Intellectual Property

Although arguably foreshadowed, some may be surprised to learn that a party with the right to challenge the validity of a patent at the United States Patent and Trademark Office (“USPTO”) may not have the right to appeal an unfavorable decision.  In Phigenix v. ImmunoGen, the Federal Circuit clarified that while there is no standing requirement to challenge a patent at the USPTO via an inter partes review (“IPR”), standing is required to appeal the Patent Trial and Appeal Board’s (“PTAB”) final decision to the Federal Circuit.

In 2014 in Consumer Watchdog v. Wis. Alumni Research Fund, the Federal Circuit ruled that there was no standing to appeal the PTAB’s final decision in a re-examination proceeding.  But is standing required to appeal decisions in IPRs and post-grant reviews, which are procedures created by the America Invents Act (“AIA”)?  After all as a result of the AIA, 35 U.S.C. §141(c) states “[a] party to an inter partes review or a post-grant review who is dissatisfied with the final written decision of the Patent Trial and Appeal Board [] may appeal the Board’s decision only to the United States Court of Appeals for the Federal Circuit.”  In Cuozzo Speed Techs., LLC v. Lee, the U.S. Supreme Court noted that a party initiating an IPR “need not have a concrete stake in the outcome,” but it may lack standing to sue in federal court.  Now, erasing any remaining doubt as to whether the standing requirement applies to appeals of PTAB decisions in IPRs, the Federal Circuit in Phigenix found that 35 U.S.C. §141(c)  does not confer standing on IPR petitioners nor does it remove the requirement for standing to appeal final written decisions of the PTAB.

While not manufacturing any of its own products, Phigenix purportedly “has developed, and is developing, an extensive intellectual property portfolio” that it claims includes a patent that covers Genentech’s activities relating to the breast cancer drug Kadcyla.  While refusing to license Phigenix’s patent, Genentech licensed a patent from ImmunoGen, Inc., for use in making Kadcyla.  Phigenix sought redress in various forums.  As part of its strategy, Phigenix challenged the validity of ImmunoGen’s patent in an IPR proceeding.  Apparently, Phigenix felt that invalidating ImmunoGen’s patent would “further [Phigenix’s] commercialization efforts with respect to its patent portfolio” by capturing at least some of the licensing revenue Genentech is paying to ImmunoGen.  However, this challenge failed when the PTAB ruled the Immunogen patent claims were not obvious in light of the prior art.

Phigenix then appealed the PTAB’s decision to the Federal Circuit, but ImmunoGen moved to dismiss the appeal for lack of standing.  The Federal Circuit heard the issue of standing along with the substantive issues of the appeal.

The requirement of standing to sue comes from Article III of the U.S. Constitution, which “confines the judicial power of federal courts to deciding actual ‘Cases’ or Controversies.’” The minimum requirement for standing consists of three elements.  “An appellant ‘must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the [appellee], and (3) that is likely to be redressed by a favorable judicial decision.’”  The party seeking judicial review, Phigenix, “bears the burden of establishing that it has standing.”

Interestingly, however, in the nearly thirty-five years since the inception of the Federal Circuit, the Court had “not established the legal standard for demonstrating standing in an appeal from a final agency action,” such as a final written decision of the PTAB.  Such a “standard must identify the burden of production; the evidence an appellant must produce to meet that burden; and when an appellant must produce that evidence.”  Setting the standard in Phigenix, the Federal circuit determined that the summary judgment burden of production applies.  If standing is not self-evident, this means identifying any record evidence that was before the agency, and relying on evidence, such as affidavits and declarations, typically produced at the summary judgment stage.  The Federal Circuit further explained that an appellant must identify the relevant evidence demonstrating its standing at the earliest possible opportunity.

In its attempt to show standing, Phigenix did not contend that it faced the risk of infringing the patent at issue, that it was an actual or prospective licensee of the patent, or that it otherwise planned to take any action related to the patent.  Rather, first Phigenix argued that it suffered economic injury because of the competition between ImmunoGen’s patent and Phigenix’s similar cancer drug patent.  Phigenix asserted that the mere existence of ImmunoGen’s patent hindered Phigenix’s licensing program “while ImmunoGen receives millions of dollars in licensing revenue,” a portion of which Phigenix contended would inure to it if ImmunoGen’s patent were invalidated.  Phigenix, however, did not substantiate its arguments but instead relied on a conclusory declaration and an attorney letter that the Court found insufficient to demonstrate injury in fact.  The Court noted that if had Phigenix licensed its patents to the same parties to which ImmunoGen had licensed the challenged patent, then invalidation of the ImmunoGen patent could have increased Phigenix’s revenues.  But Phigenix produced no evidence that it had ever licensed its patent to anyone must less to the Immunogen licensees.  Thus, the Federal Circuit found that Phigenix did not establish an injury in fact that could confer standing.

Second, Phigenix argued it suffered an injury in fact because 35 U.S.C. §141(c) “provides a statutory basis for appeal.”  The Federal Circuit, however, found that Phigenix could not “base its injury in fact upon a violation of §141(c) because [Phigenix] has been permitted to file its appeal, and the exercise of its right to appeal does not necessarily establish that it possesses Article III standing.”

Finally, Phigenix asserted injury in fact based on the estoppel effect of the PTAB’s final decision, which means Phigenix “may not request or maintain a proceeding before” the USPTO, the U.S. International Trade Commission, or a federal district court with respect to any ground raised or that reasonably could have been raised during the IPR.  But, as in Consumer Watchdog, the Federal Circuit explained that estoppel “do[es] not constitute an injury in fact” when, as here, the appellant “is not engaged in any activity that would give rise to a possible infringement suit.”  Failing to establish standing, Phigenix’s appeal was dismissed.

Standing issues will not arise in the majority of appeals from IPRs because, as previously reported, around 80% of IPRs are brought by parties involved in underlying patent infringement controversies. But the petitioners in the remainder of IPRs face the real likelihood they may have no ability to appeal unfavorable PTAB decisions.  As a result, public interest groups, hedge funds, patent holding companies, and others looking to invalidate patents owned by other entities may be precluded from challenging an unsuccessful IPR in federal court because they will not be able to show that there is an actual case or controversy that would confer standing.

Therefore, before petitioning for review of a patent at the USPTO, a petitioner should consider whether he or she will have standing to appeal an unfavorable decision.  Of course, if the IPR is successful, there is no need for the appeal.

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

The Federal Circuit Court of Appeals has reminded the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office in no uncertain terms that covered business method review has limits.  In Unwired Planet, LLC v. Google Inc., 841 F.3d 1376, 2016 U.S. App. LEXIS 20764 (November 21, 2016), the court held that the PTAB had improperly instituted covered business method (“CBM”) review of Unwired’s patent.  CBM review is a procedure enacted in the America Invents Act by which a business method patent can be challenged in the PTAB.

Unwired owned U.S. patent no. 7,203,752 for a system and method to limit access to the location information of wireless devices.  The system allows a cell phone user to set their phones privacy preferences to restrict access to the phone’s location information to specific permitted requesters.

In October 2013, Google filed a petition in the PTAB for CBM review of certain claims of Unwired’s patent.  In April 2014, the PTAB instituted CBM review.  The PTAB determined that the ‘752 patent was a CBM patent, applying the following test: “whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.”  Unwired, supra, at *4.  The PTAB’s rationale was that the ‘752 patent’s specification stated that the requesters of the location information could include business like hotels and restaurants who could send targeted advertising to nearby cell phone users.  Id.  The PTAB found that this discussion in the ‘752 patent satisfied the requirement that the claims be “incidental or complementary to a financial activity.”  Id.

The PTAB instituted CBM review of the ’752 patent on several grounds, including invalidity for unpatentable subject matter under 35 U.S.C. §101, obviousness under 35 U.S.C. §103, and written description under 35 U.S.C. §112.  In April 2015, the PTAB issued its decision invalidating all of the challenged claims under §101.

Unwired appealed to the Federal Circuit, arguing that the PTAB had erroneously applied its own improper test (“claims incidental or complementary to a financial activity”), rather than the test set forth in the America Invents Act, for whether the ‘752 patent was a CBM patent.  Google responded that, because the PTAB’s interpretation was based on comments made during the rulemaking process when the AIA was enacted, the PTAB had correctly interpreted the statutory definition of a CBM patent.  Google also argued that the PTAB properly relied on the ‘752 patent’s discussion of potential advertising uses for the invention.

The Federal Circuit gave a straightforward answer to a straightforward question.  The court disagreed with the PTAB and Google.  The court held that the PTAB must apply the statutory definition of a CBM patent set forth in the AIA and cannot use commentary from the rulemaking process to create a broader definition.  Id. at *7.

Under the AIA, §18(d)(1), a CBM patent is one that “claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service . . .”.  The court noted that the PTO had adopted this definition without change.  Id. at *7.  However, the PTAB had applied a different definition (“incidental or complimentary to a financial activity”) to the ‘752 patent, one which is broader than the statutory definition.  The court explained that the PTAB relied on a comment made by Senator Schumer during the Senate’s discussion of the AIA, but the comment, like many of the comments made during the Senate hearings, was not included in the statutory definition.  Id. at *8-9.  The comments made by various legislators are irrelevant; the statute is the “operative legal standard” — the PTAB cannot “expand its authority beyond that granted by Congress.”  Id. at *12-13.

The court emphasized its point, at *13:

“The patent for a novel lightbulb that is found to work particularly well in bank vaults does become a CBM patent because of its incidental or complementary use in banks.  Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service.  All patents, at some level, relate to potential sale of a good or service. . . . It is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur.”

The court did not reach the question of the patentability of the claims of the ‘752 patent under §101.  The court vacated the PTAB’s decision and remanded the case to the PTAB.

This case clearly establishes that there are limits what a CBM patent is.  The statutory definition is not so broad as to encompass any patent that relates to a financial activity.  CBM review can only be used to challenge patents that cover operations used in the practice, administration, or management of a financial product or service.  Any attempt to broaden the application of CBM review is not supported by law.

A recent Ninth Circuit decision in Antonick v. Electronic Arts, Inc. (filed Nov. 22, 2016), shows some of the proof issues that a plaintiff may encounter in prosecuting claims for copyright infringement in connection with software.  A jury found in favor of plaintiff’s claims of infringement; however, the trial court granted the defendant’s motion for judgment as a matter of law because plaintiff had not offered the “source code” for the software games at issue into evidence during the trial. In affirming the trial court’s decision, the Ninth Circuit illustrated some of the pitfalls a plaintiff may encounter in prosecuting copyright infringement claims.

In 1986, Antonick entered into a contract with EA to develop “a custom computer software program known as John Madden Football,” which was to be designed for Apple II computers.  His contract provided Antonick with a royalty on any derivative work which was defined as “any computer software program or electronic game which … constitutes a derivative work … within the meaning of the United States copyright law.”

EA released Apple II Madden in 1988 and it became an instant best seller.  EA had Antonick subsequently program Madden games for the Commodore 64 and IBM-compatible computers.    In 1989, EA asked Antonick to begin work on Madden games for the Nintendo and Sega Genesis entertainment systems.  However, about one year later, Antonick was told to stop work on those projects since Nintendo was becoming obsolete and EA had decided to take a new direction for the Sega game.  Park Place Productions was hired by EA to create a Sega version of the Madden game, which was released in November 1990.  From 1992 to 1996, EA continued to release Madden games for Sega Genesis.  Antonick did not receive any royalties for the Sega version of the Madden game.  (This article will not address Antonick’s claims with respect to the Super Nintendo Madden version.)

Antonick sued EA in 2011 for breach of contract with regard to the unpaid royalties for the Sega Madden game.  After a jury found that Antonick’s claims were not barred by the statute of limitations, trial proceeded as to the merits of his contract claims for unpaid royalties.  He produced evidence at trial that Park Place had problems developing its own version of the game and may have resorted to copying his code to meet demanding deadlines.  Antonick also produced an expert, Michael Barr, to opine that Sega Madden was “substantially similar to certain elements of Apple II Madden,” in that it had similar formations, plays, play numbering, etc.  For some reason, Antonick did not offer the source code for either Apple II Madden (the “work”) nor the source code for Sega Madden into evidence.  (It is unclear from the opinion whether this was because Antonick did not obtain all of the source code or chose not to offer it.0  In reversing the jury’s verdict in Antonick’s favor, the trial court found that the failure to produce the source code into evidence meant that Antonick could not provide sufficient evidence of copyright infringement that would entitle him to a royalty under his 1986 contract with EA and entered judgment in EA’s favor.

The Ninth Circuit began by concluding that because the contract entitled Antonick to royalties only if he could show a derivative work “within the meaning of the United States copyright law,” Antonick had to establish a copyright infringement claim to prevail on his contract claims.  In essence, Antonick had to prove “that EA `copied protected elements of the work’”.  Given that Antonick apparently had no direct evidence of copying, the Ninth Circuit reasoned that he could only provide infringement by showing: (1) EA’s “access to his work;” and (2) that the two works are “substantially similar.”  As to the “substantially similar” prong, the Ninth Circuit has developed a two-part test which requires a plaintiff to prove both “substantial similarity under the `extrinsic test’ [objective comparison and specific expressive elements] and substantial similarity under the `intrinsic test’ [a subjective comparison that focuses on whether the ordinary reasonable audience would find the work substantially similar].”

The Ninth Circuit agreed with the trial court that the failure to provide the source code for the two versions of the game meant that the jury had no evidence to make a subjective comparison under the intrinsic test.  Antonick’s whole claim was premised on the contention that the “source code” of the Sega version of the Madden game infringed on the source code of his Apple II version.  Without introducing the source codes into evidence, the jury could not compare the two works (i.e., “source code”) to determine substantial similarity.

Antonick tried to argue around this proof issue by claiming that Park Place had both access to his source code for the Apple II version and a motive to copy it; and that his expert and others had testified as to the similarity of the two works. The Ninth Circuit relied on three reasons for rejecting these arguments.

First, the Ninth Circuit assumed that even if the evidence showed access and motive to copy, it still did not establish that the “protected portions of the works are substantially similar.”  The Ninth Circuit has held for more than two decades that “access alone cannot establish copyright infringement.”

Second, the Ninth Circuit has repeatedly found that expert testimony alone cannot satisfy a plaintiff’s burden of proof under the intrinsic test which “depends on the response of the ordinary reasonable person.”  Although the expert’s testimony may have established “substantial similarity under the extrinsic test,” it could not satisfy the plaintiff’s burden of proof under the intrinsic test.

Finally, the testimony given as to how the games “appear” was not relevant to the crucial issue as to whether there was substantial similarity in the source code.  The Ninth Circuit recognized that it was the source code that was the protected work, not the audio visual appearance of the games.

The Ninth Circuit also found that lay witness testimony concerning EA’s “approach” to developing the Sega game could not satisfy plaintiff’s burden of proof as to the underlying source code.  The Ninth Circuit concluded that “an `approach’ is an idea that cannot be copyrighted – only its expression and code is protectable – and Sega Madden could have used Apple II Madden’s `approach’ to football video games without violating the copyright laws.”

The Antonick case is a reminder to plaintiffs prosecuting copyright infringement claims to make sure that they have identified the “work” at issue and make sure they have competent evidence in the record to support a verdict in their favor.  Otherwise, they are at risk of having  defeat snatched from the jaws of victory.

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. 

In Lanard Toys Limited v. Toys “R” Us, Inc. et al, 3-15-cv-00849 (FLMD December 16, 2016, Order) (Barksdale, MJ), a patent infringement matter in Florida District Court, the court denied defendants’ motion to disqualify plaintiff’s new counsel for simultaneously representing defendant in an unrelated case.  Four months after lawyers with Gordon & Rees Scully Mansukhani LLP (“Gordon & Rees”) began representation of Lanard Toys Limited (“Lanard”) against Toys “R” Us-Delaware, Inc. (“TRU”), other lawyers with Gordon & Rees began representation of TRU in a California state case. Upon discovering the conflict of interest, Gordon Rees withdrew from representing TRU in the California matter.  However, Gordon Rees refused to withdraw from the Florida case, so TRU filed a motion seeking disqualification.

Gordon Rees asserted the dual representation was a result of an “inadvertent input error,” wherein the names of some of the parties where inadvertently omitted from the conflict tracking software during the conflicts check, and not because Gordon & Rees deliberately disregarded the duty of loyalty to a client.  Gordon Rees was only acting as local counsel to TRU in the California matter.  The only activity in which Gordon & Rees participated on behalf of TRU in the California Case was the finalization and filing of TRU’s answer to the complaint at the direction of the Palter Firm, who was TRU’s primary counsel in the California matter. According to the attorneys, Gordon & Rees and TRU never spoke with each other prior to TRU raising the conflict issue; there was no retention agreement entered into between the parties and no confidential information relevant to the Florida case was exchanged, nor was any confidential information relating to TRU’s strategic approach for defending against cases, in general, exchanged.  Gordon & Rees’s sole tasks with respect to TRU in the California Case during the time of the representation, according to them, were to propose edits to a draft Answer for TRU that was prepared by lead counsel, the Palter Firm, and to inform the Palter Firm that a TRU officer had to verify it.

In contrast, in the Florida matter, Gordon Rees is Lanard’s primary counsel, has spent hundreds of hours reviewing documents, has taken depositions in two states, and has represented Lanard in numerous prior cases.  Therefore, according to Lanard and Gordon Rees, it would take substantial effort and cost to bring new counsel up to speed on the Florida case.

In analyzing the issue and ruling on TRU’s disqualification motion, the Court first noted that because a litigant is presumptively entitled to counsel of its choosing, only a compelling reason will justify disqualification.  Disqualification is a “harsh sanction, often working substantial hardship on the client,” so it “should be resorted to sparingly.” And, because a disqualification motion may be used to harass or for tactical advantage, it should be viewed with caution. The Florida Court further noted disqualification is not mandatory, even if a court finds a lawyer is violating a conflict-of-interest rule.  Instead, a “court should be conscious of its responsibility to preserve a reasonable balance between the need to ensure ethical conduct on the part of lawyers appearing before it and other social interests, which include the litigant’s right to freely chosen counsel.”  In undertaking the balancing, pertinent factors may include the nature of the ethical violation, the age of the case, the prejudice to the parties, the effectiveness of counsel in light of the violation, the public’s perception of the profession, whether the attempt to disqualify is a tactical device or a means of harassment, and whether any screening measures have been implemented.

The Florida Court then found that by undertaking representation of TRU in the California case while simultaneously undertaking representation against TRU in the Florida case, Gordon & Rees did violate Florida’s conflict of interest laws.  However, it was an inadvertent input error—not a deliberate disregard of the duty of loyalty—that caused that violation.  In addition, the Florida Court also found Lanard would suffer a substantial hardship by having to retain new counsel to repeat or review work.  As to the California matter, the Florida Court found the Gordon & Rees lawyers did not directly communicate with TRU or, as stated in the declarations, receive any TRU confidences. With no sharing of TRU confidences and able counsel on both sides, the violation will not diminish counsel’s effectiveness.  And Gordon & Rees’s active representation of TRU lasted less than a month, during which it was not TRU’s primary counsel.  Thus, the Florida Court concluded “[b]alancing the interests and mindful that Lanard is presumptively entitled to counsel of its choosing and disqualification is a harsh sanction to be resorted to sparingly, disqualification is unwarranted.”

Although the court denied the disqualification motion, this case is still a strong cautionary warning to consider potential conflict issues when selecting counsel.  Otherwise, at best, a costly disqualification motion can result, and at worst, new counsel may need to be hired in the middle of litigation at substantial additional cost and effort.

With last weekend’s release of Rogue One: A Star Wars Story, Star Wars is once again living and thriving. Rogue One opened with a most impressive $155 million opening in North America, and $290 million worldwide, making it the 12th largest opening in United States History. Now, this isn’t really related to intellectual property, but in light of this opening,  we thought it would be appropriate to provide an article dealing with Star Wars intellectual property. Luckily for us, just one week ago, some very interesting Star Wars news surfaced.

If you’re an avid Star Wars fan, you are patiently, or not so patiently, awaiting the release of Episode VIII, the next installment in the Star Wars saga, which is due out in December 2017. And if you are awaiting the release of Episode VIII, you likely know that the film still lacks an official title. But a recent trademark filing in the European Union may have provided us with a pretty solid indication of what that title may be. On December 8, 2016, Lucasfilm applied for a European Union trademark for the term “STAR WARS FORCES OF DESTINY.” In the past, Lucasfilm took similar actions with regard to movies such as “Indiana Jones and the Kingdom of the Crystal Skull,” “Revenge of the Sith,” and “The Force Awakens.” So, if the past is any indication of the future, there is a strong argument that Star Wars Episode VIII will be entitled FORCES OF DESTINY.

However, although the trademark filing may be indicative of Episode VIII’s title, it is without certainty. Lucasfilm has taken similar actions in connection with trademarks that were not ultimately related to a feature film. For example, in 2002, Lucasfilm trademarked INDIANA JONES AND THE EMPEROR’S TOMB, which was not a working title for Indiana Jones and the Kingdom of the Crystal Skull, but rather, a videogame. So, Lucasfilm’s filing of a trademark application for FORCES OF DESTINY is not dispositive.

A closer examination of the trademark filing gives additional support to the argument that FORCES OF DESTINY will be Episode VIII’s title. The application contains multiple Nice classifications – an international classification of goods and services established by the 1957 Nice Agreement. These classifications indicate which types of products Lucasfilm will sell in conjunction with the mark. Here, Lucasfilm applied in the International Classes associated with various items, including without limitation, CDs, DVDs, clothing, leather goods, video games, and literary materials. So, it is clear that whatever Star Wars: Forces of Destiny turns out to be, Lucasfilm plans on distributing a wide range of related merchandise. Again, this is not a dispositive indication that FORCES OF DESTINY is the title for Episode VIII, but it seems to be strong evidence. Of course, with the movie just less than a year away, even if the FORCES OF DESTINY is the current working title for Episode VIII, there is plenty of time for Lucasfilm to change its mind. In the words of Master Yoda, “Always in motion is the future.” So for now, “Patience you must have my young padawan.”

The last time I checked (which was a couple of years ago), I found over 900 U.S. patents in the U.S. Patent and Trademark Office’s database that had the word “Christmas” in the title.  Every year at this time, I look at a few of the most interesting ones.

Here’s one I really like:  U.S. patent no. 5,523,741 for a “Santa Claus Detector.”  This patent covers a Christmas stocking that contains a light bulb or LED, a battery to power the light, and a hidden switch that turns on the light.  The switch is connected to a pull cord.  When the stocking is hung on the fireplace, the pull cord is positioned across the opening of the fireplace, forming a barrier across the fireplace opening.  After the stocking’s owner has gone to sleep on Christmas Eve, Santa Claus comes down the chimney with his bag of toys and triggers the cord, which turns on the light.  The next morning, the child will see the light on and know that Santa was there! (Or, as the patent describes, the parent can secretly pull the cord and turn on the light.)  The purpose of this invention, according to the inventors, is to reassure children that their good behavior was rewarded by Santa.

Another fun Christmas patent is the “Santa Claus Visit Kit,” U.S. patent no. 7,258,592.  This kit is for parents to use to prove to their doubting children that Santa Claus has actually visited.  The kit includes a stencil to leave boot prints on the floor, a letter from Santa, and a snack item for Santa.  The kit is intended to alleviate children’s fears that Santa Claus might not leave them any presents.

Some very practical inventors have patents for fire extinguishers incorporated into Christmas decorations.  One patent covers a fire extinguisher hidden inside the trunk of a synthetic Christmas tree that is activated by a heat sensor.  Another patent is for a Christmas tree ornament that contains a fire-retardant powder.  The ornament pops open when the temperature reaches a certain point, releasing the fire retardant powder and, hopefully, putting out the fire.

Have a wonderful holiday season!

Stay tuned for Part 5 of our Holiday Series

Fan films and fan fiction ordinarily don’t end up being the subject of a federal court lawsuit.  Most fan fiction are creative expressions reflecting adoration of a series, film or character and the majority of copyright owners take a permissive view of fan fiction.  However, Paramount Pictures, the owner of the Star Trek franchise, which in the past has not taken action against other fan fiction projects, is opposing the production of a full length film, Axanar, which has a production budget of over $1 million and has a professional crew and professional actors.

The Axanar project is the creative brain child of writer/producer and entrepreneur Alec Peters.  Peters wanted to tell the story of Garth of Izar, a Starfleet captain and Captain Kirk’s hero, who fought in the Battle of Axanar, a major clash between the Federation and the Klingons, which took place 21 years before the events of the first episode of the original Star Trek television show.  In 2014 Peters raised over $100,000 on kickstarter and produced a “proof of concept” thirty-minute film entitled “Prelude to Axanar.”  Prelude purports to be a documentary recounting the events surrounding the Battle of Axanar.   Prelude was well received and as a result, Peters raised over $1 million through Kickstarter and Indegogo in order to produce a full length, studio quality motion picture about the Garth of Izard and the battle of Axanar.  In addition to releasing Prelude on YouTube, Peters released on YouTube a short clip entitled “Vulcan Scene” (which features Ambassador Soval, a minor character from “Star Trek: Enterprise” and a new Vulcan character) and drafts of the script for the full length movie.

Paramount sued Peters and his production company Axanar Productions for copyright infringement, and last week Paramount and Axanar Productions traded shots in Federal Court last week over a motion to dismiss Paramount’s Complaint.  According to the Complaint, Peters and his production company infringed Star Trek’s copyright by utilizing various Star Trek elements including the concept of the Battle of Axanar, the Klingons, the Starfleet and characters, costumes and props that are unique to Star Trek.  According to Paramount, Axanar  is substantially similar to Star Trek precisely because it copied characters, settings, plot points, dialogue, themes, pace, mood, races, species, ships, and weapons in order to create an unlicensed, independent Star Trek film.

In its motion to dismiss, Peters contends that his works – Prelude to Axanar, the Vulcan Scene and drafts of the Axanar script – are transformative and therefore protected under fair use.  While Peters presents other arguments in support of his claim of non-infringement, the question of whether these works are transformative will be largely determinative of this issue.

A work is transformative when it adds something new to the work allegedly infringed, with a further purpose or different character, altering the original work with new expression, meaning, or message. A work is transformative if it does something more than repackage or republish the original copyrighted work. A transformative work is one that serves a new and different function from the original work and is not a substitute for it. As the Supreme Court noted in Campbell v. Acuff-Rose Music, Inc., “the more transformative the new work, the less will be the significance of other factors, … that may weigh against a finding of fair use.”

Peters claims that his works are transformative.  Although Prelude features Federation officers, Klingons and Starfleet ships, Peters argues that it does so in a first person narrative style, never before used by Paramount, featuring new characters and other elements, with its subject matter being a storyline that was only a footnote in the first episode of the original Star Trek television series.  This, Peters contends, makes Prelude transformative.  Peters claims that the Vulcan Scene is transformative because it incorporates original dialogue, new characters and is a continuation of the original story told in Prelude.

In its opposition to the motion to dismiss, Paramount takes the position that its copyright interest in Star Trek extends far beyond Captain Kirk and Spock.  While a small number of Vulcans and Federation Officers in Prelude and the Vulcan Scene were previously featured in previous Star Trek episodes or films, Paramount contends that what causes Prelude, the Vulcan Scene and the current draft of the Axanar script to be an infringement is the fact that they are populated with Klingons, Vulcans, Federation Officers, Starfleet ships in the shape of the Enterprise and Klingon battlecruisers and littered with references to warp drives, dilithium crystals, stardates and transporters.  All of these elements are protected by Paramount’s copyright interests and cause Peters’ works to be infringements.

Paramount argues that Prelude, the Vulcan Scene and the draft of the Axanar script are not transformative as they “were created to function as another Star Trek work, with a slightly different plot.”  Paramount argues that using copyrighted characters and elements and then placing those elements into a new story or timeline does not create a transformative work but rather an infringing derivative work.  And while that was the case for Catcher in the Rye protagonist Holden Caulfield as portrayed 60 years later in 60 Years  (see Salinger v. Colting), it was not the case for the story of Cynara, a slave owned by Scarlett O’Hara, as told in The Wind Done Gone  (see Suntrust v. Houghton Mifflin).  In Suntrust, the 11th Circuit found The Wind Done Gone was not an infringement of Gone with the Wind  and was protected under fair use.  The court found persuasive the fact that the The Wind Done Gone was told using a different format, featured new characters, elements and plot settings not found in Gone with the Wind. 

The determination of fair use is a balancing test that requires the Court to weigh numerous factors. While Peters’ works feature numerous factors the 11th Circuit found persuasive in the case of The Wind Done Gone, there are other factors that may weigh – possibly heavily – in the opposite direction.

On December 1, 2016, amendments to the Federal Rules of Civil Procedure (“FRCP”) and Federal Rules of Appellate Procedure (FRAP) took effect.  While at first glance, the changes may not seem dramatic, but changes such as shortening the time to respond and cutting word counts for briefs have a direct impact on our practices.  For example, this year’s changes include the following:

1. Eliminating the 3-day rule; and
2. Reducing word counts for certain appellate filings.

Under the previous 3-day rule, parties receiving a document by means other than personal delivery, which was considered immediate service, could add three days to the response time calculated from the date of service.  This included adding three days when served electronically, including service by email and the electronic case filing (ECF) notice system.  In other words, items served electronically were not treated as received immediately even though they often were received virtually instantaneously.  In the past, concerns related to reliability, transmission delay and incompatibility of systems led to the perception of a need for maintaining the 3-day rule for electronic service, but times have changed.  In addition, other rules have been changed in an attempt to simplify time computations by adopting periods that are multiples of 7 to allow for “day-of-the-week” counting.  The 3-day extension re-complicated the intended simplification and caused more dates to fall on weekends and holidays thus requiring further adjustments.

With advances in technology and skills of computer users and the desire to further simplify time computation, the 3-day rule has been eliminated for responses triggered by electronic service of a document.  This was accomplished by amending FRCP 6(d) and FRAP 26(c) to exclude electronic service from the modes of service that allow for three additional days to act or respond. It is important to note, however, that some courts have promulgated local rules that retain the 3-day extension.  For example, the Ninth Circuit will continue to provide three additional days for electronic service for deadlines based on service of another document.

The Committee Notes regarding the change to Rule 6 recognize that this amendment can effectively shorten the time to respond relative to current practice, particularly when documents are served late at night or just prior to, or during, a weekend or holiday.  Therefore, they noted that extensions may be warranted to prevent prejudice.  In practice, however, one cannot afford to take such extensions for granted, particularly if opposing counsel objects.

The Supreme Court ordered that the amendments to FRCP 6(d) and FRAP 26(c) govern in all federal civil and appellate cases, respectively, commenced after December 1, 2016 and “insofar as just and practicable, all proceedings then pending.”  But, it is not clear how courts will apply these amendments to pending cases.  For example, will amended Rule 6(d) apply to all papers served after December 1, 2016, even in cases pending prior to that date or will courts continue to apply the prior rule for service of papers in such cases?  Similar questions arise in the appellate context.  It will be critical to consult the specific rules applicable for each case to avoid missing deadlines!

In another amendment to the FRAP, word-count limits have been reduced for certain appellate filings and implemented in place of page limits for other filings.  For some time, parties did not have to comply with page limits for appellate briefs if they complied with certain word-count limits.  Page limits, however, were still imposed on other papers, such as motions and petitions.  In the most recent amendment to the FRAP, word-count limits have been instituted for, among other filings, motions, amicus briefs, and petitions for rehearing en banc.  Further, word counts for opening, response, and cross-appeal response and reply briefs have been reduced from 14,000 to 13,000 words.  For cross-appeal opening and response briefs, the word count was reduced from 16,500 to 15,300, and for reply briefs, the word count was reduced from 7000 to 6500.  You just thought the prior word counts were tight!  Now they are tighter.

These word-count changes took effect on December 1, 2016, but some circuits have opted out in favor of their own local rules.  For example, the Ninth Circuit has adopted a local rule that will maintain the current word count limits for briefs and will maintain the current page limits, rather than word counts, for motions and petitions.

In summary, while the new rules are now in effect, courts are varying in whether they are applying the new rules at all and, if so, how they are applying them to pending cases.  Therefore, it is more important than ever to compare the local rules with the federal rules to determine whether your cases are subject to these amendments.  If so, then be prepared to respond sooner and, in appellate cases, more concisely!

The holidays are upon us.  Given that everything seems to be protected by intellectual property rights, could someone protect Christmas?

The most likely candidate to try to patent Christmas would be Santa Claus.  But (assuming all other issues are addressed), could Santa Claus really patent Christmas? Assuming that Santa Claus invented Christmas, then perhaps he could! U.S. patent law provides patent protection for pretty much everything. Under the patent laws of the U.S. and most foreign countries, the first person to invent something may file a patent application seeking a patent for that invention. Unlike most foreign countries, however, U.S. law provides a one-year grace period in which a patent application can be filed after certain types of public disclosures by the inventor.

So, maybe Santa Claus could file a patent application in the U.S. if he was the first to invent something that has not been publicly disclosed in the last year.  Of course, there may be no one else claiming to have invented Christmas, so it might not be much of a problem. And, because Santa has been operating in secret for hundreds of years, there cannot have been any public disclosures.

Santa might even be able to patent the method he uses to deliver gifts to every child all around the world on Christmas Eve.  His method might be treated as a business method, which could make it more difficult to patent, even though it is not really a “business.”

What other kinds of Christmas inventions could someone patent?  The United States Patent and Trademark Office lists over 980 U.S. patents with the word “Christmas” in the title.  These patents cover items like Christmas lights, decorations, Christmas tree stands and turntables, antler apparatus, Christmas tree watering devices, fire extinguishers, and many other things.  My personal favorite is the “Apparatus to Prevent Pets Climbing a Christmas Tree.”  The need for this invention is obvious if you have ever had kittens or cats around your Christmas tree.  The patent states: “as is generally well known in the prior art, pets, such as cats, like to climb up the branches of a Christmas tree. Oftentimes this will result in knocking some of the ornaments off such tree.  These ornaments may be broken…”  The invention is basically a giant circular screen that clips under the lowest branches of the tree. Based on my experience, however, this device will have precisely the opposite of its intended effect. Any cat who sees the screen will climb up or jump onto it.  And, anyway, who really wants to stop cats from climbing Christmas trees?!  It’s too much fun to watch them perched on the branches and swatting ornaments (and to see their embarrassed looks when they land clumsily on the floor)!

What about a new type of Christmas tree?  Trees (and all plants) are patentable, as long as they are new and developed by humans, not discovered in nature.  In fact, a flying reindeer would be patentable (if it was created by humans), as living organisms can be patented.

How about a new nose for Rudolph — one that allows Santa to turn it on remotely from the sleigh?  The nose could be patentable, as could the software that runs it.

New designs for Christmas stockings and ornaments?  The designs for these objects (separate from the objects themselves) are patentable as design patents.  A design patent offers less protection than a utility patent and has a shorter lifespan, but it does protect against designs that are substantially the same as the patented design.

Maybe Santa could protect signature laugh (“Ho, Ho, Ho!”) or his red suit.  The phrase could be trademarked, just as business names and logos, as long as Santa uses it in commerce and was the first to use it.  The red suit might be protectable as a trademark or possibly as trade dress, or more likely as a design patent.  Unlike a patent that expires, however, a trademark has the advantage of lasting indefinitely.

What about your favorite Christmas carol?  The traditional carols are now in the public domain and belong to everyone, but any new song (lyrics and music) is protected by copyright as soon as it is created.  Unlike a trademark, copyright protection only lasts for the life of the author plus a specific number of years.

How about Christmas cookies?  Or that special eggnog recipe? Recipes can be protected and are usually best protected as trade secrets, provided that they are not easily reverse-engineered.  (Think how long Coca-Cola has been around, and it’s still a secret.)

Of course, the most important thing about Christmas is not what can be protected under the law, but the spirit of giving and sharing the holidays bring.  So, have a wonderful holiday season and may the New Year be filled with peace and joy!

Stay tuned for Part 2 of our Holiday Horror Series on December 2nd. 

The United States Supreme Court is considering whether the doctrine of laches will bar a patent infringement claim filed within the Patent Act’s six-year damage limitations period set forth in 35 U.S.C. §286.  The case before the Court is SCA Hygiene Products AB v. First Quality Baby Products LLC, 767 F.3d 1339 (Fed. Cir. 2014).

SCA owned a patent for adult incontinence products.  In 2003, SCA sent First Quality, a competitor, a cease and desist letter, accusing First Quality of infringement.  First Quality responded that it did not infringe SCA’s patent because the patent was invalid.  In 2004, SCA filed an ex parte reexamination of its patent.  The patent was confirmed in 2007.  SCA did not inform First Quality of the reexamination.  During this time, First Quality invested heavily in expanding its business.  In 2010, almost seven years after first notifying First Quality of its infringement, SCA filed an infringement suit against First Quality.  First Quality moved for summary judgment of non-infringement on the grounds that laches barred the claim.  The district court granted First Quality’s motion.

The defense of laches requires the defendant to prove an unreasonable and inexcusable delay by the plaintiff in filing suit and prejudice to the defendant.  In determining whether laches is a defense, a court must balance the equitable factors, including the length of the delay, the severity of the prejudice, the plaintiff’s excuses for the delay, and the defendant’s culpability.  A delay of more than six years establishes a presumption that the delay is unreasonable and inexcusable and caused prejudice to the defendant.  The burden the shifts to the plaintiff patent owner to produce evidence that the delay was excusable or not unreasonable, or that the defendant was not prejudiced.  If the plaintiff satisfies this burden, then the defendant must prove the elements of laches.

On appeal to the Federal Circuit, SCA argued that laches should not apply to a claim brought within the six-year limitations period for damages, and that the time that its patent was under reexamination (three years) should not count, meaning that its suit was filed only four years after SCA learned of First Quality’s infringement.

The Federal Circuit rejected SCA’s argument and affirmed the district court’s decision granting summary judgment for First Quality.  The court held that the presumption of laches was established because SCA’s delay exceeded six years.  The court further held that SCA had not met its burden to produce evidence of excusable or reasonable delay, or lack of prejudice to First Quality.  The court explained that it was not reasonable for SCA to delay almost three years after the reexamination concluded to file suit against First Quality – SCA should have sued First Quality earlier.  With respect to prejudice to First Quality, the court held that First Quality had suffered prejudice as a result of SCA’s delay because it had invested in expanding its product line during that period of time.

SCA’s petition for certiorari to the Supreme Court was granted on May 2, 2016.  SCA relied on a 2014 Supreme Court case (Petrella v. Metro-Goldwyn-Mayer, 134 S. Ct. 1962 (2014)) that held that laches does not apply to copyright infringement cases brought within the three-year damage limitations period of the Copyright Act.  SCA argued that the rationale of Petrella should apply to patent infringement cases – laches should not apply during the six-year damage limitations period set forth in §286 of the Patent Act.  First Quality argued that the reasoning of Petrella should not apply.  First Quality contended that §286 is not a statute of limitations (which requires a plaintiff to file suit within a specific period of time after learning of its claim), but a merely a backwards limit on the recovery of damages.

On November 1, 2016, the Supreme Court held oral argument.  The justices were sympathetic to SCA’s position, asking First Quality why laches should remain a defense when the patent statutes do not specifically provide for the defense.  Based on the oral argument, those following the case predict that the Court will reverse the Federal Circuit’s decision and hold that laches does not apply to patent infringement suits brought within the six-year damage limitations period.