Intellectual Property

In SANDOZ INC. v. AMGEN INC. et al., the United States Supreme Court in a unanimous opinion ruled that biosimilar makers can give their required 180-day statutory notice of sales before their products win approval by the United States Food and Drug Administration (“FDA”).  In short, the Court held a biosimilar maker “may provide notice either before or after receiving FDA approval.”  If biosimilar makers had to await FDA approval before giving notice, this requirement would essentially delay the biosimilar’s lower priced offerings from reaching the market by six months.  In the case of major biologics, when the biosimilar discounted version of a brand-name reaches the market, this completion can significantly reduce sales that can run in the billions of dollars annually.

At issue in the case is 42 U. S. C. §262(l), which was enacted as part of the Biologics Price Competition and Innovation Act of 2009 (BPCIA).  The BPCIA governs a type of drug called a biosimilar, which is a biologicial product that is highly similar to a biologic product that has already been approved by the FDA.  A biologic is type of pharmaceutical drug product manufactured in, extracted from, or semisynthesized from biological sources.  Examples of commercial biologics include vaccines, blood, blood components, allergenics, somatic cells, gene therapies, tissues, recombinant therapeutic protein, and living cells used in cell therapy.  For example, the biologic at issue in this case is filgrastim, which is used to stimulate the production of white blood cells.  Amgen has marketed a filgrastim product called Neupogen since 1991 and claims to hold patents on methods of manufacturing and using filgrastim.

Most biologics are very large, complex molecules or mixtures of molecules.  Many biologics are produced using recombinant DNA technology.  In comparison, a standard synthetic drug is typically manufactured through chemical synthesis, which means that it is made by combining specific chemical ingredients in an ordered process.  Synthetic drugs generally have well-defined chemical structures, and a finished drug can usually be analyzed to determine all its various components.  By contrast, it is difficult, and sometimes impossible, to characterize a complex biologic by testing methods available in the laboratory, and some of the components of a finished biologic may be unknown.

Thus, to be approved as a biosimilar, a drug must have the same active ingredient, strength, dosage form, and route of administration as the reference drug, and it must also be “bioequivalent.”  This means that generic drugs are the same chemically as their innovator counterparts and that they act the same way in the body.  To gain FDA approval, an applicant must show that its product is “highly similar” to the reference product and that there are no “clinically meaningful differences” between the two in terms of “safety, purity, and potency.”  An applicant may not submit an application until 4 years after the reference product is first licensed, and the FDA may not license a biosimilar until 12 years after the reference product is first licensed.  As a result, the manufacturer of a new biologic enjoys a 12-year period when its biologic may be marketed without competition from biosimilars.

The manufacturer or sponsor may also hold multiple patents covering the biologic, its therapeutic uses, and the processes used to manufacture it.  Those patents may constrain an applicant’s ability to market its biosimilar even after the expiration of the 12-year exclusivity period.  However, the BPCIA facilitates patent litigation during the period preceding FDA approval so that the parties do not have to wait until commercial marketing to resolve their patent disputes.  The BPCIA sets forth a carefully calibrated scheme for preparing to adjudicate, and then adjudicating, claims of patent infringement.

When the FDA accepts a biosimilar application for review, it notifies the applicant, who within 20 days “shall provide” to the sponsor a copy of the application and information about how the biosimilar is manufactured.  The applicant also “may provide” the sponsor with any additional information that it requests.  These disclosures enable the sponsor to evaluate the biosimilar for possible infringement of patents it holds on the reference product (i.e., the corresponding biologic).

After the applicant makes the requisite disclosures, the parties exchange information to identify relevant patents and to flesh out the legal arguments that they might raise in future litigation.  For example, within 60 days of receiving the application and manufacturing information, the sponsor “shall provide” to the applicant “a list of patents” for which it believes it could assert an infringement claim if a person without a license made, used, offered to sell, sold, or imported “the biological product that is the subject of the [biosimilar] application.”  Next, within 60 days of receiving the sponsor’s list, the applicant may provide to the sponsor a list of patents that the applicant believes are relevant but that the sponsor omitted from its own list, and “shall provide” to the sponsor reasons why it could not be held liable for infringing the relevant patents and why the patents may be invalid.

Following this exchange, the BPCIA channels the parties into two phases of patent litigation.  In the first phase, the parties collaborate to identify patents that they would like to litigate immediately. The second phase is triggered by the applicant’s notice of commercial marketing and involves any patents that were included on the parties’ lists but not litigated in the first phase.

As to the issues in the case, the Court first had to decide whether the requirement that an applicant provide its application and manufacturing information to the manufacturer of the biologic is enforceable by injunction.  The Court concluded that an injunction is not available under federal law, but remanded for the court below to decide whether an injunction is available under state law.

The second issue the Court considered is whether the applicant must give notice to the manufacturer after, rather than before, obtaining a license from the FDA for its biosimilar.  In deciding the issue, the Court noted Section 262(l)(8)(A) states that the applicant “shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed under subsection (k).” The Federal Circuit had held that an applicant’s biosimilar must already be “licensed” at the time the applicant gives notice. But, the Supreme Court disagreed.

The Court reasoned the applicant must give “notice” at least 180 days “before the date of the first commercial marketing.” “[C]ommercial marketing,” in turn, must be “of the biological product licensed under subsection (k).”  Because this latter phrase modifies “commercial marketing” rather than “notice,” “commercial marketing” is the point in time by which the biosimilar must be “licensed.”  The statute’s use of the word “licensed” merely reflects the fact that, on the “date of the first commercial marketing,” the product must be “licensed.”  Accordingly, the court held the applicant may provide notice either before or after receiving FDA approval.

Recently, Eagles Ltd. (the “Eagles”), the entity in control of legendary rock band The Eagles’ business affairs, filed a lawsuit against Hotel California Baja, LLC for trademark infringement. While I’m sure most of us are familiar with the Eagles’ song Hotel California, it may come as a surprise to most trademark aficionados that the Eagles have never registered HOTEL CALIFORNIA with the USPTO. Although this is shocking, and many intellectual property practitioners might even say reckless, those reactions beg the question: Is federal registration an absolute necessity to enforcement?

Federal registration is undoubtedly beneficial, and most practitioners would advise registration as the prudent course of action, but it is by no means an absolute necessity. The Lanham Act is protective of all trademarks that a proponent can establish having used in the United States, whether registered or not. While I wouldn’t personally advise my clients to proceed without a registration, as there is significant downside, this should come as relief to some entrepreneurs, particularly start-ups, who may not quite have the revenue needed to pursue trademark registration for their marks. But such an election should not be made without first consulting competent counsel to obtain a complete understanding of the disadvantages of proceeding with an unregistered trademark. For example, one such disadvantage is that unregistered trademarks are geographically restricted to the area where the mark is utilized. After all, we don’t all have national and international distribution like the Eagles, giving rise to trademark protection that is equally broad in scope.

In any event, the Eagles have filed their lawsuit in the United States District Court for the Central District of California, which is based in Los Angeles. Interestingly enough, the Hotel California Baja is based, as its name implies, in Baja California, Mexico. Although this could seemingly pose a jurisdictional problem, the Hotel California Baja is a registered California corporation, which, in this instance, makes it subject to the Central District’s jurisdiction. In the lawsuit, the Eagles allege that the Hotel California Baja has engaged in unfair competition and created a false designation of origin to consumers. More specifically, the Eagles allege that through the use of HOTEL CALIFORNIA, the playing of the Eagles’ music in the lobby, and the sale of merchandise self-proclaiming the hotel as “legendary,”[1] the Hotel California Baja has duped consumers into believing that the hotel is somehow associated or otherwise affiliated with the Eagles, or alternatively, that the Eagles sponsor or approve of the hotel’s services and commercial activity. Furthermore, the Eagles have alleged that the Hotel California Baja falsely claims to have served as inspiration for the song. As you might assume from the filing of this action, the Eagles have no such relationship with the Hotel California Baja, and they do not sponsor or approve its activities.

It is also worth noting that there is related litigation pending before the USPTO. Namely, in October 2016, the Eagles opposed the Hotel California Baja’s trademark registration, which was filed in November 2015, on the ground that it creates a likelihood of consumer confusion. Interestingly enough, shortly thereafter, the Eagles finally attempted to register HOTEL CALIFORNIA with the USPTO, but the examining attorney issued an office action refusing registration on the basis of Hotel California Baja’s previously filed application! However, in light of the recently filed federal litigation, both of these matters will likely be stayed.

It will be interesting to see how this dispute is ultimately resolved, whether through settlement or litigation. At this juncture, we do not have enough information to provide an informed analysis of how we believe it may come out, but we will keep an eye on the docket and provide updates when meaningful information becomes available.

[1] The Eagles contend that if the Hotel California is legendary, there can only be one source for that status: the Eagles. Thus, the Eagles contend that this characterization of the Hotel California Baja further exemplifies the false designation of origin.

The Copyright Act provides that “Registration” of a copyright is a precondition to filing suit for copyright infringement.  17 U.S.C. § 411(a).  We are still trying to figure out exactly when registration occurs.

While copyright registration is voluntary, the Copyright Act provides several incentives for a copyright owner to register a copyright, one of which is the right to enforce a copyright in an infringement action:  17 USC 411(a) provides:

[N]o civil action for infringement of the copyright in any United States work shall be instituted until … registration of the copyright claim has been made in accordance with this title.  In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement .…”

There are two camps of thought splitting the Federal circuit courts on when “registration” takes place with regard to Section 411(a).  The first is that “registration” occurs when a copyright owner files all necessary application materials to the Copyright Office to register a copyright.  The 5^th and 9^th Circuits and various district courts in other circuits have adopted this perspective, relying on the fact that the Copyright Act prescribes that the effective date of a registration is the date on which a proper and complete application was filed.  Because an applicant may sue for infringement whether or not a registration is issued as long as a proper application was filed, courts following the application approach believe the “registration” approach is misguided.  Since an applicant can file suit either way, it is immaterial whether registration is ultimately granted.

The second camp is that “registration” occurs when the Register of Copyrights registers the copyright or rejects the application.  The 10^th Circuit follows the “registration“ approach.  Just this month, the 11^th Circuit made clear that it too will follow the registration approach.

In its decision in Fourth Estate v. Wall Street.com, LLC, the 11^th Circuit explained the rationale behind its support of the “registration” approach.  That case involved a copyright infringement lawsuit over articles appearing on WallStreet.com.  The Copyright Office had not yet processed the copyright applications and Wall-Street.com, LLC moved to dismiss.  The court stated that “the Copyright Act defines registration in Section 410(a) as a process that requires action by both the copyright owner and the Copyright Office; the filing of the application, the payment of the application fee, the examination of the application by the Register of Copyrights, and then either the issuance of the certificate of the notification of the refusal of registration.

Section 410(a) of the Copyright Act provides in pertinent part:

When, after examination, the Register of Copyrights determines that, in accordance with the provisions of this title, the material deposited constitutes copyrightable subject matter and that the other legal and formal requirements of this title have been met, the Register shall register the claim and issue to the applicant a certificate of registration under the seal of the Copyright Office.

The court argued that the use of the phrase “after examination” in section 410(a) makes explicit that an application alone is insufficient for registration.  Further, the court points out that Section 411(a) allows an applicant whose application has been refused to file an infringement suit.  If registration occurred as soon as an application was filed, how could the application ever be refused the court reasoned.

With two Federal circuits clearly split, it is time for the Supreme Court to resolve this issue.

For over 25 years, the Court of Appeals for the Federal Circuit and the United States district courts have interpreted the patent venue statute 28 U.S.C. §1400(b) to allow plaintiffs to bring patent infringement cases against a corporation in any district court where there is personal jurisdiction over that corporate defendant.  The U.S. Supreme Court just overturned that interpretation in TC Heartland v. Kraft Foods.  In some instances, TC Heartland will greatly limit where patent infringement cases can be filed.  In fact, some are predicting that a significant number of the cases filed in the plaintiff-friendly Eastern District of Texas will be dismissed or transferred and that a substantially smaller number of cases can be filed there in the future.

The patent venue statute 28 U.S.C. §1400(b) provides that “[a]ny civil action for patent infringement may be brought in” either “the judicial district where the defendant resides” or “where the defendant has committed acts of infringement and has a regular and established place of business.”  When the defendant is a corporation, the question arises as to where does the corporation reside?  In Fourco Glass Co. v. Transmirra Products Corp., the Supreme Court previously ruled that for purposes of the patent venue statute “a domestic corporation ‘resides’ only in its State of incorporation.” In Fourco, the Court rejected the argument that §1400(b) is subject to the broader definition of corporate ‘residence’ found in the general venue statute, 38 U.S.C. §1391(c).   However, §1391 has been amended twice since the ruling in Fourco.  As amended, §1391 provides that for purposes of venue, a defendant corporation resides in any judicial district where the corporation is subject to personal jurisdiction.

In 1990, the Federal Circuit concluded in VE Holding Corp. v. Johnson Gas Applicance Co. that §1391(c), as amended in 1988, applies to §1400(b) and redefines the meaning of “resides” in §1400(b) to mean that a defendant corporation resides in any judicial district in which it is subject to personal jurisdiction rather than just in its state of incorporation. In 2011, §1391 was amended again to clarify that the statute applies, “[e]xcept as otherwise provided by law,” to “venue of all civil actions brought in district courts of the United States.”  But in its ruling below, the Federal Circuit reaffirmed VE Holding, finding no basis for a change in interpretation after the 2011 amendment.  The Supreme Court just reversed.

Now, for patent cases, a plaintiff will need to show that a particular district court has personal jurisdiction over a corporate defendant and separately show that venue is proper in that district.  To show that venue is proper, the plaintiff will have to show that

• the district court is in the defendant’s state of incorporation or
• the defendant has committed acts of infringement in the judicial district and has a regular and established place of business in that district.

The impact of this ruling will likely be felt greatest in plaintiff-friendly jurisdictions, such as the Eastern District of Texas where approximately 38% of all patent cases were filed in 2016 and where approximately 45% of all patent cases were filed in 2015.  Of those cases, the Eastern District of Texas would be a proper venue for only a small fraction of those cases today in light of the Supreme Court’s ruling.  In fact, we can expect to see a large number of motions to dismiss or transfer pending cases where venue has not yet been waived.  We are also likely to see a rise in filings in jurisdictions, such as Delaware, where many companies are incorporated.

Another impact of this ruling is that a plaintiff seeking to enforce patents against multiple defendants will likely need to file lawsuits in multiple districts rather than be able to bring all of the defendants to a single venue.  There are pros and cons to this effect.  Plaintiffs likely will give even more careful consideration to the merits of their claims before filing suit, given that the cost of litigating in multiple locales will be higher than litigating in a single venue.  Defendants may feel more emboldened to fight, rather than settle, claims they feel are unmeritorious if the venue is more favorable to them.

But where do foreign corporations reside?  Consider a foreign corporation doing business in the United States, such as over the Internet.  What if it does not have a place of business in the United States?  Where does that foreign corporation reside for purposes of venue?  We will have to leave that question for another day.  This ruling only clarified where domestic corporations reside.

“I googled it …” has become ubiquitous in every day conversation. Many of us refer to “googling” as the act of searching the internet regardless of whether we use the Google search engine to do so.  But has our everyday use of the verb “googling” rendered the Google trademark unprotectable?  “Nope,” said the Ninth Circuit in the recent case of Elliott v. Google, Inc., decided May 16, 2017.

In early 2012, one of the Plaintiffs registered more than 750 domain names using the word “Google” to describe various brands and things such as “googledisney.com” and “googleborackobama.net.”  After Google objected, the National Arbitration Forum agreed that these domain names were confusingly similar to the GOOGLE trademark and were registered in bad faith.  It transferred the domain names to Google.  Plaintiffs then filed a lawsuit seeking to cancel the GOOGLE trademark under the Lanham Act.  Plaintiffs argued that because the word “google” had become universally understood to describe the act of internet searching, it had become “generic” and was no longer subject to trademark protection. The U.S. District Court in Arizona rejected this claim and granted summary judgment in Google’s favor. Plaintiffs appealed to the Ninth Circuit.

The Court began by recognizing that generic terms are “common descriptive” names, which people use to describe a particular type of good or services. Because generic terms do not identify the “source of the product” they are generally not protectable under trademark law.  The Court continued by recognizing that over time, brands could become the victim of “genericide,” that is, “when the public appropriates a trademark and uses it as a generic name for particular types of goods or services irrespective of its source.”  The Court provided as examples aspirin, cellophane and thermos as once protected trademarks that had lost their trademark protection over time as the public became accustomed to using these terms in connection with describing a type of product, regardless of who made the product.

However, the Ninth Circuit cautioned that “the mere fact that the public sometimes uses a trademark as a name for a unique product does not immediately render the mark generic … Instead, a trademark only becomes generic when the `primary significance of the registered mark to the relevant public’ is as the name for a particular type of good or service irrespective of its source.”  The Ninth Circuit described this analysis as the who/what test, i.e., whether the relevant public understands a mark as describing the “who” as the maker or provider of a good or service as opposed to whether it understands the mark as the “what” in describing the good or service regardless of who makes or provides it.

In rejecting the Plaintiffs’ claims, the Ninth Circuit began by clarifying that a claim of “genericness” must be made with regard to a particular type of good or service.  In doing so, it rejected Plaintiff’s claim that because “googling” had been commonly used to describe an act, i.e., an internet search, the District Court erred when it limited its inquiry as to internet search engines.  The Ninth Circuit found that this was proper because any claim of genericness must be made in relation to a good or service given the clear language of the Lanham Act.  The Ninth Circuit continued by recognizing that the failure to limit the inquiry to a particular good or service would put at risk those trademarks that were “arbitrary,” i.e., where an existing word is used to identify the source of a good with which it would otherwise have no logical relationship.  For instance, “IVORY” is subject to trademark protection when used in connection with the particular brand of soap, but would otherwise be subject to cancellation for genericness if “IVORY” was used in connection with products made from elephant tusks.

Next, the Ninth Circuit turned to the Plaintiffs’ argument that because the public has used “googling” as a verb, it was no longer subject to protection.  The Ninth Circuit rejected this argument, finding that the use of an otherwise protected mark as a verb does not automatically render it generic.  The Court concluded that Congress, in amending the Lanham Act, specifically acknowledged that a protected mark may be used as both the name for a product, i.e., as a noun, and yet also used with a specific source in mind, i.e., an adjective.  The Ninth Circuit cited a prior case involving Coca-Cola’s trademarks in which it rejected a claim that customers ordering a “coke” were not necessarily referring to a Coca-Cola product.

The Ninth Circuit spoke approvingly of the District Court’s analysis in this regard by referring to both “discriminate verbs” and “indiscriminate verbs” in order to evaluate Plaintiffs’ claims.  The Court had reasoned that a speaker might use “google” in both an indiscriminate sense, i.e., using “googling” to refer to an internet search without regard to the search engine, as well as other times using it in the determinate sense, i.e., using “Google” meaning to search the internet using the Google search engine.  The Ninth Circuit concluded that the District Court properly found that the primary significance of the word “Google” was whether the relevant public related it to the specific search engine as opposed to the more of the generic internet searching term.

In conducting this inquiry, the Ninth Circuit found that the lower court properly concluded that Plaintiff had not met his burden of establishing the genericness of Google.  The Court noted that the Plaintiffs’ bore the burden of proving genericide by a preponderance of the evidence because they were the ones seeking cancellation of the GOOGLE trademark.  Thus, they were required “to identify sufficient evidence to support a jury finding that the primary significance of the word ‘google’ to the relevant public is as a name for internet search engines generally and not as a mark identifying the google search engine in particular.” Here, the lower court had rejected two of the three surveys conducted by Plaintiffs as being unreliable.  The District Court did accept a third survey, which used but was described as the “thermos” study in which a survey respondent was asked: “If you were going to ask a friend to search for something on the internet, what word or phrase would you use to tell him/her what you want him/her to do?” more than half the respondents used the term “google.”  The Court concluded, however, that this evidence did not go any further other than allowing a favorable inference to be drawn that google had both a determinate and indeterminate use.

Plaintiffs attempted to offer evidence concerning dictionary definitions of the term “google” but the Court again found this evidence insufficient given that the definitions referred to both the Google search engine and did nothing more than support the favorable inference already drawn by the District Court.

Finally, Plaintiffs argued that there was no other term to be used to describe the act of “googling,” which was rejected by the Court.  The Ninth Circuit rejected this finding that not a single competitor of Google’s referred to their search engine as “a google.” In short, the Ninth Circuit found that most of the evidence submitted by Plaintiffs to avoid summary judgment was irrelevant to the primary inquiry and affirmed the lower court’s granting of summary judgment in Google’s favor.

For now, it appears that Google’s trademark is safe.  However, give it time and how the public comes to view the term “google,” a court could revisit this issue in the future.

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. 

*This line is the title of a song written by Peter Allen and Carole Bayer Sager that was performed in Bob Fosse’s movie “All that Jazz.”  The song was a hit, and the phrase has a lot of relevance to everyday life, but the Federal Circuit isn’t buying it.

In RecogniCorp, LLC v. Nintendo Co. (Fed. Cir. 2017) 2017 U.S. App. LEXIS 7528, the Federal Circuit struck down a patent on the grounds that the invention was not new – it had been done before – way before– in 1775 by Paul Revere.

RecogniCorp’s patent covered a method and apparatus for encoding and decoding image data.  The invention was intended to solve problems that arise in the digital transmission of images, including decreased image quality as the images are compressed and transmitted.

RecogniCorp sued Nintendo for patent infringement.  The case was transferred to the Western District of Washington and stayed pending reexamination by the Patent and Trademark Office.  After the reexamination concluded, the district court lifted the stay.  Nintendo then moved for judgment on the pleadings, arguing that the patent’s claims were directed to ineligible subject matter under 35 U.S.C. §101.  Under that statute and case law, just about every type of invention can be patented, except for those that relate to laws of nature, natural phenomena, and abstract ideas.  Nintendo argued that RecogniCorp’s invention was an abstract idea, and therefore unpatentable.

The district court granted Nintendo’s motion, finding the claims to be directed to ineligible subject matter as an abstract idea.

On appeal, the Federal Circuit affirmed the district court’s decision.  The court applied the Supreme Court’s two-part test set forth in Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014) for determining whether a claimed invention is patent-eligible.  In applying the first step of the Alice test, the court determined that RecogniCorp’s claims were directed to an abstract idea.  The method of encoding and decoding images was a standard method, which the Court said had been used before, in Morse code, in ordering fast food at restaurants using a number system, and in Paul Revere’s famous phase “one if by sea, two if by land.”  The methods of RecogniCorp’s invention rely on encoding something at one end and decoding it at the other end, which is a concept or idea that has been used in many different situations.

Next, the Court applied Alice’s second step to decide whether there was an inventive concept that transformed the claim into a patent-eligible application.  The court said that nothing in RecogniCorp’s claims transformed the abstract idea into subject matter that was patent-eligible.  Because the claims failed both prongs of the Alice test, the court held that the claims were not patentable subject matter.

As most people know, Paul Revere was a Patriot during the American Revolution who is best known for warning the colonial militias that the British were getting ready to attack, before the battles at Lexington and Concord.  He helped create an intelligence and watch operation by the colonists over the British.  On April 18, 1775, Paul Revere was told that the British were leaving Boston for Cambridge by boat, heading on to Lexington and Concord, to seize the Patriots’ weapons at Concord and to capture their leaders Samuel Adams and John Hancock.  Revere had previously told the church’s sexton to alert the colonists to the British by signal using the lanterns in the church’s steeple:  “one if by land, two if by sea.”  On that night, Revere told the sexton to light two lanterns in the steeple.  Revere then quietly rowed a boat past a British warship to get to Charleston, and then rode by horseback into Lexington, spreading the warning as he went.  More riders joined him in the night, riding out through the countryside in a system the colonists called “alarm and muster.”  Revere was captured by the British (but later released, although they kept his horse).

Paul Revere helped stop the British in 1775, and, 242 years later, helped stop RecogniCorp’s patent.

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

In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the United States Court of Appeals for the Federal Circuit recently ruled that the America Invents Act’s (“AIA”) did not change the meaning of the on-sale bar provision in 35 U.S.C. § 102.   The on-sale bar provision holds that sales of an invention one year prior to the patent filing are prior art even if the sale is made by the patent owner and does not publically disclose the invention.  Under Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), application of the on-sale bar requires satisfaction of a two-prong test that: (1) “the product must be the subject of a commercial offer for sale” and (2) “the invention must be ready for patenting.”

In the case, Helsinn Healthcare S.A. (“Helsinn”) brought suit against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries, Ltd. (collectively, “Teva”) alleging that the filing of Teva’s Abbreviated New Drug Application (“ANDA”) constituted an infringement of various claims of four patents directed to reducing the likelihood of CINV. CINV is a serious side effect of chemotherapy treatment.  In defense, Teva argued the asserted claims were invalid under the on-sale bar provision of 35 U.S.C. § 102.

In addressing the on-sale issue, the district court applied the two-step framework of Pfaff and found that the patents-in-suit were valid.  With respect to three of the patents, all subject to pre-AIA § 102, the district court concluded that there was a commercial offer for sale before the critical date, but that the invention was not yet ready for patenting.  With respect to the fourth patent, which is governed by the AIA version of § 102, the district court concluded that there was no commercial offer for sale because the AIA changed the relevant on-sale bar standard, and the invention was not ready for patenting.

In coming to the conclusion that the AIA changed the on-sale bar standard, the district court reasoned that before the AIA, the on-sale bar provision of § 102 stated that a person was entitled to a patent unless the invention was patented or “in public use or on sale in this country, more than one year prior to the date of application.”  Thus, courts held that even confidential sales could potentially trigger the on-sale bar under that provision.  Congress amended the on-sale bar in the AIA, which applies to patents filed after March 2013.  The new § 102 states patents are allowed unless the claimed invention was patented or “in public use, on sale, or otherwise available to the public” before a patent is filed.

The district court thus reasoned that the “otherwise available to the public” phrase means that only public sales trigger the AIA’s version of the on-sale bar, unlike prior to the AIA when private sales could satisfy the on-sale bar. Thus, in effect, the district court held that the AIA changed the meaning of the on-sale bar and § 102 now “requires a public sale or offer for sale of the claimed invention.”  The district court concluded that, to be “public” under the AIA, a sale must publicly disclose the details of the invention.

The Federal Circuit reversed the district court and held the asserted claims of the patents-in-suit were subject to an invalidating contract for sale prior to the critical date, and the AIA did not change the statutory meaning of “on sale” in the circumstances involved. The Federal Circuit also found the asserted claims were ready for patenting prior to the critical date.

In first addressing the on-sale bar and whether the AIA requires that the details of the claimed invention to be publicly disclosed before the on-sale bar is triggered, the Federal Circuit held “requiring such disclosure as a condition of the on-sale bar would work a foundational change in the theory of the statutory on-sale bar.”  The Federal Circuit reasoned a primary rationale of the on-sale bar is that publicly offering a product for sale that embodies the claimed invention places it in the public domain, regardless of when or whether actual delivery occurs.  The patented product need not be on-hand or even delivered prior to the critical date to trigger the on-sale bar.

The Federal Circuit further explained that “prior cases have applied the on-sale bar when there is no delivery, when delivery is set after the critical date, or, even when, upon delivery, members of the public could not ascertain the claimed invention.”  The Federal Circuit found no indication Congress intended to overrule these cases. Instead, the Federal Circuit reasoned Congress, in stating that the invention must be available to the public, “meant that the public sale itself would put the patented product in the hands of the public.”  Thus, the Federal Circuit concluded that, after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale.

The Federal Circuit also addressed whether the invention was ready for patenting as of the critical date.  Under Pfaff, there are at least two ways in which an invention can be shown to be ready for patenting: “by proof of reduction to practice before the critical date; or by proof that prior to the critical date the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.”   The Federal Circuit found the patented invention was ready for patenting because it was reduced to practice before the critical date.  Thus, the Federal Circuit also reversed the district court on this point, and invalidated the asserted claims of all four patents.

Whenever there is a report of a YouTube creator being sued for copyright infringement, the response from the creator and the community seems to be one of shock and surprise.  The truth is, successful YouTube content creators should not be surprised when they get sued for copyright infringement.  Any person or company that creates content professionally, whether that’s a television network, a motion picture studio or a YouTuber, is a likely target for a copyright lawsuit.  When I began representing Anthony Padilla and Ian Hecox of Smosh over 10 years ago, only a few people were making digital video content, even fewer understood what YouTube was, and the amount and types of revenue opportunities was nowhere near what it is today.  But today, there are so very many successful YouTube content creators with millions and millions of subscribers and the amount of money flowing through the digital first content genera is significant.   Like it or not, popular YouTube creators are just as much a target for infringement claims as a television network or movie studio.  If a creator is surprised or caught off guard when they receive a claim of infringement, it means they were not adequately advised and prepared for this eventuality.

The truth is that, for the most part, anyone can sue anyone.  As one of my first year law school professors explained, one of the basic elements of the American system of jurisprudence is the concept of the “American Rule” in which each party pays their own attorneys’ fees as opposed to the “English Rule” whereby the loser pays the winner’s attorneys’ fees.  While the American rule does enable the bringing of questionable claims, the founders of our judicial system believed that this risk was outweighed by making the courts available to all without the fear of financial ruin.

Another truth about the American civil judicial system is that lawyers are expensive.  While there are vastly different rates that certain lawyers may charge, good lawyers are expensive.  And since most lawyers charge by the hour, this makes lawsuits a costly endeavor.

So with the reality that content creators are a likely target for lawsuits, that it’s relatively easy to bring a lawsuit and that lawyers (and thus lawsuits) are expensive, what is a content creator to do?  Doing nothing to prepare for the eventual lawsuit is not it.  Content creators should take the risk of lawsuits into account when doing business and take steps to hedge against that potentiality.   Like all other media businesses, creators should consider making the following part of their general business practices.  The following isn’t exclusive, but it’s a good place to start.

The first step any content creator should take is to “clear” the rights to any other person appearing on camera and any third-party music, pictures, videos or other content.  This sounds more complicated that it is.  Clearing rights is accomplished by using a written agreement to secure whatever rights are necessary that will allow you to feature that person, music or clip in your video.  If you have people other than yourself appearing in your video, they should sign what’s known as an appearance release.  Similarly, if you use third-party music or other content, there are specific documents that are appropriate for those situations as well.

Granted there are certain times when a content creator can’t obtain permission to include third‑party content in a video.  In those situations, a creator may still be able to use the content if the use satisfies the judicial test established for fair use.  I strongly suggest that all creators have a working knowledge of fair use.  (A good place to start is the fair use presentation Rian Bosak and I give each year at VidCon.)  However, unless a creator is absolutely certain that what he/she is doing qualifies as fair use, it may be best to consult an expert.  When I was the attorney for YouTube Nation, fair use review took up a fair amount of my time.  Fair use is a complicated legal theory that is constantly in flux; even our federal courts sometimes can’t agree on what is and what is not fair use.

Any content creator that includes third-party music, third-party pictures or videos or third-party brands in their video or that reviews products or services should consider the benefits of a media liability insurance policy.  This is a type of Errors and Omissions (E&O) insurance policy and generally covers against copyright and trademark infringement claims, privacy claims, defamation claims and others.  The coverage provided by such a policy not only includes the damage award resulting from a covered claim, but also includes the cost to defend against such a claim.  And while it is true that a media liability policy may be expensive, the cost to pay lawyers to defend against a claim is way more expensive.

In addition, YouTubers should consider adopting some of the methods television networks and film studios use in their production of content.  I am not necessarily saying that creators would need to employ a full-blown production team, but implementing some of their practices could lessen the risks inherent with the production and distribution of content.  Making use of some standard production forms and having a relationship with a lawyer who is extremely familiar with copyright, fair use and production issues will go a long way towards preventing claims.

The high odds of being on the receiving end of a cease and desist letter or a complaint (which are much worse than a strike or a takedown) is the cost of success as a creator.  The smart bet is to prepare in advance so you are not caught off guard and doesn’t put your financial wellbeing in jeopardy.

*Scott Hervey represents top content creators, studios and production companies in a wide variety of matters including financing, acquisitions, production, clearance and general business matters. Scott’s clients include STX, DreamWorks/YouTube Nation, Pharrell Williams’ I am Other channel, Smosh, Sawyer Hartman and Nerdwriter. Scott previously served as the acting business affairs director for the publicly traded digital content company, Digital Music Group, Inc. (now The Orchard). Scott was featured in Variety’s Legal Impact Report and is a Super Lawyer®. Scott is a professor of entertainment law at King Hall law school, U.C, Davis and he serves on the board of directors of the Hollywood Radio and Television Society (HRTS).

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.