Intellectual Property

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I’ve written on numerous occasions in the past about celebrities who registered their own names as trademarks with the United States Patent and Trademark Office. Just the other week, I wrote about how UFC superstar Conor McGregor had filed an application to register his name as a trademark, and in that same article, I mentioned that undefeated Floyd “Money” Mayweather also has his name registered with the USPTO. Other celebrities who have trademarked their monikers include rapper 50 Cent, pop queen Kylie Minogue (whose trademark KYLIE resulted in Kylie Jenner being unable to register the mark herself), and reality television star Kim Kardashian West. It’s hardly uncommon for celebrities to protect their own names as intellectual property these days. With that said, a federal district court judge’s recent order on a motion to dismiss involving the Estate of Marilyn Monroe has sparked some panic in the media.

On Monday, March 13, 2017, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York issued a ruling on the Estate of Marilyn Monroe’s motion to dismiss the counterclaim of AVELA (short for Art & Vintage Entertainment Licensing Agency) which attempts, in part, to cancel the Estate’s trademark rights in MARILYN MONROE. In issuing its ruling and permitting AVELA’s attempt to cancel the MARILYN MONROE trademark on the ground that it is generic, Judge Failla stated “To be clear, the court harbors serious doubts that V. International will be able to establish that the contested marks are generic….Reaching that conclusion at this state, however, would be premature.” Since Judge Failla issued this ruling, the web has been buzzing with articles and posts claiming that Judge Failla has left open the possibility that a celebrity name is too generic to register or enforce as a trademark. Unfortunately, while these articles may make for an interesting read, they fail to adequately explain the significance of the case’s procedural posture.

Judge Failla has issued her ruling in response to a motion to dismiss filed by the Estate of Marilyn Monroe. When such a motion is filed, the court is required to accept all properly pleaded facts as true. Then the court must ask itself, assuming all of the alleged facts are true, does the party state a claim to relief. Here, specifically, Judge Failla must ask herself if AVELA has stated an appropriate ground for cancellation of the Estate’s trademark assuming it can prove the facts it alleged. According to Judge Failla’s ruling, AVELA asserted a few facts to suggest that the Estate’s mark should be cancelled because it has become generic, and generic marks are never entitled to trademark protection. In order to be protectable as a trademark, a mark must have at least some level of distinctiveness. Thus, Judge Failla has permitted AVELA’s claim to go forward.

Now, what does this really mean? Not a lot. Although Judge Failla has stated that the possibility exists that the Estate’s mark has lost its distinctiveness, she was clear that the Court “harbors serious doubts” about AVELA’s ability to prove its claim, but that the law is clear that “whether a mark is, or has become, generic” is a decision for the finder of fact, and premature at this juncture. So, when you give the procedural aspect of this case due consideration, it is clear that Judge Failla’s ruling is not groundbreaking. It is highly unlikely that she will find the Estate’s mark to have lost its distinctiveness and enforceability, but the procedural posture and the fact that AVELA has stated facts that, if true, could result in a trier of fact declaring the mark generic and cancelling its registration, means that AVELA’s claim lives to fight another day. Beyond that, Judge Failla’s ruling does nothing more than refuse to prematurely foreclose AVELA’s claim. So, celebrities and their intellectual property consiglieres should not fear a shift in the law, their intellectual property rights are likely just as safe today as they ever have been.

The City of New York has reignited the battle over the trademark TAVERN ON THE GREEN. Last month the City of New York filed a lawsuit for trademark infringement against Tavern on the Green International LLC, the successor-in-interest to Tavern on the Green operator, LeRoy Adventures, Inc. LeRoy Adventures operated Tavern on the Green from 1976 until approximately 2009 under a license from New York City.

In 1973 New York City and LeRoy entered into a license agreement for the operation of Tavern on the Green as a “restaurant and cabaret.” The license agreement provided that New York City had various rights over the operation of the facility, including approval of the manager, approval of employee uniforms, approval of use of signs or any other means of soliciting business, and the right to regulate the times and manner of operation. The City maintained the right of inspection at all times, and the City retained the right to terminate the license under numerous conditions, including unsatisfactory operations.

In 2009 when LeRoy and Tavern on the Green, LP lost a bid to renew the restaurant lease, they filed for bankruptcy protection and ceased operations. A fight over trademark rights quickly erupted. In 1978, LeRoy registered TAVERN ON THE GREEN with the United States Patent and Trademark Office for restaurant services. New York City filed suit seeking a declaration of its prior right under New York law to use the mark for its restaurant facility in Central Park, and to cancel LeRoy’s Federal trademark registration due to fraud on the USPTO.

In the lawsuit, the City established its own independent, common law right to the TAVERN ON THE GREEN trademark. Further, the City was able to show that LeRoy’s application to register the mark contained numerous misstatements and omissions of material facts, including the claim that 1973 was the date of first use when the City had used the mark for over three decades prior, and based thereon was able to cancel LeRoy’s registration on the grounds it was obtained fraudulently.

Ultimately, the City of New York, the bankruptcy trustee and Tavern on the Green International, LP entered into various agreements regarding the City’s ownership of the trademark and Federal registration and International’s right to use the mark. Specifically, the City and International entered into a “Use Agreement” in connection with International’s use of the mark for both products and restaurants outside of the City of New York. The Use Agreement restricted International’s use of the mark for restaurants within New York City and certain counties within the State of New Jersey. The Use Agreement included other restrictions on International’s use of the mark for products and services and included the requirement of a disclaimer.

On February 24, 2017 the City of New York sued International claiming that it breached the Use Agreement. Specifically, the City claimed that franchising material and other materials distributed by International failed “to use the disclaimers required by the [Use Agreement] on all products and promotional materials, by improperly trading on the goodwill associated with the City’s Tavern on the Green restaurant in direct violation of the [Use Agreement] and by falsely stating in promotional materials that it was a licensee of the City.” In the complaint, the City alleged trademark infringement and other related causes of action.

If the City can establish that International beached the Use Agreement, that such breach was not de minimis and the City complied with all applicable notice provisions, the City would be entitled to withdraw its consent to use the TAVERN ON THE GREEN trademark and pursue claims against International for infringement.

It is ironic that the impetus of the 2010 litigation is what provides the City with significant leverage in this current case. In the 2011 settlement with the bankruptcy trustee for Tavern on the Green LP, the City was assigned the Federal registration for TAVERN ON THE GREEN which was filed by LeRoy in 1978. With ownership of the Federal registration, the City has presumptive nationwide rights as of the date the application was filed in 1978. Had LeRoy not filed for Federal registration in 1978, the City’s trademark rights would have been based on common law and potentially geographically limited. As such, LeRoy or International’s use of TAVERN ON THE GREEN for a restaurant in Las Vegas might not be infringing.

In Life Technologies v. Promega Corporation, the U.S. Supreme Court addressed whether supplying a single component from the United States of a multicomponent invention assembled abroad constitutes patent infringement under 35 U.S.C. §271(f)(1).    Under §271(f)(1), a party can be liable for patent infringement if it supplies from the United States “all or a substantial portion of the components of a patented invention.”  Interpreting this statute in Promega, the Court determined that supplying one component is not enough to constitute infringement of a multicomponent invention because a single component is not “a substantial portion” within the meaning of this statute.

In this case, Promega was the exclusive licensee of the Tautz patent, which claims a toolkit for genetic testing that can be used in law enforcement as well as in clinical and research work.   Promega sublicensed the Tautz patent to Life Technologies.  Under the sublicense, Life Technologies’ patent rights were limited to manufacturing and selling kits for use in certain law enforcement fields.  Life Technologies was not given a license to manufacture or sell kits for use in clinical or research work.

The patented kit consists of five components.   Life Technologies manufactured four of the five components in the United Kingdom.  It manufactured the fifth component, an enzyme called Taq polymerase, in the United States and shipped it to the United Kingdom where it was combined with the other four components to form the kit.

This dispute arose when Promega alleged that Life Technologies began selling these kits in the clinical and research markets, which was outside the scope of Life Technologies’ license.  As a result, Promega sued Life Technologies alleging patent infringement under §271(f)(1), which prohibits the supply from the United States of “all or a substantial portion of the components of a patented invention” for combination abroad.

The jury found that Life Technologies had infringed the patent, but the district court granted judgment as a matter of law for Life Technologies, holding that §271(f)(1)’s phrase “all or a substantial portion” did not encompass the supply of a single component of a multicomponent invention.  The Federal Circuit reversed finding that a single important component could constitute a “substantial portion” of the components of an invention and that the Taq polymerase met that standard.  The Supreme Court, however, reversed the Federal Circuit holding that the supply of a single component of a multicomponent invention assembled abroad does not constitute patent infringement under §271(f)(1) because a single component of a multicomponent invention cannot be a “substantial portion.”   The Court found that the importance of the single component is irrelevant.

In reaching its conclusion the Supreme Court considered 1) whether the term “substantial portion” refers to a qualitative or quantitative measure, 2) whether a single component can ever constitute a “substantial portion,” and 3) whether the history of §271(f) supports the Court’s conclusion.

The Court first had to determine whether “substantial portion” refers to a qualitative or quantitative measure.  The Court acknowledged that the term “substantial” in isolation is ambiguous because in some instances it “might refer to an important portion” whereas in other instances it might refer “to a large portion.”  Promega argued that a quantitative approach would be too narrow and invited the Court to adopt a “‘case-specific approach’ that would require a factfinder to decipher whether the components at issue are ‘a substantial portion’ under either a qualitative or quantitative test.” The Court, however, declined to adopt Promega’s approach noting that it would compound the ambiguity rather than resolve it.  Instead, the Court looked to the text of the statute, including the language surrounding the word “substantial,” for clarification.  The Court pointed out that the surrounding words “‘all’ and ‘portion’ convey a quantitative meaning” rather than relative importance.  Further, the phrase “substantial portion” is modified by the phrase “of the components of a patented invention,” which according to the Court would be an unnecessary phrase if the intent had been a qualitative rather than quantitative meaning.  Therefore, in the context of this statute, the Court determined that the term “substantial portion” should be interpreted as a quantitative measure.

Applying the quantitative measure, the Court next had to determine, as a matter of law, whether a single component can be “a substantial portion” of a multicomponent invention.  Looking again to the text of the statute, the Court noted that §271(f)(1) “consistently refers to ‘components’ in the plural.”  For example, the Court explained that additional language in §271(f)(1) shows the statute “is targeted toward the supply of all or a substantial portion ‘of the components,’ where ‘such components’ are uncombined, in a manner that actively induces the combination of ‘such components’ outside of the United States.”

The Court further noted that the overall “structure of §271(f) reinforces this reading.”  Section §271(f)(2), the companion provision to §271(f)(1), prohibits supplying from the United States “any component of a patented invention that is especially made or especially adapted for use in the invention.”  The Court noted that the two provisions work in tandem under the Court’s interpretation because a party would be liable under §271(f)(1) for supplying more than one component whereas a party would be liable under §271(f)(2) for providing a single component if it was especially made or adapted for use in the invention.  Therefore, the Court found that only supplying a single component from the United States of a multicomponent invention cannot infringe under §271(f)(1).

Finally, the Court stated that “[t]he history of §271(f) bolsters” its conclusion.  Congress enacted 35 U.S.C. §271(f) in response to the U.S. Supreme Court’s ruling in Deepsouth Packing Co. v. Laitram Corp.  Under the law applicable in Deepsouth, the Court determined that making or using a patented product outside of the United States did not constitute patent infringement.  But with the subsequent enactment of §271(f), Congress expanded patent protection to cover certain instances where components of a patented invention are made in the United States but assembled in another country.  The Court found that its ruling in Promega “comports with Congress’ intent” because “[a] supplier may be liable under §271(f)(1) for supplying from the United States all or a substantial portion of the components (plural) of the invention, even when the components are combined abroad” and liable under §271(f)(2) for supplying even a single component “if it is especially made or especially adapted for use in the invention.”  The Court was persuaded that when “all components but a single commodity [rather than especially made or adapted] article are supplied from abroad, this activity is outside the scope of the statute.”

The Court expressly declined to decide “how close to ‘all’ of the components ‘a substantial portion’ must be” but rather held “only that one component does not constitute ‘all or a substantial portion’ of a multicomponent invention under §271(f)(1).”  Thus the Court left several questions open.  For example, how do you determine how many components are in a claimed invention?  And once you determine the number of components, how many must be supplied from the United States to constitute infringement under §271(f)(1)?   Is it a percentage of the total number of components?  Will courts look to the relative importance of the various components or will it be purely a numbers-based analysis?  What if the invention only has two components?  In that instance, are the terms “all” and “a substantial portion” synonymous?  The only certainty is that these unanswered questions will give rise to future litigation disputes.