TC Heartland Likely to Bring a Sea Change in Patent Venue Law and the End of Forum Shopping

On December 14, 2016, the U.S. Supreme Court granted certiorari in TC Heartland LLC v. Kraft Food Brands Group LLC to decide the following issue:

Whether the patent venue statute, 28 U.S.C. § 1400(b), which provides that patent infringement actions ‘may be brought in the judicial district where the defendant resides[,]’ is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by the statute governing ‘[v]enue generally,’ 28 U.S.C. § 1391, which has long contained a subsection (c) that, where applicable, deems a corporate entity to reside in multiple judicial districts.

The determination of this issue has potentially significant consequences for accused infringers and their counsel who have routinely faced patent suits in distant venues with plaintiff-friendly local rules and procedures that together drive settlements often unrelated to the value of the asserted technology. As the Petitioner TC Heartland (“Petitioner”) and the amici curiae in support of the cert petition have noted, the Federal Circuit’s unwavering adherence to its holding in VE Holdings Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990) has created conditions that allow rampant forum shopping by plaintiffs and even forum selling by certain district courts. Petitioner and the amici argue that forum shopping and forum selling undermines the economic utility of patent system and ultimately destabilizes public confidence in the judiciary. These important policy concerns, together with strong legal arguments that the Federal Circuit’s holding in VE Holding was misguided, will likely signal the end of an era in patent litigation and restore treatment of patent venue to a pre-1990 scope.

TC Heartland is an Indiana limited liability company headquartered in Indiana. Kraft Food Brands (“Respondent”) is organized and exists under Delaware law and has its principal place of business in Illinois. Respondent sued Petitioner in the United States District court for the District of Delaware, alleging Petitioner’s liquid water enhancer products infringed three patents owned by Respondent. Petitioner moved to dismiss the complaint for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). Petitioner also moved to either dismiss the action or transfer venue to the Southern District of Indiana under 28 U.S.C. §§ 1404 and 1406. Petitioner contended that the accused products were designed and manufactured in Indiana and that a mere 2% of its sales in 2014 were shipped to destinations in Delaware at the sole direction of one of its national customers based in Arkansas. Petitioner therefore argued that because it had no local presence in Delaware, was not registered to do business there, and had not solicited sales in Delaware, Delaware was not the “judicial district where the [Petitioner] resides” within the meaning of 28 U.S.C. § 1400(b). Petitioner also argued that the district court was bound by the Supreme Court’s opinion in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957), and that the 2011 amendments to § 1391 repealed the statutory language upon which the Federal Circuit’s decision in VE Holding relied in circumventing Fourco.

In the proceedings below, the Magistrate Judge determined that it had specific personal jurisdiction over Petitioner based on a stream-of-commerce type theory under Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1571 (Fed. Cir. 1994). The Magistrate Judge also rejected Petitioner’s arguments that the 2011 amendment to 28 U.S.C. § 1391 altered the general venue statute and thereby nullified the Federal Circuit’s holding in VE Holding. Accordingly, the judge held that venue was proper based upon a finding of personal jurisdiction.

The district court adopted the Magistrate Judge’s report in full and expressly concluded that Congress’ 2011 amendments to 28 U.S.C. § 1391 “did not undo” the Federal Circuit’s decision in VE Holding. Petitioner timely petitioned the Federal Circuit for a writ of mandamus. The Federal Circuit affirmed the district court’s order, stating that “[t]he arguments raised concerning venue have been firmly resolved by VE Holding, a settled precedent for over 25 years[,]” and asserted that the Supreme Court’s interpretation of patent venue in Fourco is “no longer the law.”

Taking a Step Back: Brief History of Patent Venue Law

Under Section 48 of the Judiciary Act of 1897, Congress limited jurisdiction in patent cases to districts where the defendant inhabited or had a place of business and committed infringing acts. (Act of March 3, 1897, c. 395, 29 Stat. 695.) In 1942, the Supreme Court unequivocally concluded that “Congress did not intend the Act of 1897 to dovetail with the general provisions relating to the venue of civil suits, but rather that it alone should control venue in patent infringement proceedings.” Stonite Prods. C. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942). Then, in 1948, Congress enacted 28 U.S.C. § 1400(b), which, consistent with the Judiciary Act of 1897 and the Supreme Court’s holding in Stonite, provided:

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

The newly codified title 28 also included a provision, § 1391, for “venue generally,” which stated in relevant part:

(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.

In 1957, following a circuit split that developed over whether corporate residence under § 1391 applied to the term “resides” in § 1400(b), the Supreme Court held that the patent venue statute was to be read in isolation and not within the context of the general venue statute: “28 U.S.C. § 1400(b) . . . is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. [§] 1391(c).” Fourco , 353 U.S. at . The Supreme Court’s holding in Fourco has never been overruled.

In 1988, Congress changed the statutory language in § 1391 from defining residence “for venue purposes” to defining residence “for purposes of venue under this chapter.” Petitioner and amici in support of the cert petition argue that there is no legislative history to suggest that Congress intended this minor change to the statutory language to supplant Supreme Court precedent or otherwise impact the patent venue statute. In fact, the legislative history shows a Congressional intent to further constrain corporate venue rather than expand it: “[A] corporation that confines its activities to Los Angeles (Central California) should not be required to defend in San Francisco (Northern California).” H.R. Rep. No. 100-889, at 70 (1988). Nonetheless, in 1990, the Federal Circuit deviated from longstanding Supreme Court precedents and the plain language of the statute when it determined that the ministerial amendments to 28 U.S.C. § 1391 in 1988 effectively overruled Stonite and Fourco. VE Holding, 917 F.2d at 1584. The Federal Circuit held that “the first test for venue under § 1400(b) with respect to a defendant that is a corporation, in light of the 1988 amendment to § 1391(c), is whether the defendant was subject to personal jurisdiction in the district of suit at the time the action was commenced.”

As a result of the Federal Circuit’s holding in VE Holding, numerous amici curiae argue that the Federal Circuit effectively expanded the scope of 28 U.S.C. § 1400(b) to permit filing of patent lawsuits in any federal district court where the accused products are sold. See, e.g., In re TC Heartland, LLC, No. 2016-105, at 10 (Fed. Cir. Apr. 29, 2016) (holding that jurisdiction is proper in a patent suit “where a nonresident defendant purposefully shipped accused products into the forum through an established distribution channel and the cause of action for patent infringement was alleged to arise out of those activities”). In at least one recent case, the Federal Circuit held that there was personal jurisdiction in Delaware over a defendant who had never sold an accused product in Delaware because the defendant’s application for drug approval indicated a prospective desire to sell the drug nationally. Acorda Therapeutics Inc. v. Mylan Pharmaceuticals Inc., 817 F.3d 755, 764 (Fed. Cir. 2016). The Federal Circuit concluded this planned future conduct satisfied the minimum contacts requirement, and nothing in the court’s opinion suggests that such conduct would not give rise to personal jurisdiction in every jurisdiction. Id. at 762-63.

Finally, in 2011, Congress enacted further amendments to § 1391, adding section (a), entitled “Applicability of Section.” This section currently reads: “Except as otherwise provided by law . . . (1) this section shall govern the venue of all civil actions brought in district courts of the United States . . . .” 28 U.S.C. § 1391(a)(1) (2012). Shortly thereafter, the Supreme Court interpreted § 1391 as governing venue where a more specific venue provision is lacking. See Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 134 S. Ct. 568, 577 n.2 (2013) (noting “[s]ection 1391 governs ‘venue generally,’ that is, in cases where a more specific venue provision does not apply” and citing by way of example 28 U.S.C. § 1400 as “identifying proper venue for copyright and patent suits”).

TC Heartland’s petition for writ of certiorari seeks a restoration of Supreme Court’s interpretation of § 1400(b) under Fourco and reversal of the decision below.

Arguments in Support of TC Heartland

The brief of amici curiae 56 professors of law and economics persuasively argues that VE Holding ignores fundamental canons of statutory construction, namely that Congress does not alter vital details of a regulatory schemes by vague changes to ancillary provisions, and that a statute should not be read so as to render parts of it mere surplusage. For example, under the Federal Circuit’s interpretation in VE Holding, the latter half of § 1400(b) would be largely superfluous. That is, the term “resides” in § 1400(b) must have some definition other than “a regular and established place of business,” since § 1400(b) already provides that patent venue is proper where the defendant has a “regular and established placed of business.”

The Electronic Frontier Foundation (EFF) as amicus curiae argues that the Federal Circuit’s holding in VE Holding should be overruled in light of existing Supreme Court precedent and the plain language of the patent venue statute in order to cure – in its view – the fundamental lack of fairness and protection to defendants. The EFF also persuasively argues that whereas personal jurisdiction provides sufficiently reliable limits on personal jurisdiction in non-patent suits, the same does not hold true for patent cases because the Federal Circuit has also more-or-less adopted an expansive stream-of-commerce-type theory, holding personal jurisdiction is proper where “defendants, acting in consort, placed the accused [product] in the stream of commerce, they knew the likely destination of the products, and their conduct and connections with the forum state were such that they should reasonably have anticipated being brought into court there.” Beverly Hills Fan, 21 F.3d at 1566. Therefore, the current state of Federal Circuit law often permits essentially nationwide personal jurisdiction.

Upending the (Un)intended Consequences of VE Holding

TC Heartland and the amici in support of TC Heartland’s petition argue forcefully that the consequences of the Federal Circuit’s holding in VE Holding have been overwhelmingly negative and contend that virtually limitless venue under the VE Holding construct has corrupted the underpinnings of the patent system. Whether this is an overly dramatic view of patent law may depend on what side of the courtroom a particular patent litigator sits, but certain underlying facts cannot be disputed. For example, it is true that the Eastern District of Texas still sees a disproportionate number of patent case filings. On average, a quarter of all patent cases are filed in that district – one with a relatively small population and relatively few companies – and in 2015, this figure spiked to 44% of all patent-infringement cases. (By contrast, the Northern District of California, a district of more than double the population and home to many companies, sees only 4-5% of all patent-infringement cases filed annually.) In the Eastern District of Texas’s banner year of 2015, Judge Rodney Gilstrap, referred to as the “busiest patent judge” in the country, heard a quarter of all patent cases filed nationwide. TC Heartland argues that this kind of undue case concentration diminishes the integrity of the patent system. The amici agree, pointing to nuisance-value settlements that arise when patentees have unfettered ability to file in the Eastern District of Texas and then take advantage of the local rules to extract settlements tied to the costs of litigation rather than the value of the asserted technology.

The amici also argue that the Eastern District of Texas, among other districts, have been attempting to attract patent-infringement cases through the use of patent-holder-friendly local rules, standing orders, and other judge-specific practices. For instance, TC Heartland and the amici argue that the time to rule on motions to transfer (150 additional days on average) and the timing and scope of discovery place undue settlement pressure on accused infringers. They argue that ultimately the whole system suffers when monetary settlements are reached as a result of defendants seeking to avoid the burden and cost of discovery and protracted litigation instead of a good faith belief in the legitimacy of the patented technology and its value to society. TC Heartland seeks to upend these practices through its appeal. At the end of the day, these policy arguments regarding the integrity of the overall system may be more persuasive to the Supreme Court justices than any statutory interpretation arguments advanced in the appeal.

The Federal Circuit’s decisions and general confusion at the district court level have set the stage for the Supreme Court to settle this issue. This case promises to be particularly important for large companies accused of patent infringement, as the Supreme Court’s decision will determine whether they may be haled into any forum in the United States or instead into a limited number of venues under § 1400(b). The recent trend of the high court’s limiting access to the federal courts and its propensity for reversing the Federal Court over the last decade strongly suggest a decision in TC Heartland’s favor, a sea change in the practice of patent litigation, and the end of forum shopping in patent cases. Oral arguments in this appeal are set for Monday, March 27, 2017.

Animated Arguments for Patentability under 35 U.S.C. § 101

In McRO, Inc. v. Bandai Namco Games Am. Inc.,1 the Federal Circuit Court of Appeals (“Court”) reversed the decision of the District Court of the Central District of California and found patentee McRO’s claims to be patentable under 35 U.S.C. § 101 as directed to a non-abstract idea under the first step of the two-step patent eligibility framework set forth by the Supreme Court in Alice Corp. Pty. Ltd. v. CLS Bank Int’l.2,3

The Federal Circuit did not analyze the claims under the second step of the Alice framework because the court found the “ordered combination of claimed steps, using unconventional rules that relate sub-sequences of phonemes, timings, and morph weight sets”4 in claim 1 was directed to an improvement in computer animation rather than an abstract idea and prevented the preemption of all rules-based methods for automatically animating the lip synchronization and facial expression of a three-dimensional (“3D”) character.5

1. Procedural History

McRO filed a patent infringement action against several video game developers and publishers (“Defendants”) alleging infringement of U.S. Patent Nos. 6,307,576 (“the ‘576 patent”) and 6,611,278 (“the ‘278 patent”).6 Following a claim construction hearing, the Defendants filed a motion for judgment on the pleadings, asserting the claims in the ‘576 and ‘278 patents were directed to patent ineligible subject matter and therefore invalid under 35 U.S.C. § 101.7

The District Court held the claims were invalid under 35 U.S.C. § 101 because claim 1 of the ‘576 patent was “drawn to the [abstract] idea of automated rules-based use of morph targets and delta sets for lip-synchronized three-dimensional animation”8 and granted the motion.9

On appeal, the Federal Circuit deemed claim 1 of the’576 patent representative of the asserted claims and analyzed the patentability of the same.10

2. The Invention

Claim 1 of the’576 recites:

[a] method for automatically animating lip synchronization and facial expression of three-dimensional characters comprising:

obtaining a first set of rules that define output morph weight set stream as a function of phoneme sequence and time of said phoneme sequence;

obtaining a timed data file of phonemes having a plurality of sub-sequences;

generating an intermediate stream of output morph weight sets and a plurality of transition parameters between two adjacent morph weight sets by evaluating said plurality of sub-sequences against said first set of rules;

generating a final stream of output morph weight sets at a desired frame rate from said intermediate stream of output morph weight sets and said plurality of transition parameters; and

applying said final stream of output morph weight sets to a sequence of animated characters to produce lip synchronization and facial expression control of said animated characters11

(emphasis added).

The claimed invention relates to automatically animating lip synchronization corresponding to a facial expression of a 3D character to produce an accurate and realistic lip synchronization and facial expression of the same.12

The automation is realized by applying the claimed “first set of rules” to a time aligned phonetic transcription (TAPT) of a voice recording13 to determine morph weights sets or key frames marking transition start and end times for each TAPT sub-sequence.14 The final key frames are then applied to an animated character sequence to produce lip synchronization and facial expression control of the character.15

For example, the Court noted that applying the set of rules to a character transitioning from a point of silence to a point commencing speech16 automatically created a key frame between the points at which no phoneme is pronounced to depict more realistic speech by manipulating the character’s facial expressions to “wait until shortly before speaking to begin opening its mouth.”17

In contrast, the Court noted an animator in the prior art system would need to “subjectively identify the problematic sequence and manually fix it by adding an appropriate keyframe”18 between the points as a result of a computer interpolating a continuous transition between the same so that the character would not “open its mouth gradually from the beginning of the sequence through its first utterance.”19

3. The Alice Two-Step Patent Eligibility Framework

To determine whether claim 1 recited patent eligible subject matter, the Court applied the two-step framework set forth by the Supreme Court in Alice.20 The first step evaluates whether the claim is directed to a patent ineligible concept including a law of nature, a natural phenomenon or an abstract idea.21 If the claim is directed to a patent ineligible concept, the framework proceeds to the second step to determine whether the claim recites an element or combination of elements that amount to significantly more than the patent ineligible concept to transform the claim into patent eligible subject matter.22 The purpose of the framework is to prevent the patenting of a patent ineligible concept and thereby the preemption of the use of a law of nature, a natural phenomenon, or an abstract idea.23

4. Analysis

Under the first step of the Alice framework, the Court analyzed the specific features of claim 1 and determined whether the specific features improved a relevant technology and prevented preemption of all processes for realizing automated animated lip-synchronization of 3D characters.24

The Court disagreed with the District Court that claim 1 was “drawn to the [abstract] idea of automated rules-based use of morph targets and delta sets for lip-synchronized three-dimensional animation.”25 The Court found that the District Court’s characterization of the claim was an oversimplification of the features of claim 1 by “failing to account for the specific requirements of the claims.”26

In determining the patentability of a method, the Court emphasized a “court must look to the claims as an ordered combination, without ignoring the requirements of the individual steps.”27 The Court noted claim construction required an interpretation of the claims as “limited to rules that evaluate sub-sequences consisting of multiple sequential phonemes.”28 The Court also noted the rules “define a morph weight set stream as a function of phoneme sequence and times associated with said phoneme sequence”29 and the claims require “applying said first set of rules to each sub-sequence … of timed phonemes.”30

Following the direction of the Supreme Court in Alice, the Court then addressed whether claim 1 was directed to (1) a specific means for improving a relevant technology (e.g., computer animation) or (2) a result that is the abstract idea and is executed by generic processes and machinery.31 The Court concluded claim 1 was directed to an improvement in computer animation rather than an abstract idea because of the “automatic use of rules of a particular type.”32 The Court reasoned that the use of the claimed rules, rather than a computer, achieved the automation of tasks previously completed by animators by a method previously not performed.

For example, the Court determined that even if the process used by animators (e.g., manually fixing a problematic sequence by adding an appropriate key frame) were automated by rules, the process would be outside the “scope of the claims because it does not evaluate sub-sequences, generate transition parameters or apply transition parameters to create a final morph weight set.”33

Therefore, the Court distinguished the invention of claim 1 from the respective patent ineligible inventions in Parker v. Flook,34 Bilski v. Kappos,35 and Alice where the “claimed computer-automated process and the prior method were carried out in the same way.”36

The Court further distinguished the invention of claim 1 from an abstract idea such as a method of organizing information, a mathematical formula or a fundamental economic practice (i.e., “business method”) by noting the method of claim 1 “uses a combined order of specific rules that renders information into a specific format that is then used and applied to create desired results: a sequence of synchronized, animated characters.”37

Subsequently, the Court addressed whether the claimed rules preempted all rules-based automated 3D animation methods.38 Referring to the language of claim 1, the Court concluded the specific structure of the claimed rules did not preempt all rules-based automated 3D animation methods because methods utilizing a different rule structure were not foreclosed.39 Specifically, the Court noted the absence of a “showing that any rules-based lip-synchronization process must use rules with the specifically claimed characteristics.”40

The Court did not analyze claim 1 under the second step of the Alice framework because the Court held claim 1 recited patent eligible subject matter under 35 U.S.C. § 101. The analysis under the second step was not necessary because the Court found claim 1 was directed to an improvement in computer animation rather than an abstract idea and prevented the preemption of all rules-based automated 3D animation methods.41

5. Takeaways

The Court emphasized specific claim features cannot be ignored when determining the patent eligibility of a claim and reiterated the decision in Enfish, LLC v. Microsoft Corp. that a claim is not directed to an abstract idea when an improvement in a technology relevant to the claim is realized by the claim.

The Court also clarified that a claim that recites the automation of a prior method performed by humans can be patent eligible if the claim is performed by a specific means (e.g., the rules) different than the prior method. Therefore, the Court emphasized determining and evaluating the specific means or method for producing a particular result (e.g., automatically animating the lip synchronization and facial expression of a 3D character) over the particular result produced by the claim.

The decision is also notable for its preemption analysis. The United States Patent and Trademark Office (USPTO) has not emphasized preemption in its Interim Eligibility Guidance materials for responding to rejections under 35 U.S.C. § 101. Therefore, patent prosecutors should consider raising non-preemption arguments where applicable under the first step of the Alice framework which may be helpful in avoiding analysis under the second step of the Alice framework and overcoming rejections under 35 U.S.C. § 101.

1 McRO, Inc. v. Bandai Namco Games Am. Inc., 2016 U.S. App. LEXIS 16703 (Fed. Cir. Sep. 13, 2016).
2 Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
3 McRO, Inc., 2016 U.S. App. LEXIS 16703, at *34; 35 U.S.C.S. § 101.
4 Id. at *3.
5 Id. at *33-34.
6 Id. at 11.
7 McRO, Inc. v. Sony Comput. Entm’t Am., LLC, 55 F. Supp. 3d 1214, 1216 (C.D. Cal. 2014).
8 Id. at *1226.
9 Id. at *1230.
10 McRO, Inc., 2016 U.S. App. LEXIS 16703, at *10.
11 U.S. Patent No. 6,307,576, cl. 1, col. 11 ll. 27-47.
12 Id. at col. 11 ll. 44-50.
13 Id. at col. 4 ll. 51-55.
14 Id. at col. 4 ll. 56-58; col. 6 ll. 51-59; col. 9 ll. 10-11; col. 11 ll. 6-12.
15 Id. at cl. 1, col. 11 ll. 44-47.
16 McRO, Inc., 2016 U.S. App. LEXIS 16703, at *9; U.S. Patent No. 6,307,576, col. 7 ll. 36 to col. 9 ll. 22.
17 Id.  at *10-11; U.S. Patent No. 6,307,576, col. 8 ll. 55 to col. 9 ll. 10.
18 Id. at *10.
19 Id.
20 Id. at *21-23.
21 Alice Corp. Pty. Ltd., 134 S. Ct. 2347, 2355 (2014).
22 Id.
23 Alice Corp. Pty. Ltd., 134 S. Ct. 2347, 2354 (2014).
24 McRO, Inc., 2016 U.S. App. LEXIS 16703, at *30.
25 Id. at *23; McRO, Inc. v. Sony Comput. Entm’t Am., LLC, 55 F. Supp. 3d 1214, 1216 (C.D. Cal. 2014).
26 McRO, Inc., 2016 U.S. App. LEXIS 16703, at *25.
27 Id. at *25 (emphasis added).
28 Id. at *20.
29 Id. at *25.
30 Id.
31 Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1336 (Fed. Cir. 2016).
32 McRO, Inc., 2016 U.S. App. LEXIS 16703, at *28.
33 Id. at *29.
34 Parker v. Flook, 437 U.S. 584, 585-86 (1978)
35 Bilski v. Kappos, 561 U.S. 593, 611 (2010)
36 McRO, Inc., 2016 U.S. App. LEXIS 16703, at *30.
37 Id.
38 Id. at *31.
39 Id. at *33.
40 Id. at *31.
41 Id. at *33-34.

Ninth Circuit: An Exclusive Licensing Agent Has Standing to Bring an Infringement Action under the Copyright Act

In a recent decision, Minden Pictures, Inc. v. John Wiley & Sons, Inc., D.C. No. 3:12-CV-04601-EMC, 9th Cir. Case No. 14-15267, the Ninth Circuit Court of Appeals held that a licensing agent for several individual photographers has standing to bring an action under the Copyright Act against a textbook publisher for unauthorized use of copyrighted photographs. The Ninth Circuit found that the licensing agent held an “exclusive license” to reproduce and authorize production of the photographs even though the individual photographers retained the right to personal and limited commercial use of the photographs under the Agency Agreements. The Ninth Circuit held that the divisibility principle embodied in the Copyright Act allows for the licensing agent to have an “exclusive license” with respect to certain uses of the photographs and therefore it has standing to sue infringers.

Minden Pictures, Inc. (“Minden”) is a licensing agent for several individual photographers. Minden grants licenses to end-users such as textbook publishers. The Agency Agreements between Minden and the individual photographers provide that Minden is the sole and exclusive agent and representative with respect to licensing any of the subject images, and they grant Minden the unrestricted, exclusive right to distribute, license, and/or exploit the images without seeking special permission to do so. The Agency Agreements, however, allow the individual photographers to make some commercial and personal use of the photographs. The individual photographers are allowed to use the images for personal promotion, advertising, and editorial use in books and magazines. The Agency Agreements prohibit the individual photographers from hiring a licensing agent other than Minden with respect to the subject photographs. The Agency Agreements also provide that “all images shall at all times remain the sole and exclusive property of the photographer, including the copyright.”

Minden discovered that one of the licensees, an educational publisher named John Wiley & Sons (“Wiley”), was substantially exceeding the scope of the license with respect to the photographs by printing hundreds of thousands of textbooks in violation of the license agreement, which limits printing to only 20,000 copies. Minden filed a copyright infringement action in the U.S. District Court for the Northern District of California. Wiley moved for summary judgment on the grounds that Minden lack standing to sue under the Copyright Act, and the District Court agreed. Minden appealed to the Ninth Circuit.

The Ninth Circuit reversed, holding that the Agency Agreements conveyed a sufficient property interest in the photographs to permit it to bring an infringement action under the Copyright Act. First, the Court identified the relevant statutory language in the Copyright Act respect to standing: “[t]he legal or beneficial owner of an exclusive right under a copyright is entitled…to institute an action for judgment of that particular right committed while he or she is the owner of it.” These exclusive rights include the right to reproduce, distribute, or display the work, prepare derivative works, perform the work in public, and record and perform the work by means of an audio transmission. The Court noted that current Ninth Circuit case law holds that a party granted an assignment or an exclusive license with respect to these exclusive rights has statutory standing to sue for copyright infringement, but a party granted a mere “non[-]exclusive license” does not have standing.

The Court then identified several of the exclusive rights that were conveyed to Minden under the Agency Agreements: Minden received the right to authorize third parties to reproduce, distribute, and display the photographs. Of course, Wiley’s argument is that these rights were not exclusive because the individual photographers also retained similar rights to the photographs. The Court then explained the divisibility principle inherent in the Copyright Act, which permits an owner to transfer a right or a subdivision of a right—for example, if an author wished to sell publication rights of the hardcover edition to one person and publication rights to create a movie based on the novel to another person. The Court reasoned that the divisibility principle permits the individual photographers to divide the exclusive rights between themselves and Minden as their exclusive licensing agent. The rights have been divided in such a way that the individual photographers retain the right to issue licenses of the photographs, but that Minden receives the exclusive right to act as a licensing agent for licensing the photographs. The Court held that Minden’s exclusive right to act as a licensing agent constitutes an exclusive license and therefore entitles it to sue infringers under the Copyright Act.

Doctrinally, the Court relied on the divisibility principle, but it also articulated several practicality arguments in support of its holding. First, the Court noted that it would be inconsistent with common sense to hold that Minden did not have standing as the individual photographers’ exclusive licensing agent. If the individual photographers never hired a licensing agent and instead handled the licensing on their own, they would have standing to sue for infringement—thus, there should be no reason why having hired Minden to manage licensing of the photographs they would not be allowed to also have Minden protect and defend the licensed photographs.

Second, if Minden were to be precluded from suing, the individual photographers would be significantly disadvantaged by having to file individual actions or joined actions under Rule 20. In the former case, the potential recovery would not justify the litigation expense; and in the latter case, the complexities of coordinating all of the individual named plaintiffs would make litigation burdensome.

Therefore, the Court held that Minden, as the exclusive licensing agent, has standing to sue for infringement under the Copyright Act.

Beastie Boys’ Attorney’s Fee Award Will Likely Prompt Copyright Owners to Bring Their Copyright Claims to Court

On June 15, 2015, a New York federal court ordered Monster Energy to pay the Beastie Boys $667,849.14 in attorney’s fees. This award comes after the Beastie Boys obtained a $1.7 million damages award in 2014 after Monster Energy ran a promotional video on its website that incorporated portions of five Beastie Boys songs without the Beastie Boys’ permission. Monster Energy unsuccessfully argued that they had obtained a license from DJ Z-Trip to use the Beastie Boys remix. Z-Trip had previously entered into an agreement with the Beastie Boys to create a remix of some of their songs to promote the group’s then-upcoming album. However, the court found that Monster Energy never obtained authorization from the actual rights holders to the musical compositions or the sound recordings. The jury found Monster Energy’s actions to be willful copyright infringement as well as false endorsement under the Lanham Act and awarded $1.7 million in damages. On the heels of this damage award, the Beastie Boys petitioned the court for $2,385,175.50 in attorney’s fees. Though the attorney’s fee award was eventually whittled down to $667,849.14, due in part to the fact that (1) fees were not recoverable on the Lanham Act claims, (2) certain legal work on certain issues were not recoverable by Monster, and (3) the Beastie Boys’ bills were abnormally high since the case was primarily staffed using senior attorneys, the court noted that the fee award was still substantial and when coupled with the damages award, properly compensated the Beastie Boys under the Copyright Act.

As a result of this substantial attorney’s fee award, it is likely that other copyright owners may seek damages and attorney’s fees in court for the appropriation of their work. Rather than try to procure a monetary settlement or seek redress through ADR procedures, copyright owners may opt to pursue their claims in court in order to obtain an appropriate damage award and a substantial fee award. Thus, this decision may motivate copyright owners to seek redress under the Copyright Act in court since they have some assurances that their attorney’s fees or a substantial portion of those fees are recoverable.

Ninth Circuit: Amazon’s Customer-Generated Search Function Could Create Trademark Infringement Liability

In a recent decision—Multi-Time Machine, Inc. v., Inc., et al., D.C. No. 2:11-cv-09076-DDP-MAN—the Ninth Circuit Court of Appeals held that Amazon’s consumer-generated product search function could create trademark infringement liability absent a clear label eliminating likely confusion. The Ninth Circuit found that a consumer’s search for Multi-Time Machine, Inc.’s (“Multi-Time”) products on returned search results for competing products and Amazon failed to warn consumers that it did not actually sell Multi-Time products.

Multi-Time, a high-end military-style watch manufacturer, which owns the trademark “MTM Special Ops,” does not sell any of its watches on, and it prohibits any of its authorized distributors from doing so. When Amazon consumers search for “MTM Special Ops” on, the search results in several of its competitors’ watches without an explicit warning that Amazon does not sell Multi-Time watches. Unlike Amazon, similar retail websites, such as and, explicitly state in the search results that none of the products match the search query if the retailer does not offer that product. Moreover, at the top of Amazon’s search results page, “MTM Special Ops” is written in the query field, directly below the search line, and again immediately after the words “Related Searches.”

A search for “MTM Special Ops” on results in Multi-Time’s competitors’ watches, in part, due to Amazon’s behavior-based search technology, which tracks customer searches, views, and purchases, and returns future search results based on past behavior. For example, if enough customers search for product “X” and ultimately view and purchase product “Y,” eventually searches for X will return search results for Y.

Multi-Time filed suit against Amazon in the U.S. District Court for the Central District of California, alleging trademark infringement in violation of the Lanham Act. On Amazon’s motion, the District Court granted summary judgment in favor of Amazon on the grounds that Multi-Time did not put forth sufficient evidence from which a jury could determine that there was a likelihood of confusion. Multi-Time appealed.

The Ninth Circuit reversed the District Court’s grant of summary judgment, holding that Multi-Time presented sufficient evidence for a jury to determine that Amazon’s search function causes a likelihood of confusion under the “initial interest confusion” test.

First, the Ninth Circuit pointed out that the “confusion” at issue in this case does not necessarily fall within the category of confusion at the point-of-sale; but instead, also includes “initial interest confusion.” This occurs when a consumer is not necessarily confused at the time of purchase, but something earlier in the shopping process creates an initial interest in a competitor’s products and thereby “impermissibly capitalizes on the goodwill associated with a mark and is therefore actionable trademark infringement.” The Court held that a jury could infer that the search results page, coupled with Amazon’s failure to warn the customer that it does not carry Multi-Time products, gives rise to an initial interest confusion. For example, the Court pointed out that a jury could infer that customers might believe that a competitor has acquired Multi-Time or is somehow affiliated with Multi-Time.

Second, the Court analyzed the relevant Sleetkraft factors, most of which weighed in favor of Multi-Time. The Court determined that Multi-Time’s trademark, “MTM Special Ops,” is suggestive and conceptually strong because it does not merely describe its military-style watches, but is potentially suggestive of them. Additionally, the Court determined that the “similarity of the goods” factor weighs in favor of infringement because Amazon sells military-style watches and even displays them in response to a search for Multi-Time’s trademark.

The Court also determined that the “defendant’s intent” factor weighed in favor of infringement because Amazon received complaints from vendors and customers regarding similar search result problems. Amazon did nothing to address the complaints and did not disclose how the behavior-based search operated—therefore, the Court held that a jury could infer that Amazon intended to confuse its customers. Finally, the Court entertained Multi-Time’s evidence of actual confusion in the form of several instances in which customers searched for “MTM Special Ops” and thereafter purchased a competitor’s watch on the same day.

Therefore, because there was sufficient evidence to demonstrate likelihood of confusion, the Court reversed the District Court’s grant of summary judgment and remanded the case for a jury trial.

Circuit Judge Barry G. Silverman dissented from the majority because he believed the majority applied the wrong test to determine likelihood of confusion. Judge Silverman, citing to Ninth Circuit precedent, pointed out that the Court should have applied the test specifically developed for trademark infringement claims based on keyword advertising, which boils down to two factors: “(1) who is the relevant reasonable consumer?; and (2) what would he reasonably believe based on what he saw on the screen?” Judge Silverman determined that the relevant consumer in this context is a person accustomed to shopping online, and the consumer would not be confused by the search results because each product result is clearly identified by the product manufacturer. Therefore, it is unnecessary for Amazon to explicitly state that it does not sell Multi-Time watches.

This Ninth Circuit opinion clarifies that an online retailer’s consumer-generated product search function can create trademark liability if it does not adequately dispel any potential confusing inferences that might be derived from it.

Trade Dress and the Functionality Doctrine

The Fourth Circuit in McAirlaids Inc. v. Kimberly-Clark Corp., held this year that ownership of a utility patent does not necessarily preclude a claim in trade dress rights, particularly where the patent does not specifically cover the asserted trade dress.

This decision is of importance as it reviewed the Supreme Court’s holding in TrafFix Devices, Inc. v. Marketing Displays, Inc., stating that the presence of a utility patent is strong evidence of functionality, thus defeating a trade dress claim.

McAirlaids filed suit in the Western District of Virginia against Kimberly-Clark for trade dress infringement and unfair competition after Kimberly-Clark started using a similar pattern on one of its products.

The Fourth Circuit reversed the district court’s decision granting summary judgment after it found that McAirlaids had presented sufficient evidence to create genuine factual question as to whether its selection of pattern was purely an aesthetic choice among other options the company had considered.

The Circuit Court held that the existence of a utility patent is only one of several factors that the district court should have considered in evaluating the functionality of the dot pattern. Unlike TrafFix, where the dual-spring mechanism at issue was not registered as a trade dress, in the present case the pinpoint dot pattern allegedly infringed was subject to trade dress federal registration, thus shifting the burden to defendant to show functionality by preponderance of evidence.  Another distinguishable element is that the utility patent held by McAirlaids does not mention the specific dot pattern as a protected feature.

This latest decision on the subject shows that the crossroads of trademarks and patents are as interesting as ever, and that many different factors may ultimately determine the fate of a trade dress.

A Functional Claim Language Warning From the Federal Circuit

While at times commonplace in the patent prosecution world, the U.S. Court of Appeals for the Federal Circuit (CAFC) recently sent a harsh reminder to applicants regarding use of claim language that could be construed as functional.

In Oct. 14’s Bosch, LLC v. Snap-On Inc., the court held that “program recognition device” and “program loading device” were means-plus-function terms requiring the corresponding structure to be described in the specification.  This continues a recent CAFC trend to broadly construe certain functional claims terms under 35 U.S.C. §112, ¶ 6. (See Superior Industries v. Masaba where then-CAFC Chief Judge Randall Rader, in a concurring opinion, set forth that “a system claim generally covers what the system is, not what the system does” with reference to commonly used terms such as “configured”)

While functional claim language is permissible, its use generally is employed carefully and in limited situations.  This is because adoption of functional language can remove a claim from its broadest reasonable interpretation to limiting claim scope to corresponding structure in the specification directed toward the functional claim language.  This is significant at least because it provides competitors’ options to design around and clear avenues to invalidate a patent based on insufficiently described structure.

That is exactly what happened in Bosch, a patent infringement lawsuit where the patentee of U.S. Pat. No. 6,782,313 (the ’313 patent) claimed a diagnostic tester that analyzed whether a control system in a car needed reprogramming.  The claimed tester comprised “a program recognition device” and “a program loading device.”  Unfortunately, the claim itself lacked any further structural limitations as to either “a program recognition device” and “a program loading device.”   This was a problem such that these terms were found to invoke 35 U.S.C. §112, ¶ 6 because the defendant was able to show that no corresponding structure was in fact disclosed.

While conventional terms such as “means for” or “steps for” weren’t used in the claims, the court did discuss whether simple use of the word “means” was enough to invoke §112, ¶ 6 holding that this alone was insufficient to invoke the presumption.  However, this can be overcome if it is demonstrated “that the claim term fails to recite sufficiently definite structure or else recites function without reciting sufficient structure for performing that function.”

In fact, there were no figures in the ’313 patent.  The patentee argued that plain language of the terms “program recognition device” and “program loading device” sufficiently described physical structures with physical connections to other components that were described in the ’313 patent.  While describing how a feature interconnects or interacts with other components is useful, in actuality it was likely dispositive that the specification failed to provide even a single reference to structure for either of “program recognition device” or “program loading device.”  Moreover, the patentee was unable to cure these deficiencies through expert statements during trial.

Accordingly, these two terms failed to provide sufficiently definite structure.  Further, because no structure was sufficiently provided in the specification, the claims were held invalid.

The lessons here are clear.  First, Bosch reinforces the principle that functional claim language should be used with the utmost care.  Typically, functional language is recognized in means/steps for claim terms.  But with this recent upturn in additional language invoking “means-plus-function” claim construction rules, applicants have no choice but to err on the side of caution and adopt language directed towards structural features versus functional language where possible.  Doing so will avoid unfortunate and narrowing §112, ¶ 6 claim constructions later on.  If the applicant in Bosch had included even one structural limitation in its independent claim, that may have been enough to avoid §112, ¶ 6 and ultimately a defense of invalidity.

To that end, practitioners must be certain that all claimed structure is sufficiently disclosed in the application at the time of filing.  For example, if the applicant here had included just one figure illustrating “a program recognition device” or “program loading device” in some level of detail, §112, ¶ 6 or invalidity could have been avoided.  While functional claim language may be necessary to overcome an art reference during prosecution, Bosch is a reminder that the rules of claim drafting are always changing.  Unfortunately, one cannot predict whether the terms that may be acceptable today will elicit functional suspicions tomorrow.  At a minimum, all known structure related to claim elements should be described in the specification.  Providing this level of detail in an application drafting will cure the sting of a particular claim feature being construed as a functional term during enforcement since sufficient structure to correspond to the claimed feature will be available as a fallback (in the event a term is found to invoke §112, ¶ 6).

Parties Seeking Injunctive Relief Under Lanham Act

On August 26, 2014, the U.S. Court of Appeals for the Third Circuit held in Ferring Pharmaceuticals, Inc. v. Watson Pharmaceuticals, Inc. that parties seeking injunctive relief under the Lanham Act will not be afforded a presumption of irreparable harm and must demonstrate that irreparable harm is likely. In affirming the lower court’s decision to deny the plaintiff’s request for an injunction, the Court of Appeals based its ruling on precedent set by two recent U.S. Supreme Court cases, eBay Inc. v. MercExchange, L.L.C. and Winter v. Natural Resources Defense Council, Inc.

Ferring is yet another precedential decision, among several other recent cases, that demonstrates a continuing trend in rejecting a presumption of irreparable harm for parties seeking injunctions in actions involving claims under the Lanham Act. The Second and Ninth Circuits also have applied this rationale to copyright actions. An even greater number of courts across the nation have recognized that the eBay analysis is applicable in lawsuits filed pursuant to the Lanham Act and concurred that it casts doubt on the application of the presumption of irreparable harm, but have nevertheless declined to rule on the matter.

The Ferring litigation arose from a dispute among two New Jersey-based pharmaceutical companies that market competing products designed to assist women undergoing in vitrofertilization to become and remain pregnant. In the complaint, filed on September 17, 2012, plaintiff Ferring alleged that defendant Watson coordinated two programs, during which Watson conveyed false and misleading information about Ferring’s competing product in violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), the New Jersey Consumer Fraud Act, and New Jersey common law.

Ferring moved for a preliminary injunction on November 9, 2012, seeking to obtain corrective advertising and enjoin Watson from making any additional false statements. In denying Ferring’s motion, the district court found that Ferring was not entitled to a presumption of irreparable harm and had failed to demonstrate a likelihood of irreparable harm.

On appeal, Ferring argued that a presumption of irreparable harm should be applied in Lanham Act comparative false advertising cases and, accordingly, the district court erred in declining to permit Ferring to benefit from this presumption for the purposes of obtaining a preliminary injunction. Watson, in turn, argued that the Third Circuit has never recognized this presumption; the U.S. Supreme Court’s rulings in eBay and Winter do not support the application of this presumption; and, without the presumption, Ferring is unable to demonstrate a likelihood of irreparable harm.

Where a party in a comparative false advertising case, like Ferring, seeks a preliminary injunction, courts in various jurisdictions have historically permitted the application of the presumption of irreparable harm after a likelihood of success on the merits has been demonstrated. The Third Circuit pointed out, however, that this rationale preceded eBay and Winter, which set the precedent that broad categorical rules are inappropriate when determining whether to award injunctive relief, a determination that should be made within the court’s discretion and in accordance with the traditional principles of equity. The Court of Appeals alsocited a 2013 Ninth Circuitdecision as concurring analysis, which held that “the likelihood of irreparable injury may no longer be presumed from a showing of likelihood of success on the merits.”

The reasoning employed in Ferring provides a clear interpretation and explanation of precedent set by the Supreme Court with regard to issuing injunctions in actions not only involving claims under the Lanham Act, but in various types of cases governed by similar standards, and certainly reinforces the growing trend to reject the application of the presumption of irreparable harm for parties seeking injunctions in the future.

Please see the following citations for further reading on this topic:

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006)

Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7 (2008)

Ferring Pharms. v. Watson Pharms., 2014 U.S. App. LEXIS 16426 (3d Cir. 2014)

Routine Patent Litigation Giving Rise to Antitrust Liability

On Aug. 6, in Tyco Healthcare Group LP v. Mut. Pharm. Co., Case No. 2013-1386, the Federal Circuit looked at whether antitrust liability can arise from routine patent litigation and suggested that a patent owner can face antitrust liability resulting from bringing patent infringement claims and administrative petitions.

In Tyco, the patent owner of a drug, Tyco Healthcare Group, filed a claim for patent infringement against a generic drug manufacturer, Mutual Pharmaceutical Co., after Mutual filed an application with the Food and Drug Administration (FDA) to manufacture and sell a generic version of Tyco’s drug.  In response, Mutual filed antitrust counterclaims against Tyco.

In 2009, the district court entered a judgment of non-infringement and the following day, Tyco filed a Citizen Petition with the FDA urging the FDA to change the criteria for evaluating the bioequivalence of the proposed generic product to ensure therapeutic equivalence of the generic drug to the brand name drug.  Ultimately, the FDA approved Mutual’s application to manufacture and sell the generic drug and denied Tyco’s Citizen Petition.

Mutual moved for summary judgment on its antitrust counterclaims against Tyco, arguing Tyco was not immune from liability.  The district court held Tyco was not liable for antitrust violations as alleged by Mutual, however, on appeal, the Federal Circuit vacated the district court’s ruling in part and remanded it for further consideration as to whether Tyco’s patent infringement claim and Citizen Petition were shams.

Ordinarily, a party is exempt from antitrust liability for bringing a lawsuit against a competitor under the Noerr-Pennington doctrine.  This doctrine is not limited to just lawsuits, but can also apply to administrative petitions.  There is an exception to immunity for sham litigation.  In determining whether litigation is a “sham,” a court will look at objective and subjective elements: (1) the litigation must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits; and (2) the litigation must be motivated by a desire to interfere directly with the business relationships of a competitor.

In its decision, the Federal Circuit concluded that Tyco may not be immune from antitrust liability because there are issues of factual dispute as to whether Tyco’s patent infringement claim was objectively baseless and whether the Citizen Petition was objectively baseless and intended to interfere with the FDA approving Mutual’s application to manufacture and sell the drug.

So what does this mean for patent enforcement?  There is concern that the Federal Circuit has inserted antitrust liability into patent litigation, which could result in antitrust penalties for routine patent enforcement.  Further, the case could have a possible chilling effect on patentees’ communications with administrative agencies, such as the filing of a Citizen Petition with the FDA.  However, because the Noerr-Pennington doctrine continues to live, patentees are still protected unless the party alleging antitrust violations can present facts to show the litigation activity was a sham.

Lawfully Taking Your Competitor’s Technology: Optimize the Design Around

When a party is sued for patent infringement, an alternative for avoiding infringement is to develop design around technology not covered by the subject patent.  Even if there is no lawsuit, often a company has competitors that make products or offer services that include attributes and features you would like to include in products and services.

As a general rule it is completely proper to take advantage of any aspect of a competitor’s device and include it in your device unless it is protected under the U.S. patent laws.  (Other countries also have patent laws that must be considered if manufacture or sales are made in those countries.)

In some cases there may be other intellectual property rights, such as trade secrets, copyright and trademark laws, that must be considered, but these circumstances are rare and easier to avoid than the patented features.

Non-Patented Features

Often the desired feature is NOT protected by patent, meaning you can add that feature to your device as long as you do not create a “look alike” device.  Non-patented features are public and available for anyone to use.  You may want to consult with patent counsel to help determine that this particular feature is not the subject of a pending patent application, which would cause an important interruption to this plan (see discussion below), but if the feature is a couple years old most likely there will be no pending or issued patent complications.

The next step in taking your competitor’s technology is to consider your device, which now includes the additional feature, and enhance it in some new, useful and non-obvious way.  It is best for this new feature to have some market appeal but now you have the basis for seeking a patent on your enhanced device with the additional feature.

Under this plan you can provide your customers a patented enhanced device.

Patented Features

If the competitor device is patented in whole or as it relates to a particularly desired feature, you must determine the date of the patent application directed to the protected feature knowing that patents last for 20 years from the earliest application in the patent family.

You should determine if the patent can be invalidated.  Securing an invalidity search and the advice of patent counsel will assist in this evaluation.  What you are looking for is a piece of prior art the examiner did not consider during his examination that is directed to the novel feature(s) in the application that were cited by the examiner as the basis for allowance of the application.  Invalidity searches are readily available in most technology-based countries.

Once new prior art is located, you must determine the most efficient method to challenge the patent: declaratory relief action for invalidity (assuming a reasonable apprehension), or a request for re-examination (the patent may be fixed in this process).  These invalidity activities can be time-consuming and expensive.

The alternative is to identify the oldest patent that covers the desired feature.  Analyze the structure of this technology and conceive an enhancement feature that employs the desired feature and offers an enhancement that avoids all patent coverage and has market desirability.  File an application for your enhancement of the old technology.

To find a new enhancement, dissect the device into its components and analyze each component to see how current technologies can be used to enhance the device.  Typical areas of attention include materials; computer control; display features; ease of use; ease of manufacture; report functions; inclusion of multiple dependent attributes; specific limitations to a desired attribute; and ascetic nonfunctional features.

Once you have sought patent protection on your enhanced version, identify a migration plan for further enhancements and seek sequential patent protection on these continuing developments.

When the competitor’s patent ultimately lapses you will have a family of patents on enhancements, thereby limiting the competitor from making his device with your new market-desirable enhancements.

In addition, you may be able to immediately make, use and sell your enhanced device outside the United States unless the competitor has patent protection in the other country.

This method, in a relatively short period of time, permits you to properly design around and take your competitor’s technology.