IP Playbook | Intellectual Property Litigation Attorneys

Librarians Rejoice! No Geographic Limitation on Copyright Law’s First Sale Defense

By Daniel Lentz on March 25, 2013 Posted in Copyrights

This week SCOTUS returned 6-3 decision that the Copyright Act’s first sale defense under 17 U.S.C. § 109(a) is not limited to works made in the United States. The back-and-forth between Justice Breyer (majority) and Justice Ginsburg (dissent)—two of the most readable justices on the court—is worth your time. (Download pdf here.)

Here’s the skinny: Suadp Kirtsaeng left Thailand in 1997 to pursue a mathematics degree at Cornell. As a side business, he had Thai friends and family ship him cheap English textbooks that he could sell at a marked-up price on Ebay. Kirtsaeng’s PayPal account lists his profits at $1.2 million. John Wiley & Sons, an international publishing house, sued Kirtsaeng under 17 U.S.C. § 602(a), which prohibits importing copyrighted works without permission, and under § 106, which prohibits distributing them. Kirtsaeng’s defense was grounded in the first sale defense doctrine, § 109(a), which exhausts a copyright owner’s interest once the work is lawfully sold or transferred. The question for the Court became whether the defense was available because the work originated outside the U.S. Naturally, Steven Colbert set the table for the court’s decision.

The court held for Kirtsaeng. The first sale defense was available because a plain reading of § 109 indicated no limitation on geography.

The effects of the case are significant. On the plus side, previously sold copyrighted works originating outside the U.S. can be re-sold or gifted or borrowed without the permission of the copyright owner. This is crucial. Can you imagine the problems selling your 1991 Honda Accord, which contains copyrighted software originating abroad, if Kirtsaeng came out the other way? Or needing to call Elton John before putting his Goodbye Yellow Brick Road album on Ebay? Or needing your local librarian to get permission before lending out a C.S. Lewis book printed abroad? This “parade of horribles” was contemplated by Justice Breyer in his opinion.

But the case also leads to negative consequences for international publishers. As James Gimmelmann explained, if Kirtsaeng can import international editions of copyrighted works, so can Amazon, or anyone. The price difference between works sold in U.S. versus developing countries will collapse. So, too, might the market for copyrighted works in less affluent countries where consumers cannot afford to buy a $100 textbook. Under these conditions, it would make little economic sense to publish certain books at all.

TAKE AWAY

What should publishers do? I don’t expect them to fight the opinion, but I do expect them to push Congress for more protection against imported works. They can live with the first sale defense (you’re welcome, librarians!), but they need to find other ways, like tariffs, to keep the price difference afloat and the international market segmented.

Superior Industries v. Thor Global: Must Patent and Trademark Infringement Claims be Brought Together?

By Larry DeMeo on February 3, 2013 Posted in Patents, Trademark, Trending IP Topics

The Federal Circuit is currently considering whether to rehear en banc a case that, depending on the outcome and the reasoning behind the decision, could require a plaintiff to bring all potential IP claims against a defendant in a single suit or risk losing the right to assert them forever; or alternatively could arguably alter the pleading requirements for patent infringement actions or eliminate application of res judicata for different IP infringement claims based on the same set of actions by a defendant.

The case, Superior Indus., LLC v. Thor Global Enters. Ltd.,700 F. 3d 1287 (Fed. Cir. 2012), concerns whether the patent infringement claims brought by Superior Industries, LLC (“Superior”) against Thor Global Enterprises Ltd. (“Thor”) are precluded because Superior failed to bring the claims during an earlier trademark infringement action against Thor, because both the trademark and patent infringement actions were prompted by the same advertisements by Thor. Judges Rader and Schall overturned the dismissal of Superior’s action by the United States District Court for the District of Minnesota (“the District Court”), ruling that the patent infringement claims were not the same cause of action as the trademark infringement case. Their reasoning was based, at least in part, on the sufficiency of the evidence of patent infringement known at the time the trademark infringement action was filed. Judge Mayer dissented, and agreed with the District Court in concluding that the patent infringement claims could have been brought together with the trademark infringement claims and that, therefore, the claims were precluded under the doctrine of res judicata. Thor has petitioned for a rehearing by the Federal Circuit en banc.

TAKEAWAY

As of now, a plaintiff will not necessarily be precluded if it brings separate actions for infringement based on a single set of actions by a defendant, at least where those actions do not amount to an offer which establishes patent infringement. This may change, however, if the Federal Circuit takes up the case en banc and agrees with Judge Mayer’s dissent and the District Court. It will be interesting, too, to see if the Court’s reasoning, should they decide to rehear it, addresses Thor’s arguments regarding the effects on a plaintiff’s pleading requirements and Rule 11 investigation standards.

A wise plaintiff, however, will carefully consider additional claims that are factually related to its case. Moreover, a wise plaintiff will be cautious to avoid adding unnecessary facts, such as reference to a patent in a trademark infringement complaint, that could establish grounds for a claim that it is not ready to assert. The price of failing to bring claims that are later determined to have been part of the same case or controversy can be too costly.

Download the following pdf for background information and additional details: Superior Industries v. Thor Global.

Empathetic Trademark Enforcement: Jack Daniel’s Attorney’s Understanding Cease-and-Desist Letter Halted Infringement, Scored Great Press for Her Client

By David M. Fox on July 27, 2012 Posted in Trademark

Image c/o Mashable

Ordinarily, when counsel becomes aware that her client’s trademark is being infringed, a harshly worded cease-and-desist letter, usually taken from a standard template, is prepared and sent to the alleged infringer in the hope that fear will drive it to end its infringement. Christy Susman, senior trademark attorney for Jack Daniel’s, an alcoholic beverage giant, pursued a different track that not only effectively enforced her client’s mark but also gained extensive positive praise for her client in the media. It turns out that the old saying, “You win more flies with honey than you do with vinegar” still applies, even in trademark enforcement.

Patrick Wesnink is a satirical author whose latest work, Broken Piano for President, very clearly took Jack Daniel’s Old No. 7 Tennessee Whiskey label as, at the very least, the inspiration for its cover art, importing much of the layout, and even the alcohol content of the Jack Daniel’s label, into the cover.

Ms. Susman, policing the market for her client, came across Mr. Wensink’s book. Her response could have been to send a standard, harshly-worded, form cease-and-desist letter. Instead, recognizing that Wensink was not out to purposefully weaken Jack Daniel’s brand, Susman crafted a polite, understanding cease-and-desist letter that empathized with the author while also directly explaining why Jack Daniel’s was requesting that he change the cover for future publications.

Less than two-weeks later, this empathetic cease-and-desist letter scored a public relations triumph for Jack Daniel’s. Mr. Wensink, upon receiving the letter, posted it, remarking that “[i]f it wasn’t signed by some lawyer, I’d imagine ol’ Gentleman Jack penning it himself, twirling his bushy mustache.” He then alerted multiple news organizations of Jack Daniel’s kindness, being genuinely touched by a trademark lawyer who put a little extra care into doing her job. Soon after, the letter received glowing coverage across the internet, with headlines such as these: This Cease-and-Desist Letter Should Be the Model for Every Cease-and-Desist Letter (the Atlantic), Jack Daniels Wrote What Has to Be the Nicest Cease-and-Desist Order of All Time (Business Insider), Nicest Cease-and-Desist Ever, from Jack Daniel’s (Esquire), Jack Daniel’s Sends the Most Polite Cease-and-Desist Letter Ever (Mashable), Jack Daniel’s Has a Very Nice Trademark Lawyer (boingboing).

IP Playbook’s Takeaway

Ms. Susman not only achieved Jack Daniel’s legal goal of halting trademark infringement. She provided Jack Daniel’s with multiple days of positive press, bringing her client’s brand to the forefront of discussion in a very sympathetic light. Ms. Susman also achieved the remarkable feat of humanizing lawyers, pointing the way for others in the profession to achieve their clients’ goals using less hostile, but more profitable means of addressing alleged trademark infringement by smaller actors. At the very least, Ms. Susman showed that trademark lawyers should take care to craft individualized responses to alleged trademark infringement—even in cases where the potential damage is small—because the reward for acting diligently and empathetically has the potential to go far beyond just halting infringement.

The USPTO Heads to the Motor City

By Daniel Lentz on July 27, 2012 Posted in Patents, Trends

The USPTO opened its first-ever satellite office last Friday….. in Detroit. Wait, what? Detroit?

The AIA requires the USPTO to establish regional satellite locations as part of a “larger effort to modernize the U.S. patent system over the next three years.” The expansion should allow the USPTO to nationally recruit and retain patent examiners and Board of Patent Appeals and Interferences (BPAI) Judges, which will reduce patent application backlogs and expedite innovation into the marketplace. The USPTO chose four cities for satellite offices based on multiple factors: the ability to attract top IP talent, the potential economic impact on selected communities, and geographic diversity.

Satellite offices will be placed in Dallas (close to the E.D. Tex, a popular IP litigation forum), Denver (consistently a high-ranking business center in the mountain region) and Silicon Valley (do I need to explain this one?). And then there’s Detroit. It’s a manufacturing center and one of the larger economies in the Midwest. But why not Chicago or Minneapolis? The answer is that, well, Detroit is loaded with IP potential.

In 2009, Michigan ranked 7th in the nation for total number of patents. In 2010, it held the top spot in clean-energy patents. The Dice Report, a monthly snapshot at the technology job market, recently called Detroit the fastest-growing region for technology jobs in America. The University of Michigan alone applied for more than 130 patents last year, more than nine states and the District of Columbia. In fact, Michigan universities produce more than 6,675 engineers and engineering technicians per year, good for fourth in the U.S. for engineering degrees conferred. These engineers aren’t necessarily leaving town after graduation, either. Although Detroit’s population has dipped by 25 percent over the last decade, its population of college-educated, 25 to 39 year-olds has increased by an astounding 59 percent.

IP Playbook’s Takeaway

The satellite office itself will have little impact on Detroit’s economy; in fact, it will only employ about 120 people. But it should boost business for local entrepreneurs, patent prosecutors, and patent litigators. And most importantly, it provides the city with nationwide credibility as a future high-tech hub. Young engineering talent, university institutional support and the state legislature’s commitment to making Michiganan “incubator of creativity” makes Detroit a natural fit for USPTO expansion. So watch out South Bay, Detroit is on your heels!

Overbroad Use-Codes Correctible by Counterclaim

By Larry DeMeo on July 12, 2012 Posted in Patents, Pharma & Medical

Generic drug companies can face a dilemma when filing ANDAs. If an innovator has submitted a use code that is broader than its patent claims, the generic can be sued for infringement even if it wishes to market a method not covered by the patent. In Caraco Paharmaceutical Laboratories, LTD (“Caraco”) v. Novo Nordisk A/S’ (“Novo”) (pdf download), Caraco faced just such a problem. While generics can still be subject to suit in such situations, as a result of this case, they may bring a counterclaim against the innovator to force a correction to the use code.

Background

When a brand-name drug manufacturer (or innovator), such as Novo, submits a new drug application (NDA) with the FDA, the NDA includes a statement of the drug’s components along with proposed labeling describing the uses for which it may be marketed. See 21 U. S. C. §§355(b)(1), (d). Once the FDA has approved an innovator’s drug, another company can file an abbreviated new drug application (ANDA) with the FDA in order to get approval for a generic version. §§355(j)(2)(A)(ii), (iv).

However, the FDA cannot approve an ANDA for a generic that would infringe an innovator’s patent. Therefore, to facilitate timely approval of ANDAs, Hatch-Waxman requires innovators to submit expiration dates for their applicable patents (§355(b)(1)) and “use codes” describing any applicable method-of-use patents. 21 CFR §§314.53(c)(2)(ii)(P)(3), (e). The FDA simply publishes, without verification, the use codes submitted by innovators in a publication colloquially known as the “Orange Book.”

Caraco wished to market a generic version of Novo’s drug, repaglinide. The FDA had approved three uses of the repaglinide, but Novo’s method-of-use patent claimed only one of them. Caraco aimed to market a generic for the other two.

Caraco initially filed a “paragraph IV statement” that Novo’s patent “is invalid or will not be infringed by [Caraco’s] manufacture, use, or sale.” 21 U. S. C. §355(j)(2)(A)(vii)(IV). By law, such a filing is an act of infringement, giving Novo an immediate right to sue Caraco.

After Novo sued, Caraco submitted a “section viii certification” that it would market the drug only for the methods not covered by Novo’s patent. See 21U. S.C. §355(j)(2)(A)(viii). Caraco also submitted a required label that “carved out” the patented method of use. 21 CFR §314.94(a)(8)(iv). Before the FDA approved Caraco’s ANDA, however, Novo changed its use code to indicate all three approved methods. Because Caraco’s proposed label now overlapped with Novo’s use code, the FDA could not permit Caraco to employ section viii to bring its drug to market.

In an effort to curtail innovator submission of inaccurate patent information to the FDA, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 created a statutory counterclaim allowing generics sued for infringement to “assert a counterclaim seeking an order requiring the [innovator] to correct or delete the patent information submitted by the [innovator] under subsection (b) or (c) [of 21 U. S. C. §355] on the ground that the patent does not claim . . . an approved method of using the drug.” 21 U. S. C. §355(j)(5)(C)(ii)(I). Caraco filed such a counterclaim against Novo, seeking an order requiring Novo to “correct” its use code.

Holding

The Federal Circuit held that there was no basis in the 2003 Act for such a counterclaim. The Supreme Court reversed, holding that the counterclaim provision of the 2003 Act which allows a generic to obtain a judgment directing an innovator to “correct or delete” certain patent information, includes correction or deletion of an innovator’s use code.

IP Playbook’s Takeaway

The decision is not without controversy. Even if Caraco does not market its generic drug for the patented use, there is no practical protection from doctors or pharmacists utilizing the generic for the use covered by Novo’s patent. Nancy Chiu Wilker, of Sunstein Kann Murphy and Timbers, LLP considers this case additional evidence that “that the Supreme Court will interpret ambiguities in Hatch Waxman in favor of generic companies in their attempt to quickly launch generic versions of innovator pharmaceuticals.” The IP Group of Schiff Hardin LLP contends that the ruling is consistent with Congress’ intent in passing the Hatch-Waxman act, and that “the Supreme Court recognized that providing overbroad use codes, related even to properly listed patents, thwarts the purposes of the Hatch-Waxman Act by delaying the approval of otherwise acceptable ANDAs.”

Whether or not the outcome is correct as a matter of policy, generics wishing to bring drugs to market for an unpatented method, and innovators who are considering the ramifications of the use codes they submit, should be aware that generics have the right to file a counterclaim to correct an overbroad use code.

The Modern IP Judge: Judge Aslup Schools Counsel In Google v. Oracle

By Daniel Lentz on June 19, 2012 Posted in Copyrights, Patents, Technology

Judge William Aslup dubbed Google v. Oracle to be the “World Series” of IP trials. If so, Google broke out the brooms on May 31, 2012 and swept away Oracle in victory. A 41 page order declared Oracle’s Java application programming interface (API) to be non-copyrightable. Several commentators have already dissected it.

Judge Aslup’s background helps shed light on his ability to draft such a comprehensive order regarding API; one that leaves little room for Oracle on appeal. So who is Judge Aslup? Possibly a relative of this man.

Judge Aslup is 61 years old. He clerked for SCOTUS Justice William O. Douglas, worked two separate stints in private practice, and served the U.S. Solicitor General and the DOJ’s Antitrust Division. He arrives at work before 5:30 a.m.and reportedly works out by running up and down 20 floors of stairs at San Francisco’s federal court building. He has led mountaineering expeditions. And he learned Java coding to evaluate counsel’s arguments in Google v. Oracle. The trial transcript reads as follows:

Judge: We heard the testimony of Mr. Bloch. I couldn’t have told you the first thing about Java before this problem. I have done, and still do, a significant amount of programming in other languages. I’ve written blocks of code like rangeCheck a hundred times before. I could do it, you could do it. The idea that someone would copy that when they could do it themselves just as fast, it was an accident. There’s no way you could say that was speeding them along to the marketplace.

IP Playbook’s Takeaway

Judge Aslup may be one of a kind, but expect other federal courts to follow his high-tech lead. With over 250,000 patents already issued in the smart phone, a new battleground for IP lawsuits has been created. These cases will involve the complex technology behind phone operating systems, apps, messaging, and data storage. Judges will be forced to adapt. And who doesn’t watch the World Series? Judges (and clerks) have closely followed Google v. Oracle and will learn from Judge Aslup’s highly active approach. Their emphasis on technological literacy will undoubtedly shape the future IP bench.

We also recommend the following ZDnet Hot Topics webcast, hosted by Jonas Tichenor and featuring journalists who have been inside the courtroom.

Do inequitable conduct defenses still have teeth post -Therasense?

By Craig L. Uhrich on June 15, 2012 Posted in Strategies

Post-Therasense, is an inequitable conduct defense still worth the resources necessary to pursue it? Yes, given recent developments, inequitable conduct defenses still have teeth, and can be well-worth the resources necessary to properly put on the defense.

There has been lot of commentary on the significance of the Federal Circuit’s decision in Therasense, a significant portion of that commentary focusing on the heightened standards imposed by Therasense and noting that that the new standards were difficult to meet and that the defense now would be more problematic to defendants. While these points are certainly true, recent cases also show that the doctrine of inequitable conduct is alive and well and that these are still claims that can be successfully raised by defendants. Two recent cases illustrate this point:

In Aventis Pharma S.A. v. Hospira, Inc. [675 F.3d 1324], the Federal Circuit upheld a finding a inequitable conduct based on the Therasensestandard. There, the trial court had found the patent to be invalid based on two undisclosed references, the Federal Circuit affirmed that the withheld references were necessarily material based on the invalidity finding. Intent was found, despite the inventor’s testimony that he did not think he needed to disclose the reference, because the inventor’s testimony was found to lack credibility based on the facts that:
- he testified that the undisclosed references had shaped his thinking on the problem he was attempting to solve;
- he disclosed a reference that identified the problem his invention was meant to solve, but failed to disclose the references that taught the solution; and
- in testifying that the experiments identified in the references were failures, he did not address all of the experiments, but only addressed those that supported his testimony regarding that they were failures.

On remand, the patents in Therasense were found to be unenforceable for inequitable conduct even under the new “heightened” standard. The district court found inequitable conduct based on the same facts originally presented to it and based on the continuing use of circumstantial evidence and inferences regarding intent and the importance of the withheld information. On remand:
- the court found that earlier briefs submitted before the EPO that contradicted a declaration presented in theUSprosecution were material under the but-for test. The Examiner had raised concerns regarding the specific issue addressed in the EPO briefs. Applying a common-sense approach, the court found that the patents would not have issued if the EPO briefs had been presented to the Examiner, even though there was no direct evidence on how the Examiner would have reacted to the EPO briefs.
- The court also found that an intent to deceive was the single most likely explanation for withholding the EPO briefs. This finding was based on the fact that the alternative testimony offered lacked credibility, and that the inventors were “keen to win an allowance quickly in order to meet competition in the marketplace,” but knew that the EPO briefs could not be explained away. Though there was no direct testimony of bad faith, the court found intent by clear and convincing evidence based on such circumstantial evidence.

Though the court found specific deceive, in dicta it suggested that such a finding was unnecessary under American Calcar [651 F.3d 1318], in which the court asserted that the Federal Circuit held that a threshold case of specific intent to deceive could be proven by finding (i) actual knowledge of the withheld item, (ii) actual knowledge of its materiality, and (iii) a deliberate decision to without the item.

IP Playbook’s Takeaway

Though Therasense certainly raised the standard for an inequitable conduct defense and will likely limit the defense in terms of its applicability to mere procedural issues [663 F.3d 1221, 1235], subsequent cases have made clear that the defense remains viable. Defendants in patent cases should continue to evaluate the prosecution history with an eye toward finding instances in which known art was withheld and an inequitable conduct claim may be brought. Specifically, defendants should remember that common-sense and circumstantial evidence may be enough to meet the inequitable conduct elements even under Therasense, even where direct evidence is not available as to all elements.

In a future post, we will examine inconsistencies in the way in which district courts are applying Therasense at the pleadings stage.

Post AIA: Is It Still Possible For Patentees To Efficiently Litigate Patent Infringement Actions Against Multiple, Unrelated Defendants?

By David M. Fox on June 15, 2012 Posted in Patents, Strategies

After the passage of the America Invents Act (AIA), is it still possible for patentees to efficiently litigate patent infringement actions against multiple, unrelated defendants? The answer is yes, according to the Judicial Panel on Multidistrict Litigation (JPML) in In re Bear Creek Technologies Patent Litigation. [PDF of decision]. In the wake of Bear Creek, there is now a clear path for patentee plaintiffs to efficiently litigate the pretrial phase of a litigation asserting infringement against separate defendants in multidistrict litigation (MDL) under 28 U.S.C. § 1407, as further shown by the JPML’s recent decision in In re Maxim Integrated Products, Inc. [PDF of decision].

What are the benefits of MDL? MDL is especially beneficial to patentee plaintiffs suing a large number of defendants. It removes the chance that plaintiffs will be subject to the whims and differing docket speeds of different courts throughout the country. MDL will provide for coordinated discovery, limited depositions of parties and third-party witnesses, a single claim construction determination, and dispositive determination of common questions of law. MDL makes multi-defendant patent litigation manageable.
What cases are suitable for MDL? Before going through the lengthy process of moving to transfer and centralize separate actions in MDL, a plaintiff should determine whether the motion is likely to succeed. Successful patent infringement MDL motions show a high degree of factual commonality among the parties. In the past, the JPML has refused to transfer and consolidate actions alleging infringement of a single patent where the defendants were spread across fields as disparate as public transportation, geofencing, aviation, and department stores. See In re: ArrivalStar S.A. Fleet Mgmt. Sys. Patent Litig., 802 F. Supp. 2d 1378 (J.P.M.L. 2011). In contrast, the defendants in Bear Creek were all telecommunications companies. If the JPML finds a sufficient degree of commonality, its concern for consistent claim construction of the patent-in-suit will weigh heavily in favor of transferring and centralizing the actions in MDL.
What is the procedure for filing an MDL motion? The AIA explicitly prohibits the joinder of unrelated defendants into a single action for trial. Thus, unless the defendants are acting together in their infringement, it is necessary to file complaints in separate, individual actions. After the complaints are served, and the actions are pending, the best practice is to file a “Motion to Transfer and Centralize for Pretrial Proceedings Pursuant to 28 U.S.C. § 1407,” the accompanying memorandum, and required documentation with the JPML. The motion to transfer may be e-filed using the JPML’s ECF site. Correctly e-filing a transfer motion with the JPML requires strict adherence to its Rules of Procedure. [PDF of JPML Rules]. The JPML has provided a helpful checklist to ensure the completion of all required steps. [PDF of checklist].
What is the schedule for resolving an MDL motion? Once the MDL motion is filed, the other parties have 21 days from the filing to respond. Replies are allowed within 7 days of the filing of a response, but movants are limited to 20 pages to reply to all parties’ responses. Oral argument, if requested, will be heard at the next available meeting of the JPML. The JPML meets in set locations several times per year. The turnaround from the hearing to a decision is usually quite quick, with opinions issued within weeks.
If the action is centralized in MDL, what will be heard before the MDL judge? The transferee judge has the discretion to hear everything up to trial. The MDL judge has all the powers of an action’s original judge except the authority to preside over trial—she can rule on all motions from motions to dismiss to motions for summary judgment, to even Daubert motions. The JPML in Maxim offered guidance to transferee judges as to theAIA’s effect on remand, stating that the “trial consolidation provisions of theAIA may play a role” in determining the appropriate time for remand. For instance, a judge in her discretion, may issue a “prompt remand after the common claims are construed and summary judgment addressed common invalidity grounds.” The JPML trusted these matters “to the sound judgment of the transferee judge.”

IP Playbook’s Takeaway

Thus, MDL can be an invaluable tool for patentee-plaintiffs to efficiently litigate and enforce their patent rights against multiple infringers with actions pending in different courts for the vast majority of the action. In light of Bear Creek, MDL is an invaluable tool for patentee plaintiffs to better enforce their patent rights against geographically diverse defendants, and save substantial costs and time in the process.

Declaratory Judgment Jurisdiction: Serious About Licensing Your Patents? Then Get Serious About Litigation Strategy

By Matthew P. Horvitz on May 15, 2012 Posted in Licensing, Patents, Strategies

Can a company or inventor actively seek to monetize patent rights through licensing activities and avoid declaratory judgment lawsuits? No. In this post, the IP Playbook tackles the outdated notion that a company or inventor can generate licensing revenues and simultaneously evade the risk of litigation. This conventional wisdom ignores the present-day risks companies and inventors confront when seeking to license their patents. Advanced planning and a proactive litigation strategy tailored to each potential infringer and licensing negotiation is essential to mitigate the expansive scope of declaratory judgment jurisdiction. Otherwise, companies and inventors inadvertently may expose themselves to preemptive litigation challenging the validity of their patents in unfriendly and inconvenient venues, considerably reducing their leverage in licensing negotiations. See EMC Corp. v. Norand Corp., 89 F.3d 807, 811 (Fed. Cir. 1996) (“[t]he threat of enforcement … is the entire source of the patentee’s bargaining power.”).

The Federal Circuit’s decision by Judge Lourie on March 26, 2012 in 3M Co. v. Avery Dennison Corp., No. 2011-1339, illustrates the negligible threshold necessary for a plaintiff to establish a justiciable controversy under the Declaratory Judgment Act. According to 3M, its in-house head IP counsel received a call from Avery’s in-house head IP counsel, who told him that a product “may infringe” two of Avery’s patents and “licenses are available.” During a second informal telephone call, 3M rejected this offer and Avery disclosed that it performed an infringement analysis of 3M’s products and it would send claim charts, although it never did. 3M waited a year and then filed a declaratory judgment action. The district court dismissed the action for lack of subject matter jurisdiction. The Federal Circuit panel of Judges Lourie, Rader, and Linn vacated and remanded for factual determinations, explaining that the alleged communications, if credited by the district court, were sufficient to constitute a case or controversy under the Declaratory Judgment Act.

The result in 3M v. Avery reinforces Judge Bryson’s admonition in SanDisk Corp. v. STMicroelectronics, Inc. that the Supreme Court’s rejection of the “reasonable-apprehension-of-suit” test and adoption of an “all circumstances” test for declaratory judgment jurisdiction in MedImmune, Inc. v. Genetech, Inc., 549 U.S. 118 (2007), created a standard where “virtually any invitation to take a paid license relating to the prospective licensee’s activities would give rise to an Article III case or controversy.” 480 F.3d 1372, 1384 (Fed. Cir. 2007) (J., Bryson, concurring). It is noteworthy that the Federal Circuit found declaratory judgment jurisdiction in SanDisk even though the defendant, in connection with licensing discussions, provided a claim- and product-specific infringement analysis but promised verbally that it had “absolutely no plan whatsoever to sue….”

Where is the line between licensing discussions giving rise to declaratory judgment jurisdiction and those that do not? Some commentators have explained that “[v]irtually any communication by a patentee to a potential infringer about a specific accused product that references infringement or licensing, it appears, will be enough to create jurisdiction.” (Read more.) Here at the IP Playbook, we believe that any credible licensing offer raises the specter of litigation, as illustrated by the minimal discussions between counsel in 3M v. Avery. Based on post-MedImmune decisions, any of the following, alone or in combination, could trigger declaratory judgment jurisdiction:

Threatening a lawsuit
Providing claim charts, opinions, or analyses regarding infringement, or just mentioning that claim charts are forthcoming
Offering to grant a license to patents
Notifying a party that licenses or royalties are required to continue its actions
Explaining whether or not the patentee has a plan to bring suit
Refusing to sign a covenant not to sue
Past history of enforcing patent rights
Asserting a right to enjoin sales or collect a royalty
The lack of a strict deadline in licensing offers is immaterial

Avoiding declaratory judgment jurisdiction in connection with a genuine licensing effort is impracticable. As others have aptly observed, 3M v. Avery suggests there is a narrow gap indeed between the non-case or controversy creating communication … and communications sufficient to establish jurisdiction.” (Read more.)

The only factual scenario approaching a “bright line” rejection of jurisdiction is where a putative declaratory-judgment plaintiff attempts to manufacture jurisdiction unilaterally. (Read more.) For example, in Innovative Therapies, Inc. v. Kinetic Concepts, Inc., the Federal Circuit affirmed dismissal of a declaratory judgment action where the plaintiff’s efforts strongly indicted it had undertaken a “sub rosa” effort to create jurisdiction. 599 F.3f 1377, 1381 (Fed. Cir. 2010).

IP Playbook’s Takeaway

Before MedImmune, offers to license to a potential infringer could be insufficient for declaratory judgment jurisdiction. That is no longer true. This makes strategic planning before seeking any licensing opportunities critical. Depending on the circumstances of the negotiation and parties involved, a patent-holder may choose to file a complaint in a favorable venue before opening licensing discussions; or have a complaint drafted and read to file if licensing discussions reach an impasse. Another option would be to enter into a confidentiality agreement and covenant-not-to-sue, although those types of agreements could be used to establish declaratory judgment jurisdiction if licensing negotiations are unsuccessful.

The proper course of action will depend on the specific scenario, the parties involved, and the patentee’s business objectives. That is why an individualized litigation strategy is an essential component of any licensing program. Otherwise, patentees provide alleged infringers with ample opportunities to take the offensive, bring preemptive litigation in unfriendly and inconvenient venues, and gain crucial leverage in licensing negotiations. (Read more.)

For Appeal with New Evidence, District Court Still Most Appealing

By Larry DeMeo on May 8, 2012 Posted in Patents

Gilbert Hyatt had a problem to which many seeking a patent can relate. The PTO rejected his claims and the Board of Patent Appeals and Interferences (BPAI) affirmed. Unwilling to quit, Hyatt had two options for litigating his appeal: the Federal Circuit pursuant to 35 U.S.C. § 141, or the District Court pursuant to 35 U.S.C. § 145. Because the BPAI rejected the claims on grounds never argued by the examiner, introducing new evidence contradicting the BPAI’s reasoning was Hyatt’s best shot. Since, new evidence is permissible only in an appeal to the District Court, (Dickinson v. Zurko, 527 U.S. 150 (1999) Hyatt naturally chose to litigate there.

However, when Hyatt attempted to enter new evidence, the District Court refused to consider it, holding that new evidence is precluded without a just reason that it was not presented to the PTO. The evidence before the District Court was, therefore, identical to the administrative record, so the Administrative Procedures Act (APA) required the District Court to defer to the findings of the PTO unless those findings were found “unsupported by substantial evidence.” Given that it refused new evidence and applied such a deferential standard, it is no surprise that the District Court affirmed the rejection of Hyatt’s claims.

After Hyatt appealed, the Federal Circuit sitting en banc held that new evidence is admissible in a § 145 proceeding, whether the failure to present that evidence to the PTO was justified or not, and that the District Court must make de novo findings taking new evidence into account. The Supreme Court, in a unanimous decision written by Justice Thomas, upheld that ruling this past April in Kappos v. Hyatt, 566 U.S. (2012).

The government argued that the Federal Circuit’s rule would allow inventors to intentionally withhold evidence from the PTO to gain an advantage in a subsequent § 145 proceeding. To Justice Thomas, however, the impracticality of such a plan undercut that argument: “An applicant who pursues such a strategy would be intentionally undermining his claims before the PTO on the speculative chance that he will gain some advantage in the § 145 proceeding by presenting new evidence to a District Court judge.” Hyatt at p. 14. There are times when one might be tempted to take such a risk, though. As pointed out by Dennis Crouch, for example, Hyatt [had] some reason to sandbag because his application was filed pre-1995 and . . . [t]he delay in issuance likely means additional revenue sources that may persist for 17 years from the issue date.”

In Scotus blog, Ronald Mann argues that the Court’s decision not to craft a rule giving more deference to the PTO is a result of poor legal strategy: “By asking for a rule that would render the statute nugatory, . . . the government abandoned its chance to show the way to a balanced outcome that would give due deference to the PTO’s processes while leaving a safety valve for the review of Section 145 mandates.” Perhaps with that in mind, Justice Thomas noted that, even in a de novo review, a court can, in its discretion, give less weight to new evidence in light of the record presented to the PTO.

IP Playbook’s Takeaway

Nevertheless, a useful play remains in the patent playbook. When a rejection has been upheld by the BPAI, an inventor can appeal to the District Court, present new evidence to overcome that rejection, and receive a de novo hearing.