Source: https://www.mwe.com/en/thought-leadership/publications/2012/07/ip-update-vol-15-no-7-july-2012?PublicationTypes=a9fb21e1-fe67-49d3-b6c0-0165b1d896b1
Timestamp: 2016-10-25 22:43:59
Document Index: 242865737

Matched Legal Cases: ['§ 101', '§ 101', '§ 101', '§ 102', '§ 101', '§ 284', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ']

Prior Art's Disclosure of a Preferred Embodiment Does Not “Teach Away” from Inferior Alternatives The Federal Circuit Withdraws Its Prior Holding Concerning the Appealability of Issues that Are “Noticed” but Not Reviewed by the ITC
Judicial Estoppel Bars Flip-Flop Within the Same Case as to Ownership of Patents Posner to Apple/Motorola: No Damages, No Injunction, No Trial
USPTO Issues Interim Examination Procedure for Subject-Matter Eligibility Analysis Under Prometheus Trademarks
While recognizing that the Supreme Court in Bilski characterized § 101 as a “threshold test” that “certainly can be addressed” first (emphasis in original), the majority opinion opens with a discussion of the purpose and role of §§ 101, 102, 103 and 112, emphasizing the discretion available to district courts to “to control the conduct of proceedings before them, including the order of presentation of issues and evidence.” In case the point was not clear enough (as to whether, when or if a § 101 challenge must be considered by a district court even if raised) the majority reiterated that “consistent with its role as master of its own docket, a district court properly acts within its discretion in deciding when to address the diverse statutory challenges to validity.”
Judge Prost concluded that the asserted claims “are abstract ideas repackaged as methods and systems.” In her view, the majority failed to follow the prescription of the Supreme Court against patenting abstract ideas by focusing on the “computer implementation” aspect of the claims, rather than the "inventive concept" analysis on which the Supreme Court test is predicated. Practice Note: The USPTO has recently issued examination guidelines for analyzing subject matter eligibility under Prometheus (see IP Update, this issue). IP Update will report further if the Federal Circuit's Alice Corp. decision results in any further revision of the examination guidelines. On July 27, PTO Dir. Kappos, in his public blog forum, endorsed the view of the majority that issues pertaining to §§ 102; 103 and 112 should be addressed prior to consideration of subject matter eligibility under § 101. (See: http://www.uspto.gov/blog/director/entry/some_thoughts_on_patentability) Patents / Obviousness
by Christopher L. May and Please contact Paul Devinsky
Judicial Estoppel Bars Flip-Flop Within the Same Case as to Ownership of Patents Please contact Paul Devinsky
Relying on the doctrine of judicial estoppel in determining the real party in interest, the U.S. Court of Appeals for the Second Circuit found that Intellivision’s founders improperly attempted to insert themselves into the litigation at the eleventh hour. Intellivision et al. v. Microsoft Corp., Case No. 11-1657 (2nd Cir., June 11, 2012) (Summary Order). Intellivision sued Microsoft for fraudulent inducement, negligent misrepresentation and breach of fiduciary duty over a dispute relating to an agreement for assignment of patent applications. The plaintiffs brought suit in Connecticut by representing that Intellivision, having its principal place of business in Connecticut, was the owner and assignor of the patent applications. The district court denied a motion to dismiss in reliance on that representation, finding that Intellivision’s claims, although not viable in New York, were preserved in Connecticut. The plaintiffs persisted with these representations throughout the majority of the litigation, only to later reverse course and assert that the principals of Intellivision owned and assigned the patent applications in their individual capacity to avoid summary judgment in favor of Microsoft based on Connecticut’s statute of limitations. The district court concluded that all three factors for judicial estoppel articulated by the Supreme Court in New Hampshire were satisfied: the party’s new position was “clearly inconsistent” with its earlier position, the party asserting the new position previously persuaded the court to accept its earlier position and (3) that party “would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.” Intellivision appealed. The 2d Circuit, in affirming the district court, rejected the argument that plaintiffs’ position was not “clearly inconsistent,” citing the plaintiff’s contradictory arguments made in the motion to dismiss and the summary judgment motion. The court also rejected the argument that judicial estoppel requires a party’s position to have been adopted by a different court in a “prior separate proceeding.” The 2d Circuit, citing Supreme Court precedent, stated that judicial estoppel is a flexible equitable doctrine without fixed requirements and that judicial estoppel “generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.”
Apple had sued Motorola, alleging infringement of several of its patents related to touch screens and user interfaces for smartphones. Motorola counterclaimed with its own patents directed to cell phone communications. In a Daubert hearing, Judge Posner found inadmissible a majority of both parties’ proposed expert testimony on damages. In the aftermath, considering the parties’ follow-up briefs and oral arguments, Judge Posner addressed the evidentiary deficiencies for each of damages, injunctive and declaratory relief. For damages, Judge Posner found that Apple had conceded that the excluded expert testimony precluded it from recovery of damages for two of its four remaining asserted patents. For one of its patents, Apple attempted to substitute its technical report for its damages report, but Judge Posner countered that the technical report merely “invite[d] guesswork” because it failed to properly estimate the percent value added by a particular computer chip that performed the patent functionality. Similarly, for its remaining patent, Judge Posner found that Apple’s damages calculation was incorrectly based on a stand-alone iPhone application that was not necessarily correlated to patent’s claims, e.g., extracting dates from text to create calendar entries. He also found that Apple could not remedy this deficiency by relying on “nominal damages”: “[y]ou can’t go into federal court and say you had a contract with X and [that] X broke it and you’re really annoyed even though you sustained no injury of any sort … so please give me a judgment for $1 that I can pin on my wall.” Federal courts require Article III “cases” and “controversies” for subject-matter jurisdiction. Finally, Judge Posner found that even § 284 provided no relief where Apple did not show admissible evidence sufficient to substantiate a “reasonable royalty.” Motorola fared no better. Its one remaining patent in the case belonged to a portfolio that Judge Posner found Motorola had committed to license to anyone on a fair, reasonable and non-discriminatory (FRAND) basis (in return for the portfolio being dubbed by various standards organizations as “standard essential”). Judge Posner found that Motorola did not provide evidence sufficient for calculating a reasonable royalty consistent with its FRAND requirement and, similarly, did not provide a reason why Motorola’s remaining patent represented “up to” (or, later contradicting itself, “at least”) 40 to 50 percent of the entirety of the portfolio’s value. Judge Posner also ruled that neither party proved entitlement to an injunctive relief. He stated that Motorola’s request for an injunction was nonsensical given its FRAND requirement to provide its patented technology to anyone—including Apple. And Apple’s request for an injunction “flunked” the eBay standards of irreparable injury, balance of hardships and public interest—Apple could not receive an injunction based merely on the speculative grounds of loss of consumer good will and market share, especially where the patent claims were directed to technology “worth very little” to consumers and were easy to invent around. Judge Posner went on to find that the case exemplified “a simple failure of proof” on both sides. Injunctive relief is no substitute if money damages would have been an adequate remedy but where parties incurred “self-inflicted wound[s]” for lack of evidence on the same. Thus he stated that declaratory relief would serve no purpose: “when the court has determined that neither party could obtain monetary or injunctive relief against the other, as in this case, a declaratory judgment in favor of either party would confer no tangible benefit on the victor and so there would be no federal subject-matter jurisdiction”—“the issuance of such a judgment would have no practical effect” —in short, no damages, no injunction, no trial.
USPTO Issues Interim Examination Procedure for Subject-Matter Eligibility Analysis Under Prometheus Please contact Paul Devinsky
Ruling that non-sales activities may be considered “use in commerce” and that non-consumer confusion may be a proxy for evidence of consumer confusion, the U.S. Court of Appeals for the Ninth Circuit vacated summary judgment of claims under the Lanham Act, the Anticybersquatting Consumer Protection Act (ACPA) and California state claims of trademark infringement and unfair competition. Rearden LLC v. Rearden Commerce, Inc., Case No. 10-16665 (9th Cir., June 27, 2012) (Cowen, J.). This dispute centered around the use of “Rearden” in the names, marks and domain names of both companies. Hank Rearden is a character in Ayn Rand’s novel Atlas Shrugged. Rearden LLC is a technology incubator that provides resources for start-up companies. Rearden Commerce is a business concierge company providing a web-based personal assistant service that links clients with vendors of a variety of services. The 9th Circuit stated that not only is summary judgment disfavored in trademark actions because of the factual nature of trademark disputes, a grant of summary judgment based on the “likelihood of confusion” analysis is particularly disfavored. The 9th Circuit found several genuine issues of material fact that precluded summary judgment in the evaluation of both the “use in commerce” threshold requirement and the Sleekcraft factors used to determine the “likelihood of confusion.” The court considered the totality of circumstances to determine if the “use in commerce” element was satisfied. The court acknowledged the potential relevance of non-sales activities such as solicitation of potential customers. Though Rearden Commerce presented evidence that the only services Rearden LLC provided was to other Rearden entities, the court remarked that there exists genuine issues of material fact as to whether Rearden LLC had provided services to at least one outside entity. Further, Rearden LLC provided evidence of enough non-incubation services, such as inclusion in movie credits for furnishing motion capture services, to preclude summary judgment on “use in commerce” grounds.
The court rejected Rearden LLC’s theory that confusion of “non-purchasing consumers” can support a finding of “likelihood of confusion.” The court instead consolidated reasoning from prior decisions and ruled that confusion on the part of potential consumers, non-consumers whose confusion could create an inference that consumers are likely to be confused and non-consumers whose confusion would influence consumers are relevant in the analysis to determine “likelihood of confusion.” Practice Note: Brand owners should consider evidence of non-sales activities to assist in proving “use in commerce.” Additionally, evidence of non-consumer confusion can support a finding of “likelihood of confusion.”
The Court of Justice of the European Union has now ruled that software developers may no longer block the resale of online licensed software. UsedSoft GmbH v. Oracle International Corp., Case C-128/11 (CJEU, July 3, 2012). This new development will significantly affect the market strategies of software developers. Facts Internet software sales, whereby the customer directly downloads software from the developer’s website, have become a common transaction mode. Such sales eliminate the need for a physical carrier for the software, such as a DVD or CD-ROM. As a consequence, second-hand sales have become a significant challenge for developers, who try to exclude such sales by outlining relevant restrictions in their licensing agreements. Specifically, typical click-through terms give a customer the right to use the software and to permanently store a copy of it on his computer. The terms also enable the use of the software by a limited number of users (e.g., employees), but the customer’s rights are non-transferable. In other words, the click-through license terms typically provide that software is usable only for the customer’s own business purposes, but prohibit resale of the license rights to someone else. However, under certain circumstances, such as cuts in business segments or insolvencies, an internet-based software customer may be interested in selling its license. Second-hand dealers, such as UsedSoft, model their businesses based on such situations. Despite the non-transferability stipulation in the license agreements, they buy these licenses with the intent of selling them (for a significantly lower price) into a second-hand market. Business Model at Issue The reseller (the original licensee) provides a written document stating that he is entitled to use the software by virtue of an agreement. In addition, the reseller declares that he no longer intends to use the software. No further proof of the reseller’s entitlement to resell the license is provided. The second-hand dealer forwards this declaration to a notary, who notarizes that the reseller’s declaration was presented to him, without naming the reseller. The notarized statement together with an agreement prepared by the dealer is then used to resell the software. The new customer directly procures the software from the reseller. Oracle launched proceedings against UsedSoft in an attempt to stop such business. Oracle relied on the non-transferability clause of the license agreement as the basis for its argument.
Opinion of the CJEU The crux of the decision hinges on the issue of copyright exhaustion. If rights are exhausted, the non-transferability clauses found in a typical license has no effect. For off-the-shelf software sold on physical carriers, it is accepted that once the developer sells the carrier, its exclusive distribution rights are exhausted and the acquirer may resell the software to anyone. Whether this also applies to software acquired through downloading from the developer’s website is the question posed. German courts were of the opinion that such dealings violate the developer’s copyrights. The highest German Court then referred the question to the CJEU which has now ruled that, once the developer had sold a copy of his software, its exclusive distribution rights as to that copy are exhausted regardless of whether it is done through a download or on a carrier. On the other hand, where the copy is resold, the original customer is no longer allowed to use the software and must make its copy unusable at the time of resale. In addition, the CJEU pointed out that if the license acquired by the first customer relates to a greater number of users, the effect of the exhaustion of the distribution right cannot be used to divide the license and resell only a part of it. In addition, the CJEU ruling does not force the developer to provide support, particularly when it comes to updates, to purchasers of second-hand licenses. Consequences The CJEU’s ruling will likely stimulate growth in the secondary market, but there may also be some negative consequences for developers. For example, developers will no longer be able to rely on their records to determine who owns a license. This is because the resale documents in the hands of the second-hand customer do not indicate the name of the first customer. The developer will also lack the ability to determine whether the license to the original customer was in fact legally acquired, and there are no effective means for the developer to ascertain whether or not the first customer is still using the software (i.e., after the license was resold). Enterprise software developers should review their license practice and investigate whether the situation may be addressed by remedial clauses being introduced into their new contracts, for instance, to require that the developer be notified in the event of any change in license ownership. Copyright / Contracts / Preemption
by Sarah Bro In vacating a district court’s grant of a motion to dismiss a breach of contract action against a television studio, the U.S. Court of Appeals for the Second Circuit held that the Copyright Act does not preempt a breach of an implied-in-fact contract that included a promise to pay for an idea. Forest Park Pictures v. Universal Television Network, Inc., Case No. 11-2011-cv (2d Cir., June 26, 2012) (Walker, J.). The decision makes it more difficult for television and movie studios to obtain summary dismissal of suits claiming idea theft. In 2005, Forest Park Pictures and brothers Tove and Hayden Christensen (of Star Wars fame) formulated an idea for a television show about a doctor who caters to the rich and famous in Malibu, California as a “concierge” house call doctor. They created a written series treatment for the idea, including character biographies, themes and stories, which they mailed to a representative at USA Network, a division of Universal Television Network, Inc.
Forest Park and the brothers requested and met with USA Network’s representatives to pitch their show. Within a week discussions ceased and the parties stopped communications. Several years later, USA Network produced a show “Royal Pains,” about a doctor who caters to the rich and famous in the Hamptons. Forest Park and the brothers sued USA Network for breach of an implied-in-fact contract for failing to pay for the show idea. USA Network moved to dismiss the complaint on the grounds that the Copyright Act preempted the claim and that the contract claim was too vague to be enforced. The district court agreed and dismissed the complaint without addressing the contract issue. Forest Park appealed. Holding that breach of an implied-in-fact contract is not preempted by the Copyright Act, the 2d Circuit vacated the decision of the district court. The 2d Circuit noted that the Copyright Act preempts a state law claim only if the work at issue comes within the subject matter of copyright and if the right being asserted in the claim is equivalent to any of the exclusive rights granted under copyright law. Because the subject of the claim, i.e., the ideas presented in Forest Park’s treatment, were fixed in a writing, the work was found to be within the subject matter of copyright, thereby meeting the first requirement for preemption. The “equivalency requirement,” however, was not met because “[a] claim for breach of a contract including a promise to pay is qualitatively different from a suit to vindicate a right included in the Copyright Act and is not subject to preemption.” With respect to the breach of contract issue, the 2d Circuit decided that California law was applicable to determine whether Forest Park pleaded an enforceable implied-in-fact contract, as nearly all of the activity related to the alleged contract took place in the state of California, including the location of the plaintiffs’ meeting with USA Network and the physical location of the written series treatment. The 2d Circuit then cited the Desny v. Wilder decision, which California courts have used to recognized implied-in-fact contracts since the 1950s if a plaintiff can prove that an idea was submitted on the condition that the plaintiff would be paid for use of the idea and the defendant knew or should have know of that condition.
In its complaint, Forest Park alleged that it is standard in the entertainment industry to receive compensation for the use of a party’s pitched ideas. Because Forest Park alleged facts that, if proven, would establish that USA Network knew or should have known that Forest Park submitted its series treatment based on a promise of payment, the 2d Circuit found the complaint alleged an enforceable contract. Accordingly, the district court’s decision was vacated and remanded for further proceedings on the contract issue. Practice Note: Television and movie studios hoping to exit breach of contract suits alleging idea theft early on now face a new challenge. Going forward, this decision, which disposes of the copyright pre-emption argument, may force studios to litigate the merits of a breach of contract claim. Copyright / Damages
The court also held that the district court did not abuse its discretion by denying Cusano’s various motions to invalidate the 2003 judgment. Cusano’s 2006 motion for reconsideration and 2010 motion to vacate were untimely filed, as such motions must be made within one year after the entry of the judgment. Affirming the district court ruling, the 9th Circuit held that Klein may recover 100 percent of Cusano’s song royalty payments in order to satisfy the attorneys’ fees award in the 2003 judgment. Copyright / Reasonable Royalty
The U.S. Court of Appeals for the Second Circuit held that rate courts can take into account direct license rates when determining reasonable royalties due to performing rights organizations in Broadcast Music Inc. v. DMX, Inc., Case Nos. 10-3429; 11-127 (2d Cir., June 13, 2012) (Chin, J.). The American Society of Composers Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) are performing rights organizations, which each represent songwriters, composers and publishers who hold copyrights in musical works. They negotiate agreements that grant licensees the right to perform their members’ copyrighted songs. DMX is a commercial music provider that provides music services locations such as restaurants and retail stores. The United States previously brought antitrust actions against both ASCAP and BMI that resulted in consent decrees providing certain protections for prospective music licensees. Under these agreements, if a prospective licensee and ASCAP and BMI reach an impasse, either may petition the district court to set a “reasonable” licensing fee. Such an impasse was reached separately between DMX and both ASCAP and BMI. A significant cause of this impasse was DMX’s recent practice of negotiating direct licenses with ASCAP and BMI members. DMX proposed a blanket license that incorporated its direct licensing program into its proposed fee structure and relied on its negotiated rates with direct licenses to arrive at a reasonable royalty amount. ASCAP’s first proposed a blanket license that did not take into DMX’s direct licensing program. ASCAP’s alternative proposal and BMI’s proposal both accounted to some extent for DMX’s direct licensing program, but both gave more weight to other court-mandated reasonable royalties reached with DMX’s competitors, none of which engaged in direct licensing. In both cases the district court adopted DMX’s proposals. ASCAP and BMI appealed. On appeal, ASCAP and BMI argued that the district court erred by adopting DMX’s reliance on its direct licenses. First, ASCAP argued that a rates structure with an adjustable carve-out for direct licenses conflicted with its consent order. The 2d Circuit disagreed, finding that although the consent order defined four specific types of licenses and did not specifically provide for an blanket license with a carve out, it also stated nothing “shall prevent ASCAP and any music user from agreeing on any other form of license.” This language permitted a blanket license subject to carve-outs to account for direct licensing. Second, both ASCAP and BMI argued that the district court erred by using DMX’s direct licensing agreement with music publishers as a benchmark and that their licenses with DMX’s competitors were more accurate benchmarks. The appeals court rejected this contention, finding that ASCAP’s and BMI’s agreements with DMX’s competitors were not an accurate assessment of the competitive market as to DMX. Noting “that the rates set by the ASCAP and BMI rate courts were comparatively lower than those historically obtained by ASCAP and BMI is of no moment given ASCAP and BMI’s longstanding market power and the industry’s changing economic landscape,” the 2d Circuit affirmed the lower courts reliance on DMX’s direct licenses as a more reasonable benchmark of the competitive market. View Full Issue Related Experience