PATENTS
The Patent and Trademark Office implemented the bulk of the landmark Leahy-Smith America Invents Act (H.R. 1249,
PATENT REFORM:
America Invents Act Nearing Full Implementation.
Enactment of the America Invents Act was the biggest patent news of 2011, but its most comprehensive provisions were scheduled for implementation Sept. 16, 2012, and March 16, 2013.
The Patent and Trademark Office’s decisions on how to conduct the AIA-enabled post-grant opposition proceedings met with some resistance from the patent community, but no one faulted the agency for its efficiency in meeting the 2012 due dates. And no one doubts that the office will be ready for the biggest change due this month.
New Ways to Challenge Applications, Issued Patents.
The major provisions that took effect in September give patent challengers opportunities to make their cases at the PTO instead of in court. Four different procedures were implemented:
• Preissuance submission of prior art. The AIA added, in Section 8, a means for third parties to submit prior art for consideration and inclusion in the record of a patent application after it is published but before an examiner has made a decision on its patentability. Under the PTO’s new Rule 290,
The PTO has not seen an overwhelming use of the opportunity, though. In particular, software firms had pushed for the provision, but so far have shown no greater use than other industries.
• Supplemental examination. The AIA does not directly address inequitable conduct jurisprudence, as had earlier versions of the patent reform bills. Instead, it adds a new procedure called “supplemental examination”—a form of reexamination initiated by the patent owner, but with a different purpose. The procedure allows the patent owner to make pre-litigation submissions to the PTO to potentially correct mistakes in disclosures during prosecution. Submissions of the patent owner taking advantage of that option could not then be used to counter an inequitable conduct charge in patent infringement actions.
Again, though, usage has been low.
• Inter partes review. Section 6 provided for a revised inter partes review procedure with a higher threshold—compared to the prior inter partes reexamination—for the PTO to accept a challenge.
A “bubble” of reexamination filings swamped the agency before the Sept. 16 changeover, mostly because of the higher prices for the AIA proceedings. However, IPR filings in January have been steady, close to the pace of inter partes reexamination filings before the bubble.
• Special attack on business method patents. Section 18 of the AIA set up a new “transitional program” specifically aimed at allowing post-grant review of “covered business method” patents. Any party may request a stay of a court proceeding pending completion of such a post-grant review proceeding.
Despite strong pressure by Wall Street firms to get this provision into the legislation, its use has been almost zero. As of Jan. 27, only 15 petitions had been filed and nine of those were filed by one company. None have been filed since Nov. 20.
Outlook: Wait-and-See View Apparent.
At best, those interested in invalidating business method patents are taking a wait-and-see attitude. That may not be true of IPR challenges, in view of the post-bubble pickup.
As of Jan. 29, 122 IPR petitions were filed, and the PTO granted the first of the IPR petitions mid-January. The newly named Patent Trial and Appeal Board is likely to make its first patentability decisions in the summer, and whether it generally rules in favor of the patentee or the challenger will determine whether the rate of filings picks up further after that.
One other challenge—post-grant review—will not be available until well into 2013. PGR is also known as a “first window” challenge, allowed within nine months of an issued patent on any ground. In contrast, an IPR petition—generally available only after the nine-month window—can only challenge based on prior art.
PGR is only available for patents for which an application was filed on or after March 16. When Congress was alerted to the possibility that those patents would not be available for either a PGR or IPR challenge without a nine-month wait, it passed and the president signed an AIA “technical amendment” that will allow IPR petitions in that “dead zone.”
PGR should then become a more important option only as 2013 comes to a close.
First-Inventor-to-File Biggest Change.
The most controversial reform enacted under the AIA converts the United States from a first-to-invent to a first-inventor-to-file system. Under FITF, proponents say, patent ownership and rights will be more reliable, more transparent, and less susceptible to undesirable litigation tactics.
To accomplish this feat, Section 3 of the AIA replaces Section 102 of the Patent Act,
Additionally, Congress shielded from potential infringement liability those first inventors who might have reasons not to file a patent application but who have already commercialized their inventions. Section 5, “Defense to infringement based on prior commercial use,” expands the prior user rights infringement defense for such inventors under
Prior user rights will now apply to any technology, with commercial activity also including “premarketing regulatory review” for drugs and “nonprofit laboratory use” such as in a university or hospital. However, the revised Section 273 will generally not allow the defense against patents owned by institutions of higher education.
Finally, new Section 102(b) of the Patent Act provides for a grace period, excepting from prior art “[a] disclosure made 1 year or less before the effective filing date of a claimed invention” by the inventor.
Outlook: New Prior Art Rulings Will Matter.
It is likely that 2013 will see the first of many challenges resulting from ambiguities in the AIA, probably no more so than in the definitions related to FITF.
For example, the new Section 102 also expands the definition of prior art and in doing so, creates some ambiguity in terms of what “disclosures” qualify as prior art.
As the first FITF-filed patents are issued, attempts to invalidate them will cite employee blog posts and tweets as “disclosures.” The PTO first, and then the courts, will have to wrestle with related arguments, if the disclosures fell within the grace period.
Consequently, many patent agents and attorneys prepared for FITF in 2012 because grace period and prior user right issues extended back into 2012. Inventors should already be in the process of changing invention recording and disclosure procedures, including but not limited to provisional and foreign patent application filings.
Those without such preparations will be put to the test of having to defend patents against new sources of prior art and new patent-defeating arguments in 2013.
PTO Flexes Its Fee-Setting Muscle.
Finally, most patent community stakeholders—the Intellectual Property Owners Association was a notable exception—were pleased that Section 10 of the AIA gave the PTO fee-setting authority, allowing the agency to cover its costs in the aggregate without having to go to Congress for approval.
They were not so happy after the PTO announced its planned fees. First, the PTO set fees for the new post-grant procedures beginning at $27,500 and increasing rapidly based on the number of claims challenged. It also set the total fees for patent application filing, search, and examination to rise from $1,250 for a large entity to $1,600, a 28 percent increase.
By the time the final rule for fees was announced, the PTO did give in on a couple of points. In its original proposals, the agency had built into its aggregate costs a three-month operating reserve. In the final rule, the PTO said it would wait until 2018 to reach that reserve level. It also pushed back backlog and pendency goals by one year. The combined effect allowed the office to reduce several fees on some individual services, such as backing off a little on its increase in the fee for ex parte reexamination.
Outlook: New Fees, Micro Entity Discount Ahead.
Most of the fees will become effective March 18, though a few of the rules won’t take effect until Jan. 1, 2014.
Coupled with the unknowns of the change to the FITF system, the agency expects another bubble, this time in patent applications, just before the March 16 changeover date. Inventors and patent prosecutors are now weighing whether benefits of FITF apply to their individual cases and justify the extra expense.
The AIA also created a new “micro-entity” category of applicants—individuals and small businesses that file few applications and have revenue below a certain threshold. Such applicants will get a 75 percent reduction on most patent fees. The PTO clarified its rules for determining micro-entity status, such as the nonprofit status of inventors connected to “an institution of higher education.”
Micro-entity discounts will be available March 19.
OTHER PATENT LEGISLATION:
Patent Law Treaties Approved
Other than the aforementioned AIA technical amendment, only one other piece of patent legislation was enacted in 2012. President Obama signed into law Dec. 18 the Patent Law Treaties Implementation Act of 2012, S. 3486, amending the Patent Act to implement two treaties: the Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs, and the Patent Law Treaty.
The Patent Law Treaty limits and synchronizes patent application filing formalities among signatory countries. Under the Hague system, U.S. applicants can apply for design patent protection in all member countries by filing a single application at the PTO.
Outlook: Will 2013 See More Legislation?
The 112th Congress ended with several patent-related bills on the table. It is likely that most will be resubmitted in 2013, but those that have received the most debate in prior sessions of Congress will undoubtedly wait to see if courts can resolve the underlying issues.
Reverse payment drug settlements. The Preserve Access to Affordable Generics Act (S. 27) was introduced by Sen. Herbert H. Kohl (D-Wis.) Jan. 25, 2011, and approved by the Senate Judiciary Committee July 21. The bill addresses so-called reverse payments, whereby a brand name drug manufacturer, to settle a lawsuit by a generic drug maker challenging the underlying patent, pays the generic manufacturer to keep its version off the market for some time.
As noted below, though, the Supreme Court will rule before June a case in which the Federal Trade Commission—a frequent critic of the settlements—challenges an agreement related to the testosterone drug AndroGel.
Abuse of ITC exclusion orders. Perhaps slightly more likely to move through Congress would be a bill that relates to the “domestic industry” requirement for an exclusion order at the International Trade Commission. Both houses took particular interest in 2012 on the perceived problem that non-practicing entities, shut out from injunctions in federal court after eBay Inc v. MercExchange L.L.C.,
A related issue involves standard-essential patents. Again courts have not been kind to owners of these patents, which are infringed simply by following a public standard, and again SEP owners have gone to the ITC for help.
Though legislators were definitely engaged in the problems presented by witnesses in three different hearings, they chose to wait while both the Federal Circuit and Supreme Court were considering related cases. However, the high court denied a cert petition in John Mezzalingua Associates Inc. v. International Trade Commission Oct. 9, and the appeals court denied on Jan. 10 a rehearing petition in a case directly on point, InterDigital Communications L.L.C. v. International Trade Commission, discussed below.
Consequently, it would not be surprising at all to see the 113th Congress decide that it must give attention to modifying the statute underlying the ITC’s jurisdiction, Section 337 of the Tariff Act of 1930,
PATENT AND TRADEMARK OFFICE:
Director Kappos Retires.
After three-and-a-half years as head of the PTO, Director David J. Kappos stepped down Feb. 1, 2013.
There is no doubt Kappos turned the agency around in two important ways. He repaired relations with patent prosecutors reeling from the prior administration’s failed attempt to change patent claiming and continuation practice rules. Kappos also fostered a closer partnership between PTO management and the examiners’ union. The higher morale at the office is evident to any stakeholder who visited the agency before and after Kappos’s tenure.
The potential problem ahead? As with all government agencies, sequestration is expected to force a decrease in spending at the agency. Even though the PTO is self-funding, the agency “has been deemed subject to sequestration,” said a Dec. 12 budget update from Tony Scardino, PTO’s chief financial officer.
Staffing Increases.
Kappos was instrumental in passage of the America Invents Act for good reason: The grant of fee-setting authority to the PTO allowed the agency to staff up in both the examiner corps and on the Patent Trial and Appeal Board. He will thus leave the office in better shape as to its capacity to handle patent applications, appeals, and AIA-enabled challenges.
The number of examiners in August 2009, when Kappos took office, was 6,038. As of the end of 2012, it had increased by 28 percent to 7,808. The number of administrative law judges was under 100 before the AIA’s 2011 enactment date. As of Jan. 14, the PTAB had 164 judges and is well on its way to reaching its goal of 200.
The increases were possible because the agency proposed—and its proposal was not seriously questioned—to make aggressive moves to lower the backlog and pendency and to prepare for a large number of filings of post-grant opposition petitions. The increase in aggregate costs needed to meet those performance goals was then built into the fee increases the AIA allowed, and budgeting for the fee increases enabled the new hires.
The effect on backlog and pendency is clear. For example, the one-time high of over 760,000 unexamined applications in January 2009 has been reduced to just over 600,000 at the end of 2012, a 21 percent decrease.
The PTAB judges, though, have not had a large slate of opposition petitions to handle (see above). Instead—and the patent community should be pleased—they have been able to attack an appeal backlog that was becoming as daunting as the application backlog. The number of ex parte appeals remained level at over 26,000 by the end of September 2012, reversing an alarming upward trend that began after fiscal year 2008, when the inventory was under 4,000.
Satellite Offices.
In another development, the AIA authorized the establishment of at least three satellite offices of the PTO, and the agency is well on its way to beginning operations in four.
The first, in Detroit, opened July 13, and the agency named Dallas, Denver, and Silicon Valley as additional cities July 2.
The Denver and Dallas specific sites have been identified. Michelle K. Lee, former deputy general counsel and head of patents and patent strategy at Google Inc., began service as the Silicon Valley office’s director, though a preferred San Jose, Calif., location has yet to be named.
Other.
The following developments at the PTO are also noteworthy:
- The office published supplementary examination guidelines for compliance with the indefiniteness provision at Section 112 of the Patent Act,
- The PTO was charged by the AIA with publishing a report on whether Congress should act to ease patient access to a second opinion as to a genetic diagnostic test when the test is covered by a patent. The agency held three public roundtable discussions on the topic, each revealing a deep divide on the issue. No due date has been defined.
- The PTO and European Patent Office formally implemented the Cooperative Patent Classification system, a common coding of technical subject matter, that they expect will increase efficiency in the patent examination process.
- So-called “Track 1” prioritized application processing became a popular option, despite the extra $4,000 fee. A new reason to consider this fast track arose as well: Because a decision on an application will be rendered within a year—prior to the 18-month mandatory publication—those third parties who might be able to identify pre-issuance prior art will have no option to submit the references before the patent is granted.
Outlook:
There is no reason to expect any changes in PTO operations or efficiency after Kappos’s departure. Deputy Director Teresa Stanek Rea will head the agency until Kappos’s replacement is named, which is likely to await Obama’s filling the Commerce secretary slot first. Rea is a respected member of the patent community and is rumored to be on the list of possible candidates.
The only possible sticking point as to PTO efficiency would be an explosion of petitions filed on the AIA-enabled oppositions. As noted previously, the patent community is taking a wait-and-see attitude, though, hoping to see first PTAB decisions that show challengers have a reasonable likelihood of success.
With a new rapprochement with the patent community and the PTO union, and new examiners and APJs coming up to speed ahead of any increases in filing or petition activity, stakeholders should be optimistic that recent improvements at the agency will continue to lead to quicker and more accurate turnaround to their requests.
The move to a first-inventor-to-file system cannot be taken lightly, though. With new definitions of prior art under Section 102, examiners’ learning curve as they start to apply the AIA changes will be worth watching.
PATENT LITIGATION:
Patent Eligibility Questions Top List.
The mobile phone patent wars dominated the mainstream news in 2012. However, while more dollars may be at stake in that industry, and while developments on that front affected jurisprudence in unexpected ways, the most controversial patent law questions arising in 2012 involved the biotechnology and information technology industries.
The Supreme Court remains active in patent law, ruling on another three cases in 2012 and granting cert petitions on three more cases in 2013. The back-and-forth between the high court and the Federal Circuit has developed and will continue to develop jurisprudence on patent eligibility and the Hatch-Waxman Act.
Biotechnology. Patent eligibility under Section 101 of the Patent Act,
On March 20, the court surprised the patent community by unanimously overturning the Federal Circuit’s decision on the patent eligibility of method claims directed to medical diagnostics. The court held that Prometheus Laboratories Inc.'s patent claims merely “inform a relevant audience about certain laws of nature; any additional steps consist of well-understood, routine, conventional activity already engaged in by the scientific community; and those steps, when viewed as a whole, add nothing significant beyond the sum of their parts taken separately.” Mayo Collaborative Services v. Prometheus Laboratories Inc.,
The direct impact of the decision, of course, was to put claims to patents in a certain area in personalized medicine—adjusting drug dosage based on a particular patient’s reaction—in jeopardy. But the decision had further ramifications in two cases the high court remanded to the Federal Circuit for reconsideration in light of Mayo.
The more publicized of the two cases is Association for Molecular Pathology v. Myriad Genetics Inc., which challenges under Section 101 patents on isolated DNA. On remand, the Federal Circuit pretty much ignored Mayo and the three-judge panel came to the same conclusions, with all three judges writing essentially the same three opinions that they had penned the first time.
The majority determined that isolated DNA has markedly different chemical characteristics compared to native DNA, and so is patent eligible as a composition of matter and is not a product of nature.
The American Civil Liberties Union and Public Patent Foundation, which instigated the declaratory judgment action in this case in 2009, filed another cert petition and the Supreme Court granted it Nov. 30.
Outlook:
Outside the patent and biotech communities, the Mayo decision was barely noticed. That is not so with the Myriad case, with its media-friendly question presented: Are human genes patentable?
The question vexes the biotech community in particular, since the Federal Circuit’s opinions, including the dissents, acknowledge that the claims are to a chemical isolated from native DNA. The concern is that the high court will ignore precedent that set the “markedly different characteristics” standard in light of arguments beyond the context of patenting compositions of matter: whether protecting the information content of DNA violates the First Amendment, or whether a bar to development of a confirming test for breast and ovarian cancer fails the preemption test of Section 101.
The biotech community believes that the United States has led the way in developing the technology because other countries denied patent protection on genetic materials. Any change to the PTO’s policy of granting such patents would cause a major disruption to the established business models in the industry.
Even the general patent community is concerned. A noted patent expert who uses a listserve for commentary has gone so far as to repeatedly beg Myriad, the patent holder, to issue a covenant not to sue the petitioners—who hardly represent competition—in the case, just to avoid a Supreme Court surprise that would affect patent law more generally.
The ACLU filed its brief on the merits Jan. 23. Myriad’s brief is due March 7. If that schedule is met, the high court will hear the case near the end of April, and the surprise, if any, will come in June.
Software. The second case remanded for reconsideration by the Federal Circuit was Ultramercial L.L.C. v. Hulu L.L.C.,
Ultramercial is an indicator of a conflict within the court on the patent eligibility of computer-implemented or internet-implemented methods and systems. It is difficult if not impossible to reconcile the case with CyberSource Corp. v. Retail Decisions Inc.,
However, both cases took a back seat as the appeals court decided to address the conflict by granting rehearing en banc of a 2-1 July 9 decision in CLS Bank International v. Alice Corp.,
Outlook:
The sides for and against software patenting are no less passionate about the CLS Bank case than the biotech community is about Myriad.
Briefing included 22 separate amicus briefs filed on behalf of IP law associations, internet and finance industry associations, and dozens of companies that either patent software or are often accused of infringing software patents. Opinions ranged from banning all software patents to setting a rule that all software is per se patent eligible.
The court heard oral argument on CLS Bank Feb. 8, 2013. Briefing was about equally divided, the parties presented fundamentally opposing views, and there was no evidence that the 10 judges of the judges were close to consensus on the patent eligibility of computer-related claims.
Challenging a PTO Rejection.
The Supreme Court agreed with the Federal Circuit in only one patent case in 2012, Hyatt v. Kappos,
The case involved the infrequently used path of challenging a patent application rejection by the PTO—to a district court, under
However, the court also agreed with the Federal Circuit that a judge may give lower weight to evidence that the applicant could have presented during patent prosecution.
Patent community stakeholders generally saw little impact in the decision, though. They told BNA in the aftermath of the decision that a patent applicant’s best chance is still at the PTO, and withholding information with the belief that it has a greater likelihood of success with a nonexpert district court judge is a mistake.
Hatch-Waxman Clarifications.
The Hatch-Waxman Act continues, 28 years after its passage, to cause problems in patent law jurisprudence. The act attempted to balance patent rights with a desire to get generic drugs to market as soon as possible. That balance is alternately challenged by brand name and generic drug makers, with federal courts interpreting Congress’s intent.
On April 17, the Supreme Court addressed one relatively small issue, when a company wants to introduce a generic version of a drug protected by patents only on methods of use. Caraco Pharmaceutical Laboratories Ltd. asked the Food and Drug Administration to approve a drug for unpatented uses, forming the basis for the conflict in Caraco Pharmaceutical Laboratories Ltd. v. Novo Nordisk A/S,
The court overturned a 2-1 Federal Circuit opinion in the case, holding that a Hatch-Waxman counterclaim provision allows a generic drug manufacturer to force the FDA to make appropriate changes favoring Caraco.
But another Hatch-Waxman issue with greater impact arose at the Federal Circuit, related to the “safe harbor” provision,
Momenta Pharmaceuticals Inc. v. Amphastar Pharmaceuticals Inc.,
The dissent in that case had been in the majority, though, in Classen Immunotherapies Inc. v. Biogen Idec,
A cert petition was filed in Classen and the Supreme Court asked for the views of the solicitor general. The government recommended cert denial. The SG said that Classen was a “misguided” decision, but that the Federal Circuit “cabin[ed] the adverse impact of that decision” through its later decision in Momenta.
The Supreme Court denied the petition Jan. 14, 2013.
Outlook:
It would be an overstatement to say that Momenta ended the controversy on this issue. First of all, patent owner Momenta Pharmaceuticals Inc. on Feb. 21, 2013, filed a cert petition in that case. And at least part of the SG’s reason for recommending against cert was that Classen was an inappropriate vehicle for review.
Second, the patents at issue in the two cases were directed to different statutory categories—a vaccine composition in one and methods of analyzing and monitoring products in the other—such that exactly which post-approval activities are exempted is still uncertain.
And because brand name and generic drug companies battle for every inch of turf, the Hatch-Waxman Act is a gift that keeps on giving. The Supreme Court, in fact, agreed to handle in 2013 yet another issue—so-called “pay-for-delay” settlements.
Reverse Settlements.
This issue did not percolate up from the Federal Circuit. It represents a circuit split on an antitrust issue, but patents are the key underlying factor.
Under Hatch-Waxman, a generic drug maker files an abbreviated new drug abbreviation that asserts either that the drug will not infringe the brand name maker’s patent or that the patent is invalid. And under Hatch-Waxman, the branded manufacturer can sue for patent infringement based on the ANDA filing alone.
A reverse or pay-for-delay settlement occurs when the two companies agree that (a) the brand name firm will give money to the generic maker and (b) the generic maker will drop any patent validity challenge and agree not to market a generic.
The Federal Trade Commission has fought these agreements at the commission level and in federal courts. Until 2012, the appellate courts generally approved the agreements. The Third Circuit on July 16 in In re K-Dur Antitrust Litigation,
The FTC had lost in the Eleventh Circuit April 25 in Federal Trade Commission v. Watson Pharmaceuticals Inc.,
The high court will hear oral argument March 25. The court’s decision will either please or upset the brand name and generic firms alike, though, since the key industry associations representing each group support the settlements.
Joint/Induced Infringement Liability.
One issue with a better than average chance to see a cert grant in 2013 came from the 6-5 decision Aug. 23 by the Federal Circuit, sitting en banc, on joint or divided infringement and its relationship to induced infringement liability. Akamai Technologies Inc. v. Limelight Networks Inc.,
Liability for patent infringement is governed by Section 271 of the Patent Act,
The two cases at issue here were largely fought on the question of divided infringement of a method claim—liability for direct infringement by the combined acts of more than one party. The court’s precedent on joint liability since 2007 has made it difficult to find direct infringement when some of the steps of the claim were performed by one party and the remaining steps by a second party.
The decision left the difficult-to-meet joint infringement standards intact, but ruled that two patent owners, Akamai Technologies Inc. and McKesson Technologies Inc., can show induced infringement without having to show that a single party performed all the steps of the method claim.
Outlook:
Two petitions for certiorari were filed by the losing parties just after the new year.
The petitions present essentially the same question, succinctly phrased in alleged infringer Epic Systems Corp.'s brief: “Whether a defendant may be held liable for inducing infringement of a patent that no one is liable for infringing.”
Cert may be granted because the divide in the court’s analysis was so deep.
One dissenting opinion called the new standards “dramatic changes in the law of infringement.” Another faulted the majority for “assum[ing] the mantle of policy maker” and defining infringement to “mean different things in different contexts.”
While such passionate criticisms are not unusual for the Federal Circuit, the divergent views on the connection between the Section 271 subsections present the high court with a substantive question of statutory interpretation that the appeals court is apparently unable to resolve completely on its own.
Claim Construction.
The Federal Circuit continued to engage in an internal fight over patent claim construction on two grounds: lack of deference to the district court’s judgments and the extent to which the specification informs interpretation of claim terms. Both issues came to a head in one case, but the Supreme Court passed on a chance to resolve them.
In 2011, the majority and dissent came up with different interpretations of the term “one body,” used to describe retractable syringes, in Retractable Technologies Inc. v. Becton, Dickinson & Co.,
Called on to express the government’s views, the solicitor general said that the appeals court has “hewed closely” to the Supreme Court’s decisions on “the extent to which we should resort to and rely on a patent’s specification in seeking to ascertain the proper scope of its claims.” The Federal Circuit’s failure to agree unanimously on the meaning of particular claim terms—as in this case—“does not signal a defect in the rules themselves,” according to the government’s brief.
The high court denied review, but the problems linger. The appeals court issued precedential decisions at least five times in 2012 with a split on claim construction based at least in part of different interpretations of terms in light of the specifications.
Outlook:
The court is now down to nine active judges, which means only five are needed to agree to en banc review. To date, Chief Judge Randall R. Rader and Judges Kimberly A. Moore and Kathleen M. O’Malley have expressly called on their colleagues to reconsider their de novo review of lower court claim construction judgments.
Offering deference to district court judgments—nonexistent since Cybor Corp. v. FAS Technologies Inc.,
Whether two more judges on the court are disturbed enough with Cybor to call for en banc review remains to be seen. The court will have a chance to make that decision soon, as a request for rehearing en banc was submitted in Lighting Ballast Control v. Philips Electronics, challenging a panel’s nonprecedential claim construction decision. No. 2012-1014,
Patent Attorney Malpractice.
The Supreme Court took one more patent case that will result in a 2013 decision. The case is tangentially related to the claim construction issues, in that it challenges the Federal Circuit’s reach in asserting its predominant role in patent law jurisprudence, but it came up from Texas state courts.
The high court heard oral arguments Jan. 16 on whether lawsuits claiming patent attorney malpractice should always, sometimes, or never be heard in federal court. Gunn v. Minton, No. 11-1118 (U.S., argued Jan. 16, 2013).
The case involved a petitioner seeking reversal of a Texas Supreme Court decision moving jurisdiction of a patent attorney malpractice complaint to federal court. The alleged malpractice was inadequate representation of the patent owner’s arguments in an infringement litigation. The Texas court determined that the action belonged in federal court.
The question presented challenges “the Federal Circuit’s mistaken standard” that “state law legal malpractice claims against trial lawyers for their handling of underlying patent matters come within the exclusive jurisdiction of the federal courts.”
The Federal Circuit has addressed the issue in recent cases, such as in Byrne v. Wood, Herron & Evans L.L.P.,
There was no clear evidence of how the high court would rule based on the questions at oral argument.
Self-Replicating Technologies.
Another case of interest to the biotech community—albeit not as flashy as Myriad—will be decided by the high court in 2013 as well.
Indiana soybean farmer Vernon Hugh Bowman is appealing the Federal Circuit’s 2011 ruling affirming an infringement judgment in favor of Monsanto Co., which was enforcing its Roundup Ready patents. Monsanto Co. v. Bowman,
The Federal Circuit, however, rejected Bowman’s argument that the patent exhaustion doctrine applies. The court said the restriction was part of a conditional sale and did not implicate Monsanto’s patent rights.
Despite a recommendation by the Solicitor General to deny review, the court granted cert Oct. 5. Oral argument was heard Feb. 19.
Jurisdiction Over Interlocutory Appeals.
On Feb. 8, 2013, in addition to hearing CLS Bank, the Federal Circuit sitting en banc heard arguments in Robert Bosch L.L.C. v. Pylon Manufacturing Corp., No. 2011-1363. The court had agreed on its own motion Aug. 7 to consider the court’s jurisdiction over interlocutory appeals.
Interlocutory jurisdiction is governed by
- a) when a trial on damages has not yet occurred?
- b) when willfulness issues are outstanding and remain undecided?
The issue arose in the instant case because the lower court bifurcated the case and scheduled a separate damages trial, which has yet to take place.
Other Issues.
The Federal Circuit issued over 140 precedential decisions in 2012. In two areas, it seems as though a door has closed.
• False patent marking. The America Invents Act killed false patent marking suits in their tracks with a retroactive bar against “qui tam” complaints by private citizens. The Federal Circuit rejected claims that the retroactivity was unconstitutional on Dec. 13 in Brooks v. Dunlop Manufacturing Inc.,
• Inequitable conduct. Therasense Inc. v. Becton Dickinson & Co.,
But while the plague ended, inequitable conduct is still a viable doctrine. The court affirmed on April 9 a lower court’s inequitable conduct judgment against drug maker Sanofi-Aventis in Aventis Pharma S.A. v. Hospira Inc.,
Meanwhile, district courts certainly had their fair share of media attention. It was Apple Inc. versus the world, it seemed, in the mobile phone patent wars of 2012. The mainstream media focused on the $1 billion damages award in Apple v. Samsung and Judge Richard Posner’s criticism of software patents in the Apple v. Motorola case and afterward. But each case stood for something more.
Below are just a few of the highlights of 2012 that are likely to reach the Federal Circuit in 2013.
• Apple and the rise of the design patent. Design patent advocates were particularly heartened by the possibility that Apple could get an injunction against Samsung Electronics Co. based on infringement of its designs, when it could not do so for utility patents, which covered only a small piece of mobile phone usage. However, Judge Lucy Koh of the U.S. District Court for the Northern District of California backed off on an injunction on Jan. 29, 2013. Apple Inc. v. Samsung Electronics Co., No. 5:11-cv-01846-LHK (N.D. Cal.). This issue is ripe for Federal Circuit consideration in 2013.
• Motorola and standard-essential patents. Also likely to hit the Federal Circuit’s docket in 2013 is the question of whether an owner of a “standard-essential patent” (see above) can get an injunction in a patent infringement case, which Posner rejected in Apple Inc. v. Motorola Inc.,
• The ITC and the domestic industry inquiry. As noted previously, the ITC’s rulings on what constitutes a “domestic industry,” important to the extent that it allows actions initiated by non-practicing entities, is an open question going into 2013. Most recently, on Jan. 10, 2013, the Federal Circuit denied a request for rehearing en banc and reissued a panel decision, ruling 2-1 that a patent licensor can meet the domestic industry requirement to pursue an ITC exclusion order even if its licensees manufacture patented products overseas. InterDigital Communications L.L.C. v. International Trade Commission, No. 2010-1093 (Fed. Cir. Jan. 10, 2013).
Outlook:
These cases present a small sample of the issues addressed by the Federal Circuit in 2012 and that will be high on the court’s 2013 agenda.
Expect more as well on the doctrine of equivalents, which seems to have been given a rebirth, and damages, as parties are still being creative in arguing the value of the harm in patent infringement.
And the patent community can speak as one in hoping that Congress will appoint a full 12-member court to meet the challenges ahead.
IP ENFORCEMENT
Lawmakers in the United States seemed to have little appetite for another heated debate on intellectual property enforcement in 2012 following the defeat early in the year of two rogue website bills, the Protect IP Act (S. 968) and the House’s Stop Online Piracy Act (H.R. 3261). Rather than searching for tools to allow rights holders to deal with the online piracy issue, Congress instead tweaked a few laws to allow for harsher punishment for violations of existing laws. Meanwhile, a number of reports and studies were released that attempt to quantify the importance of IP to the U.S. economy, and thus may be laying the groundwork for another legislative fight. In the absence of any new legislation, rights holders turned to voluntary agreements made with third parties to work to reduce counterfeiting and piracy in the digital arena. Whether these agreements will be effective is unknown, but the ability of rights holders and other key actors to work together is a promising sign in itself.
ONLINE PIRACY:
Rogue Website Bills Defeated.
Both S. 968 and H.R. 3261 sought, among other things, to provide rights holders and the U.S. government with the means to shut down foreign websites that make possible the wholesale infringement of copyrighted works.
The bills contained various other provisions—such as providing internet service providers, search engines, and payment processors safe harbor protection if they voluntarily took action against rogue websites—but what garnered the most opposition was the language that would have required ISPs to block infringing websites at the domain name system level. This remedy was only available in actions brought by the Office of the U.S. Attorney General, and even then, under the original language of both bills, such remedy would only be available after the issuance of a court order. Still, these provisions sparked intense opposition by critics that claimed that the DNS interdiction remedies chilled free speech, and even threatened the structural integrity of the internet. Even the White House chimed in on DNS blocking, stating that it would not support any bill that contained such a provision.
The massive opposition manifested in an internet blackout Jan. 18, 2012, in which many popular websites such as Wikipedia and Craigslist.org went dark, thus focusing the attention of millions of internet users on the controversial legislation. The blackout was credited with making at least 13 former co-sponsors of the bills withdraw their support of the legislation. Both bills were shelved shortly thereafter.
The Online Protection and Enforcement of Digital Trade Act, known as the Open Act, introduced in the Senate by Sen. Ronald L. Wyden (D-Ore.), and in the House by Rep. Darrell E. Issa (R-Calif.) was billed as an alternative to SOPA but it was no more successful than SOPA was at getting out of committee. The OPEN Act would have amended the Tariff Act of 1930 in order to grant jurisdiction over rogue websites to the International Trade Commission, which already has the authority to prevent the importation of goods that infringe on a U.S. company’s patents. Opponents claimed that the bill did not go far enough to solve the problem, and neither the Senate’s nor the House’s version of the bill received any hearings during the 112th Congress.
No new legislation that would target online piracy was introduced in 2012. However, that did not stop rights holders from making their case that the problems were real, and needed addressing. That case was a lot easier to make following the release in April of a Commerce Department report that found that IP-intensive industries directly accounted for 27.1 million American jobs. The report also calculated that IP-intensive industries account for about $5.06 trillion in value added, or 34.8 percent of U.S. domestic product.
The Chamber of Commerce followed up with a report of its own that broke down IP industry jobs on a state-by-state basis. Lawmakers speaking at the Chamber of Commerce event suggested that these sorts of studies will help rights holders regain control of the debate—control that they lost during the SOPA controversy. By detailing how IP stimulates the entire country’s economy, rather than just protecting Hollywood’s interests, these reports show the public how IP protection is a personal issue, the lawmakers said.
Critics, however, have faulted the reports for not taking into account how limitations and exceptions to IP rights also help the economy.
Outlook: New Bills Won’t Be as Robust as SOPA.
Lawmakers, still smarting from the defeat of SOPA, are not likely to introduce any sweeping new legislation in the near future. Rather, it is possible that some of the more useful, and less controversial, components of SOPA and the Protect IP Act will either be introduced on a piecemeal basis, or instead will be addressed through voluntary agreements.
The shake-up in the leadership of key House committees could also pave the way for some new legislation. Rep. Robert W. Goodlatte (R-Va.) took over as chairman of the full House Judiciary Committee. Goodlatte replaced Rep. Lamar S. Smith (R-Texas) who was the primary architect of SOPA. Although Goodlatte was also a cosponsor of the doomed legislation, he appeared to be more willing to work on some of the bill’s shortcomings than did Smith. Goodlatte has said that reducing online piracy will be high priority, but he said that any new legislative effort will need to start “completely from scratch.”
It is too early to tell what sorts of provisions a “from scratch” new bill will have, but in all likelihood the legislation will be substantially pared down from SOPA.
TRADE AGREEMENTS:
SOPA Defeat Emboldens Anti-ACTA Activists.
Although technically still alive, the Anti-Counterfeiting Trade Agreement may be destined for the scrap heap like SOPA and the Protect IP Act.
Formal discussions on ACTA began in 2008 under the Bush administration, with the goal of establishing a comprehensive international framework for combatting intellectual property rights infringement. The agreement will take effect if six signatories—either from among the eight initial signatories, or from parties that later sign the ACTA—ratify the agreement.
Representatives from eight governments, including Japan and the United States, signed ACTA in Japan October 2011, and Japan in September became the first—and to date only—country to ratify the agreement.
The treaty sparked widespread criticism, particularly in Europe, where online service providers and civil society groups insisted the treaty conflicts with current EU law and would lead to online censorship. Hundreds of thousands of Europeans—from Germany to the Baltics to Hungary—took to the streets to protest the agreement in February, and the groundswell of public opposition ultimately led to the European Parliament’s overwhelming rejection of the treaty in July.
In the United States, lawmakers have continually pushed the administration to explain both whether ACTA would require a change in domestic IP laws, and why the administration remains convinced that the Senate not does need to ratify the treaty.
The negotiations for the Trans-Pacific Partnership agreement are also garnering considerable attention from the IP community. The TPP is an Asia-Pacific regional trade agreement currently being negotiated among the United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. The administration has said that the TPP will serve as a model for future agreements, and therefore close attention is being paid to how the TPP ultimately handles contentious IP issues.
Lawmakers and some stakeholders have criticized the administration for its lack of transparency with regard to the TPP negotiations. The administration, however, claims that trade agreements necessarily require some degree of secrecy so that the negotiating parties can freely discuss complicated trade issues.
Leaked drafts of copyright provisions raised the ire of some stakeholders who feel that the United States is pushing a position that would greatly weaken traditional fair use exceptions to claims of copyright infringement.
Outlook: Despite Opposition, TPP Will Proceed.
The administration has placed great emphasis on the agreement, and on the need to formulate a modern trade agreement that will set the standard for future agreements. However, the importance that the administration has placed on the agreement has brought considerable attention, particularly from skeptics wary that what they perceive as a lack of transparency in the negotiations will result in a flawed final agreement. Among these skeptics are some lawmakers, both in the House and the Senate, who are pushing the administration to be more forthcoming about some of the particulars of the draft proposal.
The IP provisions that have been leaked have generated a great deal of controversy. The administration, after opposing some of the stricter provisions of SOPA following the public backlash against the legislation, must now be cognizant that the inclusion in the TPP of some much-needed IP protections could put it on unpopular footing with some groups. It might, too, have to respond to the arguments that the process to date has not been sufficiently transparent.
To date there have 15 rounds of high-level TPP negotiations, and the 16th round is scheduled to take place in Singapore this month. The administration is unlikely to back down from its insistence that the agreement go forward, and that its IP protections offer real help to U.S. rights holders. It is also unlikely that the administration will rush to complete the agreement, but rather, to wait until as many stakeholders as possible have been consulted. It is therefore likely that the administration will make overtures both to Congress and to various interested groups in the coming months to solicit their input, and to try to garner their support for the agreement.
OTHER ENFORCEMENT:
Industry Agreements Shape Up, Domain Seizures Continue.
At a Senate hearing in May the White House’s intellectual property enforcement coordinator said that “voluntary industry agreements” would be key to curing the online theft of intellectual property. Victoria Espinel pointed as an example to a June 2011 agreement by the major U.S. payment processors—American Express, Discover, MasterCard, PayPal, and Visa—that established voluntary best practices designed to withdraw payment processing from websites that sell counterfeit and pirated goods.
Another voluntary agreement reached in 2011 was between major players in the content industry and broadband internet service providers. The agreement called for the creation of a system to notify consumers when their internet accounts might have been used to download infringing content. Under the voluntary agreement, which is called the Copyright Alerts System, ISPs agreed to send a particular subscriber up to six “early alerts” notifying that user electronically that there is suspect activity on his or her account, namely possible unauthorized downloading of copyrighted motion pictures, television programs, or music. The agreement did not call for the termination of any user’s internet service, but it does call for “mitigation measures” to be implemented if the user fails to respond after six notices have been sent.
The agreement was initially supposed to take effect in 2012, but the launch date has been pushed back to sometime in 2013.
Espinel said that these sorts of agreements are pivotal because they can have an impact on websites that are beyond the reach of U.S. law enforcement agencies. She also said that these agreements could be exported.
“I think we have established a good model for other countries, and I want to see other countries encourage these voluntary agreements,” Espinel said at the May hearing.
Slow Going in Megaupload Case; ICE Continues Seizures.
Last year, the Justice Department seized the domain name megaupload.com and a number of related websites that it claimed had caused more than $500 million in damages to U.S. copyright holders.
In an indictment unsealed Jan. 18, 2012, the Justice Department alleged racketeering, conspiracy to commit copyright infringement, conspiracy to commit money laundering, and two counts of criminal copyright infringement (United States v. Megaupload Ltd.). The indictment named as defendants two companies and seven individuals, including Kim Dotcom, the alleged mastermind behind Megaupload.
In the year since the seizure, however, the Justice Department has been so far unable to bring any of the defendants to trial. Indeed, Dotcom, whose mansion in New Zealand was raided in an action that coincided with the unsealing of the indictment, has so far successfully fought extradition to the United States.
The Justice Department did notch a small victory when the Eastern District of Virginia ruled that prosecutors could satisfy the service requirement as to the corporate defendants by mailing a criminal summons to any extradited Megaupload officer who happened to be an alter ego of the company. Megaupload had argued that government could not in fact comply with the strict service requirements of Fed. R. Crim. P. 4(c)(3)(C) because neither of the two companies ever established a principal place of business in the United States. The court rejected this argument, saying that it would be unusual for a procedural rule to permit “a foreign corporate defendant to intentionally violate the laws of this country, yet evade the jurisdiction of United States’ courts by purposefully failing to establish an address here.”
Meanwhile, Dotcom is challenging as illegal the seizure of his property during the raid on his estate. He also launched a new file-sharing website one year to the day after the raid.
In other enforcement activities, government officials continued their efforts to seize infringing websites—a process it began in 2010.
For example, the Department of Homeland Security’s Immigration and Customs Enforcement agency, in conjunction with the Department of Justice, runs the Operation in Our Sites program. Under the initiative, ICE, the DOJ, and the FBI are able to apply for warrants from federal magistrate judges. The government maintains that this remedy was granted by the 2008 Pro-IP Act,
In the days leading up to the 2013 Super Bowl, ICE announced that it had seized more than 300 websites that were selling counterfeit NFL merchandise. In total, the operation has resulted in the seizures of over 2,000 websites.
Outlook: Government Has Much Riding on Megaupload Case.
The only legal challenge to ICE’s seizures, brought by the owners of the website rojadirecta.org, resulted in a voluntary dismissal of the case by the prosecution. It is thus unclear how the government’s rationale that the Pro-IP Act authorizes these seizures will play out in court.
The government has been criticized for its heavy-handed approach in the Megaupload case. The raid on Dotcom’s estate, though it was conducted by New Zealand authorities, has been seen by many as being carried out at the behest of the U.S. government.
Furthermore, since the raid Dotcom has become an object of sympathy, particularly to the New Zealand press. This could complicate the extradition proceedings. And, his relaunch of another file sharing website flaunts U.S. enforcement effort and places rights holders at risk.
After so heavily touting the indictment, the Justice Department has raised the stakes in this case. From both a public relations perspective, and from a precedential perspective, the government needs to make sure that it is able to bring this case to trial. It will likely proceed methodically from this point forward so as to avoid an outcome similar to what happened in the Rojadirecta case.
Penalties Now Stiffer for Economic Espionage.
President Obama signed into law The Foreign and Economic Espionage Penalty Enhancement Act of 2012,
The law increases from $500,000 to $5 million the maximum fine for individuals convicted under the Economic Espionage Act of 1996,
No other IP enforcement bills were passed in 2012 by the 112th Congress. However, shortly after the 113th Congress began its sessions a number of enforcement bills were reintroduced. These included the Jan. 3 reintroduction in the House of the Foreign Counterfeit Merchandise Prevention Act (H.R. 22).
H.R. 22, sponsored by Rep. Lloyd “Ted” Poe (R-Texas), would permit customs officials to share information about imported goods with parties whose copyright and trademark rights might be infringed by the imports. The bill seeks to amend the Uniform Trade Secrets Act,
Outlook: Agreements a Promising Trend.
The passage of the Economic Espionage Penalty Enhancement Act in 2012 demonstrates that while a broad enforcement bill such as SOPA may be untenable in the near future, there is room for some legislative action in terms of IP enforcement.
By and large these small-scale bills fail to provide rights holders with any enforcement tools, and instead purport to bolster deterrents. Rights holders have consistently argued that the best enforcement approach will include both a more vigorous enforcement of existing laws, and the enactment of new laws—such as SOPA—that will allow rights holders and the government to go after infringers that are currently beyond the reach of U.S. enforcement efforts.
It is unlikely that Congress will pass any large-scale enforcement bills in 2013. Espinel’s encouragement of more voluntary agreements was notable for two reasons. First, absent significant new legislation, voluntary agreements may be the most efficient way to impact the behavior of actors that are currently beyond the reach of U.S. government enforcement. Second, SOPA and the Protect IP Act failed because many in the tech community did not support those efforts. Voluntary agreements with members of the tech community demonstrate that common ground exists, and may pave the way for building consensus on future legislation. That legislation, however, likely will not begin to take shape this year.
TRADEMARKS AND DOMAIN NAMES
After filing initial lawsuits for trademark infringement, the owners of two popular marks found themselves on the defensive and fighting to make sure that they did not lose protection for their marks in 2012. Both Nike Inc. and Christian Louboutin S.A. were ultimately able to stave-off cancellation, but not before capturing the trademark community’s attention, and creating jurisprudence that will be invaluable to rights holders in the future. Meanwhile, those hoping that 2012 would bring case law guidance with respect to internet keyword advertising were once again disappointed after a high-profile case between Rosetta Stone Ltd. and Google Inc. settled. The last year also witnessed steps toward the launch of thousands of new generic top-level domain names, a launch that brand owners have been dreading for years.
CASE LAW:
Covenants, Color Marks, Aesthetic Functionality Tested.
The Supreme Court in early 2013 issued an opinion in the only trademark-related case it heard in 2012. In that case, Already L.L.C. v. Nike Inc.,
The court’s refusal to adopt the appellant’s view that covenants not to sue can never moot ongoing disputes in similar situations was certainly a boon to rights holders who often turn to these sorts of covenants in order to extricate themselves from costly litigation. However, the court also made it clear that the party seeking to moot these sorts of cases through a unilateral covenant has a heavy burden of establishing that there is no longer a case or controversy that would allow a federal court to retain jurisdiction over the dispute.
Although Already was the only trademark case that made it to the Supreme Court, it was not the most talked about, most important, or even the most bizarre trademark case from 2012.
Louboutin and YSL Both Win, Lose on Appeal.
The honor for most talked about trademark case goes to Christian Louboutin S.A. v. Yves Saint Laurent America Holding Inc.,
In that case, the U.S. Court of Appeals for the Second Circuit held that a single color can serve as a protectable trademark in the fashion industry. On its face, this recognition of the protectability of single color marks in the fashion industry was a huge win for Christian Louboutin as it came only after the Southern District of New York had threatened to cancel Louboutin’s trademark for red-soled women’s shoes, finding, among other things, that mark was aesthetically functional. Christian Louboutin S.A. v. Yves Saint Laurent America Inc.,
Settlement Prevents Clarity on AdWords.
The most important trademark case was actually a case that settled, depriving many of much-needed judicial guidance in regard to the use of trademarks as advertising keywords.
In October, Google and Rosetta Stone announced that they had settled their long running dispute over Google’s sale of Rosetta Stone’s trademarks as keyword advertising triggers. The terms of the settlement were not made public, though the two companies released a statement saying that they would work together to “combat online ads for counterfeit goods and prevent the misuse and abuse of trademarks on the Internet.”
The settlement was reached four months after the U.S. Court of Appeals for the Fourth Circuit dealt Google a significant blow when it reversed the district court’s summary judgment order that had held that Google was not directly, vicariously, or contributorily liable for its sale of trademarks as advertising keywords because the keywords serve an essential function in the Google search engine. Rosetta Stone Ltd. v. Google Inc.,
The latest settlement means that despite several years of litigation over the use of trademarks in the search engine advertising context, the judicial system has not yet resolved the ultimate question of whether Google’s keyword sales practices are unlawfully confusing to consumers.
Some clarity, however, was brought to the issue at the international level when France’s high court in September ruled that Google’s AdWords service does not infringe trademarks if advertisers using those protected marks as keywords avoid confusion with the owner of the protected marks.
Betty Boop Mark Aesthetically Functional.
The Central District of California’s determination that the “Betty Boop” mark, when used in conjunction with an image of the famous character, serves an aesthetically functional purpose and thus cannot result in trademark infringement liability, may have been the strangest resolution of a trademark issue in 2012. Fleischer Studios Inc. v. A.V.E.L.A. Inc.,
In March 2011, the Ninth Circuit initially upheld a district court’s finding of noninfringement and in fact recognized that the Betty Boop mark was aesthetically functional—an argument not raised by either party below. Fleischer Studios Inc. v. A.V.E.L.A. Inc.,
The Ninth Circuit’s reissued opinion remanded the trademark infringement claim for further findings. The district court’s 2012 opinion noted that the Ninth Circuit’s operative opinion contained no aesthetic functionality analysis. However, it determined that “the reasoning set forth in [the Ninth Circuit’s initial opinion] is nevertheless sound and applicable.” It thus found that the defendants’ use of the Betty Boop mark was for artistic, not source identification, purposes. Accordingly, the mark was not used as a trademark, and the infringement claim could not succeed, the court held.
The district court’s opinion was not appealed, and given the unusual procedural posture of the case the precedential value is uncertain. However, the Betty Boop litigation and Louboutin demonstrate that courts are struggling with the aesthetic functionality doctrine. Two other cases in which the doctrine was invoked are:
- Poly-America L.P. v. Stego Industries L.L.C.,
104 U.S.P.Q.2d 1639 (5th Cir. 2012). In an opinion designated as non-precedential, the U.S. Court of Appeals for the Fifth Circuit held that the color yellow is functional when used for plastic sheeting intended to serve as a vapor barrier in construction projects. Accordingly, the court said that the color could not be registered as a trademark under U.S. law, nor could it be the subject of common law trademark rights. - Acacia Inc. v. NeoMed Inc.,
2012 BL 185372 ,103 U.S.P.Q.2d 1898 (C.D. Cal. 2012). The Central District of California held that the color orange is functional when used on a medical syringe because it signifies that the device is for enteral, or oral, use in the industry. The court thus granted a competing medical device company summary judgment for cancellation of the trademark registration
.
Outlook: Aesthetic Functionality Doctrine Alive.
Many hoped that the confusing aesthetic functionality doctrine, after years of dormancy, was dead. The Ninth Circuit’s sua sponte application of the doctrine in its first decision in the Betty Boop case, coupled with the Southern District of New York’s determination that Louboutin’s red soled shoes were aesthetically functional, indicates that the doctrine is very much alive. However, the Ninth Circuit’s revised opinion, and the Second Circuit’s reversal in Louboutin, indicate that the doctrine is still quite unpredictable. It is unlikely that any clarity will be brought to the doctrine in the next year.
Another issue much in need of clarity, but also unlikely to receive it, is whether search engines can be liable for infringement for selling a registered trademark to someone other than the mark’s owner for their sponsored advertisement programs. After Rosetta Stone reached the Fourth Circuit practitioners were hoping to finally get resolution on the issue, but the unexpected settlement between the parties ended those hopes. Some are beginning to wonder if Google, a company that has so much invested in its AdWords program, will ever risk an adverse ruling.
INTERNATIONAL DEVELOPMENTS:
Apple Struggles to Protect Marks Abroad.
Cigarettes and iPads were at the heart of two notable trademark developments that played out overseas in 2012.
As of Dec. 1, cigarettes sold in Australia have been sold in plain packaging and show graphic images of the damage caused by cigarettes to health. The change took place as a result of a 2011 Australian law that bans the sale of tobacco products in Australia with their usual brand names and logos. Brand names can be placed only on the lower part of the front and the top and bottom of the packet, and must be in a standard font style, size, and color.
The United States has not officially commented on the law. However, the Ukraine announced that it would request the establishment of a World Trade Organization dispute panel to rule whether Australia’s new laws violate global trade rules.
In July, Apple Inc. paid $60 million to a Chinese company that had owned since 2001 the trademark rights to “iPad” in China. The settlement gave Apple permission to brand its tablet with the iPad mark in the lucrative Chinese market. The settlement also brought to a close litigation in which the Chinese company—which sought $1.6 billion in damages—repeatedly saw local courts affirm its rights to the mark.
The settlement did not, however, end Apple’s woes in China with respect to its IP rights. Indeed, it may have spurred more copycat lawsuits. Within a month of the announcement of the settlement, Apple found itself a named defendant in three more suits in China. One suit challenged Apple’s ownership of the utility model patent for technology used in the Apple’s FaceTime video chat application; one suit is related to a patent on technology used in voice recognition software on the iPhone sold in China; and one suit relates the trademark rights for the Chinese version of the name of the Snow Leopard operating system for MacIntosh computers.
Apply also suffered a setback in Russia when the Russian Federal Service for Intellectual Property (Rospatent) declined Apple’s registration of an iPad-related trademark. Apple had sought registration on a visual image of iPad as a trademark in Russia. However, Rospatent refused to register the mark, arguing that the image was not sufficiently recognizable and could have been confused with electronic devices produced by other manufacturers.
Outlook: Apple’s Woes in China Provide Lesson.
If nothing else, Apple’s experiences in China, especially with respect to its trademarks, should serve as an important lesson to all mark owners to diligently secure local trademarks at the earliest possible time when expanding across borders.
DOMAIN NAMES:
ICANN Goes Forward With gTLD Expansion.
Brand owners in 2012 moved a step closer to being able to use their brands as top-level domain names. After years of negotiation, the Internet Corporation for Assigned Names and Numbers in 2012 began accepting applications from brand owners and other interested parties who wanted to register generic top-level domain names. These domains will eventually complement the .coms and .nets we have today. In June, ICANN published a list of 1,930 gTLD applications.
Throughout the discussion regarding the proposed gTLD expansion brand owners expressed concern that the new domain names greatly increase the digital space that they must monitor for infringement and cybersquatting. Still, despite—or perhaps because of—these concerns, hundreds of brands applied for their marks or acronyms.
Certain protections will be available to brand owners, including a trademark “clearinghouse” that will allow rights holders to pay a fee to register their trademarks in the clearinghouse. Even with the clearinghouse, and with a proposed “sunrise period” that would allow brand owners to pay to register their marks prior to the launch of any new TLD, many rights holders, and members of Congress, remain unsatisfied with ICANN’s approach with respect to IP protective measures in the new domain names.
Moreover, it is not yet clear exactly how the clearinghouse will work, but a fee structure published in late January shows that the program is certain to cost brand owners a great deal of time and resources. Under the fee structure, a brand owner that wants to register a single mark in the clearinghouse—as an individual trademark owner—will have to pay $150 for one year of protection, with a slight discount for signing up for three- or five-year terms. If a brand owner with 300 marks elects a one-year registration under the basic plan, the cost to the brand owner will be $45,000.
The costs will not end there. The clearinghouse is merely an alert system—notifying a new TLD registrant that a proposed new domain potentially infringes a mark. If the registrant proceeds with a potentially infringing registration, the brand owner’s only means to challenge the registration will be through ICANN’s newly created Uniform Rapid Suspension system, a complaint through the Uniform Domain Name Dispute Resolution Policy, or a lawsuit. Each of these actions carries additional costs. And of course, these costs are on top of the $185,000 application fee that brand owners that registered for their own TLD had to pay up front.
Outlook: New gTLDs Inevitable, Will Be Costly.
At this point it is unclear how consumers will respond to the roll out of the new gTLDs. So far all that is clear is that the TLD program is going to be a significant drain on rights holders in terms of the financial resources and the personnel that it will take to monitor trademarks in a vastly expanded digital space. Still, hundreds of brand owners applied for their own TLDs, and applications were particularly high among some tech companies. For instance, Google Inc. and Amazon applied for a total 177 new gTLDs between them. On the other hand, internet companies such as Facebook Inc. and Twitter Inc. decided to not even seek a single gTLD.
The hefty investments by Google, Amazon, and the hundreds of other new gTLD applicants indicate that many companies either see the new gTLDs as a huge potential value add, or in the alternative are employing an aggressive defensive strategy to guard against infringement. It is likely a combination of both factors that resulted in the nearly 2,000 gTLD applications.
The earliest the first new domain names could go online is late 2013. The effect that the gTLDs will have on consumers’ internet habits won’t be known for some months after that. In the meantime, all trademark owners can do is pay close attention to the evolving IP protective measures associated with the launch of the new gTLDs, and carefully consider how much they want to invest in order to monitor, and maximize, their brands in this new space.
TRADE SECRETS
In April, the U.S. Court of Appeals for the Second Circuit gave a narrow interpretation to a provision of the Economic Espionage Act that overturned the conviction of a former Goldman Sachs & Co. programmer. This interpretation, that only goods that are offered for sale are protected as trade secrets, outraged lawmakers and prompted an amendment to the Act. Another bill to amend the Economic Espionage Act in order to stiffen the penalties for persons and companies convicted of pilfering trade secrets was signed into law in early 2013.
CASE LAW:
Second Circuit Overturns Conviction.
United States v. Aleynikov,
The Second Circuit reversed after finding that the securities trading software at issue in this case was used internally by Goldman Sachs and thus not itself intended to be sold or licensed. Accordingly, it was not “related to or included in a product that is produced for or placed in interstate or foreign commerce” within the meaning of the EEA, the court reasoned.
The Second Circuit’s decision sparked outrage in Congress, and in November the Theft of Trade Secrets Clarification Act of 2012,
Former Employees, Foreigners Still Targeted.
Other trade secret litigation saw a continuation of the trend of employers going after their former employees on the civil side, and individuals that sold trade secrets to China were once again among the most frequent defendants in criminal actions brought under the EEA.
A case that stands out among the myriad cases involving trade secret theft by former employees is Skycam Inc. v. Bennett,
Another case involving a former employee was FormFactor Inc. v. Micro-Probe Inc., No. C-10-3095-PJH,
Another interesting case involved a defendant that filed a patent application on another person’s invention. Bohnsack v. Varco LP,
A former Motorola Inc. software engineer who sold trade secrets to China was found guilty of three counts of trade secret theft under
An earlier House version of the bill that stiffened the financial penalties for convictions under the EEA (see Enforcement section, above) would have increased the maximum incarceration period to 20 years. That provision, however, was dropped from the bill.
FOREIGN LAWS:
Congress Examines Forced Disclosures.
In addition to being directly linked to misappropriation of American trade secrets—such as purchasing trade secrets on the black market—critics warn that China is also forcing U.S. countries to disclose trade secrets if they want to open manufacturing and distribution facilities in China.
One of the requirements under China’s “indigenous innovation” policy mandates that foreign firms wishing to do business in China partner up with a domestic firm, thereby relinquishing control to the often state-controlled Chinese firm. These arrangements also generally contain forced disclosure provisions that require the foreign company to share with the Chinese firm certain trade secrets.
At a House hearing in September lawmakers cautioned that this trend of foreign countries requiring direct access to American trade secrets demonstrates that misappropriation “is not simply a business-to-business concern.”
Outlook: Misappropriation Remains a Troubling Trend.
Despite all of the problems rights holders have with China, a positive development happened in May when during the U.S.-China Strategic and Economic Dialogue China for the first time agreed to help protect American trade secrets. It remains to be seen what practical steps China will take to fulfill its promise under that agreement.
In many ways, the global economic downturn has directly led to an increase in trade secrets theft. More and more, companies, and in some cases countries, are unwilling to expend large sums of money for research and development when they can instead pilfer valuable trade secrets. Given this new reality, it seems that the modifications to the Economic Espionage Act, particularly the one that enhances the financial penalties for persons and companies convicted under the EEA, are unlikely to effectively reduce the current levels of misappropriation.
Also of interest is that the Commerce Department’s IP Jobs Report did not calculate the impact that trade secrets had on the U.S. economy. Thus, lawmakers that may have hoped for solid data points on which to construct broad trade secret legislation were left wanting.
The administration has signaled that it recognizes the inherent value of protecting trade secrets, and Congress is clearly interested in giving rights holders more tools to combat misappropriation. Thus, protecting trade secrets may be one of the few issues that has enough bipartisan support to actually yield legislation during the 113th Congress.
COPYRIGHTS
The year of 2012 opened with a Supreme Court ruling upholding Congress’s authority to restore copyright protections in certain foreign works in order to comply with treaty obligations. And the year ended with oral arguments in a case requiring the high court to reconcile two provisions of the Copyright Act.
SUPREME COURT:
Does First Sale Doctrine Trump Importation Restriction?
The copyright world is waiting for the Supreme Court to issue a ruling in a case involving a clash between two provisions of the Copyright Act, an issue that has come up before the court previously, but without resolution.
The clash involves the first sale doctrine,
This provision goes up against Section 602(a)(1), which gives a copyright holder the right to block imports of a copy made overseas.
When this issue came up previously, it involved the importation by Costco Wholesale Corp. of luxury wristwatches made in Switzerland by Omega S.A. Costco Wholesale Corp. v. Omega S.A.,
In that case, the creative work at issue was the Omega brand logo appearing on the watches. Omega claimed that under Section 602, Costco could not import the watches into the United States without its permission.
The U.S. Court of Appeals for the Ninth Circuit ruled that the first sale doctrine did not apply, because Section 109(a) applies to copies that have been “lawfully made under this title,” and that a copy made outside the United States is not lawfully made under the Copyright Act.
The Supreme Court failed to resolve the issue at that time, after Justice Elena Kagan’s recusal resulted in a 4-4 tie.
A variety of interests—including trademark holders, retailers, and consumer groups—hoped that the Supreme Court would soon get another chance to resolve this issue, and the court obliged when it granted a writ of certiorari in Kirtsaeng d/b/a Bluechristine99 v. John Wiley & Sons Inc., No. 11-697 (argued Oct. 29, 2012).
This case involved a more traditional form of creative works than the Costco case did—textbooks. John Wiley & Sons Inc. publishes editions of textbooks designed for overseas markets, which are of slightly lower quality than those it markets in the United States and have fewer additional features, such as study guides. The foreign editions are printed overseas, and text on the back covers indicates restrictions on their sale in markets other than those indicated and prohibits exportation.
Supap Kirtsaeng d/b/a Bluechristine99, originally a resident of Thailand, came to the United States as a student. He received shipments of Asian editions of Wiley textbooks and sold them through commercial websites, such as the eBay online auction site. Kirtsaeng used the proceeds of such sales—amounting to $37,000—to help cover his expenses while attending universities in the United States.
Wiley sued Kirtsaeng, alleging copyright infringement. A federal district court ruled that the first sale doctrine was inapplicable and a jury found him liable for infringing Wiley’s copyright interests and awarded $600,000 in statutory damages. The U.S. Court of Appeals for the Second Circuit agreed with the Ninth Circuit’s conclusion that the first sale doctrine did not apply.
However, the court’s opinion acknowledged that this interpretation could have “undesirable” public policy implications, effectively giving producers an economic incentive to outsource manufacturing. A dissenting opinion argued that a copy of a work manufactured outside the United States with the authorization of the copyright owner could indeed constitute a work made lawfully under the Copyright Act.
The Supreme Court heard arguments in October and its ruling is eagerly anticipated. Should the court rule that the first sale doctrine does not apply in such cases, then retailers will be restricted from importing and distributing goods originally intended for overseas markets.
Consumer groups have also expressed the concern that this might also significantly restrict consumer rights. They have warned that an unintended side effect of such a ruling might be to expose an individual consumer to liability if he or she, for example, purchases a book on an overseas trip and brings it home.
However, Section 602(a)(3) already makes an exception for private use when an individual imports just a single copy and does not intend to distribute it. There are also exceptions for governmental use or scholarly, educational, or religious use.
On the other hand, should the court rule that the first sale doctrine does apply, then copyright holders might essentially be denied what they see as an intent of Section 602, that is, to allow them to segment markets on a national basis, and offer differing versions of works at differing prices in different countries.
Restoration Under Berne Convention Upheld.
Early in 2012, the Supreme Court upheld a statute restoring rights in foreign works that had not been protected before the implementation of the Berne Convention in the United States. The court ruled that neither the First Amendment nor the Progress Clause barred protection of works already in the public domain. Golan v. Holder,
The dispute went back to 1989, when the United States signed the Berne Convention for the Protection of Literary and Artistic Works of 1886. Article 18 of the treaty requires that the signatory states mutually recognize each other’s copyrights, to apply retroactively to pre-existing foreign works, even if they had been treated as public domain works in a country previously.
In conjunction with the accession, Congress enacted the Berne Convention Implementation Act of 1988,
In negotiating the Uruguay Round of the General Agreement on Tariffs and Trade—which led to the U.S. accession to the Agreement on Trade-Related Aspects of Intellectual Property—the United States made commitments to comply with Article 18.
Eventually, Congress enacted the Uruguay Round Agreements Act of 1994,
In 2001, a variety of parties that had relied upon the public domain availability of pre-1989 foreign works argued that the restoration of rights interfered with their constitutionally protected free speech rights and also exceeded Congress’s powers under the Copyright Clause of the U.S. Constitution.
Rejecting these arguments, the court, in an opinion authored by Justice Ruth Bader Ginsburg, relied extensively on Ginsburg’s opinion in Eldred v. Ashcroft,
OTHER COPYRIGHT LITIGATION:
Mass Digitization Dispute Continues; Publishers Leave Authors Hanging in Google Case.
The long-running dispute over Google’s mass digitization of books for its Google Book Search service was revived in 2012 after two proposed settlements were rejected by a federal court. However, the publishers in the case reached a separate settlement with Google Inc., leaving the authors to decide whether they can or should continue pursuing their case.
The dispute goes back to 2005, when the Authors Guild, several authors, and publishers brought two class action lawsuits challenging Google’s arrangements with several large libraries to digitize the entire contents of their collections to make the resulting database searchable over the internet.
The complaints alleged that Google was infringing the plaintiffs’ copyrights when it scanned copyrighted works without authorization and made plans to offer portions of those materials (“snippets”) to the public through an online searchable database, now known as Google Book Search.
In 2008, the Authors Guild and Google reached a settlement allocating rights to the copyrighted materials at issue. The settlement was later amended to account for some objections, particularly from overseas authors, but in 2011 the U.S. District Court for the Southern District of New York determined that the terms were not “fair, adequate, and reasonable” with respect to the members of the relevant class that the plaintiffs purported to represent.
In late 2011, the Authors Guild revived the proceedings with a new amended complaint and a motion for class certification. In May 2012, the court ruled that the guild and several other plaintiffs had standing to pursue their claims, but the Second Circuit granted Google’s request to stay the district court proceedings to appeal the class certification.
In October, the publishers announced their settlement deal.
Standing Issue Brought Into Question.
In a dispute parallel to the Google Book Search case, the copyright holders have been trying to block a development arising from the reciprocal deal that Google worked out with the libraries whose collections it is digitizing.
In exchange for allowing Google to digitize their collections, the libraries were given copies of the digital copies that Google had made. In 2011, a group of those libraries announced the establishment of a new service, called the HathiTrust digital library, to which the libraries would contribute their digitized collections.
The Authors Guild and several other authors’ associations in North America and Europe brought claims against HathiTrust and several of the libraries.
The U.S. District Court for the Southern District of New York ruled that the HathiTrust’s uses—full-text searching, preservation, and access to those with “print disabilities”—constituted fair uses.
More devastating to the copyright holders was the court’s ruling that while the Constitution generally permits an association to bring claims on behalf of its members, the Copyright Act specifically does not provide for associations of copyright holders to bring infringement claims on behalf of members. Authors Guild Inc. v. HathiTrust,
The plaintiffs have filed a notice of intent to appeal this ruling.
Heavy Statutory Damages Upheld.
Two individuals who have maintained ongoing defenses against charges of online infringement of music copyrights continued to fail to persuade federal courts that the statutory damages provisions of the Copyright Act were unconstitutionally excessive.
Joel Tenenbaum Stymied in Massachusetts.
In one proceeding, a federal district court, ruling on remand, rejected peer-to-peer file sharer Joel Tenenbaum’s arguments that a $675,000 statutory damages award against him violated due process or should be reduced by remittitur. Sony BMG Music Entertainment v. Tenenbaum,
The Tenenbaum case began in 2007, when several record companies sued Joel Tenenbaum, a student at Boston University, seeking more than $1 million in statutory damages for his use of P2P file-sharing software to copy and disseminate without authorization copyrighted musical recordings.
In 2009, a jury handed down a $675,000 judgment against Tenenbaum for infringement of 30 works. Tenenbaum challenged the award, arguing that it was grossly excessive and violated the Due Process Clause, and he sought a new trial or remittitur, raising both common law and constitutional grounds.
The court, ruling on remand from the U.S. Court of Appeals for the First Circuit, rejected his arguments and affirmed the award.
Jammie Thomas-Rasset Snookered by Eighth Circuit.
In the other proceeding, the U.S. Court of Appeals for the Eighth Circuit similarly ruled that a statutory damages award of $222,000 award for infringement of 24 works through the Kazaa P2P program was not barred by the Due Process Clause. Capitol Records Inc. v. Thomas-Rasset,
Late in the year, the defendant, Jammie Thomas-Rasset, petitioned the Supreme Court for a writ of certiorari to review the decision.
Streaming Video Triggers Battles.
The introduction of new technologies and new services in the mobile internet realm has triggered battles between owners of video content and the operators of new streaming video services. So far, courts have failed to reach a consensus, and thus this seems to remain a fertile ground for continuing disputes.
Simulcasting Does Not Constitute Public Performance.
In July, a federal district court ruled that a device that allowed users to watch live television broadcasts on internet-enabled devices contemporaneously with the airing of the programs did not constitute public performances and thus did not directly infringe the copyright interests of the television networks that owned the content. American Broadcasting Cos. v. Aereo Inc.,
The court said that although the device allowed users to watch broadcasts at the same time that they were being aired, this factor alone was insufficient to distinguish this situation from a prior case, which held non-infringing a device that permitted users to record a program in order to watch it at a later date.
That case was the Cablevision decision from 2008, which held that a cable television service providing digital video recording of TV and movie programming at central sites—rather than on home set-top boxes—was not directly infringing. Cartoon Network L.P. v. CSC Holdings Inc.,
Online Service Not Eligible for Compulsory License.
However, in another proceeding, the U.S. Court of Appeals for the Second Circuit ruled that an online service that streams broadcast content in real time is not a “cable system” entitled to a compulsory license under the Copyright Act. WPIX Inc. v. iVi Inc.,
There were some parallels between the services in the two cases. In the Aereo case, the service assigns a miniature antenna to each subscriber, enabling him or her to access broadcast content through the internet and mobile devices. In the iVi case, the service captures the broadcast signals of TV stations based in certain large cities and makes them available to any U.S. subscriber.
Aereokiller Service’s Fortune Not as Good.
However, in another decision, a streaming service using mini antennas was found to be infringing by a federal court in California. Fox Television Stations Inc. v. BarryDriller Content Systems P.L.C., No. 12-6921 (C.D. Cal. Dec. 27, 2012).
Fox rejected Cablevision as being in conflict with Ninth Circuit precedent. According to the court, in the Ninth Circuit, transmissions do not have to be “public” to infringe the public performance right. The Aereokiller service transmissions of copyrighted content to subscribers, even though effected through direct transmissions to individual devices, were infringing.
‘Red Flag’ Liability Under DMCA.
The Digital Millennium Copyright Act of 1998 provides certain safe harbors for providers of interactive services online, and copyright and trademark holders have long struggled to shift some of the burden of policing user-contributed content to service providers, arguing that they are often in the best position to interdict infringement.
The U.S. Court of Appeals for the Second Circuit might have offered some relief along those lines when it upheld potential liability for a service provider if it knows of or intentionally avoids learning about specific instances of infringement. Viacom International Inc. v. YouTube Inc.,
Such a “red flag” standard would make liability possible on a theory of willful blindness. However, this Second Circuit ruling has created a split among the circuits with respect to a service provider’s duties in policing infringing content.
In applying the Second Circuit’s standard, one district court found that the online service provider in question was still eligible for protection under a DMCA safe harbor based on a finding that the service provider did not have knowledge of the alleged infringement, even though the offending content was matched with keyword-triggered advertising. Obodai d/b/a Heptad v. Demand Media Inc., No. 1:11-cv-02503 (S.D.N.Y. June 13, 2012).
There was some fallout from this decision when the U.S. Court of Appeals for the Ninth Circuit, sitting en banc, requested additional briefing in a case involving the Veoh Inc. video hosting service. UMG Recordings Inc. v. Shelter Capital Partners L.L.C., No. 09-55902 (9th Cir. June 7, 2012).
Appropriation Art Makes a Splash.
The art world was rocked when the Second Circuit entertained oral arguments in a case over whether a popular “appropriation artist” was liable for infringement in using the works of a photographer as a basis for his own art. Cariou v. Prince, No. 11-1197 (2d Cir., argued May 21, 2012).
Photographer Patrick Cariou spend six years in Jamaica creating a collection of photographs of Rastafarians and in 2000 he published a collection of such photographs, Yes, Rasta. Noted appropriation artist Richard Prince created a series of works under the name “Canal Zone,” which included 41 of Cariou’s photos in whole or in part, attached to wooden backing. Prince had painted over parts of Cariou’s images.
As a result of the exhibition of Prince’s “Canal Zone,” a gallery that Cariou had been working with cancelled Cariou’s own exhibition, on the basis that it would be perceived as capitalizing on Prince’s success and notoriety and because it “had been done already.”
In 2011, a federal district court rejected Prince’s fair use argument against Cariou’s infringement claim, which sent shockwaves through the art world, particularly in reaction to the possibility that Cariou could seek to have Prince’s paintings destroyed.
Prince’s supporters argued that his works were transformative and that his opponents were “copyright maximalists” or jealous of his success. They warned that art galleries would be subject to a chilling effect, afraid to display the works of appropriation artists for fear of liability.
The Prince faction touts the virtues of the growing field of appropriation art, particularly its attempts to comment on society or culture. Photographers, on the other hand, hailed the ruling as protecting their own rights as creators.
The worlds of art appreciation, creators, and copyright holders all continue to await the appeals court’s views on the matter.
Academic Publishers Go After Patent Filings.
A series of publishers of academic journals stirred up patent lawyers by initiating claims that the unauthorized inclusion of their articles in patent filings constituted infringement. John Wiley & Sons Ltd. v. McDonnell Boehnen Hulbert & Berghoff L.L.P., No. 1:12-cv-01446 (N.D. Ill., complaint filed Feb. 29, 2012); American Institute of Physicals v. Schwegman, Lundberg & Woessner P.A., No. 0:12-cv-00528-RHK-JJK (D. Minn., complaint filed Feb. 29, 2012).
Initially, patent lawyers expressed little concern that such claims would get very far, on the basis that federal patent law required them to make such submissions and thus they must surely be exempted from copyright liability. However, the U.S. District Court for the District of Minnesota declined to dismiss the claim before it based solely on the pleadings.
The Patent and Trademark Office promised to intervene.
One of the defendant law firms argued that the claims by the publishers threatened to undermine the entire patent system.
Publishers followed up with even more infringement charges against patent law firms. The matter has not yet been resolved, although few expect it will result in a major shake-up of the patent world.
Ad-Skipping Triggers Litigation.
In May, several television production companies filed claims against the operator of the Dish network satellite TV service, alleging that its new high-definition digital video recording system—known as the Hopper—and its “Auto Hop” commercial-skipping functionality were infringing. Dish Network L.L.C. sought the protection of the Cablevision case, Cartoon network L.P. v. CSC Holdings Inc.,
As an initial matter, one federal district court ruled that an intermediate stage of copying by Dish—which was used for “quality assurance”—was not protected as fair use under the Copyright Act. Fox Broadcasting Co. v. Dish Network L.L.C., No. 2:12-cv-04529 (C.D. Cal. Nov. 7, 2012). However, the court found that making the service available to end users was likely not infringing.
Artists Seek Downstream Profits.
An issue first raised in 19th century France but rarely addressed by American copyright law surfaced in California in late 2011 when several prominent painters and sculptors sought remuneration under a long-dormant state statute, the California Resale Royalty Act, Cal. Civ. Code §986, which sought to give fine artists a percentage of downstream profits from sales of their original works.
However, when brought to a federal district court in 2012, the California statute was struck down as unconstitutional in light of the Commerce Clause. Estate of Graham v. Sotheby’s Inc., No. 2:11-cv-08604-JHN-FFM (C.D. Cal. May 17, 2012).
But the issue did not die there. Later in the year, at the behest of Congress, the Copyright Office initiated an inquiry into whether Congress should institute a federal resale royalty right for visual artists.
LEGISLATION:
The theme in copyright legislation in 2012 was how little headway any substantive proposals made during the year. The Copyright Office and consumer advocates continue to push for congressional action on orphaned works, but it remains to be seen whether legislators will be willing to get their hands dirty on any contentious issues.
Rep. Howard L. Berman (D-Calif.), known for decades as the “representative from Hollywood” and a vigorous advocate for copyright holders, lost his seat when he was redistricted into a district with another sitting Democrat. His absence from the House Judiciary Committee represents a loss to advocates of stronger copyright protections and might be another signal of inaction on legislation.
Performance Rights for Recording Artists.
Recording artists and music companies continued to battle for royalties to be paid to performers whose recordings are played on traditional AM and FM broadcast radio. Unlike in other media, when a traditional radio broadcaster plays a record, it pays a royalty to the composer, but not to the performers who played or sang on the recording.
Advocates for recording artists and advocates of technology-neutral policies pushed for a new performance royalty for recording artists. However, advocates of local radio warned that new royalty obligations would further harm an already battered sector.
The traditional broadcasters have never been weaker politically, but their campaign to “Stop the Performance Tax on Radio” has so far been effective.
Public Access to Federal Research.
Different factions in Congress have proposed conflicting legislation regarding the extent to which articles based on government-funded research should be made available to the public for free.
On the one hand, some legislators support enacting requirement for such articles to be made available on the internet for free. On the other hand, other bills support preservation of the rights of publishers of peer-reviewed science and technology journals in which the articles appear. Already in 2013, legislation has been introduced in both houses that would require government agencies to make such papers available to the public for free.
It remains to be seen which side will get the upper hand—supporters of peer-reviewed journals, or advocates of free information.
Fashion Design Protection
For several years, fashion designers and their supporters in Congress have been championing enactment of sui generis protection for clothing designs, which are not protected under copyright law. Previous versions of the legislation have been criticized as difficult to apply, particularly with respect to any standard of similarity that might be imposed.
In 2012, however, modified proposals were made that received the approval of both the fashion design industry as well as large retail chains, which had previously opposed legislation. Still, legislation did not make it far, with only the Senate Judiciary Committee sending a bill to the floor.
Proponents will presumably continue to push for protection, particularly in light of the types of protection available overseas, most notably in France.
OTHER ISSUES:
Anti-Circumvention Exemptions Reviewed.
In 2012, the Copyright Office conducted the latest triennial review of exemptions from the Digital Millennium Copyright Act’s anti-circumvention provisions, as required by the statute.
The DMCA prohibits the circumvention of technological protection measures used by copyright owners to prevent copying or unauthorized access. However, a provision of the statute allows the Copyright Office to exempt certain classes of copyrighted works if the prohibition is likely to adversely affect users’ ability to make noninfringing uses of those works.
This time, the Copyright Office issued five exemptions. However, controversy reigned in exemptions that the agency did not grant.
In particular, public interest advocates criticized the agency for failing to conclude that space-shifting of motion pictures constituted fair use.
An exemption for jailbreaking telephones was not extended to tablet computers. Furthermore, the Copyright Office ended an exemption for unlocking mobile telephones. According to the agency, only legacy phones acquired prior to February 2013 will be subject to the old exemption. The current market offers a sufficient variety of unlocked phones such that the exemption is no longer necessary, according to the agency.
The agency also expanded an exemption for access to read-aloud functionality of electronic books. According to the review, the market for e-books is sufficiently diverse that it was impractical to continue the old rule, which required that a book not be available in any accessible format for the exemption to apply.
Progress Stalled on Orphan Works.
The Copyright Office, public interest advocates, and even copyright holders continue to urge Congress to take action in the area of orphan works. The proposed settlements in the Google Books litigation (see Other Copyright Litigation section) offered up privately negotiated ways of dealing with orphaned works, but the issue is one that many voices believe should be dealt with in the public arena.
Orphaned works are works whose copyright holders cannot be identified or contacted by those seeking to make use of those works. The issue has come to the fore with the rise of digital media. Historians, educators, archivists, and librarians, in particular, are interested in making use of old works in formats available to internet users, and hesitate to do so when they are unable to locate the appropriate rights holders.
Late in the year, at the behest of Congress, the Copyright Office kicked off another study with the aim of advising legislators on the best course for dealing with orphaned works.
Termination Rights an Emerging Issue.
Owners of creative works that have been subject to grants or transfers or licenses post-1978 would be advised to look to Section 203 of the Copyright Act of 1976, whose 35-year milestone is upon us.
Termination rights existed prior to 1978, and works to which Section 304 of the Copyright Act applies are not subject to termination until 2033. However, under the standards set by post-1978 provisions, the author of a work whose grant was executed on Jan. 1, 1978, may terminate the grant in 2013.
Learn more about Bloomberg Law or Log In to keep reading:
See Breaking News in Context
Bloomberg Law provides trusted coverage of current events enhanced with legal analysis.
Already a subscriber?
Log in to keep reading or access research tools and resources.