Source: https://www.fenwick.com/publications/pages/intellectual-property-bulletin-summer-2015.aspx
Timestamp: 2019-04-26 07:40:32+00:00

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As the number and complexity of cross-border and multi-jurisdictional disputes increase, companies can use 28 U.S.C. § 1782 to obtain evidence from U.S.-based entities for use in those foreign proceedings. Specifically, § 1782 allows entities “interested in” a foreign proceeding to obtain discovery from a U.S. entity using the United States District Courts. It permits the District Court in the district in which an entity resides to direct that entity to produce documents or give testimony. Originally enacted by Congress to provide assistance to foreign tribunals, § 1782 is also a powerful tool for obtaining documents and testimony relevant to the foreign proceeding that is otherwise outside the jurisdiction of the foreign tribunal. See Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004); Lo Ka Chun v. Lo To, 858 F.2d 1564 (11th Cir.1988). Section 1782 may be of particular interest in intellectual property disputes, since these often have the cross-border aspects that bring this statute into play.
To take advantage of § 1782, the party seeking discovery need only show that: (1) the request has been made either “by a foreign or international tribunal,” or by “any interested person”; (2) that the request seeks evidence, whether an individual’s “testimony or statement” or the production of “a document or other thing”; (3) that the evidence is “for use in a proceeding in a foreign or international tribunal”; and (4) the person from whom discovery is sought resides or is found in the district of the United States District Court ruling on the application for assistance.
Though powerful, § 1782 is not limitless. The law is not settled on whether § 1782 can reach documents within a U.S. target’s “possession, custody, or control” if those documents or things are physically located overseas. On the one hand, U.S. courts have noted in dicta that § 1782 only reaches documents located inside the United States. See, e.g., Four Pillars Enters. Co. v. Avery Dennison Corp., 308 F.3d 1075, 1079 (9th Cir. 2002) (suggesting there is “some support” for the view that § 1782 does not authorize discovery of material located in foreign countries, resolving on other grounds); Norex Petroleum Ltd. v. Chubb Ins. Co. of Canada, 384 F. Supp. 2d 45, 55 (D.D.C. 2005) (finding that the available “caselaw suggests that §1782 is not properly used to seek documents held outside the United States” but finding documents in question “are not discoverable for another reason”).
On the other hand, other courts have reached a contrary conclusion: the plain language of the statute poses no such restriction and “requires only that the party from whom discovery is sought be ‘found’ here; not that the documents be found here.” See In re Gemeinshcaftspraxis Dr. Med. Schottdorf, No. Civ. M19-88 (BSJ), 2006 WL 3844464 (S.D.N.Y. Dec. 28, 2006) (emphasis in original). In that case, the court ordered production of the documents sought under § 1782, including those in the control of the U.S.-based entity but located abroad. See also In re Application of Republic of Kazakhstan, 15 Misc. 0081 (SHS) (S.D.N.Y. June 22, 2015) (upholding order permitting discovery sought from New York office where documents were located in the firm’s London branch).
An entity seeking discovery under § 1782 does not need be a party to the foreign action and instead need only have “significant procedural rights” and “participation rights” in the foreign proceeding. For example, in Intel, Advanced Micro Devices (AMD) filed an antitrust complaint against Intel with the European Commission’s Directorate-General for Competition (DG). Though AMD was not a party to the DG’s investigation, it filed a petition in the United States District Court in Northern California seeking potentially relevant documents from Intel, a resident of the Northern District of California. The United States Supreme Court held that while AMD was not technically a party to the investigation, AMD nevertheless had standing because it had participation rights in the DG’s proceedings: it could submit information in support of its allegations and could seek judicial review of the DG’s disposition of its complaint.
Even absent a pending adjudicative proceeding, a party may be able to obtain discovery under § 1782 as long as one is within “reasonable contemplation.” Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 747 F.3d 1262 (11th Cir. 2014); Intel. Courts require showing that a future proceeding is more than speculative and demand “reliable indications” such as an internal audit; investigation; or internal correspondence suggesting that judicial action was imminent. See also Lazaridis v. Int’l Centre for Missing and Exploited Children, Inc., 760 F. Supp. 2d 109 (D.D.C. 2011) (a proceeding was within “reasonable contemplation” where the petitioner submitted two summonses for appearance before a Greek magistrate judge in connection with a “pre-accusatory proceeding.”). Accordingly, an entity need not wait until suit is filed or an investigation initiated before proceeding under §1782.
The scope of discovery can also extend to documents within the target U.S. entity’s “custody or control.” That can include documents held by agents and third-party contractors. Fed. R. Civ. Proc. 34; Columbia Pictures, Inc. v. Bunnell, 245 F.R.D. 443 (C.D. Cal. 2007).
Where arbitration has been required by or involves a governmental entity, courts have held that the foreign arbitral body is a “foreign tribunal” for purposes of §1782. For example, in In re Application of Mesa Power Group, LLC, a district court found discovery available for a foreign arbitration proceeding under the North American Free Trade Agreement (NAFTA). 878 F. Supp. 2d 1296 (S.D. Fla. 2012). Mesa sought, and successfully obtained, the court’s assistance in obtaining evidence from a third-party, NextEra, for use in a pending arbitration under NAFTA, which involved Mesa Power and the government of Canada. See also In re Republic of Ecuador, No. C-10-80225 MISC CRB (EMC), 2010 WL 4973492 (N.D. Cal. Dec. 1, 2010) (allowing discovery under § 1782 for use in foreign arbitration taking place pursuant to a bilateral investment treaty).
In contrast, some courts have concluded that private arbitral proceedings are not conducted by “foreign tribunals” and thus discovery under §1782 is not available. See, e.g., El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 Fed. Appx. 31 (5th Cir. 2009) (private Swiss arbitral tribunal not a “tribunal” under §1782); Nat’l Broad. Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999) (private commercial arbitration proceedings under the auspices of International Chamber of Commerce not a “tribunal”); In re Dubey , 949 F. Supp. 2d 990, (C.D. Cal. 2013); In re Arbitration Between Norfolk S. Corp., Norfolk S. Ry. Co., and Gen. Sec. Ins. Co. and Ace Bermuda Ltd., 626 F. Supp. 2d 882 (N.D. Ill. 2009); In re Oxus Gold PLC, No. MISC. 06-82, 2006 WL 2927615 (D.N.J. Oct. 11, 2006). However, a number of district court decisions in other circuits have held that private arbitral tribunals are indeed “tribunals” for purposes of the statute, under the logic that an arbitral body is a “first-instance decision maker” whose decision leads to a dispositive ruling. See, e.g., In re Application of Babcock Borsig AG, 583 F. Supp. 2d 233, 238 (D. Mass. 2008) (denying the request on other grounds, but finding that an arbitration in the International Chamber of Commerce was a “tribunal”); Comision Ejecutiva Hidroelectrica del Rio Lempa v. Nejapa Power Co., 2008 WL 4809035 (D. Del. Oct. 14, 2008), vacated as moot, 341 Fed. Appx. 821 (3d Cir. 2009); In re Hallmark Capital Corp., 534 F. Supp. 2d 951 (D. Minn. 2007); In re Roz Trading Ltd., 469 F. Supp. 2d 1221 (N.D. Ga. 2006).
Thus, even if a party meets the basic statutory requirements, the District Court can deny discovery if it determines that the foreign tribunal “is not receptive to [U.S.] judicial assistance.” In the Intel-AMD dispute, on remand from the Supreme Court, the District Court denied AMD’s discovery requests in their entirety after the foreign tribunal submitted amicus curiae briefs stating that it did not “need or want” the Court’s assistance and indicated that it would not even review the documents if they were produced to it. Advanced Micro Devices v. Intel Corp., No. C 01-7033, 2004 WL 2282320 (N.D., Cal. Oct. 4, 2004).
A district court might also, in its discretion, refuse to grant discovery if the same discovery could otherwise be obtained in the foreign proceeding. To force an opponent to proceed in two separate court systems would be considered an abuse, with the inference being that “the party seeking U.S. discovery was trying to harass his opponent.” See Heraeus Kulzer GmbH v. Biomet, Inc., 633 F. 3d 591, 594 (7th Cir. 2011).
The § 1782 discretionary factors may extend to discovery questions involving foreign entities even when the statute itself is not invoked. In a recent decision by the Court of Appeals for the Federal Circuit, the court held that these factors should be applied when considering whether to amend a protective order in a patent suit in the U.S. to permit use of the discovery materials in a foreign proceeding. In re Posco, No. 2015-112 (Fed. Cir. July 21, 2015). Nippon Steel had sued Korean company POSCO for patent infringement in the District Court in New Jersey. In parallel, Nippon sued POSCO in Japan for trade secret infringement, and POSCO filed a request for declaratory judgment of non-infringement in Korea. In the U.S. lawsuit, the court had entered a protective order limiting use of confidential materials disclosed in that suit to “solely for purposes of the prosecution or defense of this action.” Nippon later sought to amend the protective order so it could use some of those documents in the foreign proceedings. POSCO petitioned for a writ of mandamus to stop the disclosure directed by the District Court. The Federal Circuit instructed the District Court to consider on remand § 1782 and Intel’s discretionary factors. Although the Federal Circuit acknowledged that § 1782 and Intel may not directly govern requests to modify a protective order to make materials available in a foreign proceeding, it noted that at least three district courts have acknowledged that § 1782 and the Intel factors were relevant. As a result, where discovery questions implicate disclosure of documents in foreign proceedings, parties should consider and frame their arguments with these factors in mind.
As companies are faced with disputes abroad, including intellectual property disputes where relevant evidence is located in the United States, they should be prepared to use § 1782, or have it used against them, to obtain documents and testimony. Section 1782 can be effective in intellectual property disputes, where a party’s product allegedly infringing a foreign patent is manufactured, at least in part, in the United States; or if a dispute involves families of patents spanning across jurisdictions. See Cryolife, Inc. v. Tenaxis Medical, Inc., No. C08-05124 HRL, 2009 WL 88348 (N.D. Cal. Jan. 13, 2009) (granting request for documents and testimony concerning starting materials for respondent’s sealant product, which was the subject of a patent infringement action in Germany); In re Iwasaki Electric Co., No. M19-82, 2005 WL 1251787 (S.D.N.Y. May 26, 2005) (petitioner involved in patent litigation in Germany, U.S. and Japan sought documents and deposition transcripts from related U.S. litigation for use in related disputes abroad); In re Procter & Gamble Co., 334 F. Supp. 2d 1112 (E.D. Wis. 2004) (defendant in underlying litigation sought discovery relevant to its defenses that it was immune from suit for patent infringement based on settlement of prior litigation or that the patent at issue was invalid).
Fifty years ago, in Brulotte v. Thys Co., the U.S. Supreme Court held that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” 379 U.S. 29, 32 (1964). On June 22, 2015, in Kimble v. Marvel Entertainment, LLC (a 6-3 decision), the U.S. Supreme Court upheld the Brulotte rule.
Around 1990, Kimble invented a Spider-Man toy that allowed a user to mimic Spider-Man’s web-shooting abilities with foam string. Kimble v. Marvel Enters. Inc., 727 F.3d 856, 857-58 (9th Cir. 2013). After filing a patent application on this invention, Kimble met with Marvel’s predecessor company to discuss the idea covered by Kimble's pending patent application and other ideas and know-how. According to Kimble, Marvel’s predecessor verbally agreed to compensate him if the company used any of his ideas. The company subsequently told Kimble that it was not interested in developing his idea, but later began manufacturing a similar Spider-Man role-playing toy.
In 1997, Kimble sued Marvel for patent infringement and breach of contract. The parties ultimately settled that litigation. The settlement agreement had no expiration date and did not include any specific time limit on Marvel’s obligation to pay Kimble three percent of net product sales.
Subsequently, the parties had a number of disagreements about royalty payments. Kimble filed suit for breach of contract, and Marvel counterclaimed seeking a declaration that it was no longer obligated to pay Kimble under the settlement agreement based on sales of products after the expiration of the patent. Applying the Brulotte rule, the district court held that the royalties had to end when the patent expired. Kimble v. Marvel Enters., Inc., 692 F.Supp.2d 1156, 1159-1161 (D. Ariz. 2009).
The Ninth Circuit Court of Appeals affirmed. Kimble, 727 F.3d 856. Because the settlement agreement was limited to a royalty for patent rights alone (it did not, for example, include a discounted rate for the non-patent rights) or otherwise indicate that the royalty was in no way subject to patent leverage, the Ninth Circuit held that no royalties were due under the settlement agreement after the patent expired. Although the Ninth Circuit characterized the Brulotte rule as “counterintuitive” and “its rationale… arguably unconvincing,” the court recognized that it was bound by Supreme Court authority.
According to the majority, stare decisis in this case was “superpowered.” First, the majority believed that Brulotte interpreted a statute, 35 U.S.C. § 154. Despite amending patent law several times since Brulotte, Congress has declined to amend that law to reverse Brulotte’s effect. In addition, there was a “reasonable possibility” that parties have structured their business transactions based on Brulotte, which lies at the intersection of property and contract rights.
In view of this “superpowered” case of stare decisis, the Court needed a “superspecial justification” to warrant reversing Brulotte, but found none. First, the Court determined that Brulotte’s statutory and doctrinal underpinnings remained intact. Section 154 continues to cut off patent rights after a set number of years. And Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249 (1945), which the Court characterized as the decision on which Brulotte primarily relied, remains good law. Second, the Court found that nothing about Brulotte was unworkable. Indeed, the decision “is simplicity itself to apply,” since a court need only ask whether the contract requires post-patent expiration royalties.
Writing in dissent, Justice Alito (joined by Chief Justice Roberts and Justice Thomas) countered that Brulotte “was not based on anything that can plausibly be regarded as an interpretation of the terms of the Patent Act. It was based instead on economic theory — and one that has been debunked.” According to the dissent, Brulotte also “poses economic barriers that stifle innovation” since deferred royalty agreements can be economically efficient. In addition, Brulotte unsettles contractual expectations where the parties are completely unaware of the ban on post-patent expiration royalties, as Kimble and Marvel were. The dissent characterized Brulotte as an “obvious mistake” that the Court should have corrected.
The Court also confirmed that a hybrid license covering patent and non-patent rights is enforceable under Brulotte, for example, where that license provides a step-down royalty rate that applies upon patent expiration. As the Court explained, “a license involving both a patent and a trade secret can set a 5 percent royalty during the patent period (as compensation for the two combined) and a 4 percent royalty afterward (as payment for the trade secret alone).” Such post-expiration royalties for a non-patent right are acceptable even where the non-patent right is “closely related to a patent.” While using this as an example, the Court did not discuss whether a portion of a royalty that is based explicitly on both patent and non-patent rights ( e.g. know-how) could be enforced at a lower rate based on evidence presented of the value of the non-patent rights relative to the patent rights.
Courts will likely continue to require evidence, such as in the contract itself, that any post-patent expiration royalties are not for use of expired patents, but are instead, for example, for use of non-patent rights ( e.g., know how, trade secrets) or are amortized payments for use of the patented technology during the patent term. Courts will also likely limit the holding of Kimble to its narrow facts, which were that a royalty based exclusively on a patent cannot be extended beyond the expiration of that patent.
The United States Patent & Trademark Office (USPTO) has made good on its commitment to solicit and consider public comments regarding the Patent Trial and Appeal Board (PTAB) post-patent issuance proceedings created by the Leahy-Smith America Invents Act of 2011 (AIA). After issuing a first round of changes earlier in the year, on August 19 the USPTO issued a second set of proposed rule changes including allowing patent owner use of testimonial evidence, revising claim construction standards, and adding a Rule 11 requirement for all papers filed with the PTAB. According to USPTO Director Michelle Lee, these changes are intended to reflect improvements that can be made to the PTAB post-patent issuance proceedings based on the experience of the public with the proceedings. The USPTO will consider public comments on the proposed changes if they are received before October 19, 2015.
New testimonial evidence in its preliminary response. Currently petitioners may include testimonial evidence in the form of an expert declaration but the patent owner is not permitted to include any testimonial evidence. The proposed rule would enable patent owners to provide a more robust challenge to the petition by answering the petitioner’s evidence, potentially leading to a decrease in the rate of institution of trial at the PTAB.
Claim construction standards. The PTAB confirms that it will continue to use the broadest reasonable interpretation standard for unexpired patents, but will apply the Phillips-type claim construction for claims in patents that will expire during the pendency of the proceedings. Because the claims of those patents cannot be amended, the petitioner can determine, with guidance from the USPTO, which claim construction will be applied. The USPTO has requested additional comments regarding how and when to determine that the patent will expire before the proceedings are complete.
Rule 11 standard. Under the proposed rule, practitioners before the PTAB would have to provide a Rule 11-type certification for all papers filed with the PTAB. The proposed rule includes a provision for sanctions for noncompliance, providing the PTAB with a method to better police practitioner misconduct.
The USPTO declined to change its current practice of considering requests for an oral hearing on a case-by-case basis or to consider requests for additional discovery of secondary considerations on a case-by-case basis. The proposed rule change would allow a patent owner to raise a challenge regarding a real party-in-interest and privity at any time during the proceeding. While the USPTO prefers that the issue be addressed as early as possible during the proceeding, it also recognized that limiting the challenge to the preliminary stages would value efficiency over fairness.
The changes proposed by the USPTO and the responses to comments received by the public show that the USPTO is listening. Whether the proposed rule changes go far enough, or will ultimately create more challenges, such as the claim construction standard, remains to be seen.
Congress is again considering federal trade secrets legislation. The identical bills H.R. 3326 and S. 1890 comprise The Defend Trade Secrets Act of 2015. The bills were introduced and referred to committee on July 29, 2015. H.R. 3326 is sponsored by Rep. Collins (R-GA) and co-sponsored by 12 Republican and 6 Democratic representatives. S. 1890 is sponsored by Sen. Hatch (R-UT) and co-sponsored by two Republican and three Democratic senators. Although only 3% of bills were enacted in the past few years, at least one legislative watch group gives The Defend Trade Secrets Act (“DTSA”) a higher than average chance of enactment. Last year’s versions of the bills had some success. The House Judiciary Committee recommended that The Trade Secrets Protection Act of 2014 (H.R. 5233) be considered further, although the Senate Judiciary Committee did not reach a vote on the Defend Trade Secrets Act of 2014 (S. 2267).
In the event the DTSA does become law, it would create a private right of action to bring trade secret misappropriation claims in federal court. It would also provide for specific procedures for obtaining an ex parte seizure order, including a requirement that seized materials be held by the court. Otherwise, the DTSA mostly tracks the Uniform Trade Secrets Act (“UTSA”), which has been adopted by 48 states.
One difference is the proposed standing requirement. The DTSA is limited to a trade secret “that is related to a product or service used, or intended for use in, interstate or foreign commerce.” It is not clear how attenuated a relationship may be between a trade secret and a particular product or service before the jurisdictional hook fails. Trade secrets concerning human resources, accounting practices, or other administrative areas of corporate life that do not relate directly to any one particular product or service may be left out of the federal right of action.
Another difference from the UTSA is the civil seizure provision in the proposed bills. The provision would authorize a court to issue an ex parte order seizing property if the seizure was necessary to prevent the propagation or dissemination of a trade secret. This provision borrows heavily from 15 U.S.C. § 1116(d), concerning seizure of counterfeit goods under the Lanham Act. It is not clear why the bills’ drafters believe that perpetrators of trade secret misappropriation share significant similarities with counterfeiters. A lot of trade secret misappropriation is done by insiders—e.g., former employees—whose names and identifying information are known to the trade secret owner. Insiders are, generally speaking, lower flight risks than counterfeiters. Critics of the bills, including a coalition of academics, argue that this provision is ripe for abuse, allowing companies to disrupt competitor’s operations by seizing company computers and servers. If the DTSA passes, companies in highly competitive markets should consider implementing response plans in the event that a court orders seizure of their hardware. Response plans should include ways to isolate and remove specific data from particular systems without disrupting the company’s entire IT infrastructure.
In May, the United States Court of Appeals for the Ninth Circuit issued its long-awaited en banc opinion in Garcia v. Google, 743 F.3d 1258 (9th Cir. 2014), reversing a broad secret injunction issued by the three-judge panel. The case, stemming from an actress, Cindy Lee Garcia, who claimed she had been tricked into performing in a controversial anti-Muslim movie, had drawn widespread industry and media attention as evidenced by the 13 amicus briefs on appeal. A three-judge panel of the Ninth Circuit had issued a mandatory injunction to Google to take down all versions of the film and to keep monitoring to take down any more that were uploaded. It had also issued a gag order prohibiting Google from telling anyone about the secret injunction for nearly a week.
The en banc panel reinstated the district court’s denial of a preliminary injunction, finding that Garcia was unlikely to meet all the requirements for the injunction she wanted. It looked to the factors the Supreme Court set out in Winter v. NRDC, 555 U.S. 7 (2008): Garcia had to show that: (1) she was likely to succeed on the merits; (2) she was likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tipped in her favor; and (4) an injunction was in the public interest. The en banc opinion also emphasized that Garcia wanted Google to remove and keep removing the film from YouTube, in essence a mandatory injunction requiring Google to take action rather than simply refrain from action. A mandatory injunction required her to show that the law and facts clearly weighed in her favor.
Garcia could not clearly establish that she held a copyright in her brief performance in the film at issue for a number of reasons: (1) deferring to the expertise of the Copyright Office which denied her registration, she did not fall under the Copyright Act’s definition of an author of the film; (2) Garcia’s theory would splinter copyright in works involving many actors or contributors, creating logistical and financial nightmares; and (3) in order for copyright to attach, an author must “fix” the work, and the director, not Garcia, “fixed” her performance by recording it.
Garcia also had failed to show irreparable harm to her copyright interests. Instead, all the harms she claimed, and on which the three-judge panel had relied, were threats of violence based on her association with a negative portrayal of Muslims, not damage to any economic copyright interest, such as the marketability of her performance.
The case formally closed in late June, with Garcia stipulating to dismissal.
Litigants seeking a preliminary injunction are well aware of the Winter factors: likelihood of success on the merits, likelihood of irreparable harm, the balance of equities, and the public interest. Winter v. NRDC, Inc., 555 U.S. 7 (2008). The interrelation between these factors is often less clear. Pom Wonderful, producer of premium pomegranate beverages, ran into a snag when attempting to prevent Pur Beverages’ use of “pom” in its “pur pom” energy drink. Pom Wonderful LLC v. Pur Beverages LLC, No. 2:13-cv-06917, Dkt. No. 68 (C.D. Cal. Aug. 6, 2015). The Ninth Circuit had already determined that there was a likelihood of consumer confusion for use of the exact same word mark “pom” in the similar product space of pomegranate-related drinks. Pom Wonderful LLC v. Hubbard, 775 F.3d 1118 (9th Cir. 2014). But while actual confusion may show that future irreparable harm is likely, Pom Wonderful only had evidence of potential confusion. Pom Wonderful’s speculation regarding harm was insufficient. This showcases the value of developing survey evidence or other concrete data early in litigation when seeking a preliminary injunction. And if the parties do not directly compete, it will be valuable to also develop evidence that customers use both products to nudge potential harm into likely harm.

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