Intellectual Property Law

Down the Rabbit Hole: Trends in Software Patent Court Decisions Post-Alice

Why it matters: In Alice Corp. v. CLS Bank, the U.S. Supreme Court held that claims for a computer-based software method for reducing financial-settlement risk were patent-ineligible "abstract ideas" that were not made patent-eligible merely by requiring the use of a computer for implementation. Although the Alice holding was not specific to computer-implemented software patents, the Federal Circuit and district courts nationwide have since relied on the two-part test established in Alice to overwhelmingly invalidate such patents as they come before them. Here, we take a look back over the period since the July 2014 Alice decision to see how it has impacted the legal landscape via the courts.

Detailed discussion: In Alice Corp. v. CLS Bank, the U.S. Supreme Court held that claims for a software method for reducing financial-settlement risk performed by a computer were "drawn to a patent-ineligible abstract idea" under Section 101 of the Patent Act, and that "[m]erely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention." The Court established a two-step test for ascertaining patent eligibility under Section 101: (1) first, determine whether the claims at issue are directed to one of the "patent-ineligible" concepts of abstract ideas, laws of nature or natural phenomena; and (2) if so, determine whether any of the remaining elements, either alone or in combination with the patent-ineligible elements, contain sufficient "inventive concept" to transform the claim to become patent-eligible; in this regard the Court noted that simply applying an abstract idea on a generic computer is not enough for patent eligibility. In affirming the conclusion of patent ineligibility with respect to the specific facts before it in the Alice case, the Court urged the courts and agency tribunals to "tread carefully" going forward in construing inventions and innovations to be non-patent-eligible abstract ideas "lest [the exclusionary principles] swallow all of patent law." Many courts, however, have failed to heed the Supreme Court's words of caution; even though there was nothing in the Alice opinion that specifically tied its two-part test to software patents, when confronted with such patents, the courts post-Alice have overwhelmingly declared them to be patent-ineligible. The statistics compiled by practitioners tracking such post-Alice decisions from the Federal Circuit and the two district courts with the most cases decided/highest rates of invalidation—California (Northern and Central) and Delaware—illustrate this (for contrast, we've also included statistics from the Eastern District of Texas, which doesn't appear to be embracing Alice as whole-heartedly—it decided the third-highest number of Section 101 cases but had a comparatively low rate of invalidation):

Post-Alice federal court decisions invalidating computer-implemented software patents (7/19/14 – 10/31/15)*

  • Nationwide (Federal Circuit and District Courts):
    • Total decisions: 174
    • Total invalid: 127
    • Percentage invalid: 73%
  • Federal Circuit (appeals from District Courts, PTAB, etc.):
    • Total decisions: 19
    • Total invalid: 18
    • Percentage invalid: 94.7%
  • District Courts:
    • California—total decisions: 37
      • Northern District
        • Total decisions: 19
        • Total invalid: 15
        • Percentage invalid: 78.9%
      • Central District
        • Total decisions: 18
        • Total invalid: 13
        • Percentage invalid: 72.2%
    • Delaware—total decisions: 31
      • Total invalid: 28
      • Percentage invalid: 90.3%
    • Eastern District of Texas—total decisions: 23
      • Total invalid: 8
      • Percentage invalid: 34.8%

* Statistics provided by BilskiBlog, "#AliceStorm for Halloween: Was It a Trick or a Treat? (11/6/15)"

As the statistics show, the Federal Circuit has upheld invalidation on the basis of Alice in all but one of the cases (the December 2014 case of DDR Holdings, LLC v. Hotels.com), that have come before it in the period through October 31, 2015, and the rates of invalidation in the California and Delaware district courts are very high. The following are just a few recent Federal Circuit decisions affirming lower court determinations of software patent ineligibility based on Alice, including two on appeal from the Northern District of California:

Intellectual Ventures v. Capital One. On July 6, 2015, the Federal Circuit upheld a determination of invalidity by a district court for the Eastern District of Virginia with respect to two of the plaintiffs' patents, one claiming methods of assisting online users to budget (within preestablished, self-imposed spending limits), track and store information relating to the users' spending habits; and the other claiming methods for providing users with customized web page content based on user-specific information and navigation history. The Court applied the Alice test and found the patents to be ineligible as they were drawn to abstract ideas and implemented on a generic computer.

Internet Patents Corp. v. Active Networks, Inc. On June 23, 2015, the Federal Circuit upheld the dismissal by a district court for the Northern District of California of four infringement claims on the grounds of patent ineligibility. The patent at issue claimed methods for a system allowing an online user to retain/reclaim information lost in the navigation of online forms via an online application consisting of "dynamically generated web pages" through the use of a "conventional" web browser. Again, the Court applied the Alice test to find that the claimed methods were drawn to abstract ideas and that the use of the Internet and a computer to implement them did not constitute an "inventive concept" that transformed them to patent-eligible.

OIP Technologies, Inc. v. Amazon.com Inc. On June 11, 2015, the Federal Circuit affirmed the judgment on the pleadings entered by the district court for the Northern District of California against plaintiff/appellant OIP Technologies for failure to claim Section 101 patentable subject matter. The patent at issue, which OIP Technologies claimed Amazon infringed, involved claimed methods for a computer-implemented program that helped the user arrive at optimum pricing of a product for sale based on current market conditions. The Court once again applied the Alice test to find that the claimed methods were drawn to an abstract idea and implemented via "generic computer functions."

There may be a glimmer of hope for owners of software patents as it is possible that the Federal Circuit is rethinking, or at least grappling with, the larger implications of Alice. Scott Graham of Law.com was present on October 8, 2015, when a Federal Circuit panel heard oral argument in the case of Amdocs (Israel) Limited v. Openet Telecom, Inc. The Amdocs case involves an appeal from a grant of summary judgment by a district court for the Eastern District of Virginia that had invalidated two "data mediation" software patents on Section 101 grounds. Graham reported that the panel, consisting of Judges Pauline Newman, Jimmie Reyna and S. Jay Plager, sounded "extremely skeptical" about the district court's decision (per Judge Plager, post-Alice software patent invalidations are a "pla-a-a-gue on the patent system nowadays) and subjected the attorneys to lively and somewhat comical questioning about how to define and limit the concept of an "abstract idea" (here, Judge Plager noted to one attorney that "[y]ou haven't really told us what an abstract idea is, but you notice the Supreme Court hasn't either"). Judge Reyna grilled another attorney with a line of questions specifically about software patents: "[a]t the end of the day, we can look at almost any software application and say it's abstract, correct?... [s]o somewhere along the line, there is software that is patent-eligible, correct?" As Graham said, however, "[i]t's sometimes too hard to tell from arguments whether [the Federal Circuit judges] are really gearing up to push back on Alice, or just venting about having to apply a precedent they consider irrational and unworkable." Moreover, as Graham pointed out, Judges Prager and Reyna wrote the decisions in two recent Federal Circuit cases that upheld Section 101 invalidations. It will be interesting to see how the Federal Circuit rules in Amdocs—we will be watching and report back.

See here to read the 7/6/15 Federal Circuit opinion in Intellectual Ventures v. Capital One.

See here to read the 6/23/2015 Federal Circuit opinion in Internet Patents Corp. v. Active Networks, Inc.

See here to read the 6/11/2015 Federal Circuit opinion in OIP Technologies, Inc. v. Amazon.com Inc.

See here to read the 10/12/15 Law.com article by Scott Graham titled "Panel Pushes Back on Software Patent Challenge."

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Catching Up With the PTO, the PTAB and Post-Grant Review Trials—Looking Back and Looking Forward

Why it matters: The Leahy-Smith America Invents Act of 2011 created the Patent Trial and Appeal Board and three types of post-patent grant review proceedings meant to overhaul and streamline the existing processes for reconsidering patentability. The first review proceedings under the new system were instituted in September 2012, and the United States Patent and Trademark Office (PTO) has been continuously monitoring and soliciting public comment for ways to improve it ever since. Here, we look back over three years of statistics to see how the system has been working to date, and look ahead to see recent proposals made by the PTO for how the system can be improved going forward.

Detailed discussion: The Leahy-Smith America Invents Act of 2011 (AIA) created the Patent Trial and Appeal Board (PTAB) and three types of post-patent grant review proceedings—inter partes review (IPR), post-grant review (PGR), and the transitional post-grant review for covered business method patents (CBM)—meant to overhaul and streamline the existing processes for reconsidering patentability. The first review proceedings under the new system were instituted in September 2012, and the following gives a broad overview of the significant activity and trends before the PTAB for the three-fiscal-year period ended October 31, 2015 (taken from statistics published on the PTO website):

  • Total petitions filed with PTAB (cumulative from 9/16/12): 4,090
    • Number of IPRs: 3,684 (90%)
    • Number of PGRs: 13 (0%)
    • Number of CBMs: 393 (10%)
  • Total review proceedings instituted (includes joinders): 1,778
    • IPRs: 1,579 (90%)
    • PGRs: 3 (0%)
    • CBMs: 196 (10%)
  • Total number of IPRs that reached final disposition: 630
    • Results:
      • All instituted claims unpatentable: 453 (72%)
      • Some instituted claims unpatentable: 91 (14%)
      • No instituted claims unpatentable: 86 (14%)
  • Petitions filed by technology center (TC) (to date for FY 2016):
    • Electrical/computer: 49%
    • Mechanical/business method: 26%
    • Bio/Pharma: 17%
    • Chemical: 8%
    • Design: 0%

* Data for the three-fiscal-year period ended 10/31/15 unless otherwise noted

The results show that IPRs are by far the most popular of the post-grant reviews, constituting approximately 90% of petitions filed (with approximately half filed in the electrical/computer TC so far in FY2016 alone). Also, the majority of those IPRs that reached final determination—72%—found 100% of the instituted claims to be unpatentable. To the extent that they related to claims for software patents, this last statistic can be directly attributable to the U.S. Supreme Court's July 2014 decision in Alice Corp. v. CLS Bank, as the PTAB applies the Alice test to find more and more computer-implemented/Internet-based software patents to be based on "abstract ideas" that are patent-ineligible under Section 101 of the Patent Act .

In a blog entry posted on August 19 on the PTO's website to introduce proposed amendments to the PTAB rules of practice (discussed below), PTO Director Michelle K. Lee relayed these statistics through July 30, 2015, and was happy with the PTAB "state of the nation" to date: "Although the total number of petitions filed to date reflect around three times more than what we initially anticipated, we are especially pleased that the PTAB has nonetheless maintained a perfect record in rendering all its final decisions within the mandated time frame of one year. (And without using the six-month "good cause" extension for any trial or employing the temporary safety-valve "cap" provided by Congress to decline further petitions.) We are also pleased that those final PTAB decisions that have been appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC) have been affirmed at a very high rate. Taken together, the demand for these new proceedings (as reflected by the large number of filings) and the results we are seeing at the CAFC appear to indicate that the PTAB proceedings are succeeding in their Congressional mandate to effectively and efficiently resolve patent validity disputes, while providing timely, low-cost alternatives to district court litigation."

Director Lee went on to state, however, that the PTO recognizes that the system can be improved "based on our and the public's experiences with the proceedings." To that end, the PTO has been actively cultivating public comment over the past three years to its Rules of Practice (Rules) (instituted in 2012) and the manner in which new review proceedings are conducted in order to "fine tune" and improve them so as to bring them in line with the reality of practice before the PTAB. On August 20 the PTO published its most sweeping proposed amendments to the Rules to date in the Federal Register, titled "Proposed Changes to Rules of Practice for Trials Before the Patent Trial and Appeal Board." In addition to addressing comments received about requests for additional discovery, live testimony, and confidential information, Director Lee said that the proposed improvements are meant to:

  • Allow patent owners to include, with their opposition to a petition to institute a proceeding, new testimonial evidence such as expert declaration. Director Lee said that "this change responds to commentary raising concerns that patent owners are disadvantaged by current rules that let petitioners' evidence go unanswered before a trial is instituted."
  • Impose a new requirement on practitioners before the PTAB, akin to the Rule 11 requirements in federal courts, to give the USPTO a more robust means with which to police misconduct.
  • Clarify that the PTAB will use the claim construction standard used by federal district courts for patents that will expire during proceedings and therefore cannot be amended, while confirming the use of broadest reasonable interpretation (BRI) for all other cases.
  • Recognize the PTAB's development of motions-to-amend practice through its own body of decisions, including a recent decision that clarified what prior art a patent owner must address to meet its burden of proof of patentability in the first instance.

Director Lee said that the PTO's goal is to publish final rules by the end of the year. In her blog post, Director Lee also gave a "heads up" that the PTO would soon be seeking comment on a proposed pilot program intended to streamline the institution and conduct of post-grant review proceedings. To this end, on August 25, 2015, the PTO published in the Federal Register a request for comments on a proposed pilot program that would have the initial decision of whether to institute a review made by a single administrative patent judge, with two additional judges subsequently assigned once the first judge makes the decision to institute. As the PTO explained, "Having a single judge decide whether to institute trial in a post grant proceeding, instead of a panel of three judges, would allow more judges to be available to attend to other matters, such as reducing the ex parte appeal backlog and handling more post grant proceedings." If the proposed pilot program goes forward, it would be limited to IPRs, last from three to six months, and include IPR petitions selected by the PTO that were filed during a specified time period.

Two other PTO announcements of note: First, on September 1, 2015, the PTO announced that it was commencing a pilot program that would "allow, under limited circumstances, amendments to identifications of goods/services in trademark registrations that would otherwise be beyond the scope of the current identification." The "limited circumstances" under which amendments will be permitted are where they are "deemed necessary because evolving technology has changed the manner or medium by which the underlying content or subject matter of the identified products and services are offered for sale or provided to consumers." The pilot program's duration will depend on the number of requests submitted. Second, on July 15, 2015, the PTO released an update to its 2014 Interim Guidance on Subject Matter Eligibility in response to comments received to provide further information and examples of how the PTO determines subject matter eligibility, including in the areas of claims directed to abstract ideas and laws of nature and how examiners identify abstract ideas.

Last but not least, the PTO recently opened two new regional offices. On October 15, 2015, the PTO opened a West Coast regional office in San Jose, California, to serve California, Nevada, Oregon, Washington, Arizona, Alaska and Hawaii. The PTO's press release stated that the office is intended to "help the West Coast region's entrepreneurs advance cutting-edge ideas to the marketplace, grow their businesses, and more efficiently navigate the world's strongest intellectual property system." The press release further stated that the new office has hired "local talent" from the technological and IP fields for both PTAB administrative patent judges (who will now conduct PTAB post-grant review proceedings out of the new office) and patent examiners to better serve the needs of the region. Director Lee participated in the ribbon cutting and called the new office "a huge step forward for innovators throughout the region" and a local "one-stop shop of resources" for every part of the patent lifecycle, from application through PTAB post-grant review hearings. Then, on November 9, 2015, the PTO announced that it opened a regional office in Dallas, Texas, to similarly help entrepreneurs and innovators in the Southwest region of the country. The new Dallas regional office will serve Alabama, Arkansas, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee and Texas.

See here to read the "Patent Trial and Appeal Board Statistics as of 10/31/15" published on the PTO website.

See here to read the 8/19/15 post from the PTO website blog titled "Director's Forum: A Blog from USPTO Leadership" under "PTAB Update: Proposed Changes to Rules Governing PTAB Trial Proceedings."

For more on this topic, read the (1) 8/20/15 Federal Register notice filed by the PTO entitled "Proposed Changes to Rules of Practice for Trials Before the Patent Trial and Appeal Board"; (2) 8/25/15 Federal Register notice filed by the PTO entitled "Request for Comments on a Proposed Pilot Program Exploring an Alternative Approach to Institution Decisions in Post Grant Administrative Reviews"; (3) 9/1/15 PTO notice entitled "Announcement of Pilot Program to Allow Amendments to Identifications of Goods and Services in Trademark Registrations Due to Technology Evolution"; (4) 7/15/15 PTO notice entitled "July 2015 Update: Subject Matter Eligibility"; (5) 10/15/15 PTO press release entitled "USPTO Opens Regional Office in San Jose, California"; and (6) 11/9/15 PTO press release entitled "USPTO Opens Regional Office in Dallas, Texas."

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Under the Wire: Record Number of Patent Lawsuits Filed on November 30, 2015, the Day Before Elimination of Plaintiff-Friendly FRCP Pleading Standards

Why it matters: November 30, 2015, the Monday after Thanksgiving, saw a dramatic upsurge in patent infringement lawsuit filings nationwide as patent holders, the majority of which proved to be nonpracticing entities (a.k.a. patent trolls), rushed to take advantage of existing plaintiff-friendly pleading standards for patent claims under the Federal Rules of Civil Procedure before their elimination via amendments that took effect on December 1, 2015. Black Monday, indeed.

Detailed discussion: On November 30, 2015, patent holders filed what is believed to be a record high of infringement complaints in order to get the benefit of existing favorable pleading standards for patent claims under the Federal Rules of Civil Procedure (FRCP) before their elimination by way of amendments that took effect on December 1, 2015. While the amendments to the FRCP dealt largely with rules relating to the conduct of discovery—in particular, e-discovery—they also served to eliminate in its entirety FRCP 84, which established the concept of "standard forms" for all types of pleadings, including the Appendix of Forms incorporated therein. One of the forms so eliminated was Form 18, entitled the "Complaint for Patent Infringement," which allowed a patent holder to file nonspecific patent infringement claims alleging only the barest of facts (basically, patent ownership, claimed infringement of that patent, and resulting damages). Form 18 was especially popular with so-called patent trolls because it enabled them to easily file identical, nonspecific "cookie-cutter" suits against multiple parties.

In anticipation of Form 18's elimination on December 1, there was a rush to file patent infringement suits utilizing Form 18 on November 30 before it disappeared. Corporate Counsel reported that, based on data compiled by legal analytics company Lex Machina, a record number of 259 patent infringement lawsuits were filed on November 30 alone—more than "15-18 times the average number filed in one day," the majority of which were filed by nonpracticing entities. By contrast, the article pointed out that on the Monday after Thanksgiving in 2014, only 14 such patent infringement suits were filed. Moreover, the data showed that almost 80% of the patent infringement suits brought on November 30 were filed in the Eastern District of Texas, known to be plaintiff-friendly. The data also showed that the surge in patent infringement lawsuits actually began in mid-November, with 572 patent suits filed nationwide in the last two weeks of that month (as compared to 176 such suits filed during the same time period in 2014).

With Form 18 eliminated but no new legislative pleading standards for patent cases yet put in place (patent reform legislation addressing this is pending before Congress), it is expected that the district courts in patent cases will now look to and interpret (based on the facts before them) the pleading standards established by the U.S. Supreme Court in Bell Atlantic v. Twombly (2007) and Ashcroft v. Iqbal (2009), which together require plaintiffs to plead detailed facts with sufficient specificity so as to "plausibly" support their claims for damages.

See here to read the 12/1/15 Corporate Counsel article by Lisa Shuchman entitled "Trolls Rush In to Avoid Fed Procedure Change."

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On the Watch List: Federal Circuit Rejects Constitutional Challenge to IPRs in MCM Portfolio LLC v. Hewlett-Packard Co.

Why it matters: On December 2, 2015, the Federal Circuit in MCM Portfolio LLC v. Hewlett-Packard Co. unanimously rejected a constitutional challenge to the inter partes review (a.k.a. IPR) proceedings that are part of the "in-house" administrative tribunal of the United States Patent and Trademark Office (PTO). Basically, the argument was one of due process: the appellants contended that IPRs, via the revocation or cancellation of a patent, wrongfully deprive patent holders of a private property right sans access to an Article III federal court or a jury as required by the Seventh Amendment. The appellees and the government countered with arguments citing, among other things, Federal Circuit precedent and statutory exhaustion of administrative remedies theories. It was these latter arguments that proved persuasive to the Court. Read on for the details.

Detailed discussion: On December 2, 2015, the Federal Circuit issued an opinion in MCM Portfolio LLC v. Hewlett-Packard Co. that unanimously rejected a constitutional challenge to the administrative IPR proceedings established by the Leahy-Smith America Invents Act (AIA) in 2011 as part of the PTO's "in house" administrative tribunal, the Patent Trial and Appeal Board (PTAB). The appellants had based their constitutional challenge on due process grounds, arguing that IPRs deprive patent holders of access to both a federal court and a jury as required by Article III of the Constitution and the Seventh Amendment thereto. The Federal Circuit rejected these arguments "on the merits."

A brief recitation of the facts and background of the case: Patentee/appellant MCM Portfolio LLC (MCM) filed an appeal to the Federal Circuit in January 2015 after losing on the merits in a 2014 IPR brought by Hewlett-Packard Co. (HP) before the PTAB in connection with a patent for a controller chip that interfaces with a flash memory card (as to which the PTAB had found certain of MCM's claims "unpatentable"). In its principal brief filed with the Federal Circuit, in addition to challenging both the PTAB's initiation of the IPR as well as its adverse decision, MCM argued that IPRs in general are unconstitutional because "actions to cancel or revoke a patent must be tried in Article III Courts with access to a jury under the Seventh Amendment to the United States Constitution" (MCM had unsuccessfully raised this same argument before the PTAB in the IPR proceedings). MCM attacked as "wrongly decided" the precedential 1985 Federal Circuit case of Patlex Corp. v. Mossinghoff, where the Court upheld the constitutionality of the PTO's statutory power to revoke or cancel patents because, among other things, patents are "public rights" that can only be conferred—and taken away—by the government. MCM argued that the Court's Patlex decision was not in step with precedent (harkening as far back as the U.S. Supreme Court's 1803 decision in Marbury v. Madison) and had been overturned by later case law. Both HP's reply brief and the brief filed by the PTO as an intervener in the case pointed out that the Federal Circuit had actually affirmed Patlex in the 1992 case of Joy Technologies, Inc. v. Manbeck, and that the principals used by the Federal Circuit to justify the constitutionality of reexaminations in Patlex and Joy Technologies are equally applicable to IPRs. The Federal Circuit heard oral argument in MCM on October 2, 2015, and, based on a description of the proceedings by a reporter in attendance, "the court hardly sounded on the brink of sending some 100 PTAB judges packing," although the attorneys for both sides, as well as from the Department of Justice's civil division, were subjected to lively questioning by Chief Judge Sharon Prost and Judge Timothy Dyk.

In the unanimous opinion written by Judge Dyk, the Court held that "[o]n the merits, we reject MCM's argument that inter partes review violates Article III and the Seventh Amendment" of the Constitution. With respect to the Article III argument regarding the right to federal court access, the Court reviewed legislative history and noted that, in creating the PTO and the statutory scheme under which it issued and reviewed patents, "Congress sought to 'provid[e] a more efficient system for challenging patents that should not have issued' and to 'establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs.'" The Court pointed out that "[t]here is notably no suggestion that Congress lacked authority to delegate to the PTO the power to issue patents in the first instance. It would be odd indeed if Congress could not authorize the PTO to reconsider its own decisions." Furthermore, the Court stated that "[p]atent reexamination and inter partes review are indistinguishable from the agency adjudications held permissible" in U.S. Supreme Court case law precedent, which "compel[led] the conclusion that assigning review of patent validity to the PTO is consistent with Article III." The Court also pointed out that it was bound by its own precedential "on point" decisions in Patlex and Joy Technologies and concluded that "Supreme Court and Federal Circuit authority require rejection of MCM's argument that inter partes review violates Article III." With respect to MCM's Seventh Amendment argument that IPRs deprive parties of their constitutional right to a jury trial, the Court again looked to Supreme Court and Federal Circuit precedent to hold that "[b]ecause patent rights are public rights, and their validity susceptible to review by an administrative agency, the Seventh Amendment poses no barrier to agency adjudication without a jury."

The Court's decision in MCM will presumably control the disposition of another case currently before it that raises the same Article III and Seventh Amendment constitutional challenges, Cooper v. Lee. One of the appellants in that case—self-described "prolific inventor" J. Carl Cooper (Cooper)—had filed an amicus brief in January 2015 in the MCM case in support of MCM. Cooper's case was only recently transferred to the Federal Circuit on October 14, 2015, after following a rather circuitous route to get there: The facts show that Cooper at some point granted eCharge Licensing, LLC (eCharge), a patent-licensing agent, the exclusive license to a number of his patents, including the right to pursue infringers. In 2013, eCharge filed a patent infringement suit against Square Inc. (Square) in the U.S. District Court for the Northern District of Illinois alleging that Square had infringed several of Cooper's patents. Square responded by petitioning the PTAB to conduct an IPR of three of Cooper's patents, which was granted and as to which IPR proceedings commenced before the PTAB in May 2014. Square also successfully moved the Illinois district court to stay the infringement litigation pending resolution of the IPR. Cooper and eCharge then filed a separate suit against the PTO in the Eastern District of Virginia, seeking a declaratory judgment that IPR proceedings are unconstitutional (for the same reasons argued by MCM in its case) and an injunction barring the PTO from continuing to conduct the IPR proceeding. On February 18, 2015, the Eastern District of Virginia judge granted the PTO's motion to dismiss because Cooper and eCharge "have not exhausted administrative remedies before seeking judicial relief. Furthermore, the Federal Circuit's decisions in Patlex v. Mossinghoff … and Joy Techs., Inc. v. Manbeck … suggest that Plaintiffs' challenge will ultimately fail." On February 2, 2015, Cooper and eCharge appealed the case to the Fourth Circuit, which was then transferred to the Federal Circuit on October 14. We will be watching to see what comes next for the Cooper case in light of the MCM decision and report back.

See here to read the 12/2/2015 Federal Circuit decision in MCM Portfolio LLC v. Hewlett-Packard Co., No. 15-1091 (Fed. Cir.).

See here, here and here to read the following in the Federal Circuit case of MCM Portfolio LLC v. Hewlett-Packard Co., No. 15-1091 (Fed. Cir.): (1) Principal Brief filed by MCM on 1/20/15, (2) Appellee Brief filed by HP on 3/19/15 and (3) Corrected Brief for the Intervener filed by the PTO on 3/23/15.

See here to read the 10/7/15 article by Scott Graham of The Recorder entitled "Lawyer Who'd Put the PTAB Out of Business Gets Cool Reception."

See here to read the 2/18/15 Eastern District of Virginia opinion in Cooper v. Lee, No. 1:14-cv-00672 (E.D. Va.).

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Eye on the Courts: IP Roundup—What Do Wireless Equipment, Fingerprint Scanners, Textbooks, Skin Care Products, Military-Style Watches and Tiffany Ring Settings Have in Common?

Why it matters: The courts, from the U.S. Supreme Court on down, have been busy with respect to IP matters in recent months, handing down decisions covering induced and direct infringement under the Patent Act (and, in one case, the Tariff Act of 1930); the likelihood of confusion under the Lanham (Trademark) Act; standing to sue under the Copyright Act; and change in ownership of a patent/trademark licensee under Contract Law 101. Read on for a survey of cases that struck our eye.

Detailed description: Following is a survey of recent U.S. Supreme Court, circuit court and district court decisions covering a range of IP matters that we found worthy of note:

Patent Cases:

Commil USA, LLC v. Cisco Systems, Inc.: On May 26, 2015, the U.S. Supreme Court held that a defendant's good faith belief regarding a patent's invalidity is not a defense to an induced infringement claim. Relevant facts/procedural history: Commil USA, LLC (Commil), the holder of a patent for a method of implementing short-range wireless networks, filed suit against Cisco Systems, Inc. (Cisco), a maker and seller of wireless networking equipment, alleging direct infringement and induced infringement on Commil's patent. Two district court jury trials ensued, after which Cisco was found liable for direct infringement (first trial) and induced infringement (second trial). In between the two trials, Cisco petitioned the Patent and Trademark Office (PTO) for ex parte reexamination of Commil's patent, which returned a decision confirming the patent's validity. Relevant to the case on appeal, in the second trial for induced infringement, Cisco had attempted to introduce the defense of good faith belief that Commil's patent was invalid, but the district court ruled Cisco's supporting evidence inadmissible. On appeal, the Federal Circuit affirmed in part, vacated in part, and remanded, holding in relevant part that the district court had erred in excluding Cisco's evidence of its good faith belief that Commil's patent was invalid. The Supreme Court granted certiorari to consider "a question of first impression: whether knowledge of, or belief in, a patent's validity is required for induced infringement under §271(b) [of the Patent Act]." The Court vacated the Federal Circuit's judgment and remanded the case to the district court for further proceedings consistent with its opinion. Justice Anthony Kennedy wrote the majority opinion with Justice Antonin Scalia dissenting. Analysis and holding: The Court framed the question before it as "whether a defendant's belief regarding patent validity is a defense to a claim of induced infringement," and concluded "[i]t is not. The scienter element for induced infringement concerns infringement; that is a different issue than validity." The Court pointed out that, if an accused infringer believes a patent to be invalid, it has numerous avenues to pursue, including seeking inter partes review or reexamination of the patent through the PTO (as Cisco did in the latter case). Moreover, the Court stated that creating a "new" defense to induced infringement revolving around belief in invalidity would "render litigation more burdensome for everyone involved. Every accused inducer would have an incentive to put forth a theory of invalidity and could likely come up with myriad arguments." The Court noted the argument that such a new defense could prove useful to combat "frivolous" cases brought by so-called "patent trolls"; however, the Court stated that the district courts have within their arsenal tools to combat such suits, including the imposition of attorney sanctions and fee awards, and concluded that "[t]hese safeguards, combined with the avenues that accused inducers have to obtain rulings on the validity of patents, militate in favor of maintaining the separation expressed throughout the Patent Act between infringement and validity. This dichotomy means that belief in invalidity is no defense to a claim of induced infringement." (Emphasis added.)

See here to read the 5/26/15 U.S. Supreme Court decision in Commil USA, LLC v. Cisco Systems, Inc.

Akamai Technologies, Inc. v. Limelight Networks, Inc.: On August 13, 2015, the Federal Circuit, sitting en banc, unanimously expanded the scope of direct infringement under § 271(a) of the Patent Act in situations where all the steps of a claimed method are not actually being performed by the accused infringer, holding that an entity will be held liable for the performance of method steps by others if (1) the entity directed or controlled the others' performance, or (2) the entity and the others are part of a joint enterprise. Relevant facts/procedural history: Akamai Technologies, Inc. (Akamai) sued Limelight Networks, Inc. (Limelight) in district court in 2006 alleging infringement of its patents that claim methods for delivering content over the Internet. At trial, it was established as a matter of fact that Limelight's customers, and not Limelight, perform the "tagging" and "serving" steps in the claimed methods. The jury found Limelight liable for direct infringement of Akamai's patent. Post-trial motions and legal posturing ensued, resulting in the judge granting Limelight's motion for reconsideration and ruling as a matter of law that Limelight could not be found liable for direct infringement as it did not perform all of the steps in the claimed methods. On rehearing, an en banc panel of the Federal Circuit reversed and remanded. Analysis and holding: The Court began by pointing out that the case was before the en banc panel on remand from the Supreme Court, which in 2014 had asked the Federal Circuit to "revisit the Section 271(a) question" due to the "possibility [we] had erred by too narrowly circumscribing the scope of Section 271(a)." The Court went on to state that "we hereby avail ourselves of that opportunity" and "unanimously set forth the law of divided infringement under 35 U.S.C. § 271(a)." The Court held that "[d]irect infringement under § 271(a) occurs where all steps of a claimed method are performed by or attributable to a single entity….Where more than one actor is involved in practicing the steps, a court must determine whether the acts of one are attributable to the other such that a single entity is responsible for the infringement. We will hold an entity responsible for others' performance of method steps in two sets of circumstances: (1) where that entity directs or controls others' performance, and (2) where the actors form a joint enterprise." (Emphasis added.) Applying these principles to the facts of the case, the Court held that "the facts Akamai presented at trial constitute substantial evidence from which a jury could find that Limelight directed or controlled its customers' performance of each remaining method step. As such, substantial evidence supports the jury's verdict that all steps of the claimed methods were performed by or attributable to Limelight. Therefore, Limelight is liable for direct infringement."

See here to read the 8/13/15 Federal Circuit decision in Akamai Technologies, Inc. v. Limelight Networks, Inc.

Suprema, Inc. v. International Trade Commission: On August 10, 2015, the Federal Circuit, sitting en banc, overturned a decision by its own panel and held that the International Trade Commission (ITC) has the power to exclude goods whose mere importation does not infringe a patent, but whose use by the importer afterwards directly infringes the patent at the inducement of the seller of the goods. Relevant facts/procedural history: In 2010, Cross Match Technologies, Inc. (Cross Match) filed a complaint with the ITC, alleging infringement of four of its patents involving fingerprint scanning devices. Upon investigation, the ITC administrative law judge (ALJ) found that the allegedly infringing machines were manufactured abroad by Suprema, Inc. (Suprema), a Korean company that makes hardware for scanning machines. Suprema's machines, however, needed software to function and Suprema included instructions for software installation with its machines. The machines were then imported into the United States by Suprema and Mentalix Inc. (Mentalix), a U.S.-based company that writes the custom software needed to operate Suprema's machines. After importation, Mentalix added its software to Suprema's machines and sold the "combined" scanners to U.S. customers, and it is at that point that the ALJ found the direct infringement of Cross Match's patents to have occurred. The ALJ found Suprema and Mentalix to be in violation of Section 337 of the Tariff Act of 1930, which declares it unlawful to import "articles that . . . infringe a valid and enforceable United States patent," interpreting Section 337 to apply in situations where, as here, the actual direct infringement was not committed until after the goods were imported. The ALJ issued a limited exclusion order barring the importation of Suprema's machines as well as a cease and desist order preventing Mentalix from selling the combined scanners in the United States. In 2011, the ITC affirmed the ALJ's decision regarding direct infringement and further found Suprema to be liable for induced infringement for encouraging Mentalix to add its software to the machines and sell them in the United States. On appeal to the Federal Circuit, the majority panel vacated the ITC's decision and orders, holding that Section 337 is "temporal" and requires direct infringement to be measured at the time of importation, i.e., if there is no direct infringement at the time of importation, then there are no "articles that infringe" under Section 337 and thus no violation of that statute. Crosshatch and the ITC petitioned the Federal Circuit for rehearing en banc. The en banc panel vacated and remanded, finding that the ruling of its panel overturning the ITC's interpretation of Section 337 "effectively eliminated trade relief under Section 337 for induced infringement and potentially for all types of infringement of method claims." Analysis and holding: The question before the en banc panel was whether "the [ITC] correctly concluded that unfair trade acts covered by Section 337 include the importation of articles used to infringe by the importer at the inducement of the articles' seller." The Court stated that "because Section 337 does not answer the question before us, the Commission's interpretation of Section 337 is entitled to Chevron deference," i.e., the principle of administrative law established by the U.S. Supreme Court in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., that requires courts to defer to "reasonable" interpretations of statutes made by the governmental agencies charged with enforcing them. Applying Chevron deference to the situation at hand, the Court held that "the Commission's interpretation that the phrase 'articles that infringe' covers goods that were used by an importer to directly infringe post-importation as a result of the seller's inducement is reasonable. Accordingly, we return the case to the panel for further proceedings consistent with this opinion." (Emphasis added.)

See here to read the 8/10/15 Federal Circuit decision in Suprema, Inc. v. International Trade Commission.

Trademark Cases:

Multi Time Machine, Inc. v. Amazon.com, Inc.: On October 21, 2015, the Ninth Circuit reversed itself and withdrew its earlier July 6, 2015, opinion in which it had held that it is a question of material fact for a jury to decide as to whether online retailer Amazon.Com, Inc. (Amazon) created a likelihood of consumer confusion through the format of its product search returns. This time around, the Court held that, because the search results returned by Amazon "clearly labeled the name and manufacturer of each product offered for sale and even included photographs of the items, no reasonably prudent shopper accustomed to shopping online would likely be confused as to the source of the products." Relevant facts/procedural history: Multi Time Machine, Inc. (MTM), the manufacturer of high-end, military-style watches trademarked as "MTM Special Ops," sued Amazon in federal district court seeking injunctive relief and alleging that Amazon had infringed MTM's trademark in violation of the Lanham Act by formatting its search results so as to create a likelihood of consumer confusion. The facts that drove MTM to file suit show that, even though MTM Special Ops watches were not sold by Amazon, a search of "MTM Special Ops" on the Amazon website would return a page showing the trademarked name "MTM Special Ops" three separate times in and below the search field as well as the phrase "Showing 10 Results," after which were displayed similar multi-function watches manufactured by MTM competitors, including Luminox and Chase-Durer. At no time in the search process did Amazon admit that it didn't carry MTM's watches. The district court judge granted Amazon's motion for summary judgment, finding as a matter of law that Amazon's use of MTM's trademark in this manner did not create a likelihood of confusion. On July 6, 2015, the Ninth Circuit, in an opinion written by Judge Carlos T. Bea, reversed and remanded, holding that likelihood of confusion is a matter of material fact for a jury to decide. In that opinion, Judge Barry G. Silverman invoked the 1978 "Coke/Pepsi" skit from Saturday Night Live, among other things, to provide a lively dissent. On October 21, 2015, the Court withdrew its prior opinion and issued a new one that superseded and effectively reversed its July 6 holding and affirmed the district court's grant of summary judgment. This time, the majority opinion was written by Judge Silverman with Judge Bea dissenting. Analysis and holding: The question before the Ninth Circuit (both times) was whether the factual scenario set forth above regarding Amazon's search results methods constituted trademark infringement. In the October 21 opinion, the Ninth Circuit concluded that it did not. The Court acknowledged but differentiated its 1979 decision in AMF, Inc. v. Sleekcraft Boats, which established an eight-factor test for determining likelihood of confusion, stating that the Sleekcraft test is not "particularly apt" in this situation and that "the ultimate test for determining likelihood of confusion is whether a 'reasonably prudent consumer' in the marketplace is likely to be confused as to the origin of the goods." Thus, the Court stated, the case turned on "the answers to the following two questions: (1) Who is the relevant reasonable consumer?; and (2) What would he reasonably believe based on what he saw on the screen?" The Court analyzed those two questions as related to the facts of the case and the applicable law, and held "[i]n light of Amazon's clear labeling of the products it carries, by brand name and model, accompanied by a photograph of the item, no rational trier of fact could find that a reasonably prudent consumer accustomed to shopping online would likely be confused by the Amazon search results. Accordingly, we affirm the district court's grant of summary judgment in favor of Amazon." (Emphasis added.)

See here to read the 10/21/15 Ninth Circuit decision in Multi Time Machine, Inc. v. Amazon.com, Inc.

Tiffany & Co. v. Costco Wholesale Corp.: On September 9, 2015, a district court judge in the Southern District of New York granted summary judgment to Tiffany & Co. (Tiffany) on its trademark infringement claim against Costco Wholesale Corp. (Costco), finding as a matter of law that Costco's sale of rings advertised as "Tiffany" settings gave rise to a likelihood of confusion and that "Tiffany" is not a generic term so as to enable Costco to claim fair use. Relevant facts/procedural history: Tiffany sued Costco in 2013 for trademark infringement under the Lanham Act based on the unauthorized use by Costco of various "Tiffany" trademarks in connection with the sale of rings in Costco's wholesale retail stores, alleging that Costco's use of the Tiffany trademarks to sell non-Tiffany rings gave rise to a likelihood of consumer confusion. Costco countersued, seeking a declaratory judgment that the name "Tiffany" is a generic term for a distinctive type of ring setting and, as such, Costco's exploitation in this context constituted fair use. The parties filed cross-motions for summary judgment. The Court granted Tiffany's motion for summary judgment in its entirety. Analysis and holding: The Court held that "[b]ecause Tiffany has proffered credible evidence establishing both: (1) that it owns a validly registered mark; and (2) that Costco's use of that mark is likely to cause confusion, and because Costco has failed to proffer contrary evidence that raises a disputed issue of fact with respect to either prong of the Lanham Act infringement analysis, the Court grants Tiffany's motion for summary judgment insofar as it seeks a finding of Costco's liability for trademark infringement." (Emphasis added.) The Court further granted Tiffany's motion with respect to Costco's liability for "trademark counterfeiting" under the Lanham Act, and rejected Costco's counterclaims alleging "genericism" and fair use.

See here to read the 9/9/15 S.D.N.Y. decision in Tiffany & Co. v. Costco Wholesale Corp.

Copyright Case:

Minden Pictures, Inc. v. John Wiley & Sons, Inc.: On July 29, 2015, the Ninth Circuit held that, under the "divisibility principle" embodied in the Copyright Act, a licensing agent for individual photographs had standing to sue a textbook publisher for unauthorized use of the photographs, even though the individual photographers retained the right to personal and limited commercial use thereof. Relevant facts/procedural history: Minden Pictures, Inc. (Minden), a stock photography company that serves as the licensing agent for dozens of wildlife and nature photographers, sued textbook publisher John Wiley & Sons, Inc. (Wiley) in federal district court in 2012 for copyright infringement, alleging that Wiley had exceeded the scope of the licenses granted to it by Minden for certain photographs by publishing far more copies of books (over 100,000) containing those photographs than permitted under the licenses (20,000). The facts show that Minden had entered into agency agreements (Agency Agreements) with each of the affected photographers that, in relevant part, contained an "authorization" clause in which the photographers agreed to appoint Minden as the "sole and exclusive agent and representative with respect to the Licensing of any and all uses of Images" in the relevant territory; "Licensing" was defined as "the marketing, grant, lease, sale, use or other exploitation of reproduction rights to an Image." The Agency Agreements also granted Minden "the unrestricted, exclusive right to distribute, License, and/or exploit the Images . . . without seeking special permission to do so." The district court granted Wiley's motion for summary judgment, holding in relevant part that the Agency Agreements did not confer sufficient property interest in the photographs to Minden and thus Minden did not have standing to sue under the Copyright Act. The Ninth Circuit reversed and remanded. Analysis and holding: The question before the Ninth Circuit was "whether Minden, as a licensing agent, has statutory standing under the Copyright Act to bring an infringement suit based on alleged violations of the terms of its licenses to Wiley." The Court concluded that it does. The Court began its analysis of the applicable provisions of the Copyright Act, noting in relevant part that the Act "permits the copyright owner to subdivide his or her interest in what otherwise would be a wholly owned 'exclusive right' by authorizing the owner to transfer his or her share, 'in whole or in part,' to someone else." The Court went on to note that "[i]t is established law under the [Copyright Act] that any party to whom such a right has been transferred—whether via an assignment or an exclusive license—has standing to bring an infringement action based on that right." The Court stated that it was not in dispute that "the Agency Agreements transferred an interest in a legally cognizable right in the photographers' copyrights," but it fell to the Court to determine the type of interest that was conferred. The Court agreed with Wiley that the photographers did not assign their copyrights to Minden under the Agency Agreements; in fact, the Agency Agreements contained a provision whereby the photographers retained the "sole and exclusive" owners of the copyrights. The Court disagreed with Wiley, however, that because the photographers had retained certain personal and commercial licensing rights in the photographs, the licenses granted to Minden under the Agency Agreements were rendered nonexclusive. The Court pointed out that, under the Copyright Act, "a single copyright, or right thereunder, may be divided between parties, with each co-owner entitled to sue to protect his or her interest in the right" and "[w]e see no reason why the divisibility principle should not apply with equal force when the interest granted is an exclusive license to grant licenses to others." The Court thus concluded that "[b]ecause we conclude that the Agency Agreements convey the rights to reproduce, distribute, and display the photographs to Minden via an 'exclusive license' to grant licenses to third parties, we hold that Minden may bring an infringement action to remedy the unauthorized reproduction, distribution, and display of the photographs by those to whom it has granted licenses." (Emphasis added.)

See here to read the 7/29/15 Ninth Circuit decision in Minden Pictures, Inc. v. John Wiley & Sons, Inc.

Contract Law 101:

VDF FutureCeuticals, Inc. v. Stiefel Labs., Inc., et al.: On July 10, 2015, the Seventh Circuit held that a sublicensee of patent and trademark rights that purchased its sublicensor in order to reduce the royalties it owed to the original licensor was not prohibited from buying the sublicensor company in the absence of a specific written prohibition in the original license agreement. Relevant facts/procedural history: Plaintiff VDF FutureCeuticals, Inc. (VDF) is the owner of patent and trademark rights in "CoffeeBerry," an extract from the whole fruit of the coffee plant. In 2004, VDF entered into a license agreement with defendant J&J Technologies, LC (J&J) that licensed it to manufacture and sell CoffeeBerry-based skin care products for which it paid VDF either a "running royalty" ranging from 15%-33% of revenues from the sale of the products by J&J or any sublicensee or a specified quarterly royalty in the event the running royalties did not meet stated targets. The facts show that the license agreement contained an anti-assignment provision requiring VDF's written consent for any assignment, but there was no provision addressing a change of control of J&J, an omission the Seventh Circuit found to be "critical." In 2006, as was permitted under the agreement, J&J granted a sublicense to Stiefel Laboratories, Inc. (Stiefel), a subsidiary of GlaxoSmithKline. In 2010, J&J's three owners sold their stock in J&J to Stiefel for $8.5 million, whereupon J&J became a wholly owned subsidiary of Stiefel. Stiefel then caused J&J, its sublicensor, to reduce Stiefel's royalty obligations to VDF under the sublicense. A review of Stiefel's internal documents showed that Stiefel purchased J&J instead of taking an assignment of the VDF-J&J direct license agreement expressly because it wanted to lower the royalties it had to pay VDF without having to seek VDF's written approval. In 2012, VDF sued Stiefel alleging, among other things, breach of contract due to the "de facto assignment" of the J&J license agreement without VDF's consent as required by the anti-assignment clause in the contract. The district court judge granted Stiefel's motion for summary judgment with respect to the "de facto assignment" claim (and one other claim not discussed here), leaving VDF's other claims pending, and certified it for interlocutory appeal to the Seventh Circuit. Analysis and holding: The Seventh Circuit affirmed the district court's ruling, finding VDF's "de facto assignment" claim to be "without merit." The Court cited to established corporate law regarding change of control provisions and found VDF's failure to put such a provision in the written contract, in addition to the anti-assignment clause, to be "fatal": "A change in ownership is likely to result in a change in operations. That the change in how J&J was operated was adverse to the licensor's interests is why with clearer foresight VDF would have included restrictions in the license on changes in the ownership of its licensee, J&J." (Emphasis added.) The Court went on to explain that "[w]ere this not the rule, routine anti-assignment clauses would impede liquidity in the market for corporate control. Sizeable corporations are likely to be party to many contracts, often containing anti-assignment clauses similar to the one in VDF's license to J&J. Were such clauses interpreted to prohibit changes in the control of an acquired corporation, acquirers (such as Stiefel in this case) would have to negotiate (and therefore pay something) for the consent of the licensors of the acquired corporation to any changes in the control of the licensee that the acquirer wanted to make."

See here to read the 7/10/15 Seventh Circuit decision in VDF FutureCeuticals, Inc. v. Stiefel Labs., Inc., et al.

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