IP Happenings – February 2017

22.03.2017

By Lawrence Hoffman

PATENTS

Decisions from the CAFC:

The U.S. Court of Appeals for the Federal Circuit (CAFC) which decides patent appeals, handed down a few decisions worth noting.

Establishing Priority: Being able to establish an early effective filing date can be crucial if you need to avoid prior art with an effective date before your actual filing date. In its opinion in Los Angeles Biomedical Research Institute v. Eli Lilly And Company, the court considered what it takes for an earlier application, e.g., a provisional application, to provide a priority date.

The patent owner (LAB) brought an infringement action, and Lilly responded with a request for an inter partes review (IPR). The case was on review from the final decision of the Patent Trial and Appeal Board (PTAB) in the IPR.

Priority can be based on a single earlier application, for example, a U.S. provisional application (as in the present case), or a series of applications. Either way, the earlier application, or all the applications in the chain must satisfy ‘the written description requirement’ of 35 U.S.C. § 112(a). To do this, “the disclosure in each application must reasonably convey…to those skilled in the art that as of the claimed priority date the inventor was in possession of the later claimed subject matter”. (Internal quotes and citations omitted.) It’s not enough if the earlier disclosure renders the claimed subject matter obvious. Each claimed feature must actually be disclosed.

The claims in question were directed to a method of arresting or regressing a condition known as penile fibrosis. The method required long-term, daily administration of certain drugs previously used only for treating erectile dysfunction. The claim limitation that ended up being the patentee’s downfall was:

Arresting or regressing the at least one of the penile tunical fibrosis and corporal tissue fibrosis, wherein the PDE-5 inhibitor is administered at a dosage up to 1.5 mg/kg/day for not less than 45 days.

It was undisputed that the provisional application did not explicitly disclose the dosage of “up to 1.5 mg/kg/day.” The patent owner tried to overcome this by reference to a disclosed rat study and testimony from an expert that the dosage level could be derived from that study. The PTAB refused to grant priority, and CAFC affirmed.

The court rejected LAB’s argument, saying that it “depends on several assumptions made by the expert regarding the knowledge of a person of skill in the art” support for which was not found in the description. Therefore, the skilled person “…would have to speculate as to modifications that the inventor might have envisioned, but failed to disclose.”

Moreover, the court held that underlying assumptions made by LAB’s expert were themselves questionable, and that they were based on a method disclosed in a reference nearly half a century old, and was based on measurements of unrelated substances. Finally, the court held that LAB could not rely on stand alone references that it failed to incorporate in the provisional application in order to make out its priority claim. “[I]t is the disclosures of the [provisional] application[] that count,” not those of un-cited references”.

Admittedly, there are times, e.g., when there has been an unintended disclosure, or where material optimization takes place as a project moves along, that a provisional application must be filed without full support. But especially now that first to file regimes have become universal, careful planning is needed to at least avoid situations that will require a crisis response.

What’s a CBM?

The America Invents Act (AIA) created a set of administrative avenues for attacking patent validity outside of the judicial system. These are conducted by the new Patent Trial and Appeal Board, the AIA-created successor to the Board of Patent Appeals and Interferences. One of these deals with covered business method (CBM) patents. It allows challenging validity on any ground for CBM patents.

Business method patents are ones that use computers to implement business and financial processes of various kinds. They have acquired a bad reputation, not because there is anything inherently wrong with them, but because they are among the ones that were typically abused by the patent trolls. As a result, victims, large and small, convinced Congress that business method patents were likely to be of questionable validity. Congress’ response was to include CBM Review in the AIA.

Under § 18(d)(1) of the AIA, a patent is directed to a CBM if it:

“claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions”.

This is repeated in the Patent Office Rules of Practice, 37 CFR 42.301(a).

With reference to technological inventions, Subsection (d)(2) states:

In determining whether a patent is for a technological invention solely for purposes of the Transitional Program for Covered Business Methods (section 42.301(a)), the following will be considered on a case-by-case basis: whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.

The actual CBM Review procedure is not important for our purposes. Briefly, the PTAB first determines it the patent is a CBM and initiates a review if it is likely that at least one claims will be found invalid. It then considers evidence submitted by the parties and issues a final decision.

At first glance, § 18(d) looks well-drafted. However, it turns out that subsection (1) has some latent problems. As a result, CBM Reviews have had a somewhat rocky history at the appellate level. (Subsection (b) isn’t that good either: it only says what to consider, but does not define the term ‘technical solution’.)

In at least two recent cases, the CAFC has overturned decisions of the Patent Trial and Appeal Board on the ground that it departed from the statutory requirements in determining if a patent was directed to a CBM. In the first of these, Unwired Planet v. Google, the PTAB broadened the statutory definition, by including in it, as an alternative, that the patent claims activities “incidental to” or “complementary to” a financial activity. The CAFC did not like this at all, and reversed, saying that there was no statutory basis for a CBM Review if the patent only claims activities incidental to or complementary to a financial activity if it does not otherwise satisfy the terms of subsection 18(1).

The PTAB had another chance to interpret the definition correctly in Secure Axcess v. PNC Bank National Association, but according to the CAFC, it went wrong again. The patent in question was directed to a computer security method and system. Claim 1 recites:

A method comprising:

transforming, at an authentication host computer, received data by inserting an authenticity key to create formatted data; and

returning, from the authentication host computer, the formatted data to enable the authenticity key to be retrieved from the formatted data and to locate a preferences file,

wherein an authenticity stamp is retrieved from the preferences file.

Claim 17 is a corresponding system claim.

The court noted that the patent generally discusses computer security with a focus on authenticating a web page, but it used as an example of its application an authentic bank web page and a bogus web page with an insignificantly different name. The court characterized this as a reference “…that might be considered to concern (at least facially) activities that are financial in nature, a consideration in determining CBM patent status”. Clearly, however, neither claim 1, nor the corresponding system claim referred in any way to financial activity.

In deciding that the patent was a CBM, the Board stated that because the patent is directed to solving problems related to providing a web site to customers of financial institutions, the patent “covers the ancillary activity related to a financial product or service of Web site management and functionality”. In effect, it did not get the court’s message in Unwired Planet, and created its own broadened definition.

Predictably, the court reacted here just as it did in the Unwired Planet case. The court first noted that “[A]s the Supreme Court forcefully reminds, “in interpreting a statute . . . courts must presume that a legislature says in a statute what it means and means what it says.” It went on to explain that the Board incorrectly parsed the definition by associating the phrase “A Patent That Claims” only with the phrase “a method or corresponding apparatus for performing data processing or other operations” when it should have associated it also with “used in the practice, etc., of a financial product or service”.

The opinion is long and convoluted, but the result is clear – because the patent did not claim a method and system used in the practice of a financial product or service, but only for website management, it was not a CBM.

Will this drama affect you? Many patents related to online data management would qualify as CBMs if they have application to data that might be used in connection with financial or business services. But in the CAFC’s view, this is not what Congress intended.  To this observer, the Board seems determined to extend its reach in CBM Reviews beyond the statutory limit and the CAFC is equally determined not to let it do so.

Preliminary Injunctions:

A preliminary injunction can be a powerful weapon for the patent owner in an infringement action since it can stop the infringing activity dead in its tracks while the litigation moves forward. However, it’s not easy to get a preliminary injunction. The recent decision of the CAFC in Metalcraft Of Mayville, Inc. v. The Toro Company illustrates what the plaintiff needs to do to get one.

Metalcraft brought an infringement action against Toro on a patent for a “suspended operator platform for a ride-on lawnmower or other riding light utility vehicle connected to a rigid chassis by a suspension system”. In the patented system, the steering controls are mounted on the suspended platform. The Toro device is essentially the same except that the steering controls are mounted on the chassis. Metalcraft sought and obtained a preliminary injunction.

On appeal, the CAFC held that the trial court did not abuse its discretion in granting the preliminary injunction. The court observed, “[A]n abuse of discretion may be established by showing that the court made a clear error of judgment in weighing relevant factors or exercised its discretion based upon an error of law or clearly erroneous factual findings”.

“To obtain a preliminary injunction, a party must establish “that [it] is likely to succeed on the merits, that [it] is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in [its] favor, and that an injunction is in the public interest.” The court found that all of these requirements were met.

Toro argued that because its steering controls are not mounted on the platform, the operator’s hands and arms are not supported by the platform Consequently, the claim limitation “an operator platform that supports the seat and an entire body of an operator during use of the utility vehicle” was not met and it was not likely that Metalcraft would prevail on the merits. Both the trial court and the CAFC rejected this argument. In its opinion, the court explained that the “district court correctly determined that the claims at issue do not require that the steering controls be mounted on the suspended operator platform”. The court, essentially interpreted the claim as infringed because the arms and hands are part of the body. Makes sense when you think about it.

In addition, the court found that all the other requirements for a preliminary injunction were met. The opinion is of interest because it clearly explains how the various requirements are to be evaluated.

 

Personal Jurisdiction over a Foreign PAE:

Patent assertion entities are not spawns of the devil as some would have you believe. They serve a useful purpose in monetizing unused or underused technology for those who invested in it creation. The fact that some PAEs have used reprehensible methods to extort settlements that will cost less than litigation, is not a legitimate basis for condemning the whole industry.

Ironically, in the case of Xilinx, Inc. v. Papst Licensing GMBH, a PAE seems to have gone too far in proceeding responsibly and in touting its success. Xilinx  brought a action seeking a declaration that it did not infringe a patent owned by Papst. On a motion to dismiss for lack of personal jurisdiction, the trial court sided with Papst. On appeal, the CAFC reversed.

Xilinx is a Delaware corporation that is headquartered in San Jose, California where the action was brought. Papst is a Germany company with its principal place of business there. It is undisputed that Papst is a PAE.

Papst’s marketing materials explains that before agreeing to purchase a patent, it performs due diligence to identify patent infringement by comparing the patent claims against the potentially infringing products. This involves identifying the companies potentially involved in infringements, and the markets they are selling their product in—where they are located, and how large they are, including where the product is made as well as where it is sold. When it identifies infringers, it “notifies them that it believes they are infringing and travels extensively to visit them.

After technical discussions confirming the infringement the conversation moves towards licensing the patents through an agreement. Only if negotiations fail, does it resort to litigation. However, it points out that it has “years and years of experience in patent litigation” and that it has been very successful and won many high-profile patent cases.” To this observer, its business model is beyond reproach.

In the present case, the practices described were followed to the letter. After corresponding with Xilinx, Papst’s managing director, its senior counsel, and its Texas-based outside counsel, traveled to California to meet with Xilinx but no agreement could be reached. The result was the filing of the declaratory judgment action by Xilinx which was ultimately dismissed for lack of personal jurisdiction.

Briefly, there are two kinds of jurisdiction, general jurisdiction based on domicile and specific jurisdiction based on actions directed to the state and are consistent with fair play and substantial justice. Clearly, Papst did not meet the requirements for general jurisdiction. The district court didn’t think it met the requirements for specific jurisdiction either, but the CAFC did not agree.

The court began by noting that the U.S. Supreme Court has stated a three-factor test: “(1) whether the defendant ‘purposefully directed’ its activities at residents of the forum; (2) whether the claim ‘arises out of or relates to’ the defendant’s activities with the forum; and (3) whether assertion of personal jurisdiction is ‘reasonable and fair.’ After considering what did, it concluded that the test had been met.

Two things seem to have influenced the court’s decision. First, the court was impressed that Papst purposefully directed its activities to California when it sent multiple notice letters to Xilinx and especially when its representatives traveled there to discuss Xilinx’s alleged patent infringement and potential licensing arrangements.

Secondly, the court noted that Papst has repeatedly filed patent infringement suits in California federal courts. The record shows that it has filed patent infringement lawsuits in California at least seven times between 1994 and 2007 based on other patents in its portfolio.

Like Papst’s conduct, this carefully reasoned opinion seems beyond reproach, and will make interesting reading for members of the legal profession. But it is of most interest because of the description of how a PAE should go about its business.

TRADEMARKS

Another Win For A Little Guy:

Last month, we reported (here – http://www.ipatent.co.il/ip-happenings-december-2016-january-2017/),  that the U.S. Court of Appeals for the Second Circuit in New York politely told Louis Vuitton, one of the fashion world’s prime knockoff targets and a really aggressive protector of its brand identity to lighten up and learn to accept parody by little guy My Other Bag Inc. as both a joke and a form of compliment.

The Times of Israel reported on 5 March, 2017 about another victory by a little guy in a parody case, this time brought by food giant Nestle for alleged infringement of Nestle’s Nespresso trademark and copyright by The Espresso Club, a small Israeli competitor.

Actor George Clooney, has been featured in a series of humorous advertisements for the Nespresso coffee system. Several years ago, Espresso Club ran a series of ads using a Clooney-lookalike. The ads carried a legend that the actor was not George Clooney. The parody came through loud and clear. You can view the Espresso Club ads here.

As the article reports, Nestle sued in the Magistrate’s Court and lost. The decision was affirmed on appeal by the District Court, which also ordered Nespresso to pay Espresso Club’s expenses of NIS 110,700.

As quoted in the Times article, the court stated:

One must remember that today’s average viewer is sophisticated and exposed to a great deal of information and commercials on various media, able to distinguish between a funny commercial, a humorous jab or actual slander.

It goes without saying that you must police your trademarks to protect your brand identity. But these cases show again how thin the line is between appropriate trademark rights enforcement and trademark bullying, especially where parody is involved.

Coincidentally, on the same day the Times of Israel article appeared, the well-known U.S. IP blog IP Watchdog posted Laughable Moments: When Trademark Holders are Overprotective including some examples of trademark owners shooting themselves in the foot by sending an ill-advised or pompous cease and desist letter, and having a delightfully humorous put-down response go viral. My far-and-away favorite came as an April-fool’s joke from a parody website ThinkGeek which took aim at the pork-farmers trade association, The National Pork Board. The board owns several U.S. registrations of the trademark THE OTHER WHITE MEAT. The parody product was Canned Unicorn Meat and the “advertizing” copy read: Pate is passé. Unicorn, the new white meat.

I can imagine a bit of initial indignation by the Porkers, and their side of the conversation with their trademark attorneys, but wasn’t there at the firm (which I won’t name to protect its dignity) who saw the humor? Apparently not. The result was a 12-page cease and desist letter to ThinkGeek.

ThinkGeek was obviously delighted, and its website offered its readers a discount on the unicorn meat by using the discount code “PORKBOARD”. It further noted “We’d like to publicly apologize to the N.P.B. for the confusion over unicorn and pork – and for their awkward extended pause on the phone after we had explained our unicorn meat doesn’t actually exist.”

I would have told the Pork Board, if it was my client, “Hey, guys, you just got an opportunity for some free publicity.  Send ThinkGeek a letter asking where it can be purchased, and invite ThinkGeek to become an “honorary member” of the Pork Board. Then post a story on your website about that wonderful new product, and inform your readers that you are checking to see where it can be purchased and that you have invited the supplier to become a member of your association. This is going to go viral no matter what you do, so you might as well take it with good grace and get some value out of it“.

The IP Watchdog post goes on to give an example of a better way to protect your brand value. A Novel entitled Broken Piano for President, had a cover design (here) that rightfully caught the attention of the distillers of Jack Daniel’s, a very well-known Tennessee whiskey (for those of you from a different planet who haven’t heard of it).

Instead of a heavy-handed response, the author received a nice complementary letter from Jack Daniel’s trademark attorney, in effect, saying we are flattered by you imitation, but it’s really too close to our label design (here, showing the label and the cover side-by-side) and we would be grateful if you would change it. The attorney said it would be ok to wait for the next printing, and offered to pay the cost if he did it right away. Wow. She and her boss get my votes as Diplomats of the Year!

You can guess how much good press everyone got from this!

Nintendo in the News:

Sometimes, however, the little guy doesn’t wear the white hat.

As I have observed in other contexts, success attracts poachers, opportunists seeking to get rich off some else’ creativity. A case in point – Minicar.com rents go-karts and costumes that let patrons tool around Tokyo pretending they are characters from the Mario Brothers franchise. It even provides Mario Kart’s theme music.

Minicar says its lawyers gave it the go-ahead, and did not get Nintendo’s approval. Nintendo obviously doesn’t agree with Minicar’s lawyers and on 24 February 2017, Nintendo filed a trademark infringement action in a Tokyo court.

While Nintendo spares little in protecting its brand identity and value, some say Nintendo is a bit like Nokia in missing the smartphone phenomenon and attribute it to an inflexible corporate culture. But Nintendo evidently got the message in time to make its deal with Niantic Inc., the result being Pokémon Go.

The lawsuit is going to cost Minicart a bundle if it doesn’t cave in or if it can’t get a license from Nintendo. While its experience with Pokémon Go may motivate Nintendo to grant Minicar a license, it certainly won’t be a significant source of revenue, so Nintendo will need to perceive it as a source of free advertizing. However, it’s going to have to think carefully whether allowing this kind of derivative activity will dilute its brand identity. If Nintendo does grant a license, it better make sure that there is a provision allowing it to pre-clear any changes in how Minicar uses the Mario Brothers brand.

UNFAIR COMPETITION LAW

Suppressing Negative Customer Reviews – Not Any More:

On 14 December 2016, President Obama signed the Consumer Review Fairness Act that amends Title 15 § 45 of the U.S. Code to prohibit certain restrictions on customers posting negative reviews of products or services on the internet. The law affects form contracts in effect on or after 6 March 2017.

Briefly, the Act prohibits including in a ‘form contract’ provisions that prevent customers publishing reviews or performance assessments in any media of goods, services, or conduct of a person that is also a party to the contract or imposes penalties for doing so, or requires the customer to transfer intellectual property rights in review or feedback content (with the exception of a nonexclusive license to use the content).

A summary of the Act provided by the Congressional Research Service of the Library of Congress explains that a ‘form contract’ is one

with standardized terms: (1) used by a person in the course of selling or leasing the person’s goods or services, and (2) imposed on an individual without a meaningful opportunity to negotiate the standardized terms.

Employer-employee contracts and contracts with independent contractors are not covered. Also, provisions in form contracts related to confidentiality, civil actions for defamation, libel, or slander; or terms and conditions for the creation of photographs or videos solely intended to be used for commercial purposes.

Further, the Act does not prohibit provisions allowing a website owner to remove or refuse other types of content such as false or misleading or libelous, harassing, abusive, obscene, vulgar, sexually explicit, inappropriate with respect to race, gender, sexuality, ethnicity, etc. It also does not apply to trade secrets or commercial or financial information; law enforcement records or computer viruses or the like.

This isn’t a wide-ranging law, but if you use form contracts, e.g., a bill of sale or standard terms for online sales, you should review these with your attorney right away.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

About the author: Larry Hoffman has a B.S. in Electrical Engineering and Comp. Sci. from Massachusetts. Institute of Technology and a J.D. from the George Washington University School of Law. He has been a lawyer since 1965 specializing in IP law and product liability defense. He is registered to practice before the U.S. PTO, the U.S. Court of Appeals for the Federal Circuit and the state and federal courts in New York, Maryland, and the District of Columbia. His work has included preparation and prosecution of patents in countries throughout the world, and counseling on IP and product safety matters. He has been involved in the trial of close to 100 lawsuits of various kinds. You can reach him at Lawrence@ipatent.co.il.

 

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