Mary Siceloff

When a winery wants to tell consumers the geographic source of its wine, it includes on the label the wine’s “appellation of origin.”  An appellation of origin tells the consumer where the wine grapes were grown.  Appellations are either the name of a county or state, or a federally-recognized growing region called American Viticultural Areas (AVAs).  California has 138 AVAs.  The value of an AVA designation is significant; it increases the amount a winemaker can charge for the wine.  Consumers will pay much more for a Napa Valley Cabernet than a California Cabernet.

The drafters of The Adult Use of Marijuana Act (the “Act”) borrowed this concept from the wine industry playbook.  The Act added California Business and Professions Code section 26063 which states:

(a) The Bureau [of Marijuana Control] shall establish standards for recognition of a particular appellation of origin applicable to marijuana grown or cultivated in a certain geographical area in California.

(b) Marijuana shall not be marketed, labeled, or sold as grown in a California county when the marijuana was not grown in that county.

(c) The name of a California county shall not be used in the labeling, marketing, or packaging of marijuana products unless the marijuana contained in the product was grown in that county.

On April 5, 2017 Governor Jerry Brown issued a number of proposed changes to the Act including proposing that the California Department of Food and Agriculture take responsibility for establishing marijuana appellations of origin by January 2020.

It is reasonable to presume that the Department of Food and Agriculture will enact regulations that mimic the Federal wine labeling regulations established by the Alcohol Tobacco and Tax Trade Bureau and the regulatory scheme currently in place for California’s wine industry.  If this were to be the case, it would be safe to assume that California law will require that marijuana or any marijuana product listing an appellation of origin must be 100% from California, and that 85% must be from the county in California or other appellation listed.  It is also safe to assume that the Department of Food and Agriculture will begin working with growers and growing groups to establish the growing regions similar to AVAs.

Certain growers have already recognized the value of establishing unique appellations.  For example, the Mendocino Appellations Project is seeking to establish ten appellations within Mendocino County:  Spyrock-Bell Springs, Covelo-Dos Rios, Long Valley-Branscomb-Leggett, Willits, Comptche, Ukiah Valley, North Mendocino Coast, South Mendocino Coast-Greenwood Ridge, Anderson Valley-South Mendocino, and Potter Valley.  Justin Calvino from the Mendocino Appellations Project believes that Mendocino could become the Napa of cannabis.  What area will be the Sonoma of cannabis?

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The Patent Trial and Appeal Board (“PTAB”) has rarely allowed patent owners to replace or modify claims during inter partes review (“IPR”), covered business method review, or post-grant review.  In fact, in April 2016 the PTAB’s Motion to Amend Study reported that only 6 of 118, or about 5%, of such motions to amend claims had been granted.  We have not seen a substantial change since that report, but will that statistic be changing in light of recent events?  In particular, the PTAB just granted Shire’s motion to amend, and the Federal Circuit is considering en banc whether to shift the burden of proving patentability away from the patent owner, which could make it easier to amend claims.

In Amerigen Pharmaceuticals Ltd. v. Shire LLC, the PTAB instituted review of claims 18-21, 23 and 25 of Shire’s patent for the attention deficit and hyperactivity disorder medication known as Adderall XR.  In lieu of responding to the invalidity arguments, Shire filed a motion to amend that consisted of a request to cancel all of the claims under review and substitute a single, “new” claim in their place.  The PTAB granted Shire’s motion.

Does the Shire decision open the door for other patent owners hoping to amend claims during IPRs?  To answer that question, we need to look more closely at the facts in Shire.  Specifically, Shire requested cancellation of instituted claims 18-21 and 23, as well as non-instituted claims 22 and 24.  Shire also requested substitution of new claim 26 for instituted claim 25, which is a multiple dependent claim that recites:

25. The pharmaceutical composition of any one of claims 2, 13 or 18 to 20 wherein the pharmaceutically active amphetamine salt in (a) and (b) comprises mixed amphetamine salts.

Proposed new claim 26 recites:

26. The pharmaceutical composition of any one of claims 2 or 13 wherein the pharmaceutically active amphetamine salt in (a) and (b) comprises mixed amphetamine salts.

The PTAB’s ultimate decision relied on the fact that for these purposes a multiple dependent claim is treated in the same manner as if it were written as separate dependent claims.  In the case of claim 25, it is treated as if it had been written as five separate dependent claims with a separate claim depending from each of claims 2, 13, 18, 19, and 20.  Similarly, claim 26 is treated as two separate dependent claims with one depending from claim 2 and one from claim 13.   Effectively, claim 26 deletes three “claims” from claim 25, those that depended from claims 18-20, which were all claims under review by the PTAB.  Given that claims 2 and 13 were not under review, new claim 26 would not involve any claim under review.  Thus, Shire’s motion to replace claim 25 with claim 26 and cancel the other claims would leave no instituted claim under review by the PTAB.

Petitioner Amerigen opposed Shire’s motion to amend arguing that according to Idle Free Sys. v. Berstrom, Inc., a patent owner seeking to amend a claim has the burden “to show a patentable distinction over the prior art of record and also prior art known to the patent owner.”  The PTAB, however, explained that in Shire’s request “[e]ffectively, no claim is being amended, and claims are only being cancelled, because claims 18-24 are being removed, and proposed claim 26 removes three multiple dependent claims (claim 25 as it depends from claims 18-20)” and “[n]o other changes to the claims are being made.”  Therefore, the PTAB “agree[d] with Patent owner that ‘[t]here is no requirement for Shire to prove, after the Institution Decision, that original non-amended claims are patentable over all potential prior art, especially non-instituted claims.’”

While motions to substitute amended claims are rarely granted, motions to cancel claims are routinely granted.  Therefore, once the PTAB decided that Shire’s motion was merely canceling claims, the outcome was very predictable.  In other words, nothing really changed as a result of the Shire decision.

But, in In re Aqua, will the Federal Circuit turn the tide for amending claims?  Currently, a patent owner is allowed to file one motion to amend to (A) “cancel any challenged patent claim” and (B) “propose a reasonable number of substitute claims” that do not “enlarge the scope of the claims of the patent or introduce new matter.”  The patent owner has the burden of showing that the amended claims are patentable over the known prior art.  Then the petitioner may oppose the motion to amend and raise new arguments of unpatentability, cite new prior art against the proposed new claims, and file new expert declarations.  But in In re Aqua the Federal Circuit is currently considering en banc whether it is proper for the PTAB to put the burden on the patent owner to prove that the proposed substitute claims are patentable or whether the burden to show unpatentability should be shifted to the petitioner.

Under the current requirements, a patent owner must distinguish the proposed substitute claims over the material art in the prosecution history, the material art in the current proceeding, any material art in any other proceeding before the USPTO involving the patent, and any material art not of record but known to the patent owner.  In Shinn Fu v. The Tire Hanger, the PTAB found that, in instances where art is duplicative, a patent owner is not required to address each piece of art individually.  Instead, as long as the patent owner groups prior art references according to claim features and examines a representative reference from each group, the patent owner can satisfy its burden for purposes of a motion to amend.

As evidenced by the difficulty of succeeding on a motion to amend, the patent owner has a heavy burden.  Further, placing this burden on the patent owner differs from the traditional approach used during initial prosecution of a patent.  During prosecution, a patentee merely needs to respond to unpatentability positions offered by the examiner rather than affirmatively distinguishing the proposed claims from all known prior art.  If the Federal Circuit adopts a prosecution-like approach in In re Aqua, then the patent owner would likely still need to show the proposed new claims respond to a ground of patentability involved in the PTAB trial, do not broaden claim scope, and have written description support and do not introduce new matter.  The patent owner will also need to provide claim constructions for any new claim terms and show that the number of proposed substitute claims is reasonable. The petitioner, however, would then bear the burden of showing unpatentability.  In response, the patent owner would be given the opportunity to rebut the petitioner’s unpatentability arguments.

Shifting the burden to petitioners to show unpatentability could have a number of consequences.  For example, it may be easier to amend claims because it likely will be easier for a patent owner to rebut a petitioner’s specific unpatentability arguments for the substitute claims than to affirmatively show patentability.  Thus patent owners may be more likely to file motions to amend.  Further, if patent owners are more likely to succeed in amending claims, some petitioners may opt against an IPR petition and instead challenge validity in district court where amendment is not possible.

Even if amendments become easier to obtain, the patent owner will still need to consider the impact of amending claims on litigation strategy, particularly in ongoing litigation.  Amended claims give rise to intervening rights, which may relieve infringers of cancelled claims from liability during the period before the amended claims issue.  Further, amendments and arguments made to the PTAB may impact infringement and validity arguments in the district court proceeding.  Therefore, a successful claim amendment may dramatically impact infringement, validity, and damages arguments in co-pending district court litigation.

The Federal Circuit heard oral argument in In re Aqua on Friday, December 9, 2016.  Therefore, we will know soon whether there will be a shift that may favor patent owner amendments or whether amendments are destined to remain a rarity, at least for now.

Generally, the issue of copyright infringement presents issues of fact to be decided by a jury.  However, when evidence that a design is so “substantially similar” to a copyrighted design, the trial court can find infringement as a matter of law and grant summary judgment to the copyright owner.  The Ninth Circuit recently approved of a district court doing exactly that in the case: Unicolors, Inc. v. Urban Outfitters, Inc., decided April 3, 2017.

Unicolors is a Los Angeles based company that designs and sells fabrics in the apparel markets.  It typically copyrights its fabric designs.  In September 2008, Unicolors obtained the rights to a floral design that it printed onto bolts of fabric.  A few months later, it registered the floral pattern with the Copyright Office and sold approximately 14,000 yards of fabric bearing that design over the next several years.

Urban Outfitters has over 500 stores worldwide and is a specialty retail company.  In 2010, Urban Outfitters developed and began selling a dress that had a floral fabric design that as very similar to that of Unicolors’ copyrighted design.  Unicolors sent a cease and desist letter to Urban Outfitters and later filed suit against it for copyright infringement.

Prior to trial, the district court granted summary judgment to Unicolors finding that Urban Outfitters’ floral dress infringed on Unicolors’ copyright for the floral design.  The case went to trial on other issues and Unicolors was awarded $164,000 in damages, and an additional $366,000 in attorney’s fees and costs.  Urban Outfitters appealed both the summary judgment and the jury verdict to the Ninth Circuit.  (This article will focus only on the lower court’s granting of summary judgment.)

To prevail on its infringement claim, Unicolors had to show that: (1) it owned the copyright in an infringed-upon work; and (2) the defendant was guilty of copying protected elements of the work.  With regard to the copying element, Unicolors was required to demonstrate either direct evidence of copying or, if no evidence existed, “that: (1) the defendant had access to the copyrighted work prior to the creation of defendant’s work; and (2) there was substantial similarity of the general ideas and expression between the copyrighted work and the defendant’s work.”  To establish the element of access, a plaintiff generally must show a “chain of events … between the plaintiff’s work and defendant’s access to that work;” or that plaintiff’s work has been widely disseminated.  In moving for summary judgment, Unicolors conceded that it could not show “a chain of events linking its design to Urban [Outfitters]” such as to establish the element of access.  However, prior Ninth Circuit cases have recognized that “if there is no evidence of access, a `striking similarity’ between the works may allow and inference of copying.”  To determine whether works are strikingly similar, the Ninth Circuit applies a two part analysis.  This analysis includes an extrinsic test requiring a plaintiff “to show overlap of `concrete elements based on objective criteria’ and an intrinsic test which focuses on whether the ordinary reasonable person would find `the total concept and feel of the works’ to be substantially similar.”  Although this issue is generally a question of fact for the jury, the Ninth Circuit has recognized that there will be rare cases “where works are so overwhelmingly identical that the possibility of independent creation is precluded.”  That is what the district court did in the Unicolors case in granting summary judgment.

The Ninth Circuit recognized that the trial court found that there was not sufficient evidence to show that Unicolors’ floral pattern had been widely disseminated, given that the lower court had focused its inquiry on whether the designs were strikingly similar.  In reaching its conclusion, the lower court found it significant that there was substantial similarity between the works including “the presentations of the petal groups, the overlays, shading and layout are all nearly identical.”  In fact, it appeared to the trial court that the only difference between the two designs had to do with the color palette selected.  In almost every other design element, the trial court found them to be nearly identical.

Urban Outfitters argued that it was error for the lower court to grant summary judgment and that application of the intrinsic test required that the issue be decided by a jury.  However, the Ninth Circuit rejected this argument, finding it contrary to its prior case law that recognized that “in exceptional cases, works may be so identical that summary judgment in favor of a plaintiff is warranted.”

The Ninth Circuit noted that the lower court had “detailed the various subjective factors and elements that [were] common between the subject design and the accused dress.”  The Ninth Circuit concluded that: “given the intricacy of the designs and the objective overlap between them, the district court properly concluded that the works are `so overwhelmingly identical that the possibility of independent creation is precluded’.”

Urban Outfitters sought to overturn the summary judgment by arguing another line of cases, L.A. Printex Industries, Inc. v. Aeropostale, Inc. and Funky Films, Inc. v. Time Warner Entm’t Co., L.P., where the courts had held that the issues of the similarities between the products at issue were questions of fact for the jury.  The Ninth Circuit rejected this argument because in neither of those cases were the works “virtually identical” as in the floral pattern as issue in the case before it.

The Ninth Circuit continued by recognizing that preventing a lower court from granting summary judgment in a case where the two designs were “so overwhelming identical” would dilute the summary judgment procedures in copyright infringement cases.  Thus, for the summary judgment procedures to have any impact in copyright infringement cases, the court should be empowered to grant summary judgment where the “overwhelming similarities” between the designs leave no other inference but that copying has occurred.

The Unicolor decision provides a copyright owner another weapon in its arsenal for prevailing on copyright infringement claims.  If a copyright owner who has filed suit cannot (or at least not without great difficulty) establish that the defendant had access to its copyrighted design, then presenting evidence to the court that the two designs are so overwhelmingly similar may allow the copyright owner to obtain summary judgment on the issue of infringement and avoid having to present that part of the case to the jury.

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com. 

Apple just escaped a $533 million jury verdict by invalidating the plaintiff’s patents on the grounds that the patents cover abstract ideas.

The case is Smartflash, LLC v. Apple Inc., decided by the Federal Circuit Court of Appeals on March 1, 2017.  Smartflash owned three patents for technology that limited Internet access to data (video, audio, text, and software) to users who had paid for access.  In 2013, Smartflash sued Apple in a Texas district court for infringement of the three patents.  In 2015, the jury returned a verdict of infringement against Apple, finding Apple liable to Smartflash for $533 million in damages.

Apple moved for judgment as a matter of law on the grounds that the patents were invalid under 35 U.S.C. §101 as directed to abstract ideas.  The district court denied Apple’s motion, and Apple appealed to the Federal Circuit.

On March 1, 2017, the Federal Circuit reversed the district court’s ruling and held the three patents invalid.  The Federal Circuit relied on the Supreme Court’s two-step test set forth in Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014) to determine the validity of the patents.

Under 35 U.S.C. §101, any new and useful process, machine, article of manufacture, or composition of matter is patent-eligible subject matter.  The Supreme Court has long held that there are three exceptions: laws of nature, natural phenomena, and abstract ideas.  These three categories of inventions are not patent-eligible.

In Alice, the Supreme Court established a two-step test to determine if a patent’s claims are patent-eligible.  In the first step, the court determines whether the claim is directed to one of the patent-ineligible exceptions (laws of nature, natural phenomena, or abstract ideas).  If the first step is met, then the court performs the second step, determining whether the claim elements add sufficient limitations to “transform the nature of the claim” into subject matter that is patent eligible.  In step two, the court must find more than routine or conventional activity that has already been practiced.

In applying step one of the Alice test, the Federal Circuit agreed with the district court that Smartflash’s patent’s claims pertained to “conditioning and controlling access to data based on payment.”  The court held that this was an abstract idea, basing its conclusion on Supreme Court decisions holding that “fundamental economic practices” are abstract ideas.  The court explained that claims directed to computer functionality must be analyzed to determine whether they relate to a “specific asserted improvement in computer capabilities” or to an abstract idea in which a computer is simply used as a tool.  The court found that, in this case, the claims were directed to limiting access to data based on the user’s payment.  Thus, the claims pertained to computers being used as tools to perform fundamental economic practices.  As such, the court held that the first step of the Alice test was met.

The court then considered the second step of the Alice test – whether the claims contained limitations that “transform the nature of the claim” into patent-eligible subject matter.  The district court had determined that the claims did contain limitations that transformed them into patent-eligible subject matter, finding that the claims described “specific ways of managing access to digital content data based on payment validation through storage and retrieval of use status data and use rules in distinct memory types.”  The Federal Circuit noted that the Supreme Court had long held that routine computer activities do not establish patent-eligibility.  The court held that storing, transmitting, retrieving, and writing data on a computer was not sufficient to transform Smartflash’s claims into something other than an abstract idea.  The court further found that Smartflash’s hardware components were generic computer components and did not transform the claims into patent-eligible subject matter.

For more Intellectual Property articles, visit our IP Law Blog at http://www.theiplawblog.com.