Defend Trade Secrets Act of 2016: An Overview
Why it matters: The Defend Trade Secrets Act of 2016 (DTSA) was signed into law on May 11, 2016 and gives trade secret owners a federal cause of action for injunctive relief and monetary damages for the misappropriation of trade secrets, while also providing employee protections. In a rare bipartisan showing, the DTSA cleared the Senate via unanimous vote on April 4, 2016 and was nearly unanimously approved by the House (410-2) on April 27, 2016. An overview of the DTSA and what it means for you is provided here.
The DTSA—What it Does
The DTSA amended the Economic Espionage Act (EEA) found at 18 U.S.C. Chapter 90 (Protection of Trade Secrets) to provide federal jurisdiction for the misappropriation of trade secrets and to create a federal claim and standard for trade secret misappropriation. Prior to the DTSA, trade secret misappropriation was governed primarily by state-adopted variants of the Uniform Trade Secrets Act (UTSA) in 47 states and by common law in New York, Massachusetts, and North Carolina, where the UTSA was never adopted. The DTSA does not preempt these state laws, but rather provides an additional federal cause of action for trade secret misappropriation with remedies including injunctive relief or reasonable royalties for ongoing infringement, ex parte seizure, increased monetary awards, along with treble damages and attorneys’ fees for willful or malicious misappropriation. To balance the interests of employees, the DTSA expressly forbids injunctions preventing employment and protects individuals who divulge trade secrets while reporting violations of the law or in court filings made under seal.
Private civil actions/federal jurisdiction: The DTSA replaced 18 U.S.C. § 1836(b) of the EEA with a provision entitled “Private Civil Actions,” and the replacement section protects trade secrets relating to interstate and foreign commerce.
Under the new section, and in “extraordinary circumstances,” the court may issue an order for ex parte property seizure to prevent dissemination of a misappropriated trade secret. In addition, the DTSA authorizes any or all of the following remedies:
- Injunctive relief available to prevent actual or threatened misappropriation. However, any conditions placed on employment must be “based on evidence of threatened misappropriation and not merely on the information the person knows” and are subject to state laws prohibiting restraints on “profession, trade, or business.” When injunctive relief would be inequitable, the court may instead impose a reasonable royalty.
- Monetary awards equal to damages for both actual loss and unjust enrichment (if not properly compensated through actual loss) are provided for. Alternatively, the court may impose a reasonable royalty.
- Exemplary damages of up to twice the monetary damages, if the misappropriation was willful or malicious are also available.
- “Reasonable” attorney fees in the event of bad faith from either party or of willful and malicious misappropriation can also be recovered.
Employee protections: A provision to Section 1833 protects individuals from both criminal and civil liability under federal and state laws for disclosing a trade secret confidentially to a government official or the employee’s attorney, or in a sealed complaint or other court document in connection with anti-retaliation lawsuits or reporting or investigating a suspected violation of law. As drafted, the anti-retaliation immunity is specific to court proceedings and thus is not facially applicable to non-court proceedings such EEOC hearings or arbitration, where many employment disputes begin.
Additionally, employers that fail to provide notice of the above immunities are barred from collecting exemplary damages or attorney’s fees. The notice provision applies to all contracts and agreements entered into or updated after the May 11 enactment of the DTSA.
What it means for you: The DTSA provides an additional important tool to protect trade secret information in the digital age. Employers should consider the DTSA at both the beginning and end of any relationship concerning confidential information, and should reference the DTSA immunity requirements in all new, updated, or amended documents regarding intellectual property and confidentiality.
back to top
Supreme Court Hears IP Double Header—Oral Arguments in “Cuozzo” and “Kirtsaeng”
Why it matters: On April 25, 2015, the U.S. Supreme Court held hearings on two IP cases, Cuozzo Speed Technologies v. Lee and Kirtsaeng v. John Wiley & Sons. In Cuozzo, the issues before the Court were whether the Broadest Reasonable Interpretation (BRI) standard for claim construction is proper in inter partes review (IPR) proceedings before the Patent Trial and Appeal Board (PTAB) and whether the PTAB’s decision to institute an IPR is subject to judicial review. The issue in Kirtsaeng was the appropriate standard for awarding attorney fees to the prevailing party in copyright infringement cases. Recaps of the oral arguments are provided here.
Detailed discussion (Cuozzo): On April 25, 2016, the United States Supreme Court heard oral argument in Cuozzo Speed Technologies v. Lee to determine two very distinct issues: whether (1) the “broadest reasonable interpretation” or the Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) “ordinary and customary” meaning standard used by the district courts should be applied in inter partes review (IPR) proceedings, and (2) PTAB determinations on whether to institute an IPR proceeding is subject to judicial review.
Procedural history: See our discussion of the Cuozzo case and the Court’s grant of certiorari in our February 2016 newsletter for more detail, but to briefly review, Garmin International, Inc. and Garmin USA, Inc. (collectively, Garmin) filed an IPR petition challenging three claims of a navigational patent held by Cuozzo, and the PTAB instituted an IPR proceeding. Cuozzo later claimed this institution decision exceeded the scope of the PTAB’s authority, improperly considering extraneous facts and evidence not raised in Garmin’s IPR petition. The PTAB, applying a broadest reasonable interpretation to the phrase “integrally attached” invalidated Cuozzo’s patent claims as obvious. Cuozzo appealed to the Federal Circuit, and although Cuozzo and Garmin settled their dispute, the U.S. Patent and Trademark Office (PTO) intervened to defend the PTAB’s decision. In February 2015, the Federal Circuit (with one judge dissenting) affirmed, holding (1) the PTAB properly applied the broadest reasonable interpretation standard and (2) the PTAB’s decision to institute was not subject to judicial review, regardless of whether the PTAB exceeded its authority. The Federal Circuit denied en banc review with a 6-5 vote, and Cuozzo filed a Petition for a Writ of Certiorari to the U.S. Supreme Court in October 2015.
Claim construction standards: Although federal courts and the International Trade Commission apply the ordinary and customary meaning standard in construing claims, according to the Federal Circuit’s guidance in Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005), the PTO uses a broadest reasonable interpretation (BRI) standard in patent examination and post grant invalidity proceedings. Cuozzo argued that the BRI construction is appropriate only in proceedings allowing “a broad ability to amend the claims,” differentiating the “extremely limited” and “almost always denied” motion to amend available in IPR proceedings. The PTO responded that Congress was aware of the Patent and Trademark Office’s consistent use of the BRI standard, and the statute’s silence on proper construction tacitly accepted the PTO’s construction standard in IPR proceedings. The application of different standards in parallel proceedings may lead to different results, such that a judicially upheld patent is invalidated in a parallel or later proceeding by the PTAB.
Oral argument: Because the AIA is silent on the proper claims construction standard in IPR proceedings, much of the oral argument focused on legislative intent. Some of the arguments and comments by the Justices during hearing on this issue are provided below.
- Cuozzo argued that Congress’ intent was “to substitute and provide a district court-like litigation for the determination of patentability,” and—by doing so—to have the PTAB apply same claim construction standard used by the district courts. Justice Elena Kagan, however, suggested that because the PTO “does pretty much everything by this broadest-construction standard,” one might infer Congress intended the PTAB to apply the PTO’s usual BRI standard. In response, Cuozzo focused on the similarities between district court and IPR proceedings as justification for adopting the standard used in district court.
- Cuozzo argued that application of the BRI standard has resulted in an alarming rate of patent invalidation, inconsistent with the intent of the law. In response, Justice Stephen Breyer asked if the statistics might properly reflect Congress’ intent to correct for patent trolls and “the Patent Office issuing billions of patents that shouldn’t have been issued.” Justice Breyer continued, asking if the purpose of IPR proceedings may be to expeditiously allow a single opportunity to amend and then—applying the BRI—decide if the patent should have ever been issued.
- With respect to the argument that the BRI standard is justified in view of the right of a patent owner to amend its claims, Justice John Roberts indicated discomfort with this justification in view of the limitation on such amendments. Justice Roberts went on to state that “it’s a very extraordinary animal in legal culture to have two different proceedings addressing the same question that lead to different results.” and “I’m sorry. It just seems to me that that’s a bizarre way to … decide a legal question.” Chief Justice Roberts further compared the current system to an appeal from a district court judgment to an administrative agency and expressed his doubt that the present system represents improved judicial efficiency.
Judicial review: 35 U.S.C. § 314 states that “[t]he determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” The Patent Office has applied this statute strictly, taking the position that no appeal is permissible, while the petitioner argues that an improperly instituted IPR should be subject to appellate review.
Each side presented a brief argument and responded to questions. Petitioner argued that the language of the statute only bars appeals of decisions not to institute and interlocutory petitions for mandamus. The Patent Office, in response to pointed questions from Justice Ruth Bader Ginsburg and Justice Sonya Sotomayor, argued that even an IPR instituted in violation of the statute is never appealable, but left open the possibility of mandamus review.
Detailed discussion (Kirstaeng): On April 25, 2016, the United States Supreme Court heard oral argument in Kirtsaeng v. John Wiley & Sons to review the proper legal standard to be applied in awarding attorney fees to prevailing parties in copyright infringement lawsuits. The Court’s decision may resolve a split among the U.S. Circuit Courts of Appeal.
Procedural history: We discussed the grant of certiorari and procedural history of the Kirtsaeng case in our April 2016 newsletter, but to briefly review, this is a return trip to the Supreme Court for these parties. In 2013, the Court reversed the Second Circuit Court of Appeals, holding that, as a result of the first sale doctrine, Kirtsaeng did not infringe textbook copyrights when he imported cheaper international textbooks for sale in the United States. The Supreme Court is reviewing the denial of Kirtsaeng’s request to recover attorney fees.
Circuit split: The circuits are split on the issue of when to award fees under Section 505 of the Copyright Act (17 U.S.C. § 505). Kirtsaeng argued in his cert petition that the Second Circuit improperly upheld the district court’s denial of attorney fees applying the Matthew Bender standard, which Kirtsaeng contends overly relies on the objective reasonableness of the defendant’s defense. In furtherance of his position, Kirtsaeng argued that 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 factors from the Supreme Court’s 1994 Fogerty v. Fantasy, Inc. decision (i.e., frivolousness, motivation, objective unreasonableness, and considerations of compensation and deterrence).
Oral argument: At oral argument, Kirtsaeng maintained the position that the Matthew Bender standard improperly focuses on a single factor—the objective unreasonableness of the losing party’s claim and that such a singular focus all but ensures a denial of attorney fees because the “objective unreasonableness” bar is very low and has not resulted in a single award of attorney fees in 15 years. In contrast, the standard adopted by the Ninth and Eleventh Circuits, argued Kirtsaeng, is more appropriate because it allows a district court discretion in awarding attorney fees if the suit “furthered the interests of the Copyright Act” such that defendants seeking to advance meritorious copyright defenses should be encouraged to litigate by allowing recovery of attorney fees. Justice Elena Kagan and Justice Ruth Bader Ginsburg, however, each expressed concern with such an approach in view of the potential deterrent effect it may have on litigants.
On the whole, the Justices appeared to have concerns regarding adopting the more liberal and potentially vague and unpredictable standard proposed by Kirtsaeng and yet also appeared somewhat uncomfortable with the rigidity of the objective reasonableness standard, argued for by John Wiley & Sons. Notably, Assistant to the Solicitor General of the United States, Elaine Goldberg, appeared in support of John Wiley & Sons’ position. Ms. Goldberg argued that the more liberal standard for awarding attorney fees could make pro bono services more difficult to provide to “starving artists” and in an effort to subdue concerns that the standard was one-sided in application also presented statistics attributing the disparity between plaintiff and defendant fee awards to unopposed default and declaratory judgments.
See here to read the transcript of the oral argument before the Supreme Court in Cuozzo Speed Technologies v. Lee and here to read the oral argument before the Supreme Court in Kirtsaeng v. John Wiley & Sons.
See here to read Ronald Mann, Argument analysis: Justices struggle to read “tea leaves” in Congress’s slipshod drafting of Patent Act provisions for inter partes review, SCOTUSblog (4/26/16); and here to read Ronald Mann, Argument analysis: Justices worry about amorphous standards for fee awards in copyright cases, SCOTUSblog (4/26/16).
For more on this subject, see here to read the article in Manatt’s 2/16 newsletter entitled “On the Watch List.—Supreme Court Agrees to Hear Challenge to the PTAB’s Claims Construction Standard and IPR Institution Decisions; and here to read the article in Manatt’s 4/16 newsletter entitled “The Supreme Court Agrees to Review the Standard for Awarding Attorneys’ Fees to a Prevailing Party in Copyright Infringement Suits.”
back to top
PTO: New PTAB and Proposed TTAB Rules of Practice
Why it matters: On March 31, 2016, the U.S. Patent and Trademark Office (PTO) announced that previously-announced amendments to the Patent Trial and Appeal Board’s (PTAB) rules of practice had been finalized and would go into effect on May 2, 2016. On April 4, 2016, the PTO also published for comment proposed amendments to the Trademark Trial and Appeal Board (TTAB) rules of practice. Both sets of amendments are part of the PTO’s ongoing efforts to improve the rules covering trial practice before the respective two tribunals. Read on for a recap of the new PTAB and proposed TTAB rules of practice.
Detailed discussion: Following is a recap of the PTO’s new PTAB and proposed TTAB rules of practice.
The new PTAB rules of practice went into effect on May 2, 2016, taking into account the substantial comments received during the comment period following initial publication on August 20, 2015 (we reviewed the proposed amendments in our December 2015 newsletter). Deputy Director Slifer commented that “[a]s hard as we worked on our initial roll-out of these proceedings, we never assumed that our rules would be perfect at the outset. We anticipated having to revisit some of the guidelines and making refinements along the way.”
The new rules:
- Allow patent owners to include, with their opposition to a petition to institute a proceeding, any relevant testimonial evidence (this change addressed concerns that patent owners were disadvantaged by previous rules that limited the evidence that could be presented with their preliminary response to the petition);
- Add a Rule 11-type “duty of candor” certification for papers filed in a proceeding;
- Clarify that the PTAB will use the plain and ordinary meaning claim construction standard used by district courts for patents that will expire during a proceeding and therefore, cannot be amended, while confirming the use of broadest reasonable interpretation (BRI) for all other patent matters*; and
- Replace the current page limit with a word count limit for major briefings.
* This new rule may change depending on the outcome of the Supreme Court’s pending decision in Cuozzo Speed Technologies v. Lee. See our article covering the Cuozzo oral argument in this issue.
Deputy Director Slifer said that the PTAB’s Patent Trial Practice Guide will be amended to reflect these new rules of practice. Deputy Director Slifer also indicated that the PTO would abandon its proposal to allow a single judge to institute post-grant review trials due to the overwhelmingly negative response.
On April 4, 2016, the PTO published proposed amendments to the TTAB rules of practice in the Federal Register and is requesting practitioner comments through June 3, 2016. Notably, the proposed amendments:
- require that all filings in TTAB proceedings be made electronically;
- shift the responsibility of serving notices of opposition and petitions for cancellation to the TTAB;
- require that service of papers between parties be by email with the consequent deletion of the 5-days-for-mailing extended response period;
- impose a limitation on the number of allowable document and admission requests (to 75 each);
- require that all discovery be completed by the close of the discovery period; and
- provide the option to submit testimony by declaration or affidavit, subject to cross-examination.
The amendments are intended to “reduce the burden on the parties, to conform the rules to current practice, to update references that have changed, to reflect technologic changes, …to ensure the usage of standard, current terminology [and to] further strategic objectives of the Office to increase the end-to-end electronic processing.”
See here to read the final “Amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board” published in the Federal Register on 4/1/16 and here to read the Director’s Forum blog post entitled “PTAB Issues Final Rules for Improved Proceedings.”
See here to read the text of the proposed TTAB rule amendments entitled “Miscellaneous Changes to Trademark Trial and Appeal Board Rules of Practice” published in the Federal Register on 4/4/16.
back to top
Eye on the Courts—Federal Circuit Edition
Why it matters: Notable Federal Circuit decisions include:
- On April 29, 2016, the Court handed down its much-anticipated decision in TC Heartland, declining to establish stricter venue rules for patent cases.
- On March 31, 2016, the Court denied rehearing en banc of its controversial ClearCorrect ruling that the International Trade Commission has no authority to regulate electronically transmitted digital files because they do not constitute physical “articles” imported under the Tariff Act of 1930.
- On March 23, 2016, the Court affirmed MAG Aerospace, finding that by hiring the original inventor of a patent, the accused infringer was estopped from challenging the patent’s validity.
Read on for a recap.
Detailed discussion (In re TC Heartland, LLC)
On April 29, 2016, the Federal Circuit issued its unanimous decision in In re TC Heartland, LLC, declining to establish stricter venue rules for patent cases and leaving existing venue selection jurisprudence intact. The opinion is considered a win for patent plaintiffs, including so-called patent trolls and non-practicing entities. The Court’s decision was anticipated after the panel indicated venue matters should be left to Congress, and en banc review would be required to overturn precedent. Ultimately, this issue may be destined for the Supreme Court.
Procedural History: We covered the TC Heartland case our April 2016 newsletter, but briefly, Kraft Food Group Brands LLC, a Delaware limited liability company (Kraft), sued TC Heartland, LLC, an Indiana limited liability company (Heartland), for patent infringement in the District of Delaware. Heartland moved to transfer the case to the Southern District of Indiana because 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 Heartland in Indiana. The District of Delaware denied the motion, which led to Heartland’s petition for writ of mandamus with the Federal Circuit and the present decision.
Existing statutory scheme and Federal Circuit 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, a general venue statute, provides that if an entity (e.g., a corporation) is a defendant in a civil lawsuit, that entity “resides” in any judicial district in which it is subject to the court’s personal jurisdiction with respect to the civil action in question. As a result, patent plaintiffs may generally sue corporate defendants in any district where they can establish personal jurisdiction.
For many years, U.S. Supreme Court precedent in 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, Congress’ 1988 addition of “[f]or purposes of venue under this chapter…” to the beginning of 28 U.S.C. § 1391(c), and the 1990 Federal Circuit 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). TC Heartland unsuccessfully argued the 2011 amendments to 28 U.S.C. § 1391 overruled VE Holding and restricts a corporation’s residence to its place of incorporation.
The Federal Circuit’s decision: In its mandamus petition and in oral argument before the Federal Circuit on March 11, 2016, Heartland argued that VE Holding was overruled by the 2011 amendments to 28 U.S.C. § 1391. Heartland also argued the en banc Federal Circuit should review the VE Holding. In response, Kraft argued the new statutory language is at least as broad as the 1988 language, and that 28 U.S.C. § 1400(b) does not conflict with Section 1391 and, thus, does not satisfy the “otherwise provide” provision required in the new 28 U.S.C. § 1391(a).
In the April 29, 2016 unanimous opinion (Judge Kimberly A. Moore writing for the majority), the Federal Circuit denied Heartland’s mandamus petition. The Court found Heartland’s argument that Congress codified the Supreme Court’s Fourco Glass decision in the 2011 amendments to 28 U.S.C. § 1391(c), thereby nullifying the Federal Circuit’s decision in VE Holding, to be “utterly without merit or logic.” Additionally, the Court proclaimed its 1994 Beverly Hills Fan Co. v. Royal Sovereign Corp. to be controlling precedent. In that case, the Court held that the “sufficient minimum contacts with forum” prong of the due process requirement was met where a non-resident defendant purposefully shipped accused products into the forum through an established distribution channel. The Court concluded that “Heartland’s arguments are foreclosed by our long standing precedent” and Heartland “has thus failed to show that its right to mandamus is clear and indisputable.”
Detailed discussion (ClearCorrect Operating, LLC v. International Trade Commission)
On March 31, 2016, the Federal Circuit denied en banc rehearing of its November 10, 2015 decision reversing the International Trade Commission (ITC) ruling that it had the authority to regulate electronically transmitted digital files (in this case dental imaging files) on the basis that such digital files are not “articles” that are imported as required by the governing Tariff Act of 1930.
Procedural history: Align Technology, Inc. (Align), an orthodontic appliance manufacturer, filed a complaint with the ITC against ClearCorrect Operating, LLC and its subsidiary ClearCorrect Pakistan (collectively ClearCorrect) for infringement of seven patents covering Align’s “aligners.” ClearCorrect “scans physical models of the patient’s teeth and creates a digital recreation of the patient’s initial tooth arrangement,” electronically transmits the digital recreations to its Pakistani subsidiary that, in turn generates “digital data models of intermediate tooth positions” and electronically transmits those models back to ClearCorrect in the United States. ClearCorrect then creates physical plastic models of the aligners in the U.S. according to the digital data models.
Align alleged before the ITC that ClearCorrect violated Section 337 of the Tariff Act of 1930 (§ 337) by unlawfully importing patent-infringing articles into the U.S. In May 2013, an ITC administrative law judge found that the ITC had authority to regulate ClearCorrect’s electronic transmissions and ordered ClearCorrect to cease and desist. In April 2014, the ITC upheld the initial determination of the administrative law judge in all respects. A number of organizations, including The Association of American Publishers and The Motion Picture Association of America, submitted amicus briefs in support of the ITC’s authority to regulate the “importation” of electronic transmissions. Both parties appealed to the Federal Circuit.
The Federal Circuit’s decision: On November 10, 2015, the Federal Circuit (majority opinion written by Chief Judge Sharon Prost with one concurrence and one dissent) reversed the ITC’s decision and remanded, finding that the ITC did not have jurisdiction over the case. After conducting a Chevron analysis used to determine if deference should be given to the government agency’s expertise, the Court held that that “the literal text [of Section 337] by itself, when viewed in context and with an eye towards the statutory scheme, is clear and thus answers the question at hand. ‘Articles’ [as used in Section 337] is defined as ‘material things,’ and thus does not extend to electronic transmission of digital data.” The Court indicated that only Congress, and not the courts, could expand Section 337 to include non-physical digital data.
Judge Pauline Newman dissented, opining that today’s culture is founded on:
[A]dvances in science and technology [and that] [t]he new technologies of the Information Age focus on computer-implemented methods and systems, whose applications of digital science provide benefits and conveniences not imagined in 1922 and 1930. Throughout this evolution, Section 337 served its statutory purpose of facilitating remedy against unfair competition, by providing for exclusion of imports that infringe United States intellectual property rights. Until today. The court today removes Section 337 protection from importations that are conducted by electronic transmission… The holding is contrary to Section 337, and conflicts with rulings of the Supreme Court, the Federal Circuit, the Court of Customs and Patent Appeals, the Court of International Trade, the International Trade Commission, the Customs authorities, and the Department of Labor.
On March 31, 2016, a 12-judge panel of the Federal Circuit decided 11-1 to perfunctorily deny rehearing en banc with no explanation. Three of the judges wrote a concurring opinion, while Judge Newman again provided the sole dissent.
Detailed discussion (MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc.)
On March 23, 2016, the Federal Circuit unanimously affirmed a Central District of California ruling that assignor estoppel barred accused infringer B/E Aerospace, Inc. (B/E) from challenging the validity of plaintiff MAG Aerospace Industries, Inc.’s (MAG) asserted patents because B/E employed the original inventor named in those patents.
Procedural history: The patents at issue relate to the “quick repair of vacuum toilets such as those used in commercial airlines.” Each of the inventors assigned their rights in the asserted patents to their employer, who in turn assigned the patents to MAG. One of the inventors is currently employed with B/E, producing a competing product. In 2013, MAG sued B/E in the Central District of California, alleging direct and indirect infringement of the asserted patents, and B/E countersued on the basis of non-infringement and invalidity. MAG asserted the affirmative defense of assignor estoppel, and in December 2014, B/E moved for summary judgment of its non-infringement claims, and MAG moved for summary judgment of no invalidity on the basis of assignor estoppel. In January 2015, the Central District of California granted both motions for summary judgment, and both parties appealed to the Federal Circuit. While the Federal Circuit affirmed the grant of both summary judgment motions, the focus here is on the assignor estoppel issue.
The Federal Circuit’s decision: The Federal Circuit (majority opinion written by Chief Judge Prost) began by defining assignor estoppel as “an equitable remedy that prohibits an assignor of a patent, or one in privity with an assignor, from attacking the validity of that patent when he is sued for infringement by the assignee.” On the subject of privity, the Court quoted the Federal Circuit’s 1990 Shamrock Techs., Inc. v. Med. Sterilization, Inc. decision, explaining “‘[p]rivity, like the doctrine of assignor estoppel itself, is determined upon a balance of the equities.’”
The Court noted that the district court based its finding of privity in the underlying case on an analysis of the facts in conjunction with the eight factors identified in Shamrock Technologies: “(1) the assignor’s leadership role at the new employer; (2) the assignor’s ownership stake in the defendant company; (3) whether the defendant company changed course from manufacturing non-infringing goods to infringing activity after the inventor was hired; (4) the assignor’s role in the infringing activities; (5) whether the inventor was hired to start the infringing operations; (6) whether the decision to manufacture the infringing product was made partly by the inventor; (7) whether the defendant company began manufacturing the accused product shortly after hiring the assignor; and (8) whether the inventor was in charge of the infringing operation.” The district court properly considered the balance of factors in determining that B/E was in privity with the original inventor thus estopped.
Because the district court’s finding of privity was neither clearly erroneous nor an abuse of discretion, the Federal Circuit affirmed.
See here to read the Federal Circuit’s 4/29/16 opinion in In re TC Heartland, LLC. and here to read our article about the case in Manatt’s April 2016 newsletter entitled “On the Watch List: Federal Circuit to Decide Patent Venue Case.”
See here to read the Federal Circuit’s 3/31/16 denial of rehearing en banc and here to read the Federal Circuit’s 11/10/16 opinion in ClearCorrect Operating, LLC v. International Trade Commission.
See here to read the Federal Circuit’s 3/23/16 opinion in MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc.
back to top
Supreme Court Asked to Weigh-In on “Disparaging” Trademarks Issue
Why it matters: In our February 2016 newsletter, we reported the Federal Circuit’s December 2015 en banc ruling in In Re Simon Shiao Tam that Section 2(a) of the Lanham Act—which bars the Patent and Trademark Office (PTO) from registering trademarks that are immoral, scandalous or disparaging—is an unconstitutional restriction on freedom of speech. On April 20, 2016, the PTO filed a petition for writ of certiorari with the Supreme Court asking it to overturn the Federal Circuit’s opinion and definitively rule on the constitutionality of Section 2(a). On April 25, 2016, Pro-Football, Inc. asked the Court to bypass the Fourth Circuit and consider its case in conjunction with Tam regarding the National Football League’s “Redskins” mark—which had been canceled by a Virginia federal court in July 2015 on the same Section 2(a) grounds.
Detailed discussion: We discussed the Tam case in our February 2016 newsletter. Simon Shiao Tam (Tam) is an activist and the front man for Oregon-based rock band, “The Slants” who has attempted to register the trademark “The Slants” with the PTO since 2011. Tam’s stated reason in the trademark application for wanting to name his band “The Slants”“ was “to ‘reclaim’ and ‘take ownership’ of Asian stereotypes.” Citing Section 2(a) of the Lanham Act, the examiner refused to register the mark because he found it “disparaging to people of Asian descent” and felt that “a substantial composite” of Asians would find the mark offensive. In relevant part, Section 2(a) reads “No trademark shall be refused registration…on account of its nature unless it … [c]onsists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.”
The TTAB affirmed, and, on appeal, the Federal Circuit affirmed before sua sponte calling for en banc review of the constitutionality issue. On December 22, 2015 the en banc panel reversed, vacating and remanding the case back to the TTAB, holding that:
The government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by the marks. It cannot refuse to register marks because it concludes that such marks will be disparaging to others. The government regulation at issue amounts to viewpoint discrimination, and under the strict scrutiny review appropriate for government regulation of message or viewpoint, we conclude that the disparagement proscription of § 2(a) is unconstitutional.
The US PTO has continued to refuse to register “The Slants” mark, and on March 10, 2016, the PTO issued a new examination guide instructing trademark examiners to suspend examination on pending trademark applications involving marks subject to refusal under the “disparagement” provisions in Section 2(a) of the Lanham Act until “pending litigation” related to their constitutionality is resolved. On March 15, 2016, Tam filed a writ of mandamus with the Federal Circuit seeking an order that would legally require the PTO to register “The Slants” in accordance with the Federal Circuit’s en banc December 2015 decision, to which the Federal Circuit had ordered the PTO to respond. On March 30, 2016, the Federal Circuit issued an order that it would not force the USPTO to register the “The Slants” until either the deadline for the USPTO to file a petition for writ had passed or the Supreme Court denied the USPTO petition.
The USPTO filed a petition for writ of certiorari on April 20, 2016, in which the USPTO requests that the Supreme Court address the following question presented: “Whether the disparagement provision in 15 U.S.C. 1052(a) is facially invalid under the Free Speech Clause of the First Amendment.”
On April 25, 2016, Pro-Football, Inc. (PFI) filed an unusual pre-judgment petition for writ of certiorari with the Supreme Court asking it to consider its case—relating to the “Redskins” mark—together with Tam. We covered the latest developments in the long-running “Redskins” litigation in our February 2016 newsletter in conjunction with our discussion of Tam. To briefly recap, an Eastern District of Virginia judge in Pro-Football, Inc. v. Blackhorse upheld the TTAB’s ruling cancelling of six “Redskins” trademarks on the grounds they disparage Native Americans and rejecteing the football team’s First Amendment arguments. PFI appealed to the Fourth Circuit in October 2015, and PFI requests that, if the Supreme Court agrees to review Tam (which PFI urges the Court not to do), the Court should bypass the Fourth Circuit and agree to hear PFI’s case as a “companion” to Tam due to the identical constitutional issue in both cases.
We will report again once the Supreme Court grants or denies either petition.
See here to read the 4/20/16 Petition for Writ of Certiorari in Lee v. Tam.
See here to read the 4/25/16 Petition for Writ of Certiorari Before Judgment in Pro-Football, Inc. v. Blackhorse.
For more on this subject, see here to read the article in Manatt’s 2/15 newsletter under “Federal Circuit: Disparaging Trademarks Are Free Speech.”
back to top
Updates and Interesting Items of Note
1. Supreme Court IP-Related Cert Petition Round-Up:
- Star Athletica LLC v. Varsity Brands Inc.: On May 2, 2016, the Supreme Court granted Star Athletica’s petition for writ of certiorari and agreed to hear the following question presented in connection with the Sixth Circuit’s August 2015 opinion (en banc rehearing denied in October 2015) that cheerleader uniforms can be copyrighted: “What is the appropriate test to determine when a feature of a useful article is protectable under § 101 of the Copyright Act?”
- SCA Hygiene Products v. First Quality Baby Products: On May 2, 2016, the Supreme Court granted SCA Hygiene Products’ petition for writ of certiorari and agreed to review the following question presented: “Whether and to what extent the defense of laches may bar a claim for patent infringement brought within the Patent Act’s six-year statutory limitations period, 35 U.S.C. § 286.” The Court will review the September 2015 en banc Federal Circuit ruling (affirming an earlier panel decision) that laches is a valid defense to patent infringement lawsuits. In so holding, the Federal Circuit had distinguished the 2014 U.S. Supreme Court case of Petrella v. Metro-Goldwyn-Mayer, Inc., which held that laches is not a defense to a suit for damages under the Copyright Act. Petitions denied:
- Multi-Time Machine v. Amazon.Com: On February 29, 2016, the Supreme Court denied Multi-Time Machine’s petition for certiorari, leaving in place the October 2015 Ninth Circuit opinion which held there was no likelihood of confusion, and therefore no trademark infringement, when Amazon offers consumers searching for trade-marked products (in this case watches) search results for other similar clearly-labeled non-trademarked products. Update to coverage of this case Manatt’s December 2015 newsletter under “Eye on the Courts: IP Roundup.”
New Petitions Filed (see also our article in this newsletter entitled “Supreme Court Asked to Weigh In on “Disparaging” Trademarks Issue”):
- Ariosa Diagnostics v. Sequenom, Inc.: On March 21, 2016, Sequenom filed a petition for writ of certiorari asking the Supreme Court to review the following question presented: “Whether a novel method is patent-eligible where: (1) a researcher is the first to discover a natural phenomenon; (2) that unique knowledge motivates him to apply a new combination of known techniques to that discovery; and (3) he thereby achieves a previously impossible result without preempting other uses of the discovery?” Sequenom is appealing from a December 2, 2015 en banc decision of the Federal Circuit that denied rehearing of its controversial panel decision on June 12, 2015 which had relied on the test established in the Supreme Court’s decision in Mayo to hold that a newly-developed non-invasive diagnostic method for fetal testing via the mother’s blood was not patentable under Section 101 of the Patent Act because it “begins and ends with a natural phenomenon.” Sequenom argued in its cert petition that the Federal Circuit “dangerously overextended” the Supreme Court’s Mayo decision. Cert decision pending.
- Versata Development Group, Inc. v. SAP America, Inc. and SAP AG: On March 11, 2016, Versata filed a petition for writ of certiorari asking the Supreme Court to review the following questions presented concerning the scope of the PTAB’s CBM review:
Cert petition pending.
- whether the phrases “covered business method patent” and “financial product or service” encompass any patent claim that is incidental to or complementary to a financial activity and relates to monetary matters;
- whether the Federal Circuit’s standard for identifying patents falling within the “technological inventions” exception departs from statutory text by looking to whether the patent is valid, as opposed to whether it is “technological”;
- whether a software-related invention that improves the performance of computer operations is patent-eligible subject matter; and
- whether, as will be decided in Cuozzo Speed Technologies, LLC v. Lee, No. 15-446, the PTAB should give claim terms their broadest reasonable construction in post-grant adjudicatory proceedings, or should instead give them their best construction.
2. In Brief—Other Interesting Cases and Items of Note
- Cisco Systems, Inc. v. Arista Networks, Inc.: On April 11, 2016, the ITC announced that it would review the ALJ’s February 2016 ruling that Arista infringed Cisco’s networking patents. The ITC identified numerous grounds for review (some held confidential), including whether (1) three of Cisco’s patent claims are unpatentable subject matter under Section 101 in light of the Supreme Court’s Alice decision and (2) whether laches is available as a defense to a Section 337 investigation.
- Estate of Robert Graham, et al. v Sotheby’s, Inc.: On April 11, 2016, a Central District of California judge ruled that the federal copyright laws—including specifically, the first sale doctrine under the Copyright Act—preempt the operation of California’s California Resale Royalty Act, which requires auction houses and other resellers of fine art to pay royalties to the artists of the works being sold.
- “Stairway to Heaven” copyright infringement litigation: On April 8, 2016, a Central District of California judge ruled that that lawyers for the trustee of late Spirit guitarist Randy Wolfe had shown enough evidence to support a case that “Stairway to Heaven” copies music from the Spirit song “Taurus,” clearing the way for a copyright infringement jury trial.
- Belmora LLC v. Bayer Consumer Care AG: On March 23, 2016, the Fourth Circuit vacated the district court’s decision and held that the “plain language” of Section 43(a) of the Lanham Act does not require use of a trademark in U.S. commerce in order to bring a claim for false advertising and false association. The Court additionally found that Section 14(3) of the Lanham Act, which creates a cause of action for cancellation of a registered trademark, also does not require that the plaintiff use its own mark in U.S. commerce as a condition precedent to bringing a cancellation action.
- Dryer et al. v. National Football League: On February 26, 2016, the Eighth Circuit upheld the Minnesota district court’s dismissal of summary judgment in favor of the NFL in a putative class action right of publicity case that had been brought by former NFL players in connection with the NFL’s use of footage containing their names and likenesses in training and other NFL-related copyrighted film productions. The Eighth Circuit affirmed the district court’s conclusion that the Copyright Act preempted the former players’ right of publicity claims because the NFL held valid copyrights in the NFL film productions, which were deemed non-commercial speech, and the claims asserted rights identical to those protected by copyright law.
- University of Alabama v. Houndstooth Mafia Enterprises: On February 23, 2016, a Northern District of Alabama judge ordered the TTAB to comply with his order to vacate the TTAB’s 2013 ruling that the University of Alabama (UA) held no copyright in the houndstooth checked pattern. The TTAB vacated their ruling on March 6, 2016 after a three-year legal battle. The judge’s February 23, 2016 order to the TTAB followed a consent judgment in favor of UA and included a provision requiring the TTAB to vacate its 2013 ruling against UA. In June 2015, the TTAB denied UA’s motion for vacatur, ruling that decisions to vacate were in the TTAB’s discretion and, absent a showing of error, could not be subject to settlement agreements between the parties. The judge’s February 23, 2016 order threatened contempt because the motion for vacatur was filed in connection with a judicial mandate (the consent judgment) and not the settlement agreement. More than three dozen influential law professors have filed requests urging the DOJ to appeal the order on the grounds that it forced the TTAB to vacate a precedential ruling without cause.
back to top