Intellectual Property

For some time there has been a split among the Federal circuits as to whether evidence of willfulness is required in order to award disgorgement of profits for trademark infringement under Section 1125(a) of the Lanham Act.  The split stems from how each Federal circuit interprets Section 1117(a) of the Lanham Act which was amended in 1999.  The section reads as follows:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled . . . subject to the principles of equity, to recover (1) defendant’s profits . . .

A number of Federal Circuits, including the Second and the Ninth, have interpreted the above to require a showing of willfulness for disgorgement in Section 1125(a) cases.  Six Federal Circuits do not.  On April 23, 2020 the United States Supreme Court made clear where it stands.

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A party accused of infringing a patent may challenge the validity of the patent in the federal court infringement litigation or in separate administrative proceedings in the Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB). One of the methods available in the PTAB is an inter partes review (IPR), which was created by the America Invents Act.

In order to file a petition for IPR, the challenger must argue that some or all of the claims of the patent are invalid on certain grounds, including novelty and nonobviousness, and must show that there is a “reasonable likelihood” that they will prevail on at least one claim.  The statutes require that a petition for IPR be filed within one year of the challenger being served with a complaint for patent infringement.  35 USC section 315(b).   The PTAB reviews the petition and decides whether to institute IPR.  The decision whether to institute IPR is not appealable.  35 USC section 314(d). 

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Burbank High School runs a music program that reportedly provided the inspiration for the hit TV show, Glee. It is nationally known for the competitive show choirs its students participate in as part of the program. To defray the costs of fielding several choirs, a non-profit booster club was formed to help fundraise for the music education program. The booster club puts on a couple of annual fundraising shows, Burbank Blast and Pop, which include both the Burbank High School choirs as well as a number of other competitive choirs. The choirs’ music director serves as the liaison between the school’s choirs and the booster club.

The music director hired an arranger to create custom sheet music for two shows to be performed at the fundraisers: Rainmaker and 80’s Movie Montage. In creating these performances, the arranger used snippets from the following songs: Magic (originally performed by Olivia Newton John) and (I’ve Had the) Time of My Life (by Bill Medley and Jennifer Warnes) as well as Hotel California and Don’t Phunk with my Heart. After several performances, Tresona Multimedia, LLC, sued the music director, the booster club and parent-members of the booster club for copyright infringement. Tresona Multimedia alleged that it owned the copyrights to the above songs and that its copyright interests were infringed upon because no licenses were obtained to allow the use of the above songs in the performances.

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An unborn baby’s DNA (“fetal DNA”) can be used to determine the sex of the baby as well as to test for conditions such as Down’s syndrome.  In the past, procedures to get samples of fetal DNA for testing involved sticking a large needle through the abdominal wall and into the uterus of the mother to obtain amniotic fluid, but such procedures are invasive and can be life threatening in some cases.  Sequenom Inc. devised and patented less invasive options and licensed them to Illumina, Inc.  Ariosa Diagnostics, Inc. and others, however, challenged the patent eligibility of those options when accused of patent infringement.

Specifically, the various lawsuits have repeatedly brought into question whether the patent claims for these new prenatal tests and related methods are patent eligible under 35 U.S.C. §101 or if they are merely directed to ineligible natural phenomena.  In fact, in 2015, the Federal Circuit found Sequenom and Illumina’s patents (the “Original Patents”) were invalid as unpatentable because they were directed to a natural phenomenon.  This ruling raised many concerns in the industry as to which, if any, inventions of this type could be protected.The Original Patents covered an extremely useful medical test for pregnant mothers and their unborn babies.  Researchers determined that several types of DNA are floating around in the plasma of a pregnant mother.  While more than 90% of the DNA is the mother’s DNA (“maternal DNA”), other DNA such as bacterial DNA, and most importantly here, fetal DNA is also present in the mother’s plasma.  The fetal DNA is identifiable based on the fact that it contains DNA from both the mother and the father (“paternal DNA”).  Therefore, using a sample of paternal DNA, the researchers were able to locate fetal DNA in a mother’s plasma by looking for segments of DNA that match the paternal DNA.  By using fetal DNA from the mother’s plasma, the researchers determined they could eliminate the need for more invasive, and in some cases life threatening, test procedures.  However, in 2015 the Federal Circuit determined the Original Patents covering this new testing approach were patent ineligible because the claimed subject matter was directed to a natural phenomenon.

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The Supreme Court of the United States has held that the state government is free to infringe copyrights without fear of retribution. In Allen v. Cooper, the Supreme Court decided whether the state of North Carolina could be held liable under the Copyright Act for infringing filmmaker Frederick Allen’s copyright relating to Queen Anne’s Revenge. If that name sounds familiar, it’s probably because it is, in fact, the flagship of the infamous pirate Blackbeard.

The facts giving rise to this dispute go back to the 1990s. Well, to be clear, the facts giving rise to the dispute go back to 1717 when Blackbeard was using Queen Anne’s Revenge to carry out his plunderous activities. In any event, in the 1990s, a research firm located the shipwreck and hired Frederick Allen to film their recovery efforts. During this process, Allen’s company recorded video and took photographs, which were registered with the United States Copyright Office.

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On March 6, 2020, a Central District Court in UPL NA Inc. f/k/a United Phosphorous, Inc. v. Tide International (USA), Inc. et al, 8-19-cv-01201 (CDCA 2020-03-06, Order) (Ronald S.W. Lew), issued an order that may become more common place across courts.  At the request of the parties, the Court issued a temporary stay of all discovery in the action because of the threat posed by the Coronavirus.

Specifically, the Court noted that the parties had jointly stipulated that “discovery efforts are being significantly impacted by the outbreak of coronavirus. Both parties have sought materials and testimony from witnesses who are located outside of the United States, including in China, and given current travel restrictions and quarantine rules, obtaining the discovery sought at this time is impractical, if not impossible.”  Therefore, the Court found good cause to temporarily vacate the discovery dates presented in the parties’ joint request.

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Is the privately-owned YouTube site really a “state actor” subject to judicial scrutiny under the First Amendment? That’s the claim made in a lawsuit by Prager University, which is not really a university. The Ninth Circuit was recently called upon to address PragerU’s claim that the widely popular internet site operated by a private entity should be treated as a “state actor” subject to the First Amendment.  Unsurprisingly, the Ninth Circuit reaffirmed well-established case authority to hold that the First Amendment’s protections apply only as to protect against governmental action, not to private companies such as YouTube.

PragerU claims that its mission is purportedly “to ‘provide conservative view points and perspective on public issues that it believes are often overlooked.’”  PragerU creates videos that target younger audiences and has posted hundreds of videos on YouTube.

Unless you’ve been living in a cave, you likely have visited YouTube, which is owned by Google LLC. YouTube allows users to post user-generated videos and has approximately 1.3 billion users.  More than 400 hours of video are uploaded to the site every hour of every day and more than 500 million hours of those videos are watched by YouTubers each day.  YouTube invites the public to post video to its platform and states that it is “committed to fostering a community where everyone’s voice can be heard.”  However, the posting of content by users is subject to YouTube’s terms of service and community guidelines, which include the right of YouTube to remove or restrict content that is posted to its platform.

One way that YouTube does this is through its “restricted mode” which allows users to activate this tool to make certain age-inappropriate content unavailable for that user.  Only about 2% of the users of YouTube utilize the restricted mode.  The restricted mode is intended to identify potentially mature content, which is tagged either by an automated algorithm or manually by a user.  Once a particular video is tagged, YouTube will inform the content creator who can then appeal the classification, which is reviewed by a YouTube representative.

YouTube tagged a number of PragerU’s videos for restricted mode and “demonetized” some of their videos, which meant that third parties could no longer advertise on those videos.  PragerU appealed these designations but certain of the videos remained restricted and/or demonetized.  As a result, PragerU sued YouTube (and its parent company, Google) alleging violation of the First Amendment and false advertising under the Lanham Act.  PragerU moved for preliminary injunction, which was denied. The district court then granted YouTube’s motion to dismiss with leave to amend.  Rather than amend its complaint, PragerU appealed the dismissal to the Ninth Circuit.

The Ninth Circuit first analyzed PragerU’s First Amendment claim by noting that it faced “a formidable threshold hurdle: YouTube is a private entity.”  The Ninth Circuit noted that the First Amendment’s Free Speech Clause only prohibits the government – and not a private party such as YouTube – from abridging speech.  Even PragerU admitted that YouTube was a private entity that was able to operate its platform without any state involvement.

PragerU tried to argue, however, that a private entity becomes a state actor when it operates its private property in a manner that it becomes “a public forum for speech.”  The Ninth Circuit noted that this position had long been rejected.  For instance, nearly 50 years ago in the case, Lloyd Corporation v. Tanner, the U.S. Supreme Court held that “private property does not `lose its private character merely because the public is generally invited to use it for designated purposes’.”  That is, although YouTube is practically a “public square on the internet,” that does not mean that it is transformed into a state actor as a result.

Likewise, in 2000 the Ninth Circuit in Howard v. America Online, and a number of other circuit court decisions since then, have uniformly held that “digital internet platforms that open their property to user generated content do not become state actors” for purposes of the First Amendment.  Faced with this wealth of authority, PragerU tried to argue that YouTube was a state actor “because it performs a public function.”  The Ninth Circuit noted, however, that a private entity could only be deemed a state actor “when it conducts a public function” that “must be both traditionally and exclusively governmental.”  This is a difficult standard to meet.  The Ninth Circuit continued that YouTube hosted speech on a private platform and this was hardly “an activity that only government entities have traditionally performed.”  The Court noted that historically, private parties such as grocery stores and comedy clubs have opened up their private property for speech without transforming themselves into state actors.  The Court noted that to adopt PragerU’s position would subject “every retail and service establishment in the country” to constitutional norms.

PragerU then argued that because YouTube was so popular, it should be bound by the First Amendment like a governmental agency. The Court rejected this claim, too.  PragerU argued that the 1946 U.S. Supreme Court case, Marsh v. Alabama, supported its position but ignored that in Marsh, the defendant was a private entity that operate a “company town” and performed “the full spectrum of municipal powers.”  The Ninth Circuit recognized that YouTube was not the same as the operator of that company town and concluded that YouTube “operates a platform for user generated content.  It does not `perform all the necessary municipal functions’.”

Seeking to salvage its claim, PragerU argued that a private entity could be converted into a public form “if its property is opened up for public discourse.”  The Ninth Circuit recognized that there was no legal authority to support this claim, noting that YouTube was not owned, leased or otherwise controlled by the government.

Finally, PragerU argued that because one of YouTube’s representatives stated for a congressional committee that she considers YouTube “to be a neutral public forum,” this was should convert YouTube into a state actor. The Ninth Circuit disagreed and concluded “whether a property is a public forum is not a matter of election by a private entity.”  In sum, the Ninth Circuit held that the district court properly dismissed PragerU’s First Amendment claim.

The Ninth Circuit then turned to PragerU’s Lanham Act false advertising claim.  The Court concluded that because none of the alleged statements made by YouTube are actionable under the Lanham Act, it would affirm the district court’s dismissal of the claim.

First, the Ninth Circuit held that the statements that YouTube makes concerning its moderation policies do not constitute “commercial advertising or promotion,” which is one of the elements of a Lanham Act violation.  Rather, YouTube’s statements about its restricted mode “were made to explain a user tool, not for a promotional purposes to `penetrate the relevant market’ of the viewing public.” The Court continued that not all commercial speech is promotional and that PragerU failed to overcome the commonsense conclusion that the restricted mode guidelines are not advertisements or part of any promotional campaign.

Likewise, the Court rejected PragerU’s argument that the designation of certain of its videos for restricted mode amounted to a misrepresentation about those videos.  The Court concluded that the fact that they were tagged “does not imply any specific representation about those videos.”  Given that a false advertising claim could be based on implied statements, it was required that the “statement must be both specific and communicated as to `deceive a significant portion of the recipients’.”  The Court concluded that the statement that a particular video is “unavailable with restricted mode enabled” did not have any tendency “to mislead, confuse or deceive” the public.  Thus, the Ninth Circuit held that the district court properly dismissed PragerU’s Lanham Act claim.

The Ninth Circuit’s decision in the PragerU cases reaffirms the long-held principle that private entities, unlike government agencies, are not subject to judicial scrutiny under the First Amendment.  Legal challenges seeking to force internet companies to supposedly allow for more voices are likely to face similar outcomes as the PragerU claims.

It has become commonplace for companies such as Google to use local servers to provide faster service to customers.  This practice has raised the question as to whether those local servers constitute “a regular and established place of business” for the purposes of establishing venue in patent infringement suits in the districts where the servers are located.

Specifically, the patent venue statute, 28 U.S.C. § 1400(b), limits the districts where patent infringement cases can be filed to either (1) where the defendant resides, which for a corporation is where it is incorporated, or (2) where the defendant has a regular and established place of business and has committed acts of infringement.

In Super Interconnect Technologies, LLC v. Google LLC, Super Interconnect sued Google for patent infringement in the Eastern District of Texas.  Google filed a motion to dismiss or transfer for improper venue.  Prong (1) of the patent venue statute does not apply because Google is not incorporated in Texas, and Google argued Prong (2) is not satisfied because Google does not have “a regular and established place of business” in the district.  At the time the complaint was filed, Google did have Global Cache servers in the district for local data caching.  These servers were hosted and operated by local internet service providers (“ISPs”) rather than by Google.  The District Court ruled that the servers, along with the alleged acts of infringement, satisfied the second prong of the venue statute and thus denied Google’s motion to dismiss.

In a prior case, the Eastern District had similarly found Google’s servers in the district to be sufficient to establish venue.  The Federal Circuit denied Google’s petition for a writ of mandamus in this prior case.  However, in dissent, Judge Reyna warned the “majority fails to recognize the far-reaching implications” of its decision.

In Super Interconnect, Google again petitioned for a writ of mandamus.  In considering the petition, the Federal Circuit noted its previous denial was based on the observation that it was not known at the time if the district court’s ruling involved the type of broad and fundamental legal questions appropriate for mandamus, and there was a lack of disagreement among district courts.  However, since that decision, Judge Reyna’s prior concern proved accurate and inconsistencies arose in the district courts’ decisions.

As a result, the Federal Circuit considered whether Google had a regular and established place of business in the district.  In In re Cray, Inc., the Federal Circuit previously ruled that “’a regular and established place of business’ under the venue statute must be: (1) ‘a physical place in the district’; (2) ‘regular and established’; and (3) ‘the place of the defendant.’”

First, the Court determined that a physical place in the district does not necessarily need to be owned or leased by the defendant, but instead “merely needs to be a ‘physical, geographical location in the district from which the business of the defendant is carried out.”  Here the servers are physically located in the district in “a fixed, geographic location” and thus were found to satisfy the first prong in In re Cray.

Next the Court considered whether the servers are a “place of business.”  The Court determined a “‘place of business’ generally requires an employee or other agent of the defendant conducting the business at that place.”  As the Court stated, this “is apparent from the service statute for patent cases, now codified at 28 U.S.C. § 1694,” which is intricately linked with the patent venue statute.  The service statute points out that if a “suit is brought in a district of which the defendant is not an inhabitant, but in which such defendant has a regular and established place of business, service upon a defendant may be made by service upon the agent or agents engaged in conducting such business.”  The Court stated that “[t]he service statute plainly assumes that the defendant will have a ‘regular and established place of business’ within the meaning of the venue statute only if the defendant also has an ‘agent … engaged in conducting such business.’”  Therefore, the Court concluded that “a ‘regular and established place of business’ requires the regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business at the alleged ‘place of business.’”

The Court then addressed the question of “whether Google had an employee or agent with a regular, physical presence at its ‘place of business’ and whether that employee or agent was conducting Google’s business.”  Google did not have any employees in the Eastern District of Texas, but Super Interconnect argued that the ISPs were Google’s agents.  The ISPs, however, were only obligated to perform on-site installation and maintenance of the servers within their datacenters and to provide network access.  The Federal Circuit found these activities are “meaningfully different from” and “only ancillary to” “the actual producing, storing, and furnishing to customers of what [Google’s] business offers.”  Therefore, the Court concluded that “the Eastern District of Texas was not a proper venue because Google lacked a ‘regular and established place of business’ within the district since it has no employee or agent regularly conducting its business at its alleged ‘place of business’ within the district.”  Therefore, the Federal Circuit ordered District Judge Gilstrap to dismiss or transfer the case.

The Court noted, however, that it was not addressing whether “a ‘regular and established place of business’ will always require a human agent, that is, whether a machine could be an ‘agent.’”

Joining and concurring, Judge Wallach also noted that “[g]iven the absence from the record of information sufficient to understand Google’s business model, the question remains for the District Courts to determine whether Google’s end users become agents of Google in furtherance of its business by virtue of voluntarily or involuntarily sharing information generated on Google’s servers.  If, for example, by entering searches and selecting results a Google consumer is continuously providing data which Google monetizes as the core aspect of its business model, it may be that … Google is indeed doing business at the computer of each of its users/customers.”  We will likely see plaintiffs using Judge Wallach’s concurrence as a basis for venue arguments in upcoming matters.