Intellectual Property

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.

If voters in California  approve Proposition 64 which would legalize the possession and use of marijuana for recreational purposes, it is without question that the sunshine state will see a huge increase in the number of businesses within the cannabis industry. According to a November 7, 2016 Forbes article, the passage of Proposition 64 could add $8.38 billion in annual sales to an already robust medical market worth an estimated $2.83 billion.  Despite what happens at the voting polls on November 8, marijuana is still illegal under federal law and this makes branding marijuana strains,  paraphernalia or services related primarily to marijuana tricky.

One example of this is the recent problems a cannabis entrepreneur faced in seeking to register two trademarks.  JJ206, LLC sought to register the marks POWERED BY JUJU and JUJU JOINTS with the USPTO, for “smokeless cannabis vaporizing apparatus, namely, oral vaporizers for smoking purposes; vaporizing cannabis delivery device, namely, oral vaporizers for smoking purposes.” The Examining Attorney refused registration of the marks based upon lack of lawful use of the mark in commerce.

Under Section 1 of the Lanham Act (15 USC 1051),  the registration of a trademark requires use in commerce.  Section 45 of the Lanham Act (15 USC 1127) defines “commerce” as all commerce which may lawfully be regulated by Congress.  If the goods or services covered by a mark are unlawful, actual lawful use in commerce is not possible, and a refusal under Trademark Act Sections 1 and 45 will be made. But what about the situation where the goods or services are lawful under state law and illegal under federal law.

While vaporizing devices for cannabis may be legal in certain states, they are illegal under the federal Controlled Substances Act (CSA).  The CSA makes it unlawful to sell, offer for sale, or use any facility of interstate commerce to transport drug paraphernalia, defined as “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under [the CSA].”  Where goods or services in a trademark application are identified as primarily intended or designed for use in ingesting, inhaling, or otherwise introducing cannabis or marijuana into the human body, it constitutes unlawful drug paraphernalia under the CSA.

JJ206’s argument that it only intends to do business in states which allow for the sale and distribution of marijuana was not persuasive.  The TTAB noted that whether a product or service is lawful within a state is irrelevant to the question of federal registration when it is unlawful under federal law.  Because “commerce” is defined in the Trademark Act as commerce lawfully regulated by Congress, that which is illegal under federal law cannot be lawful “commerce” under the Trademark Act.  As such, any application to federally register any goods or services that are illegal under federal law will be refused, regardless if it is legal under state law.

So what’s a California cannabis entrepreneur to do?  One could rely on common law trademark rights.  Common law rights arise from actual use of a mark in commerce and no registration is required to establish common law rights.  However, enforcement can present the challenge of establishing proof of the date of first use.  Additionally, common law trademark rights are limited to the actual geographic scope of use established through evidence.

State trademark registration would be an improvement over common law rights.  In California registration is prima facie evidence of ownership of a valid mark and the exclusive right to use the mark for the covered goods or services within California.  Granted seeking registration in California and the other states in which marijuana is legal may not be as convenient or cost effective as a single federal registration and you can’t file based on intent to use, but it is still preferred over relying on common law rights.

Another strategy would be to seek registration for an ancillary product or service that does not violate the CSA.  The application could be filed based on either use in commerce or intent to use. If the mark is registered, the owner would be entitled to argue that the subsequent use by a third party would cause likelihood of confusion and infringe its trademark rights.

The America Invents Act provided several procedures for challenging the validity of patent claims, including inter partes review (“IPR”), post-grant review (“PGR”) and covered business method patent challenges (“CBM”).  An IPR, PGR, or CBM challenge begins with a petition filed by the challenging party that identifies each claim challenged and the grounds for each challenge.   Based on the petition and the patent owner’s optional preliminary response, the Patent Trial and Appeal Board (“PTAB”) determines whether to institute review of one or more of the challenged patent claims.  Under the America Invents Act, this determination whether to institute review is final and nonappealable, but the PTAB’s final decision on patentability of the claims is appealable.  Recently, decisions by the PTAB have raised questions as to where the line is between appealable and nonappealable decisions.

In its decision to institute review, the PTAB can choose to review all or some of the patent claims challenged in a petition and on all or some of the grounds of unpatentability asserted for each claim.  The statute states that those decisions are not appealable.  But, if the PTAB chooses to review claims on grounds not specifically raised in a petition, are those decisions appealable?  The Court of Appeals for the Federal Circuit has determined it lacks jurisdiction to review such cases because they are part of the determination to institute review and thus are not appealable.  Earlier this year, in Cuozzo Speed Technologies, LLC v. Lee, the U.S. Supreme Court also weighed in on this issue holding that the America Invents Act precludes appeal of decisions by the PTAB to institute review of challenged patent claims.  Arguably, however, the Court left the door open for potential exceptions, such as in cases that raise constitutional issues of due process or where the PTAB has exceeded its statutory authority.

In Cuozzo, the patent related to a speedometer that will show a driver when his or her car is exceeding the speed limit.  In 2012, Garmin filed a petition seeking inter partes review of the validity of the Cuozzo patent.  Garmin’s petition included an argument that claim 17 was invalid as obvious in light of three prior art patents, and the PTAB instituted review of claim 17.  While noting that Garmin had not expressly challenged claims 10 and 14 as obvious in light of these references, the PTAB also instituted review of those claims on the same obviousness grounds.  The PTAB explained that because claim 17 depends on claim 14 which depends on claim 10, Garmin had implicitly challenged claims 10 and 14.  Ultimately, the PTAB invalidated all three claims as obvious.

The owner of the Cuozzo patent appealed to the Federal Circuit arguing that the PTAB erred in instituting review of the two claims not expressly identified in the petition because the relevant statute requires that petitions must be pled with particularity.  But the Federal Circuit held that 35 U.S.C. §314(d) rendered the decision to institute inter partes review nonappealable.  The U.S. Supreme Court agreed holding that §314(d) precluded judicial review because it says that the “determination by the [Patent Office] whether to institute an inter partes review under this section shall be final and nonappealable.”  Further, the Court stated that the logical linking of claims 10 and 14 to claim 17 precluded the need for the petition to “repeat the same argument expressly when it is so obviously implied.”  Therefore, the Court found that the “No Appeal” provision’s language must at least forbid an appeal in such circumstances.

The Supreme Court, however, emphasized that its interpretation only  applies to appeals where “the grounds for attacking the decision to institute inter partes review consist of questions that are closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review.”  The Court went on to explain that it was not deciding the precise effect of §314(d) on appeals that “implicate constitutional questions, that depend on other less closely related statutes, or that present other questions of interpretation that reach … beyond ‘this section.’”  The Court also noted that it did “not categorically preclude review of a final decision where a petition fails to give ‘sufficient notice’ such that there is a due process problem with the entire proceeding, nor does the interpretation enable the agency to act outside its statutory limits ….”

When does a petition fail to give sufficient notice thus causing a due process problem? What constitutes the PTAB acting outside its statutory limits? Those are the questions SightSound Technologies is asking the U.S. Supreme Court to address and clarify in SightSound’s recently-filed petition for a writ of certiorari.

In 2011, SightSound sued Apple for allegedly infringing three SightSound patents related to the electronic sale and distribution of digital audio and video signals.  Apple challenged claims of two of the patents in petitions for CBM review asserting that the challenged claims were anticipated under 35 U.S.C. §102 by a CompuSonics system.  Apple submitted numerous references and a declaration in support of its §102 argument.  Apple did not challenge the claims as obvious under 35 U.S.C. §103.  The PTAB, however, decided to institute review of the claims under both §102 and §103 explaining that while Apple’s petitions did not assert obviousness explicitly, the petitions nevertheless supported such a ground based on the detailed explanation of the various CompuSonics references.

SightSound objected that the PTAB lacked authority to raise a ground of unpatentability (obviousness) that Apple had never asserted.  The PTAB granted SightSound additional time for argument and authorized it to file sur-replies and new declarations on the issue of obviousness “to ensure that Patent Owner has a full and fair opportunity to be heard on the issue of obviousness.”  Ultimately, the PTAB rejected Apple’s anticipation argument but instead invalidated the challenged claims as obvious under §103.

SightSound appealed to the Federal Circuit, which held that decisions relating to the institution of CBM review are not appealable under 35 USC §324(e), which mirrors the language in §314(d) for inter partes review.  In its petition to the U.S. Supreme Court, citing Cuozzo, SightSound argues that the PTAB’s decision to institute review based on obviousness is appealable because the PTAB exceeded the its statutory authority and deprived SightSound of due process protection.

First, SightSound argues the PTAB lacked statutory authority to conduct an obviousness review because Apple did not challenge the claims as obvious in its petition.  Second, SightSound explains that because a patent is a vested property right, it confers due process protection and patent owners are entitled to “notice and an opportunity to be heard by a disinterested decisionmaker” when the validity of their patent claims is challenged.  SightSound argues that it was not provided this notice because the PTAB did not articulate the specific combinations of the twelve “CompuSonics publications” or the motivation for combining those references until the PTAB’s final written decision.  SightSound alleges this “forced [SightSound] to shoot in the dark” as to which combination of references formed the basis for the PTAB’s obviousness arguments and prejudiced its ability to locate and submit contrary evidence.  Thus, according to SightSound, it was deprived of its due process protection because it was never given sufficient notice of the specific obviousness arguments so that it could fairly defend the validity of its patent claims.

We will have to wait to see whether the Supreme Court weighs in on whether the PTAB has exceeded its authority or deprived a patent owner of due process rights in granting review of patent claims on grounds not raised in a challenger’s petition.  For now, patent owners should assume that the PTAB may take a broad interpretation of a challenger’s petition when determining the scope of review.

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

The Communications Decency Act (“CDA”) provides broad immunity for “providers of interactive computer services.”  In essence, if an internet service provider falls within certain parameters, it is entitled to immunity against certain claims of liability brought under state law.  Last month, the Ninth Circuit again considered the breadth of such immunity in the case, Kimzey v. Yelp!.

As many readers may know, Yelp is a website that allows customers to “rate” their experience with a particular store, restaurant or service provider.  The reviewing customer can also leave a detailed review in connection with their 1-5 star rating.  Yelp then aggregates all customer reviews into a single rating and this information may be found not only on Yelp’s website, but also on other search engine websites like Google.

The plaintiff, Douglas Kimzey, operated a locksmith shop in the Washington area.  The Ninth Circuit’s opinion relates that he was subject to a one-star review by a purported customer, “Sarah K,”  whose review began, “THIS WAS BY FAR THE WORST EXPERIENCE I HAVE EVER ENCOUNTERED WITH A LOCKSMITH.”  It did not get much better from there.

Rather than suing the customer for posting the offending review, Kimzey sued Yelp instead.  In an attempt to get around the immunity provisions set forth in the CDA, Kimzey alleged two novel theories: (1) that Yelp, by creating its review and star-rating system in effect “created the content” to subject it to liability;  and (2) by allegedly “republishing” the negative review through advertisements and/or search engines, Yelp was liable as the publisher of the negative review.  The District Court granted Yelp’s motion to dismiss on the ground that it was immune from such liability under the CDA.

The Ninth Circuit began by reviewing the immunity provision in the CDA, Section 230(c)(1), which provides protection from liability only to “(1) a provider or user of an interactive computer service; (2) whom a plaintiff seeks to treat under a state law cause of action as a publisher or speaker; (3) of information provided by another information content provider.”  The Ninth Circuit said that it was easy to conclude that Yelp was a provider of “an interactive computer service” given that such term should be interpreted “expansively” under the CDA.  In fact, the Ninth Circuit recognized that in today’s cyberworld, “the most common interactive computer services are websites,” such as Yelp.  The Ninth Circuit continued by finding that it was clear that Kimzey’s claims against Yelp were “premised on Yelp’s publication of Sarah K’s statements and start rating.”

In turning to the gist of Kimzey’s complaint, the Ninth Circuit reasoned that, “a careful reading of the complaint reveals that Kimzey never specifically alleged that Yelp authorized or created the content of the statements posted under the aegis of Sarah K, but rather that Yelp adopted them from another website and transformed them into its own stylized promotions on Yelp and Google.”  The Ninth Circuit found, without any difficulty, that such “threadbare allegations of fabrication of statements are implausible on their face and are insufficient to avoid immunity under the CDA.”  In essence, the Ninth Circuit found that such artful pleading as that engaged in by Kimzey would allow other plaintiffs to avoid the broad immunity protections provided by the CDA.

The Ninth Circuit reasoned that Congress in enabling immunity from liability wanted to protect the purpose of the internet which was to further the “free exchange of information and ideas.” Further, allowing a plaintiff to plead around the immunity statute would eviscerate Congress’ purpose in furthering this purpose.

Turning to the next part of Kimzey’s complaint, the Ninth Circuit noted that Kimzey alleged that Yelp designed and created the signature star-rating system and thereby served as the “author” of the one-star rating given by Sarah K.  He also alleged that Yelp had “republished” the allegedly offending statements on Google by way of advertisements. The Ninth Circuit recognized that there was no immunity under the CDA if the service provider “created” or “developed” the offending materials.  However, the service provider had to make “a material contribution to the creation of development of content” in order to lose immunity under the CDA.

The Ninth Circuit concluded that neither prong was satisfied by Kimzey.  The court ruled that “the rating system does absolutely nothing to enhance the defamatory sting of the message beyond the words offered by the user.”  Further, the Ninth Circuit had previously found in Carafano v. Metrosplash.com, Inc., 339 F.3d 1119 (9^th Cir. 2003), that the mere collection of responses to a particular question “does not transform [the service provider] into a developer of the underlying misinformation.”  Likewise, a California appellate court had previously rejected a claim based on eBay’s rating system and found that the system was “simply a representation of the amount of such positive information received by other users of eBay’s website.”  Gentry v. eBay, Inc., 121 Cal. Rptr.2d 703 (2002).

The Ninth Circuit, in relying on this precedence, reasoned that it was difficult “to see how Yelp’s rating system, which is based on rating inputs from third parties in which reduces this information into a single aggregate metric, is anything other than user generated data.” Furthermore, the Ninth Circuit rejected Kimzey’s argument that Yelp’s use of the user-generated information in advertisements subjected it to liability as a “republisher.”  The Ninth Circuit concluded that there was “[n]othing in the text of the CDA [that] indicated that immunity turns on how many times an interactive computer service publishes `information provided by another information content provider.’”   The Ninth Circuit ruled that “just as Yelp is immune from liability under the CDA for posting user generated content on its own website, Yelp is not liable for disseminating the same content in essentially the same format to a search engine as this action does not change the origin of the third party content.”  The Ninth Circuit affirmed the lower court’s dismissal of Kimzey’s complaint against Yelp.

The Kimzey case is a reminder of the broad protections provided to interactive computer service providers under the CDA when faced with state law lawsuits regarding the publication of information provided by a user.  Defendants in such cases should explore the possibility of immunity under the CDA in order to cut short such lawsuits by having them dismissed early, often prior to the expense of discovery.