By Lawrence Hoffman
U.S. SUPREME COURT GIVES DISTRICT JUDGE GILSTRAP SOME GOOD NEWS
On May 22, 2017, the U.S. Supreme Court handed down its decision in TC Heartland LLC v. Kraft Foods Group Brands LLC that’s going to please small manufacturers as well as industrial giants, and greatly displease both the patent trolls and the other assertion entities (PAEs) with somewhat more respectable business practices. It’s also likely to put a big smile on the face of U.S. District Court Judge, J. Rodney Gilstrap.
I’ve never seen or heard a good explanation for why it is so, but juries in east Texas seem to love patent owners and consistently render generous verdicts in patent infringement litigation. For the patent trolls and other PAEs, it’s a gift from heaven. It doesn’t take much brains to realize that the U.S. District Court for the Eastern District of Texas is the go-to place to bring patent infringement cases. Indeed, it is estimated that in 2016, 44% of all patent litigation was brought in the Eastern District of Texas. Judge Gilstrap alone is handling about 25% of all patent cases currently pending throughout the U.S.
How is this possible, you might ask. The answer has to do with how the U.S. Court of Appeals for the Federal Circuit (CAFC) has interpreted the venue provisions of the Federal Judiciary Law, U.S. Code, Title 28.
Broadly, the word “venue” just refers to the location in which something happens or takes place. For our purposes, venue means which one of the U.S. District Court is permitted to hear a particular case. Venue usually depends on the legal relationship of a particular defendant to the place in which the court is located.
Venue is governed in general by 28 U.S.C. § 1391. Section 1391(a) provides that:
[e]xcept as otherwise provided by law, “this section shall govern the venue of all civil actions brought in district courts of the United States.”
- 1391(c)(2), in turn, provides that:,
[f]or all venue purposes, [certain entities], whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.
However, there is also a section of Title 28 that specifically applies to patent infringement litigation. 28 U.S.C. § 1400(b) provides that
[a]ny 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 question the Supreme Court needed to address in Heartland was whether § 1391(c)(2) or § 1400(b) was controlling.
A provision specifically addressing venue in patent case was first enacted in 1897 and remained in force until 1948 when § 1400(b) was enacted and as it currently exists. The only difference between the 1897 wording and § 1400(b) is that the original version permitted suit “in the district of which the defendant was an “inhabitant” rather than “in which it resides”.
A predecessor version of § 1391 was enacted at the same time in which the definition of “residence” was essentially the same as in the current version.
In 1942, in Stonite Products Co. v. Melvin Lloyd Co., the Court had ruled that the 1897 statute exclusively governed venue in patent cases. The Court had nothing further to say about patent venue until 1957, at which time, in the case of Fourco Glass Co. v. Transmirra Products Corp., the Court ruled that the general definition in § 1391(c) did not apply to patent cases despite its referenced applicability to “all actions” and that for purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation.
That’s how things stood until 1988, when Congress amended §1391(c) to provide that “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.”
In 1990, in VE Holding Corp. v. Johnson Gas Appliance Co., the CAFC ruled that the addition of the phrase “[f]or purposes of venue under this chapter” meant that Congress now intended §1391(c) to apply to patent cases.
VE Holdings opened the flood gates, and effectively created an open season for forum shopping, much to the delight of patent owners looking for friendly places to bring their cases. Needless to say, the patent trolls and other PAE’s took full advantage.
In 2011, Congress again amended § 1391 to its present wording, as quoted above. That set the stage for the Court’s ruling in Heartland.
In Kraft sued Heartland for patent infringement in the U.S. District Court in Delaware. Heartland, which is organized under Indiana law and which has no place of business in Delaware, filed a motion to dismiss or transfer the case to the Southern District of Indiana. The district court, relying on VE Holdings, denied the motion, and on appeal, the CAFC affirmed, holding that the 2011 amendments to § 1391 did not warrant reversal of the VE Holdings precedent.
In reversing the CAFC, the Court held that the current version of §1391 does not contain any indication that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco.
The Court further observed that Kraft’s argument that § 1391 now applies to patent cases:
is even weaker under the current version of §1391 than it was under the provision in place at the time of Fourco, because §1391(a)(1) of the current provision includes a saving clause expressly stating that it does not apply when “otherwise provided by law.” On its face, the version of §1391(c) at issue in Fourco included no exceptions, yet this Court still held that “resides” in §1400(b) retained its original meaning contrary to §1391(c)’s default definition. Fourco’s holding rests on even firmer footing now that §1391’s saving clause expressly contemplates that certain venue statutes may retain definitions of “resides” that conflict with its default definition. In short, the saving clause makes explicit the qualification that this Court previously found implicit in the statute.
So what may be expected as a result of this decision? For one thing, there aren’t likely to be many potential infringement defendants that will be amenable to suit in the Eastern District of Texas and the number of cases filed there will drastically decrease. We can also expect that there will be motions to transfer in other cases pending in the Eastern district, and in other district in which the defendant does not meet the residency requirement of § 1400(b), especially cases in their early stages.
Another likely effect is that proponents of “patent reform” who have been the “victims” of forum shopping under VE Holding will have less incentive to push for changes in the venue rules.
Needless to say, the blogosphere is already full of commentary. One interesting observation (here) is that aside from the Eastern District of Texas, patent litigation is already concentrated in the District of Delaware, the Central District of California, the Northern District of California, and the District of New Jersey. That’s not likely to change. Given the residency of many potential defendants in Delaware and the Northern District of California, the number of cases filed there may increase, i.e., there still won’t be an even distribution of patent litigation in the district courts. Delaware, which attracts many corporations to reside there due to its friendly corporation law, already gets many patent cases, and may well be the biggest loser as far as increasing number of new cases.
On the other hand, not that many Delaware corporations actually have their main offices or manufacturing facilities there. For them, being sued in Delaware might be just as inconvenient as it would be in east Texas. Does that suggest that attorneys for companies considering registration in Delaware might suggest that they not do so? Or perhaps that present Delaware corporations will change their place of residence?
The only thing I’m sure of is that Judge Gilstrap won‘t be seeing too many new patent cases.
PATENTS IN THE NEWS
Why Are Products Marked as Patented?
Products often bear a legend indicating that they are covered by a patent. Just what is that intended to accomplish? Under U.S. law, it’s because of §287 of the Patent Act, 35 U.S.C. § 287. In a recent decision in Rembrandt Wireless Technologies, LP v. Samsung Electronics Co., Ltd., et al., the Court of Appeals for the Federal Circuit (CAFC) looked at the implications of patent marking in two different ways, one involving fairly well established law, and the other, an interesting issue not previously considered.
The appeal arose out of an action brought by Rembrandt, a patent assertion entity, against Samsung and several other major companies in the communications industry, asserting infringement of two patents relating to “a system and method of communication in which multiple modulation methods are used to facilitate communication among a plurality of modems in a network”.
The case went to a jury on the basis of claim construction by the trial judge and the jury returned a verdict that Samsung infringed the two patents and that the patents were not invalid over prior art cited by Samsung. The jury awarded Rembrandt $15.7 million in damages.
Samsung’s post-trial motion for judgment as a matter of law (JMOL) was denied, and Samsung appealed.
On appeal, in a unanimous opinion, a three-judge panel affirmed the claim construction and the denial of the motion for JMOL, but remanded for redetermination of the damage award based on failure to comply with the patent marking requirement. The patent marking issue is what we will discuss below.
In pertinent part, §287(a) reads as follows:
(a) Patentees, and persons making, offering for sale, or selling. . . any patented article for or under them. . . may give notice to the public that the same is patented [in several alternatively specified ways]. . . In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.
In its appeal, Samsung asserted that Rembrandt had granted a license under one of the patents that did not require patent marking, and that the licensee had failed to comply with §287(a) with respect to the licensed patent. Accordingly, Samsung argued, it could only be liable for infringement before it received notice of the patent, i.e., upon filing of the law suit. The licensed product was covered by a single claim of the one patent.
Eight days after the suit had been filed, Rembrandt withdrew the claim in question from its infringement allegations and filed a statutory disclaimer in the U.S. Patent and Trademark Office pursuant to 35 U.S.C. § 253(a) whereby it gave up all rights to the subject matter of the claim.
At trial, Samsung asked the court to limit its damages according to the date the suit was filed. Rembrandt responded that the statutory disclaimer erased the limitation of §287(a), relying on CAFC precedent that a disclaimed patent claim is treated as if it never existed.
On appeal, the CAFC reversed, holding that a licensee’s failure to follow the §287(a) requirement controls the licensor’s rights to damages, as if the licensor itself had omitted the patent notice. As to the disclaimer, the court pointed out that the Supreme Court had held that the marking statute’s purpose is to protect the public and stated:
Rembrandt’s position, adopted by the district court, effectively provides an end-run around the marking statute and is irreconcilable with the statute’s purpose. Allowing Rembrandt to use disclaimer to avoid the consequence of its failure to mark undermines the marking statute’s public notice function.
It therefore remanded and instructed the district court to recalculate damages based on the date the suit was filed rather than from the time infringement began (within the six year retrospective limitation period provided for in 35 U.S.C. § 286).
But now comes the interesting part. In addition to its arguments based on the disclaimer, Separate from its disclaimer argument, Rembrandt argued that the marking statute should apply on a claim-by-claim basis, rather than to the patent as a whole. Thus, marketing a product covered only by some claims of a patent would bar pre-notice damages only as to infringement of those specific claims. It could still recover pre-notice damages for infringement of other claims of the patent. Samsung, of course, argued that the marking requirement should apply to the patent as a whole.
After deciding that the pre-notice limitation was erased by the disclaimer, the District Judge had no reason to rule on the claim-by-claim theory and expressly declined to do so.
In its opinion, the CAFC noted that Rembrandt did not argue the claim-by-claim theory. However, citing its decision in WesternGeco L.L.C. v. ION Geophysical Corp., the court held that because the District Court declined to consider the issue and it was “properly considered moot” until reversal of another district court ruling, Rembrandt had not waived this argument.
Noting that it was tempting to explore this issue, both because to was interesting and because the parties and the trial court might benefit from early answers, it held that the issue had not been briefed or argued and it followed the usual procedure of directing the trial court to consider the issue in the first instance. We will follow and report further developments.
A final thought on the claim-by-claim issue: Say the accused product infringes claim 1 of the patent (which did not cover the licensed product), and also claim 2 that did cover the licensed product. Would that preclude pre-notice damages? And what if, as in this case, claim 2 has been disclaimed? Would that preclude damages for the patent altogether? We will just have to wait and see.
A Win for the Defendant in the Eastern District of Texas?
Hard to believe, but true. On 14 April, 2017, the CAFC affirmed a jury verdict of non-infringement in Core Wireless v. Apple. The appeal mostly involved claim construction and was focused on the facts, rather than the law, so it’s not really all that interesting as a whole. There was one issue – claim differentiation – that I do want to discuss, but there is also a bit of a gossipy back story.
The patent in suit originally belonged to Nokia, once the leading company in the mobile phone universe. Nokia’s fall from grace is pretty well known, but, in brief, it totally missed out of smart phone phenomenon and eventually withdrew from the handset market and transferred part of its patent portfolio to several Patent Assertion Entities (PAEs). In 2011, Nokia formed a company, Core Wireless (“Core”), to which it assigned another part of its patent portfolio. Later, Core itself became part of Conversant Intellectual Property Management Inc., (a PAE, but apparently one of the more ethical ones in the industry). There’s more to the story, but I will just mention that Core and Conversant have been at war with Apple more or less continuously for about six years. Apple has usually been on the losing end.
All that aside, the doctrine of claim differentiation says that if a dependent claim adds a particular limitation to a parent claim, the addition gives rise to a presumption that the limitation in question is not present in the parent claim. Like almost everything else in patent law, application of claim differentiation can sometimes become complicated, such as when the specification of the patent precludes the desired broader scope of the independent claim. For a good example, see the 2011 decision of the CAFC in Retractable Technologies, Inc. v. Becton, Dickinson and Co. 653 F.3d 1296.
In this case, the question was whether the handset or the base station determined what kind of channel the handset used as an uplink for outgoing data packets. The relevant part of the base claim reads:
means for comparing said threshold value of the channel selection parameter to a current value of the channel selection parameter for basis of said channel selection.
The trial court had construed this to require that the handset be capable of making the channel selection. Apple argued that its device did not have this capability. The jury agreed.
On appeal, Core argued that the limitation in question had not been construed to require that the handset be capable of making the channel selection and argued claim differentiation based on a dependent claim which read “means for making said channel selection on the basis of the result of said comparison.” The added language in the dependent claim demonstrated that the base claim had to be construed more broadly.
The CAFC did not agree, stating that:
The language of the dependent claim does not support Core Wireless’ claim construction argument. The dependent claim does not focus on the performance of the channel selection process in the mobile station, but instead focuses on the fact that the channel selection process is based on the result of the comparison between the threshold value of a channel selection parameter and the current value of the channel selection parameter. The comparison in independent claim 17 is performed “for basis of said channel selection” but is not necessarily the actual basis of the subsequent channel selection, which may be based on other parameters. In contrast, the comparison in dependent claim 18 must in fact be the basis of the subsequent channel selection. Thus, under claim 17, the channel selection process is not strictly tied to the result of the comparison of those values, while under claim 18, it is. For that reason, nothing in claim 18 suggests that the only limitation added in that claim— and thus absent from claim 17—is the requirement that the mobile station be capable of channel selection.
Thus, the moral of the story is that for claim differentiation to work, the dependent claim must actually add a limitation. Narrowing a limitation in the parent claim will likely not be enough.
TRADEMARKS IN THE NEWS
Google Wins a Biggie:
When you search for something on the internet, do you “google” it? Probably so, but what do you do it with? Google®? Internet Explorer®? Microsoft Edge®? Or are they all just “googles” in your mind.
In a decision handed down on May 16, 2017, the U.S. Court of Appeals for the Ninth Circuit has held that there’s a big difference between “googling” something (i.e., verb usage) and Google® as the trademark for a particular search engine.
Section 14(3) of the Lanham Act, the U.S. trademark statute provides that a petition to cancel a registered trademark may be filed if the “mark becomes the generic name for the goods or services, or a portion thereof, for which it is registered. . . “ It further provides that:
[A] registered mark shall not be deemed to be the generic name of goods or services solely because such mark is also used as a name of or to identify a unique product or service. The primary significance of the registered mark to the relevant public rather than purchaser motivation shall be the test for determining whether the registered mark has become the generic name of goods or services on or in connection with which it has been used.
This appeal is from a decision of the Arizona district court granting summary judgment to Google, Inc. in an action brought by David Elliot for cancellation of GOOGLE as a trademark for Google’s internet search engine. The basis for Elliot’s action was that the word “google” is primarily understood as “a generic term universally used to describe the act of internet searching. On appeal, the Ninth Circuit sided with Google, holding that Elliot had not presented sufficient evidence as a matter of law for the case to go to a jury.
Elliot’s case was based on his assertion that that a majority of the relevant public uses the word “google” as a verb to describe the act of searching the internet and that this constitutes generic use as a matter of law. Google countered that verb usage does not automatically destroy the distinctiveness of a trademark, and that Elliot has failed to present evidence that the public considered the name GOOGLE as a term applicable to all search engines. Bear in mind that Google did not need to demonstrate that the public associated GOOGLE specifically with its search engine, but only that Elliot had presented credible evidence to the contrary.
In deciding a motion for summary judgment, an appeals court reviews the mater de novo, it takes its own look at the evidence when viewed most favorably to the respondent, i.e., Elliot and considers if there are any genuine issue of fact to be decided by a jury. It also considers if the trial court correctly applied the applicable law. The court found that the district court’s evaluation of the evidence and application of the law was correct.
The case is unusual, but not because it involves what other Ninth Circuit cases have called “‘genericide”. There are many good trademarks that have become generic, usually because the owner did not take action to protect the distinctiveness of the marks. Aspirin, zipper, thermos, and escalator are just a few examples.
What makes the case unusual is that the claim of genericide is based on usage of the mark to describe what the trademarked product does, in this case, search the internet. Xerox faces the same problem: the general public often uses the verb “to xerox” to mean the act of photocopying.
Elliot argued that the district court misapplied the “primary significance test” of §14(3) of the Lanham Act quoted above by basing its determination on whether the primary significance of the word “google” to the relevant public is as a generic name for internet search engines, or as a mark identifying the Google search engine in particular. Elliott argued that the court should have framed its inquiry on whether the relevant public primarily uses the word “google” as a verb.
In rejecting Elliot’s argument, the court referred to the wording of §14(3) “becomes the generic name for the goods or services . . . for which it is registered” and held that a claim of genericide must relate to o a particular product:
If the relevant public primarily understands a mark as describing “who” a particular good or service is, or where it comes from, then the mark is still valid. But if the relevant public primarily understands a mark as describing “what” the particular good or service is, then the mark has become generic. In sum, we ask whether “the primary significance of the term in the minds of the consuming public is [now] the product [and not] the producer.”
In rejecting Elliot’s argument that verb usage always demonstrates that a mark has become generic, the court note with approval that:
the district court aptly coined the terms “discriminate verb” and “indiscriminate verb” in order . . . to evaluate Elliott’s proffered examples of verb use and determine whether they were also examples of generic use. Although novel, these terms properly frame the relevant inquiry as whether a speaker has a particular source in mind. We have already acknowledged that a customer might use the noun “coke” in an indiscriminate sense, with no particular cola beverage in mind; or in a discriminate sense, with a Coca-Cola beverage in mind. In the same way, we now recognize that an internet user might use the verb “google” in an indiscriminate sense, with no particular search engine in mind; or in a discriminate sense, with the Google search engine in mind.
Because “to google” could be used in both a discriminate and an in discriminate sense, it did not inherently link to a particular product, i.e., Google’s search engine, and therefore could not be a proper test for genericide.
Another interesting point here is that in deciding Google’s summary judgment motion, the trial court assumed that that a majority of the public uses the verb “google” in the indiscriminate send to refer to the act of “searching on the internet without regard to [the] search engine used. In looking at the evidence, the court found that it all did no more that support the court’s indiscriminate use assumption. In its de novo review, the Ninth Circuit fully concurred with the trial court’s view of the evidence.
Does the case have any broad significance beyond its specific factual setting? For one thing, it demonstrates the benefits of trademark owner vigilance. In a post (here) the author points out Google’s efforts to assure that dictionary definitions made clear the distinction between the verb “to google” as applied to searching the internet with the Google search engine and the trademark Google for a particular internet search engine. Although the district court treated the public use of ”to google” in an indiscriminate sense, it still noted that Elliot could not cite a single dictionary definition in which google was so used.
In terms of jurisprudence, the Ninth Circuit did not cite authority from any other circuit on the relevance of verb usage as evidence that a mark had become generic. Nor has a quick internet search (using the Google® search engine) revealed any other cases. Therefore, even though the Ninth Circuit decision appears sound, another case elsewhere involving other facts might yield a different result. And ultimately, if a conflict between circuit courts exists, the Supreme Court may become involved.
Trademark Trolls – The Newest Bad Guys?
Among the enormous changes the Digital Age has brought to our lives, are new ways to behave badly. Some are just social, revenge porn to name a particularly egregious example, but most are perpetrated by those who believe that the proper way to make money is to steal it.
Likely readers of my musings are surely aware if cybersquatting and patent trolls. But abuse of trademarks similar to cybersquatting has been around for a while too, especially in the many countries having first to file trademark systems. And its perpetrators have a name – trademark trolls, or trademark squatters.
China is a notorious haven for trademark trolls, both because of the first to file system in which the first to file owns the rights to the mark irrespective of use, and because of the ways names can be translated and transliterated into Chinese characters. It’s common for an international business seeking to enter the Chinese market to find that numerous variations of its trademarks have already been registered, not only by local competitors, but also by “investors” hoping to extort profit from rightful owners whose trademarks they have registered.
Though China is working diligently to solve its enormous IP rights infringement problems, trademark squatting is legal, and the only real defense is to register a mark in China as soon as you have adopted it, if there is the slightest chance you will want to enter the market in the world’s second largest economy. But even that is tricky because of the translation/transliteration issue. Successful brand protection in China requires expert, preferably local, guidance.
Happily, in other first to file jurisdictions, things are not as bad. The Organisation Africaine de la Propriété Intellectuelle (OAPI or AIPO) system, provides a single registration for its member states (predominantly French-speaking countries). Though it is a first to file jurisdiction, registration is not granted if an applicant knows or should have known that another person had a prior right to use the mark.
As another example, the April 23 posting on the UK IP blog ipKat contained a report (here) about trademark trolling in Cuba, indicating that oppositions by rightful owners based on bad faith and unfair competition have generally been successful. Cuba also provides protection for international marks that are well known in Cuba to some extent.
Admittedly Cuba and the OAPI countries are miniscule markets, but not so, China. Your brand identity is an extremely important marketing tool. Protect it by pre-adoption searches of potential trademarks, and register them immediately.
I don’t usually write about technology in general, but I found a few recent developments to be interesting and I want to share them.
Private Equity is Alive and Well in Israel:
The Times of Israel Start-up Daily reported on 8 May 2017 that private equity investment in Israel for the first quarter of the year totaled $316 million, 22% higher compared to same quarter a year earlier, with 24 transactions as compared to 19 transactions recorded in the first quarter of last year. While there were no large private equity deals – those defined above $50 million — there were six deals in above $25 million each. Moreover, major funding deals are expected in the second quarter.
Interestingly, Israeli private equity funds led capital investments with $226 million or 72% of total capital, an upsurge of 105% from the $110 million for the first quarter of 2016. This substantially exceeded the investment of foreign PE funds, which amounted to only $89 million even though the number of transactions rose to 12 from nine.
Is that a Robot Working in Your Neighborhood Shoe Store?
Even after all these years of exposure to some clever innovations, I still have a sense of wonder as to what people with a bit of imagination can come up with.
For example, when was the last time you saw a fluoroscope in a shoe store? (If you were born after about 1970 when growing awareness of radiation hazards brought about their demise, you might not even know what I’m talking about). The fluoroscope used x-rays to show you and the sales person how well those new shoes fit. But you don’t what to be nuked each time you buy a pair of shoes, so Invertex, a Tel Aviv-based startup, is developing a safer and better alternative.
As reported on 22 May 2017 in Startup Israel (here), the Invertex concept combines artificial intelligence and 3-D imaging technology to analyze users’ feet in stores and to suggest models and sizes that would fit best. The software can also help with online shopping, enabling smartphones to scan feet via an app and making suggestions about what would be the best buy.
Earlier this month, Invertex closed a $2 million seed funding round mainly through Jerusalem-based equity crowd funding VC OurCrowd. OurCrowd’s general partner, Eduardo Shoval, who has joined has joined the Invertex board observed, “Invertex was built on the foundation of deep-technology and strong intellectual property, precisely the ingredients we seek in the companies we invest in.”
The Invertex concept is a combination of software and hardware. The hardware, located in the shoe store creates 3D scans of the customers’ feet and sends them to their cellphones. The scans are sent to a processing location and compared with tens of thousands of other people’s feet — to check what models and sizes worked in the past for people with those kinds of feet. The artificial intelligence part of the product then suggests the best shoes and models. The software also allows for the scanning of shoes’ barcodes in the store to show what colors are available and if there are similar shoes to look at.
For e-commerce versions, the technology would allow the scanning of feet via a smartphone camera. The company expects that its technology will help reduce the number of shoe returns. Fitting shoes is not a science but an art, and the company believes that AI will make the process less subjective.
Of course, nothing will help if you can’t decide what kind of shoes to buy or if style is more important than comfort.
Nor is Invertex the only player in the game. US firm True Fit uses an online technique akin to targeted marketing to correlate body types with purchases and returns of particular brands. But Invertex says its approach is different because of its in-store and e-commerce focus, and because it uses 3D imaging coupled with AI, as opposed to the big data approach used by True Fit.
Invertex says it already has pilot installations in place and is in talks with most of the largest footwear companies. It hopes to become the industry standard, and then go on to eyewear and clothing.