Supreme Court Rules Patent Holders Have Burden of Proof in Licensing Cases

The US Supreme Court has ruled that patent owners have the burden of proof when a patent licensee sues seeking a ruling that the patent is invalid and has not been infringed.

In the case of Medtronic Inc. v. Boston Scientific Corp. et al., Medtronic had licensed defibrillator patents from Boston Scientific Corp.  Boston Scientific had previously licensed the same patents from Mirowski Family Ventures LLC.

Medtronic sought a declaratory judgment that its new products were not covered by some of the Mirowski patents.  The terms of the license prohibited Mirowski from filing patent infringement counterclaims against Medtronic.

A lower court found that Mirowski had the burden of proving that Medtronic’s new products were covered by the Mirowski patents and also found that Mirowski had failed to meet that burden.

The Federal Circuit (which specializes in patent cases) vacated that ruling and held Medtronic had the burden of showing that it did not infringe.

The Supreme Court disagreed with the Federal Circuit, holding that the burden of proof of infringement still falls on the patent holder, even if the patent holder can’t bring an infringement claim against the licensee.

According to the opinion by Justice Stephen Breyer,

In our view, the burden of persuasion is with the patentee, just as it would be had the patentee brought an infringement suit. Simple legal logic, resting upon settled case law, strongly supports our conclusion.

Justice Breyer noted that, since patents can be complicated, the patent owner is in a better position than the alleged infringer to specify why and how a product infringes:

Until he does so, however, the alleged infringer may have to work in the dark, seeking, in his declaratory judgment complaint, to negate every conceivable infringement theory.

The case will now go back to the federal district court for further proceedings, including a determination on the infringement issue.

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Supreme Court to Consider What Makes a Patent “Indefinite”

The US Supreme Court has agreed to hear a case involving the standards for determining whether a patent is invalid as indefinite.

Nautilus Inc. v. Biosig Instruments Inc. involves U.S. Patent No. 5,337,753 for a heart-rate monitor.

The ‘753 patent covers a monitor mounted on exercise equipment (such as an exercise bicycle, treadmill, or elliptical trainer).  The user’s hands each contact a live electrode and a common electrode on the handles.  The patent doesn’t specify the distance between the electrodes, merely requiring that they be in a “spaced relationship.”

Biosig originally sued Nautilus in 2004, claiming that Nautilus’s exercise equipment included the device covered by the ‘753 patent.  Nautilus responded with a motion for summary judgment seeking a ruling that the patent was invalid on the grounds that the “spaced relationship” claim was indefinite.

A federal district court agreed and granted Nautilus’s motion.

However, the Federal Circuit (which specializes in patent cases) held that the “spaced relationship” claim was sufficiently definite, even though there was no specification of how wide the spacing should be.

The Federal Circuit held that the term “spaced relationship” was not indefinite because people with normal skills and knowledge in the technical field, reading the patent and looking at its drawings, would understand what the term meant.

For example, since claim 1 of the patent required the electrodes to detect signals at two points on the user’s hand, the distance between the electrodes could not be greater than the width of a typical user’s hand.

The Federal Circuit noted that even though a person “skilled in the art” might have to experiment to determine the scope of the claim, that didn’t make the claim indefinite, as long as the amount of experimentation required was not “undue.”

Nautilus challenged the Federal Circuit’s standard as “overly permissive” and appealed to the Supreme Court, saying that the decision would encourage inventors to make their claims unclear, thereby requiring federal judges to waste time making sense of such claims.

The Electronic Frontier Foundation has filed a brief in support of Nautilus, saying “a more sensible rule would help reduce abusive [patent] litigation.”

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Supreme Court to Rule on “Divided” Patent Infringement

The US Supreme Court has agreed resolve a dispute between Limelight Networks Inc. and Akamai Technologies over a patent for delivering Internet content.

Akamai holds a patent for a method to redirect Internet content when demand is high.  The company claims that defendant Limelight performs all but one step described in the patent and then induces its customers to perform the last step.

The US Court of Appeals for the Federal Circuit, which focuses on patent cases, ruled in 2012 that Limelight could be sued for inducing patent infringement.  The court overruled earlier decisions that induced infringement required a showing that a single entity performed all the steps constituting infringement of a method claim – the so-called “single entity rule.”

The court said that the “bizarre result” of the single entity rule was that a party inducing infringement could avoid liability by performing some of the claimed method steps itself.  The court found that it was sufficient if the inducer caused, urged, encouraged, or aided the infringing conduct of others.

Under 35 U.S.C. § 271(b), “[w]hoever actively induces infringement of a patent shall be liable as an infringer.”

The court held that Limelight could be liable for inducing patent infringement if the patent holder could show that:

Limelight knew of Akamai’s patent, (2) it performed all but one of the steps of the method claimed in the patent, (3) it induced the content providers to perform the final step of the claimed method, and (4) the content providers in fact performed that final step.

Google, Cisco, Oracle, and others are supporting Limelight, saying that products like smartphones “can be used in an almost infinite combination of ways by other companies and consumers.”

The US Solicitor General urged the Supreme Court to take the case, “to avert a significant expansion of the scope of inducement liability (and a corresponding increase in burdensome litigation).”

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Musicians Oppose Changes in Copyright Laws to Make Sampling Easier

Aerosmith lead singer Steve Tyler has spoken out against a proposed change in US copyright law that would require musicians to let others create derivative works of their songs.

These derivative works would include samples, mash-ups, and remixes.

Unauthorized sampling is common in the music industry.  Record Label TufAmerica Inc. recently filed a copyright infringement lawsuit claiming that FrankOcean’s “Super Rich Kids” included an unauthorized sample of Mary J. Blige’s 1992 song “Real Love.”

TufAmerica does not own the Blige song, but it does own a 1973 song “Impeach the President” that Blige samples in her song.

Tyler’s comments, along with those of his attorney, were submitted in response to a request in a US Department of Commerce green paper on copyright policy.

One of the changes suggested was the creation of a compulsory license that would allow musicians to remix the works of others by paying a flat fee.  Cover versions of songs are now handled in this manner.

Tyler said that such a compulsory license would force artists to allow their music (or other works) to be associated with messages and causes that the artist objects to.  He said the compulsory license might allow someone to use a sample of music by Melissa Etheridge (a lesbian) in a song containing homophobic slurs, or could allow someone to use a song by gun-ownership-advocate Ted Nugent in a work promoting gun control.

Other musicians opposing the change include Deadmau5, Don Henley, Sting, and Joe Walsh.

The green paper resulted from hearings in May in the House Judiciary Committee’s intellectual property subcommittee to consider the modernization of US copyright law in the wake of technological advances in computers and digital media.

The last extensive revisions of US copyright law were in 1976, before the advent of the Internet and the PC.  Subsequent amendments have been piecemeal, including the Digital Millennium Copyright Act of 1998, which focused on digital rights management, anti-circumvention, and “safe havens” for Internet service providers.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

US Supreme Court to Rule on Attorneys’ Fees in Patent Cases

In the case of Highmark Inc. v. Allcare Health Management Sys., the US Supreme Court is scheduled to rule on whether a district court’s finding that patent infringement litigation was objectively baseless, and thus supported an award of attorneys’ fees to the defendant, is best decided by a trial court judge.

Allcare is the owner of US Patent No. 5,301,105, which is directed to “managed health care systems” used by organizations such as insurance companies to interact with health care providers.

In 2001, Allcare hired a market research firm to interview managed care companies such as Highmark.  Highmark’s answers suggested to Allcare that it might be infringing the ‘105 patent.  Allcare contacted Highmark and encouraged it to consider taking a license to the patent.

Highmark argued that it did not infringe the patent because, in Highmark’s view, the patent’s claims did not cover Highmark’s system.  Highmark also argued that the patent was unenforceable due to Allcare’s inequitable conduct.

When the parties we unable to negotiate an agreement, Highmark sued Allcare for patent infringement.

A special master found that there was no infringement as a matter of law and recommended that summary judgment of non-infringement be granted.  The district court then dismissed the case.  Allcare appealed, and the Federal Circuit affirmed the summary judgment.

While the appeal on the merits was pending, Highmark moved for an “exceptional-case” finding and Rule 11 sanctions against Allcare.  Highmark called Allcare a “troll” who “sells no products” and “offers no services” but tries to make money by licensing its patent or threatening litigation.

In 2010, the district court awarded Highmark $4,694,740 in attorneys’ fees and $209,626 in costs based on a finding that the dispute was an “exceptional case.”

Allcare appealed, and the Federal Circuit reviewed the district court’s grounds for its exceptional-case determination de novo.  The circuit court deferred to the district court, finding that it “did not clearly err in concluding that Allcare’s…allegations were brought in subjective bad faith.”

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Supreme Court Hears Arguments on Attorney’s Fees in Patent Cases

The Justices of the US Supreme Court challenged both sides during arguments about attorney’s fees in patent cases.

As we previously reported, the Supreme Court is hearing two cases this session that relate to attorney’s fees in patent cases:  Highmark Inc. v. Allcare Health Management Systems Inc. and Octane Fitness LLC v. Icon Health & Fitness Inc.

One case deals with the legal standards trial courts should apply in awarding attorney’s fees in patent cases, and the other case deals with whether a trial court’s award of fees should be entitled to deference on appeal.

Under existing law, attorney’s fees are normally paid by the party that incurred them.  One party can only be ordered to pay the other’s attorney’s fees in “exceptional” patent cases.

An “exceptional” case is defined as one that is objectively baseless and was brought in subjective bad faith.

During oral argument in the Octane case, Justice Stephen Breyer said that the existing standard might be too difficult to meet.  Justice Elena Kagen agreed.

Justice Breyer suggested that although the US Patent Office had issued many bad patents, the presumed validity of a patent made it hard to show that an infringement case was objectively baseless.

Although he did not use the term “patent troll,” Breyer described a scenario in which a patent owner asserted a patent with “very abstract language” against many defendants, hoping to encourage settlements and avoid the costs of litigation.

He said it was not clear that the plaintiff’s case in such a situation would be objectively baseless.

Octane’s attorney suggested that instead of applying the “objectively baseless” standard courts should shift fees if a case is “unreasonably weak.”

Justice Antonin Scalia took issue with that proposed standard, saying “You’ve got to give me something tighter than that.”

During oral argument on the Highmark case, Justice Samuel Alito said that many federal judges may not have the expertise to determine whether fees should be awarded in an “exceptional” patent case.

“Exceptional compared to what?” he said.

Justice Ruth Bader Ginsburg said that deferring to district courts could result in an inconsistent application of the law, with a “risk of large disparities from district judge to district judge.”

An attorney for Allcare argued that the Federal Circuit (which was created to hear patent cases) was best suited to review fee awards.

However, Chief Justice John Roberts challenged that assumption, saying, “The Federal Circuit was established to bring about uniformity in patent law, but they seem to have a great deal of disagreement among themselves.”

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Lions Gate Files Copyright and Trademark Counterclaims over Twilight Spoof

Lions Gate Entertainment Corp. has filed copyright and trademark counterclaims against the producers of a Twilight parody film.

The Twilight movie series, based on the hyper-popular novels by Stephanie Meyer, was produced by Lions Gate subsidiary Summit Entertainment and has earned over $3.3 billion worldwide.

Between the Lines Productions LLC, producers of the spoof film Twiharder, had previously sued Lions Gate for antitrust violations.  The 219-page complaint charged that Lions Gate and Summit engaged in “ridiculous-to-insane overreaches of intellectual property law.”

The Lions Gate counterclaim alleges that the Between the Lines “use of the ‘Twilight’ motion pictures … in the absence of a valid license agreement …. would constitute copyright infringement.”  It also includes state and federal causes of action for trademark infringement, false designation of origin, unfair competition, and trademark dilution.

Between the Lines has claimed that several major distributors had expressed interest in distributing Twiharder, but that they immediately lost interest after Between the Lines received a “cease and desist” letter from Lions Gate.  The film’s budget is estimated at $3 million.

The antitrust complaint alleges that Lions Gate tried to “monopolize the conversation” about Twilight via “oppressive” IP enforcement using “sham” cease-and-desist notices.

Lions Gate and its subsidiary Summit Entertainment have sought to have the antitrust case dismissed.

According to the Urban Dictionary, “Twihards” are “Stupid obsessive people (mostly teenage girls) who are ‘in love’ with fictional characters and wouldn’t know a good book if it punched them in the face.”

The dispute will likely turn on the issue of whether Twiharder constitutes a “parody,” which is considered “fair use” under US copyright law and thus not copyright infringement.

Courts distinguish between parodies (which poke fun at the work being parodied) and satires (which use elements of a copyrighted work to poke fun at something else).  Parodies are more likely than satires to be considered fair use.

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App Developer Says Facebook Should Not Use “Paper”

FiftyThree Inc., which markets a sketching app called “Paper,” says that Facebook should refrain from using the same name for its new news-reader app.

The sketching app was launched in 2012 and named iPad’s “App of the Year.”  FiftyThree claims that the app has been downloaded 100 million times.

FiftyThree has held a federal trademark for the name “Paper by FiftyThree” since December 31, 2013.  It applied for a trademark for the word “Paper,” standing alone, on January 30, 2014 – the day that it claims to have learned about Facebook’s app.

Facebook does not own a federal trademark for the term “Paper.”

FiftyThree’s founder said that he reached out to Facebook about the “confusion” between the names and that Facebook offered an apology but nothing else.

FiftyThree has publically asked Facebook to stop using the “Paper” mark nut has apparently not yet filed suit.

In addition to its federal trademark rights, FiftyThree may be able to assert a common-law trademark to the “Paper” name based on its two years of prior use in the app field.

As we recently reported, the developer that makes the popular app game “Candy Crush” recently filed a trademark application for the word “Candy” in a wide range of fields

A word can only be considered a trademark if it is “distinctive” – i.e., if it can distinguish one type of goods from another.  Trademarks are ranked from most distinctive to least distinctive as follows:

  • Fanciful
  • Arbitrary
  • Suggestive
  • Descriptive
  • Generic

“Fanciful” terms include made-up words like “Kodak.”

“Arbitrary” trademarks use words with common meanings but apply them in an unrelated context.  For example, “Apple” would be considered generic if used for “Apple”-brand apple juice, but is arbitrary when used for computers.

“Suggestive” marks are very similar to “Descriptive” marks but are not quite as overtly descriptive.  For example, “Microsoft” is considered a suggestive mark.

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Jury Rules for Defendant in $80 Million Perfume Trade Secret Case

After a five week trial, a federal jury in New Jersey found that the fragrance company Mane USA Inc. had not conspired with a former Givaudan Fragrances Corp. perfumer to misappropriate over 600 trade secret Givaudan formulas.

James Krivda was a perfumer with Givaudan who created fragrances such as Celine Dion Enchanting and Britney Spears Fantasy.  He was the vice president of the company’s perfumery division.

Givaudan is the world’s largest fragrance company, with annual revenues over $4 billion.

Krivda left the company in 2008 and joined Mane USA.  Mane’s parent company is Mane SA, which employs 35 people in 30 countries and had sales of $841 million in 2012.

Givaudan claimed that as Krivda was leaving the company he printed out and took with him hundreds of trade secret formulas with the intent to use them at Mane.  Krivda said that he shredded the documents.

Krivda was also accused of taking trade secrets such as “head space” analyses prepared by a Gevaudan perfumer, and gas chromotographies used to analyze products.

Givaudan sued Krivda months after he left, saying that 38 of the stolen formulas appeared as similarly or identically named Mane fragrances.

Givaudan contended that its formulas were worth $80 million and threatened to bring criminal trade theft charges against Krivda.

Krivda and Mane denied the trade secret theft allegations and the ensuing litigation lasted five years.

In October of 2013, Mane obtained a partial summary judgment on Givaudan’s cause of action for computer fraud, since Krivda was authorized to access Givaudan’s proprietary database even though he was not allowed to print documents.

The remaining cases of action were addressed at the jury trial.

According to Krivda’s lawyer, his legal team was able to prove that the formulas Krivda created for Mane were independently developed and not stolen from Givaudan.

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Judge Rejects Most Trade Secret Theft Charges against Raytheon

A federal district court judge in Arizona has ruled that most of the trade secret theft claims made by Ordnance Technologies Inc. against Raytheon Co. are time-barred because Ordnance failed to sue within three years after first notifying Raytheon of the alleged theft.

Ordnance and Raytheon had entered into a technical assistance agreement in 2002, under which Raytheon was to provide services relating to integrating Ordnance’s Lancer Multiple Warhead System into Tomahawk cruise missiles.

This agreement included a provision under which Raytheon agreed not to disclose or use Ordnance’s proprietary information.  An amendment to the agreement gave Ordnance full rights to use and manufacture the warhead designs.

In January of 2009, Ordnance learned that Raytheon had made an agreement with the US government for a “Joint Multi-Effects Warhead System” to modify the Tomahawk.  Soon after, Ordnance accused Raytheon of infringing its intellectual property rights in the warhead designs.

In July of 2009, the US Navy awarded Raytheon a $12.8 million contract to develop the warhead.

After correspondence and meetings between the parties, Ordnance finally sued Raytheon in May of 2012.  Raytheon filed a motion for summary judgment on nine out of ten of Ordnance’s claims, including its claim for trade secret misappropriation, saying that they were barred by the three-year statute of limitation.

Raytheon also denied any theft of trade secrets, saying that no proprietary Ordnance information was used in its designs.

The court granted Raytheon’s motion, saying that Ordnance knew of the alleged trade secret misappropriation in January of 2009 and that the fact that Ordnance was not aware of the extent of the misappropriation until later was not relevant.

The judge also said that there was no evidence Raytheon caused Ordnance to delay taking action by failing to deliver documents showing that it had not misappropriated Ordnance’s trade secrets.

Only a single breach of contract claim now remains to be litigated in the case.

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