Intellectual Property Law

The Supreme Court Hears Oral Argument Regarding the Standard for Awarding Enhanced Damages in Patent Cases

Why it matters: The U.S. Supreme Court is reviewing the standard for awarding "enhanced" damages in patent cases (allowing a district court to increase damages up to three times the amount found or assessed) in the consolidated cases of Stryker Corp. v. Zimmer, Inc. and Halo Electronics, Inc. v. Pulse Electronics, Inc. During oral argument on February 23, 2016, a majority of the justices expressed concern that the current two-part test is overly rigid, but lacked clear consensus concerning a replacement.

Detailed discussion: On February 23, 2016, the U.S. Supreme Court heard oral argument in the consolidated cases of Stryker Corp. v. Zimmer, Inc. and Halo Electronics, Inc. v. Pulse Electronics, Inc.—to review the standard for awarding a patent plaintiff "enhanced" (i.e., increased) damages under Section 284 of the Patent Act (35 U.S.C. §284). This was the first day of argument before the Court since the passing of Justice Scalia.

The Seagate Test

Current Federal Circuit precedent holds that a district court's ability to enhance patent damages (up to three times) is limited to cases where the patent owner has established willful infringement. In turn, willful infringement requires the plaintiff to satisfy a two-part test. See In re Seagate Technology, LLC. The first prong of this Seagate test is objective in nature, and asks if the infringer "acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." The second prong is subjective in nature, and asks if "this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer." Because both prongs of the Seagate test must be independently satisfied, an infringer's subjective intent is irrelevant if it can show any objectively reasonable defense to its actions.

Procedural Background

In both Stryker and Halo, the Federal Circuit denied enhanced damages under the first prong of the Seagate test, as the infringers (in each case) were found to have set forth sufficient evidence that their actions were "objectively reasonable."

Petitioners' Argument

The Petitioners assert that the first prong of the Seagate test is ripe for review, because the Supreme Court (in 2014) unanimously rejected a comparable two-part test for awarding attorneys' fees (under Section 285 of the Patent Act) in Octane Fitness, LLC v. ICON Health & Fitness, Inc. The Court in Octane Fitness construed the broad language of that statute (35 U.S.C. §285) in accordance with its ordinary meaning, rejected the Federal Circuit's rigid test for determining whether a patent case was "exceptional," and left future determinations to the discretion of district courts on a case-by-case basis (considering the "totality of the circumstances").

Oral Argument

Most observers commented that a majority of the justices were in general agreement that the Federal Circuit's Seagate test is at odds with the language of the statute (Section 284) and/or sets an artificially high bar for patent plaintiffs to recover enhanced damages. However, these justices appeared divided as to a new standard. For example, Chief Justice Roberts and Justice Ginsburg seemed to lean toward granting judges broad discretion to award enhanced damages (similar to the approach taken in Octane Fitness), while Justices Kennedy, Sotomayor, and Kagan seemed to lean toward providing district court judges with guidance, but would allow them greater flexibility to consider the infringer's subjective intent.

In relatively stark contrast, Justice Breyer appeared to adopt the position that the Federal Circuit took a broad statute and made a reasonable determination that it should be limited in scope for public policy reasons (e.g., relaxing the standard might negatively affect small businesses and stifle innovation). He also suggested that the Federal Circuit should be the final arbiter of the proper test, stating "we did create…that expert court [that is, the Federal Circuit] to make such determinations in the face of language that seems to allow it….So what is wrong with letting them do what they are paid to do?"

Click here to read the 2/24/16 article by Ronald Mann on Scotusblog entitled "Argument analysis: Justices unsettled on standard for enhanced damages in patent cases."

For more on this subject, read the 2/23/16 article in The Recorder entitled "Supreme Court Apt to Tinker With Patent Damages" by Scott Graham.

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The Supreme Court Agrees to Review the Standard for Awarding Attorneys' Fees to a Prevailing Party in Copyright Infringement Suits

Why it matters: The U.S. Supreme Court has also chosen to review the standard for awarding a prevailing party in a copyright case its attorneys' fees in Kirtsaeng v. John Wiley & Sons, Inc. The Kirtsaeng case presents what the Petitioner has called a "hopeless" split among the U.S. Circuit Courts of Appeal that, if resolved, may eliminate a venue advantage for plaintiffs in certain jurisdictions.

Detailed discussion: On January 15, 2016, the U.S. Supreme Court granted certiorari in Kirtsaeng v. John Wiley & Sons, Inc., to review the standard for awarding attorneys' fees under Section 505 of the Copyright Act (17 U.S.C. §505).

Procedural Background

This is a return trip to the Supreme Court for these parties. In 2013, the Court (reversing the Second Circuit Court of Appeals) held that Kirtsaeng (a Thai national who purchased low cost foreign editions of textbooks outside the United States and sold them in the United States for a profit) did not infringe the copyrights on those textbooks owned by John Wiley because of the "first sale" doctrine. Since that decision, Kirtsaeng (i.e., the prevailing party) has been unsuccessfully attempting to recover his reasonable attorneys' fees incurred in connection with that litigation.

A Split In The Circuits

Section 505 of the Copyright Act provides that a district court "may" award a reasonable attorney's fee to a "prevailing party."

Kirtsaeng argues that a split in the appellate circuits' interpretation of this statute adversely affected the outcome of his fee award (based solely on where he was originally sued). According to Kirtsaeng, he would have: (1) obtained his fees in the Ninth or Eleventh Circuit, because they only ask if the prevailing party's claim or defense furthered the interests of the Copyright Act; (2) been entitled to a rebuttable presumption in favor of recovering his fees in the Fifth or Seventh Circuits; and (3) likely obtained his fees in the Third, Fourth, or Sixth Circuits—which apply the four "non-exclusive" factors set forth in the Supreme Court's 1994 Fogerty v. Fantasy, Inc. decision (i.e., frivolousness, motivation, objective unreasonableness, and considerations of compensation and deterrence).

Kirtsaeng's Brief continues that, unlike the above-mentioned circuits, the Second Circuit (where he was sued) relies on precedent that places "substantial weight" on whether the losing party's claim or defense was "objectively unreasonable" (i.e., whether it was "clearly without merit or devoid of legal or factual basis"). And, the Second Circuit upheld the district court's denial of Kirtsaeng's attorneys' fees (even though many factors weighed in favor of awarding them), because "th[o]se factors did not outweigh the 'substantial weight' afforded to John Wiley and Sons' objective reasonableness." Indeed, according to Kirtsaeng, the Second Circuit has violated the Supreme Court's Fogerty opinion by keying its standard to the "blameworthiness" of the parties and by actually creating a presumption against the award of attorneys' fees (as an "unreasonable" case is one that is, by definition, outside the norm of a usual claim).

Kirtsaeng concludes that the proper standard is that followed by the Ninth and Eleventh Circuits (because it advances the aims of the Copyright Act set forth in Fogerty, including the encouragement of defendants to litigate meritorious copyright defenses so as to demarcate the boundaries of the law as clearly as possible). But, echoing the Court's opinion in Octane Fitness, LLC v. ICON Health & Fitness, Inc. addressing the award of attorneys' fees in patent cases, Kirtsaeng also asserts that the ultimate determination by the district court should be based on the "totality of the circumstances" and take into account any equitable factors that are relevant and "faithful to the purpose of the Copyright Act."

Oral Argument

Kirtsaeng's Brief was filed on February 22, 2016. Amicus briefs by Public Knowledge and the Intellectual Property Owners Association have also been filed. Oral argument has been set for April 25, 2016.

Click here to read the Petitioner's Brief in Supap Kirtsaeng dba Bluechristine99 v. John Wiley & Sons, Inc.

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The Supreme Court Agrees to Review Question of Design Patent Law

Why it matters: On March 21, 2016, the Supreme Court granted in part the petition for writ of certiorari filed by Samsung Electronics Co., Ltd. (and other Samsung entities) in December 2015 in connection with the Federal Circuit's decision to uphold a $399 million jury verdict against it for infringement of three Apple, Inc. design patents. The Court's review will be limited to the second question presented in Samsung's Petition, which is whether a design patent owner can recover the total profit from the defendant's sale of the infringing product—regardless of the extent to which the patented features contributed to the value of that product and/or its commercial success.

Detailed discussion: On March 21, 2016, the Supreme Court agreed to review the second question presented in the petition for writ of certiorari (Petition) filed by Samsung Electronics Co., Ltd (Samsung) in December 2015 in connection with the Federal Circuit's decision to uphold a $399 million jury verdict against Samsung for infringement of three Apple, Inc. (Apple) design patents. The issue presented by Samsung that the Court agreed to review is as follows:

Where a design patent is applied to only a component of a product, should an award of infringer's profits be limited to those profits attributable to the component?

The Apple Design Patents

According to Samsung's Petition, the three design patents at issue cover specific, limited portions of a phone's design (rather than the entire design of the phone). These are: (1) a particular black rectangular round-cornered front face; (2) a substantially similar rectangular round-cornered front face plus the surrounding rim or "bezel"; and (3) a particular colorful grid of 16 icons.

The Question Presented

Samsung took issue with the Federal Circuit's affirmance of the damages award that allowed Apple to recover Samsung's entire profit from its sale of the infringing phones, no matter how little (or how much) the patented design features contributed to the value of the Samsung products (i.e., Apple gets 100% of Samsung's profits, even if Apple's patented features contributed only 1% of the value of the Samsung phones). In fact, Samsung claimed the Federal Circuit never disputed that such a result is "ridiculous," "absurd," and "makes no sense in the modern world." However, according to Samsung, the Federal Circuit believed its decision was nevertheless compelled by the clear language of the statute (i.e., Section 289 of the Patent Act, which provides that anyone who applies the patented design to any "article of manufacture" shall be liable to the owner of the patent to the extent of his "total profit"), and held that the phrase "article of manufacture" means an entire item "sold separately" to ordinary purchasers. Samsung responded by asserting: (1) that the phrase "article of manufacture" is never defined in the statute as the entire product, rather than the portion of the product depicted in the design patent; and (2) that nothing in Section 289 suggests that Congress exempted design patents from the principles of causation and equity. Samsung also argued that the Federal Circuit's position cannot be reconciled with the requirement in Section 289 that the patentee "shall not twice recover the profit made from the infringement" (emphasis included).

Policy Implications

Samsung argued that design patent owners are now being rewarded far beyond the value of any inventive contribution they made (leading to an "unjustified windfall"). Indeed, the very first paragraph of Samsung's Petition recounted that the Supreme Court has not reviewed a design patent case in 120 years, and asserted that 21st century technology (e.g., smartphones having a multitude of features and applications) has bypassed 19th century law (e.g., cases involving the design of spoon handles, saddles, and rugs).

Procedural History and Status

Apple filed its Brief in Opposition on February 3, 2016. Apple's Opposition emphasized its position that: (1) its iPhone revolutionized the mobile phone market; (2) Samsung copied Apple's patented designs (and failed to introduce any expert testimony at trial supporting its non-infringement arguments); (3) design patents are fundamentally different from utility patents with respect to, among other things, their available statutory remedies; (4) the iPhone's commercial success was due "in no small part" to its innovative design; (5) Congress has declined opportunities to modify the remedy for design patent infringement; and (6) the Federal Circuit merely applied the Section 289 "infringer's profits" statute and well-settled law.

Samsung filed its Reply on February 16, 2016. Several amicus briefs were also filed in January of 2016 (including briefs by Dell, et al.; The Computer & Communications Industry Association; and 37 intellectual property professors). The Supreme Court granted certiorari as to the second question presented in Samsung's Petition on March 21, 2016. Oral argument has not yet been scheduled.

See here to read the Petition for Certiorari filed by Samsung on 12/14/15 in Samsung Electronics Co., Ltd., et al. (Petitioners) v. Apple Inc. (Respondent).

See here to read the amicus brief in Samsung Electronics Co., Ltd., et al. (Petitioners) v. Apple Inc. (Respondent).

For more on this topic, read the Federal Circuit's 5/18/15 opinion in Apple Inc. v. Samsung Electronics Co., Ltd., et al.

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On the Watch List: Federal Circuit to Decide Patent Venue Case

Why it matters: Patent plaintiffs are generally empowered to sue corporate defendants in any district where they can establish personal jurisdiction. However, the Federal Circuit will soon decide if the 2011 amendments to the Federal Rules of Civil Procedure limited venue in patent cases to places where the defendant is incorporated or has an established place of business and has allegedly infringed. See In re Heartland, LLC. Such a restriction, if imposed, would effectively foreclose many plaintiffs from filing suit in what they perceive to be "favorable" jurisdictions (such as the Eastern District of Texas).

Detailed discussion: On March 11, 2016, the Federal Circuit heard oral argument in In re TC Heartland, LLC—a case where the court is being asked to establish stricter venue rules for patent cases.

Current Law

Venue in patent cases is currently governed by 28 U.S.C. §1400(b) and 28 U.S.C. §1391(c). The former (a statute specifically directed to patent cases) provides that venue is proper: (1) in the judicial district where the defendant "resides"; or (2) where the defendant has committed acts of infringement and has a regular and established place of business. The latter (which is a general venue statute) provides that an entity (e.g., a corporation) resides, if a defendant, in any judicial district in which the entity is subject to the court's personal jurisdiction with respect to the civil action in question. As a result, patent plaintiffs are generally empowered to sue corporate defendants in any district where they can establish personal jurisdiction.

Procedural Background

In 2014, Kraft Food Group Brands LLC (a Delaware limited liability company) sued TC Heartland (an Indiana limited liability company) for patent infringement in the District of Delaware. TC Heartland moved to dismiss the case or, in the alternative, have the case transferred to the Southern District of Indiana (because TC Heartland "resided" in Indiana, had its "regular and established place of business" in Indiana, and 98% of Kraft's claims arose out of activity allegedly conducted by TC Heartland in Indiana). The District of Delaware denied the motion, which led TC Heartland to file a petition for writ of mandamus with the Federal Circuit (a petition that was granted in January of 2016).

TC Heartland's Position

For many years, U.S. Supreme Court precedent (e.g., Fourco Glass Co. v. Transmirra Products Corp.) prohibited courts from supplementing the venue provisions of 28 U.S.C. §1400(b) with the residency definitions set forth in 28 U.S.C. §1391(c). However, in 1988, Congress added the clause "[f]or purposes of venue under this chapter…" to the beginning of 28 U.S.C. §1391(c). Soon thereafter, the Federal Circuit (in VE Holding Corp. v. Johnson Gas Appliance Co.) interpreted this change as an expression of Congress' intent that 28 U.S.C. §1391(c) should, thereafter, be read in conjunction with 28 U.S.C. §1400(b)—because both statutes are located in Chapter 87 (Title 28) of the United States Code.

TC Heartland argues that VE Holding was rendered a nullity by the 2011 amendments to 28 U.S.C. §1391(c). Those amendments: (1) replaced the 1988 "[f]or purposes of venue under this chapter…" language with "[f]or all venue purposes"; and (2) introduced a new 28 U.S.C. §1391(a) (which provides that "[e]xcept as otherwise provided by law…(1) this section shall govern venue in all civil actions brought in district courts of the United States"). TC Heartland also asserts that, regardless of the 2011 amendments, VE Holding should be reexamined by the Federal Circuit, en banc, because it directly conflicts with Fourco.

Kraft's Response

Kraft's response (adopted by the district court) is that the new language in 28 U.S.C. §1391(c) is at least as broad as the prior 1988 language, and that 28 U.S.C. §1400(b) does not conflict with Section 1391 (and, thus, does not "otherwise provide"—as set forth in the new 28 U.S.C. §1391(a)).

The Underlying Policy Debate

While the arguments advanced by the parties largely focus on the interpretation of the statutory language and legal precedent, the underlying policy issues concerning the scope of venue in patent cases has attracted most of the interest in this case. Indeed, several amicus briefs have been filed urging the Federal Circuit to enact stricter patent venue laws—so as to make it more difficult for patent owners to "forum shop" for jurisdictions perceived to be advantageous to plaintiffs.

Oral Argument

Oral argument was held on March 11, 2016. According to observers, the Federal Circuit panel appeared to treat TC Heartland's arguments with skepticism. Indeed, Judge Moore reportedly stated, "Boy, doesn't this feel like something the legislature should do?" In addition, the panel indicated that, even if it were so inclined to overturn its precedent in VE Holding, it could only be done by the full 12-judge en banc panel of the Federal Circuit. The panel's decision is pending.

On March 17, 2016, U.S. Senator Jeff Flake (R-Az) introduced a U.S. Senate Bill entitled the "Venue Equity and Non-Uniformity Elimination Act of 2016"—that would strike the current patent venue statute (28 U.S.C. §1400(b)), and would largely restrict patent suits (including declaratory judgment actions) to jurisdictions: (1) where the defendant has its principal place of business or is incorporated; (2) where the defendant has committed an act of infringement and a regular established physical facility that gives rise to the act of infringement; or (3) where an inventor of the patent-in-suit conducted research/development that lead to the claimed invention.

See here to read the Petition for Writ of Mandamus filed by TC Heartland LLC on October 23, 2015.

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Central District of California Courts Explore the Delicate Balance Between Intellectual Property and First Amendment Rights in Two Recent Rulings

Why it matters: Here, we highlight two recent Central District of California rulings on summary judgment that turn on an analysis which balances the conflict between First Amendment protections and intellectual property rights. In Twentieth Century Fox Television v. Empire Distribution Inc., the District Court relied on First Amendment grounds rather than a traditional "consumer confusion" trademark infringement analysis to grant summary judgment in favor of Twentieth Century Fox Television in connection with litigation over its use of "Empire" for the hit television series. In Tierney v. Moschino S.p.A., another District Court agreed with designer Moschino that its fashion line was protected activity under the First Amendment. However, the Court denied Moschino's anti-SLAPP motion because the plaintiff graffiti artist had demonstrated a probability of prevailing in his trademark and copyright infringement lawsuit against Moschino for incorporating the artist's mural into a dress worn by singer Katy Perry to the 2015 Met Gala. Read further for a recap of these recent rulings.

Detailed discussion: This article recaps two recent Central District of California rulings in connection with high-profile intellectual property disputes involving (i) the hit television series "Empire," and (ii) a dress worn by singer Katy Perry to the Met Gala ball in 2015. Both rulings rely upon an analysis that balanced First Amendment free speech concerns with intellectual property rights.

Twentieth Century Fox Television et al. v. Empire Distribution Inc.: On February 1, 2016, Judge Percy Anderson granted summary judgment in favor of Twentieth Century Fox Television ("Fox") in connection with trademark infringement litigation with record label and music publishing company Empire Distribution Inc. ("Empire Distribution") over the use by Fox of "Empire" for its hit television series. In ruling in favor of Fox, Judge Anderson relied on the First Amendment rather than traditional trademark infringement analysis.

To briefly review the facts and procedural history of the case, Fox debuted its hit television series "Empire" on January 7, 2015 ("Empire Series"), which "tells the fictional story of a feuding entertainment industry family" fighting for control over the patriarch's music and entertainment company "Empire Enterprises." As such, music is "heavily featured" in the series, consisting of originally produced compositions that are then compiled onto soundtracks ("Empire Soundtracks") and marketed by Fox and its music partner Columbia Records. Defendant/counter-claimant Empire Distribution is described as "a record label, music distributor and publishing company that was founded in 2010" specializing in "urban, hip hop, and R&B music," which has released "multiple" platinum and gold records for well-known recording artists such as T.I., Snoop Dogg and Kendrick Lamar. The facts show that Empire Distribution uses the trademarks "Empire" and "Empire Recordings," among other derivations, as part of its business, and has trademark applications for the marks currently pending at the U.S. Trademark Office. In mid-2015, Empire Distribution sent Fox a "cease and desist" letter over its use of "Empire," claiming that it caused consumer confusion and assumed affiliation with Empire Distribution. After receipt of the letter, Fox filed suit for declaratory relief in the Central District. Empire Distribution responded by filing counterclaims against Fox for trademark infringement and dilution under the federal Lanham (Trademark) Act ("Lanham Act") as well as various state law claims. Fox moved for summary judgment on all claims, which Judge Anderson granted.

Fox had argued in its motion that summary judgment should be granted on two grounds, namely, (i) its use of "Empire" was protected by the First Amendment, and (ii) Empire Distribution failed to establish that there was a genuine issue of material fact as to consumer confusion under its trademark infringement claims. Judge Anderson stated at the outset that, as he found Fox's First Amendment argument to be compelling, he would not need to address the consumer confusion trademark infringement arguments.

Judge Anderson began his analysis by establishing that, while the "Lanham Act protects the public's right not to be misled as to the source of a product," Ninth Circuit precedent holds that a trademark owner is not allowed "to quash an unauthorized use of the mark by another who is communicating ideas or expressing points of view." Courts must thus interpret the Lanham Act to "'apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression.'" Judge Anderson said that in the controlling 2002 case of Mattel, Inc. v. MCA Records, Inc., the Ninth Circuit adopted the test set forth in the Second Circuit case of Rogers v. Grimaldi to "determine when trademark protection must give way to expressive speech protected by the First Amendment." Under the Rogers test, which Judge Anderson said applies "to uses of a trademarked term in both the title and the body of the work," the use of a trademark in an artistic work that would otherwise violate the Lanham Act is not actionable "'unless the use of the mark has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless it explicitly misleads as to the source or the content of the work'." Judge Anderson rejected Empire Distribution's request that he analyze the case in accordance with the traditional "likelihood of confusion" test for trademark infringement found in the 1979 Ninth Circuit case of AMF Inc. v. Sleekcraft Boats, stating unequivocally that the "only relevant legal framework for balancing the public's right to be free from consumer confusion against First Amendment rights is the Rogers test."

Judge Anderson also rejected Empire Distribution's argument that the Rogers test can only apply if the mark at issue has obtained a certain level of "cultural significance" to the public, stating that, under Ninth Circuit precedent, "the only threshold for applying the Rogers test is whether the allegedly infringing use is contained in an expressive work." In this case, the Judge found that "[b]oth the Empire Series and the Empire Soundtracks are clearly expressive works, and are therefore entitled to First Amendment protection if they satisfy the Rogers test."

Judge Anderson then applied the two prongs of the Rogers test to the facts of the case. Under the first prong, the use of a mark must be shown to have "artistic relevance to the underlying work," which, in the Ninth Circuit's opinion, requires a "level of relevance merely … above zero." The Judge found that Fox's use of "Empire" met this first test easily, and that even Empire Distribution conceded the point. Judge Anderson then went on to the second prong, which he said "requires a junior user to show that their work does not explicitly mislead as to the source or content of the work." Fox argued that the governing Ninth Circuit test for "explicitly misleading" should be whether there had been an "'explicit indication, overt claim, or explicit misstatement' as to the source of the work," and the Judge agreed. The Judge expressly rejected Empire Distribution's argument that consumer confusion is relevant to this analysis, and found that the second prong of the Rogers test had been met because "Fox has not explicitly misled consumers about its affiliation with Empire Distribution."

The Judge thus granted Fox Television's motion for summary judgment because it found Fox Television's use of "Empire" to be protected by the First Amendment under both prongs of the Rogers test, and that "Empire Distribution's only arguments against summary judgment require the Court to rewrite the Rogers test. The Court declines to do so." Empire Distribution has filed a motion for reconsideration, which is pending as of this writing.

Tierney v. Moschino S.p.A.: On January 13, 2016, Judge Stephen V. Wilson denied the "anti-SLAPP" motion to strike filed by Italian high-end clothing designer Moschino S.p.A. ("Moschino") and its creative director Jeremy Scott ("Scott") (collectively, the "Defendants") and allowed to proceed the trademark and copyright infringement lawsuit filed against them by "world-renowned" graffiti artist Joseph Tierney, a.k.a. "RIME" ("Tierney"). Tierney had filed his complaint in 2015 in connection with the unauthorized reproduction by the Defendants of Tierney's 2012 mural "Vandal Eyes" (painted on the side of a building in Detroit) and his tag "RIME" onto numerous dresses they designed for their 2015 Fall/Winter collection, one of which was worn by singer Katy Perry to the 2015 Met Gala ball. Tierney alleged in his complaint that "[f]ollowing the Met Gala, the Defendants' collection bearing Tierney's graffiti garnered immense publicity through various news and pop culture channels (e.g., the New York Times, CNN, Vogue, Vanity Fair, People, Us Weekly) and was viewed extensively on social media." As a result of this publicity surrounding the dress, Tierney alleged that the Defendants enjoyed "increased revenues" at the expense of Tierney's "street cred" and reputation in the art world.

After denying the separate motions to dismiss brought by Moschino and Scott because he found that Tierney had successfully pled causes of action for trademark and copyright infringement, as well as various state law claims (right of publicity, unfair competition, etc.), Judge Wilson turned to the motion to strike filed by the Defendants under California's Strategic Lawsuit Against Public Participation ("anti-SLAPP") statute, which was enacted to allow pretrial dismissal of strategic litigation aimed primarily at chilling the exercise of First Amendment rights.

Judge Wilson began by reviewing the "two-part inquiry" that must be made in order for the Defendants' anti-SLAPP motion to succeed: "First, Defendants must make a threshold showing that the challenged causes of action arise from protected activity. If this showing is made, then the burden shifts to Tierney to demonstrate a probability of prevailing on the contested claims." Judge Wilson found that the Defendants satisfied the "low threshold showing" under the first part of this inquiry because their fashion line constituted creative activity and speech "intended to convey a message" in the public interest and was thus protected by the First Amendment. Judge Wilson pointed out that, although the Defendants could not cite to any specific case law precedent finding that fashion is a "creative activity" protected under the anti-SLAPP statute, California courts have broadly construed what constitutes creative work for these purposes and "fashion has been acknowledged as a form of First Amendment activity in other contexts." Judge Wilson further found that Defendants' fashion line was an issue of public interest because "Jeremy Scott and Moschino are household names in high fashion."

Judge Wilson next turned to the second part of the inquiry, whether Tierney sufficiently demonstrated a probability of success on the merits of his state law claims that would outweigh the Defendants' First Amendment rights in this instance. The Judge found that Tierney had done so, and denied the Defendants' anti-SLAPP motion. The Judge noted that, not only had he previously denied the Defendants' motions to dismiss because he found that Tierney had adequately pled the causes of action in his complaint, but "at this early stage of the case … the Court cannot find as a matter of law that Defendants' use of 'RIME' was not explicitly misleading or would not lead to a likelihood of confusion."

See here to read the 2/1/16 order in Twentieth Century Fox Television et al. v. Empire Distribution Inc.

See here to read the 1/13/16 order in Tierney v. Moschino S.p.A.

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The Federal Circuit Rules, En Banc, That Patents Are Not "Exhausted" by Foreign or Single-Use Sales

Why it matters: The Federal Circuit has long held that sales of patented products outside the United States, as well as sales of patented products to end users in the United States that are accompanied by a lawful single-use/no-resale restriction, do not give rise to patent exhaustion. However, some have questioned the continued validity of these holdings in light of recent decisions by the U.S. Supreme Court. An en banc panel of the Federal Circuit, in Lexmark International, Inc. v. Impression Products, Inc., has confirmed that its prior precedent concerning the uncodified doctrine of patent exhaustion has not been overruled—at least when the patented products are sold by the patent owner.

Detailed discussion: On February 12, 2016, an en banc panel of the Federal Circuit in Lexmark International, Inc. v. Impression Products, Inc. held that Lexmark's patent rights were not "exhausted" by: (1) foreign sales of its patented toner cartridges; or (2) domestic sales of its patented toner cartridges that were subject to an express single-use/no-resale restriction. The panel rejected arguments that long-established Federal Circuit precedent concerning the doctrine of patent exhaustion had been overturned by more recent U.S. Supreme Court decisions.

Patent Exhaustion

The doctrine of patent exhaustion (otherwise known as the patent "first sale" doctrine) addresses the circumstances under which a sale of a patented article (or an article sufficiently embodying the patent), by the patentee (or authorized by the patentee), confers on the buyer the "authority" to engage in acts involving the article (such as resale) that are infringing acts in the absence of such authority.

Factual Background

Lexmark makes and sells printers and toner cartridges for its printers (cartridges that are covered by several Lexmark patents). Some of the cartridges at issue were first sold by Lexmark outside the United States. Others were sold domestically, but at a discount and subject to an express single-use/no-resale restriction. Impression later acquired the cartridges at issue, had a third party physically modify those cartridges subject to the restriction, and resold the patented Lexmark cartridges in the United States (or imported them into the United States for resale). Impression's actions therefore constituted patent infringement—unless Lexmark's initial sale of the cartridges triggered the doctrine of patent exhaustion (or some other defense, such as an implied license).

Procedural Background

The lower (district) court granted Impression's motion to dismiss with respect to the Lexmark cartridges first sold in the United States, but found in favor of Lexmark with respect to the cartridges it had sold abroad. Both parties appealed, where the Federal Circuit, sua sponte, requested en banc review of the following two questions:

1. The case involves certain sales, made abroad, of articles patented in the United States. In light of Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2012), should this court overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), to the extent it ruled that a sale of a patented item outside the United States never gives rise to United States patent exhaustion?

2. The case involves…sales of patented articles to end users under a restriction that they use the articles once and then return them… In light of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion?

The First Question (Sales Made Outside the United States)

With respect to the first question, the en banc panel declined to overturn Jazz Photo, a case holding that "a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority." In so doing, the Federal Circuit distinguished the Supreme Court's 2012 Kirtsaeng opinion, stating that Kirtsaeng addressed the "first sale" doctrine codified in the Copyright Act (17 U.S.C. §109(a)), and did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise-infringing domestic acts.

The Second Question (Sales Made Pursuant to a Restriction)

The Federal Circuit also affirmed its prior decision in Mallinckrodt—that a patentee, when selling a patented article subject to a resale/use restriction that is lawful and clearly communicated to the purchaser, does not (by that sale) give the buyer, or a downstream buyer, the resale/reuse authority that has been expressly denied. The en banc panel stated that Mallinckrodt's principle remained sound, even after the Supreme Court's decision in Quanta Computer, in which the Court did not have before it (or address) a sale by a patentee (let alone one made subject to a restriction), but instead addressed a situation where the sale was made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.

On March 21, 2016, Impression filed a petition for writ of certiorari with the Supreme Court.

See here to read the 2/12/16 en banc Federal Circuit opinion in Lexmark International, Inc. v. Impression Products, Inc.

See here to read the Federal Circuit's 4/14/15 order entitled "Sua Sponte Hearing En Banc."

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In Brief—Updates and Interesting Items of Note

A. Updates to Prior Articles:

  • January 26, 2016: Limelight Networks, Inc. filed a petition for a writ of certiorari with the U.S. Supreme Court, asking it to review the Federal Circuit's en banc opinion holding that a defendant may be held liable for directly infringing a method claim based on the collective performance of its steps by multiple independent parties (under certain expanded conditions). We reported on the Federal Circuit's en banc decision in our December 2015 newsletter under "Eye on the Courts." See Akamai Technologies, Inc. v. Limelight Networks, Inc.
  • January 22, 2016: The Bilski Blog updated its post-Alice federal court statistics concerning 35 U.S.C. §101 (patentable invention) invalidations through December 31, 2015. Nationwide, claims were invalidated in 150 out of 208 decisions (72%). Of these, district courts invalidated claims in 128 out of 185 decisions (69.2%), and the Federal Circuit upheld Section 101 invalidations in 22 out of 23 decisions (95.7%). We reported on this issue in our December 2015 article, entitled "Down the Rabbit Hole: Trends in Software Patent Court Decisions Post-Alice."
  • January 21, 2016: J. Carl Cooper and eCharge Licensing LLC filed a petition for a writ of certiorari with the U.S. Supreme Court, asking it to analyze the constitutional validity of new post-grant patent proceedings (e.g., inter partes review). Specifically, the Petitioners argue these proceedings violate Article III Separation of Powers principles by allowing an executive agency to invalidate issued patent claims, including those owned by parties embroiled in infringement disputes pending in federal court. The Petitioners also suggest the Supreme Court might address these "larger [constitutional] issues" at the same time it reviews statutory and discretionary matters related to post-grant proceedings in Cuozzo Speed Technologies, LLC v. Lee (cert. granted January 15, 2016). We reported on the Cooper case in our December 2015 article entitled "On the Watch List: Federal Circuit Rejects Constitutional Challenge to IPRs in MCM Portfolio v. Hewlett-Packard Co." See Cooper v. Lee.

B. Interesting Items of Note:

  • March 7, 2016: The Federal Circuit, in a case of first impression, recognized (in a split decision) a patent agent privilege to protect communications between those agents registered to practice before the Patent Office and their clients. However, the scope of the privilege is limited, and excludes communications that are not "reasonably necessary and incident to the prosecution of patents before the Patent Office." For example, the opinion states that communications with a patent agent who is offering an opinion on the validity of another party's patent in contemplation of litigation or for the sale/purchase of a patent, or on infringement, are not protected. Previously, district courts were split on the issue of an independent patent agent privilege, but generally agreed that communications with a patent agent working under an attorney's supervision were protected. See In re Queen's University at Kingston.
  • February 17, 2016: Carnegie Mellon University and Marvell Technology Group Ltd. announced a $750 million settlement—ending the university's long-running patent infringement lawsuit (filed in 2009) related to hard drive technology. The accord follows in the wake of a Federal Circuit decision finding that the $1.17 billion in damages awarded by a Pittsburgh jury (increased to $1.54 billion by U.S. District Judge Nora Barry Fischer to reflect Marvell's alleged willful infringement, plus interest) should be significantly reduced, but that Marvell must still pay at least $278.4 million in damages (a royalty of $0.50 per chip imported into the United States) plus any damages resulting from additional chips not imported into the United States (but ultimately the subject of a domestic "sale"). According to Carnegie Mellon, the proceeds of the settlement will be divided between the inventors and the university.
  • February 10, 2016: Former San Diego Chargers and Buffalo Bills linebacker Shawne Merriman settled his trademark infringement and unfair competition dispute with Nike, Inc. Merriman's Lights Out Holdings LLC had filed suit in April of 2014, alleging that the athletic apparel giant was improperly using "Lights Out" (a mark obtained by Merriman from a prior registrant in 2007) without his permission.
  • January 6, 2016: U.S. District Judge William H. Orrick, III ruled that non-human animals cannot be "authors," and thus lack standing to sue under the Copyright Act. The decision arose from a suit filed by People for the Ethical Treatment of Animals (PETA), which sought to represent Naruto (a crested macaque) in seeking ownership rights in a self-portrait (i.e., a "selfie") the animal took in 2011 on the Indonesian island of Sulawesi with a camera owned by the defendant, photographer David Slater. While Slater owns a British copyright for the photograph, that he asserts should be honored worldwide, the U.S. Copyright Office has taken the position that "a photograph taken by a monkey" cannot be copyrighted.

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