” is such a commonly used word in the tobacco and cigarette industry that mere appearance of the word in the packaging of a product does not affect the reputation of Plaintiff.  The court presented a list of examples of usage of “top” in other areas of the tobacco market to illustrate its point.  On this claim, the court ruled that Plaintiff’s trademark rights in the word “top” are limited and do not extend so far as to prevent any other firm from using the word, especially in light of the ubiquity of the word’s use.  Also rejected was any claim that Plaintiff’s mark had “niche fame” as recognized by some courts under the old version of §1125.  “Top” is not famously distinctive as the designator of a source in any sensibly specified niche of tobacco products.

The Appellate Court affirmed the district court’s grant of summary judgment in favor of Defendant.

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Perfect 10, Inc. v. Amazon.com, Inc.

U.S. Court of Appeals, Ninth Circuit, May 16, 2007

Summary by Marc Morgan

In the Ninth Circuit Court of Appeals, Perfect 10 appealed a decision by a district court that preliminarily enjoined Google from creating and displaying publicly thumbnails of Perfect 10 images, but did not enjoin Google from linking to the websites of infringing third-parties that displayed full-size versions of the same images.

Google operates a search engine that automatically accesses thousands of websites and indexes them into a database which users can query for relevant information.  One of the ways in which Google can deliver relevant information is in the form of images via Google Image Search.  Google also earns revenue through an agreement with Amazon.com that allows Amazon.com to in-line link to search results on Google.  Amazon.com would give its users the impression that it provided the search results, but the results were communicated directly to its users by Google.

Perfect 10, the appellant, operates a subscription website where subscribers pay money to view images of nude models in a members’ only area of the website.   Google Image Search does not include the password-protected images taken from the members’ only area, but when the images are placed on other websites without authorization, the search engine sometimes indexes the webpages containing the images and provides thumbnail versions of the images when responding to user queries.

The Ninth Circuit affirmed the district court’s decision that because Perfect 10 had the burden of showing the likelihood of success on the merits, it also had the burden of demonstrating a likelihood of overcoming the fair use defenses raised by Google.  Google raised fair use defenses under 17 U.S.C. § 107 and under title II of the Digital Millennium Copyright Act (DMCA) 17 U.S.C. § 512.  The Court explained that the burden is correctly placed on the party seeking preliminary injunction during an early stage of litigation, before the defendant has had the chance to pursue extensive discovery or develop its defenses.

The Ninth Circuit affirmed the district court’s decision that Perfect 10 was likely to succeed in its claim that Google’s thumbnails constituted direct infringement, but was not likely to succeed in its claim that Google’s in-line linking to full size infringing images were a direct infringement.  The Court explained that Perfect 10 made a prima facie case that Google’s communication of stored thumbnail images directly infringed Perfect 10’s display right because Google computers store thumbnail versions of the images and communicate copies to Google users.  However, Google did not display a copy of full-size infringing images under the Copyright Act when its frames in-line linked images that appear on a computer screen as its computers do not store those photographic images.  For similar reasons, the Court determined that Perfect 10 was unlikely to succeed in proving that a cached webpage that in-line links to full-size infringing images violated such rights.

The Ninth Circuit also affirmed the district court’s decision that Perfect 10 would not likely prevail on its claim that Google directly infringed Perfect 10’s right to distribute its full-size images, because the distribution required an actual dissemination of a copy.  Google did not distribute these images because it did not communicate the full-size images to the user’s computer.

The Ninth Circuit overruled the district court’s conclusion that Google’s use of thumbnails was not a fair use and vacated the preliminary injunction.  The Court found that Google’s use was fair after weighing its significant transformative use of the thumbnails against the unproven use for cell phone downloads, and considering the other fair use factors in light of the purpose of copyright.

The Ninth Circuit remanded Perfect 10’s contributory infringement claim for further consideration because the district court did not resolve the factual disputes about the sufficiency of Perfect 10’s notices to Google and Google’s replies to the notices.  Also there existed factual disputes over whether there are reasonable and feasible means for Google to avoid providing access to infringing images. 

The Ninth Court affirmed the district court conclusion that Perfect 10 had not established vicarious liability because it had not shown a likelihood of proving Google’s right and ability to stop or limit the directly infringing conduct of third-party websites.

Finally, the Ninth Circuit affirmed the district court decision that Perfect 10 had not shown a likelihood that it would prevail on the merits in its claim of direct infringement against Amazon.com because it only communicates to its users the HTML instructions that direct the browsers of user’s to Google’s computers.  Also Amazon.com did not have the right and ability to supervise infringing activity by third parties.

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Davis v. Blige

U.S. Court of Appeals, Second Circuit, Oct. 5, 2007

Summary by Ryan Yoder

As a matter of first impression, the Second Circuit held that written transfer agreements, where one co-owner retroactively transfers their interests in copyrighted songs to a third party, do not bar the other owner’s accrued infringement claims against the third party or their licensees. Furthermore, the Court held that oral agreements assigning a co-owner’s interest in copyrighted material cannot be ratified by later written transfer agreements that defeat the other co-owner’s accrued infringement claims.

This dispute arises from two songs included on the “triple platinum” 2001 album, “No More Drama,” performed by Mary J. Blige. Namely, the plaintiff, Sharice Davis, alleged the album songs “LOVE” and “Keep It Moving” bear virtually identical or substantial relationships to her songs “L.O.V.E.” and “Don’t Trade in My Love,” respectively. Furthermore, Davis claimed that the packaging of the album only credits the named defendants as authors.

Davis alleged that the songs in question were co-authored in 1998 by her and Bruce Chambliss (not named in the suit), the father of the defendant Bruce Miller. Subsequently, the defendants offered proof that Chambliss and Miller entered an oral transfer agreement prior to the songs’ release. Then, after an infringement suit was filed in 2003, Miller and Chambliss drafted a written transfer of Chambliss’ interest in the songs in question, and a release of all “past, present, and future” causes of action.

In her 2003 complaint, Davis alleged copyright infringement by the defendants. Following completion of discovery, defendants moved for summary judgment, arguing that co-author Chambliss transferred his copyright interests via oral agreement to Miller, or, in the alternative, that the subsequent written agreement conveyed the interests retroactively. Accordingly, the defendants argued that the transfer makes Miller the co-owner of the compositions, and, therefore, neither he nor his licensees can be subject to suits for infringement. The District Court agreed and stated that past infringements could be cured through retroactive assignment of copyrights. The Second Circuit, as an issue of first impression, disagreed with the District Court, vacated the summary judgment, and remanded it back to the lower court.

In doing so, the Court first analyzed the general principles of copyright law. In particular the Court noted that co-authors of copyrights were to be treated as tenants in common with independent rights to use or license the work. Furthermore, the Court notes that co-authors are only allowed to confer non-exclusive licenses unilaterally because exclusive licenses would impair the rights of the non-licensing co-owner.

Next the Court addressed whether a co-owner can convey his copyright interest to a third party retroactively, defeating an infringement claim against the third party by another co-owner. In doing so, the court distinguished case law involving settlements used by the district court to uphold the retroactive transfer. Namely, the court stated that relying on cases involving settlements is misplaced because settlements are retrospective, and provide remedies for an acknowledged wrong. On the contrary, licenses are prospective granting use by a non-owner. Accordingly, the Court noted that a retroactive license would “erase the unauthorized use from history” and extinguish the nonparty co-owner’s right to sue for infringement. Therefore, after supporting its conclusion in contract, tort, and patent law, the Court held that a license or assignment in copyright can only act prospectively. Furthermore, the Court noted two policy reasons for disallowing retroactive assignments: 1) allowing them injects uncertainty and unpredictability into copyright ownership, and 2) allowing them lowers the costs of infringement by letting infringers “buy their way out” of infringement suits.

The Court then addressed the defendants’ second claim by stating that oral agreements cannot be ratified retroactively in order to defeat accrued infringement claims for the same reasons the written transfer agreements cannot have retroactive effect. In reaching its decision, the Court analyzed the Copyright Act of 1976’s requirement that exclusive licenses are to be written, which, therefore, makes the oral agreement devoid of legal effect. Thus, the court further stated that allowing ratification of an earlier oral agreement without legal effect would require the employ of a legal fiction “to obtain a counterintuitive and inequitable result.”

Accordingly, the Court vacated the district court’s decision and remanded the infringement claims back to the lower court to be decided without giving effect to the oral agreement or retroactive assignment of Chambliss’s interest in the disputed works.

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Green v. Fornario

U.S. Court of Appeals, Third Circuit, May 8, 2007

Summary by Kevin Rizzuto

For claims arising under the Lanham Act, a successful plaintiff will only be awarded attorney fees if the defendant was “engaged in culpable conduct” and the “circumstances were exceptional.”  Additionally, an appeals court will use a “clearly erroneous” standard when reviewing a lower court’s fact finding regarding attorney’s fees.

Tyler Green was an injury-plagued player for the Philadelphia Phillies from 1991 to 2000.  He remained in the Philadelphia area and in local media coverage after his retirement.

In the late 1990s, the defendant started a sports analysis business for gamblers called “Tyler Green Sports.”  He ran an ad in the paper for one day, but because of some 1-800 number confusion, he decided to halt the business.  Then in 2000, Fornario brought back the Tyler Green Sports name for his new entertainment promotion company.  The business was incorporated in Pennsylvania under the name Tyler Green Sports and had a website of a similar name.  The defendant later testified that the name stemmed not from the baseball player, but from the lead singer of Aerosmith, Stephen Tyler, and the color of money, green.

In 2003, Tyler Green’s agent found that the defendant had been using the name “Tyler Green Sports.”  After an initial request by Tyler Green’s agent to stop using his client’s name, and a formal cease and desist letter, the defendant offered to stop using the name for $3,000.  Green declined the offer and filed suit in district court.  The defendant initially denied the allegations and counterclaimed for libel, but soon dropped the claim and agreed to stop using the name.  The suit went on to determine damages, costs, and attorney’s fees.  The district court awarded costs but declined to award attorney’s fees.  In response, Tyler Green appealed, arguing that the case was “exceptional” and thus warranted the award of attorney’s fees.

The Third Circuit stated that to determine whether a case is “exceptional,” a court must find that 1) the “defendant engaged in . . . culpable conduct” during either the defendant’s violations of the Lanham Act or the litigation that follows and 2) “the circumstances [were] ‘exceptional’ enough to warrant a fee award.”  For evaluating “exceptional circumstances,” a defendant’s culpable conduct can be considered along with “the closeness of the liability question and whether the plaintiff suffered damages.”  Id.  Thus, a defendant’s culpable conduct is required for an award of reasonable attorney fees, but it will not necessarily result therein. 

On appeal, Green alleged that the defendant had engaged in culpable conduct for two reasons: 1) his knowing infringement and 2) his continuing in bad-faith after Green demanded he stop.  As per the first argument, the Third Circuit, despite its doubts of the defendant’s explanation of his business’s name, held that it could not conclude that the district court’s decision was clearly erroneous because it would “require discrediting the defendant’s testimony and deciding that Green was famous enough that the defendant could not but know of him.”

Regarding the second allegation, the court stated that a defendant has “every right to decline pre-litigation requests without adverse consequences, but they must do so in good faith-that is, believing that they have a colorable claim of right to engage in the challenged behavior.”  The district court’s holding that there was no bad faith was also a factual issue that could only be overturned if it was found to be clearly erroneous.  The Third Circuit found no such clear error and determined that the defendant had a “colorable” defense to two of Green’s three Lanham Act claims, including 1) diluting a famous mark under § 1125(c) and 2) cybersquatting under § 1125(d).  Finally, the Court declined to presume to know what evidence would come from discovery regarding the third claim of confusing misdescription under § 1125(a).

Therefore, the Court could not conclude that the district court’s findings were clearly erroneous and affirmed its decision that the case is not exceptional and does not merit an award of attorney fees.

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The Last Best Beef, LLC v. Dudas

U.S. Court of Appeals for the Fourth Circuit, Oct. 24, 2007

Summary by Eric L. Schlevensky

When provisions in two separate acts of Congress are in irreconcilable conflict, the later act implicitly repeals the earlier act to the extent that the two provisions are in conflict with each other.  This implied repeal may occur even when an appropriations rider acts to amend substantive law.

Between 2001 and 2004, Last Best Beef filed eight applications for federal registration of the phrase " The Last Best Place" for use with a variety of goods and services.  While these trademark applications were pending, Congress passed the Science, State, Justice, Commerce, and Related Agencies Appropriations Act of 2006.  Section 206 of this Appropriations Act states, " Notwithstanding any other provision of this Act, no funds appropriated under this Act shall be used to register, issue, transfer, or enforce any trademark of the phrase 'The Last Best Place.'"

When the Appropriations Act was signed, the eight applications of Last Best Beef were at various stages of consideration: two of the applications had received certificates of registration, four of the applications had been issued notices of allowance, and two of the applications were facing opposition proceedings.  As a result of the passage of the Appropriations Act, the USPTO cancelled these registrations and the notices of allowance.  Additionally, the USPTO suspended any further proceedings regarding these applications.

Last Best Beef filed a complaint in the United States District Court for the District of Columbia, which was subsequently transferred to the Eastern District of Virginia.  The complaint alleged several constitutional claims and further alleged that §  206 improperly contradicted the Lanham Act.  The district court did not reach any of the constitutional claims because it granted summary judgment for Last Best Beef on the grounds that §  206 did improperly contradict the Lanham Act.  The district court relied on the general rule in §  1052 of the Lanham Act which provides that " [n]o trademark . . . shall be refused registration on the principal register on account of its nature."   While §  1052 further lists a number of exceptions to the rule, the district court held that the exceptions did not apply to the phrase " The Last Best Place."   The USPTO appealed this decision.

The appellate court stated that although the canon of statutory interpretation strongly disfavors an implied repeal of substantive law by an appropriations rider, this canon is not an absolute rule precluding such an action.  If Congress wishes to use an appropriations rider to amend substantive law, it may do so as long as the intention to make such an amendment is clearly expressed.  The court indicated that " an irreconcilable conflict between the old and new legislation can demonstrate such clear intent to repeal."   The court then concluded that §  206 of the Appropriations Act was in direct conflict with §  1052 of the Lanham Act.  As a result of this irreconcilable conflict, the court determined that Congress intended for §  206 to create a new exception to the general rule of §  1052.

Last Best Beef further argued that §  206 did not expressly grant the USPTO authority to cancel the existing registrations or to suspend further proceedings regarding the pending applications.  The court, however, rejected this argument indicating that it was within the agency's inherent authority to take these actions.  The court further indicated that it would be a waste of resources to conduct proceedings regarding the phrase " The Last Best Place" when §  206 expressly prohibits registration and enforcement of any trademark using the phrase.

The Fourth Circuit reversed the decision of the district court and remanded the case for further proceedings.

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