END OF AN ERA FOR TEXAS? SUPREME COURT RULES ON PATENT VENUE

Today, in the long-awaited case of TC Heartland v. Kraft Foods Group Brands, the US Supreme Court unanimously determined where a   domestic corporation “resides” for purposes of establishing proper venue in patent cases.  In short, a domestic corporation “resides” only in its State of incorporation. 

Why is this relevant? And will this have any effect on patent infringement cases going forward?

For years, if it could be shown that a company was subject to personal jurisdiction in that district, then it “resided” in that district and venue was proper.  As such, many plaintiffs brought cases in pro-plaintiff jurisdictions, like Marshall, TX, even though defendants’ principal places of business were elsewhere. 

Going forward, in patent infringement lawsuits, there will be two choices to bring cases: (1) where the US defendant is incorporated or (2) where “the [US] defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C.§ 1400(b)(emphasis added).  The focus may now shift to where companies have their “regular and established place of business.”  States, like Delaware (where many companies are incorporated) or California and New York (where companies have established businesses), could become the new forums of choice.

Akamai Lesson: Craft Claims For Single Party Infringement

By now, you have undoubtedly received ten thousand E-mails informing you of the Federal Circuit’s recent decision in Akamai Technologies, Inc. v. Limelight Networks, Inc. in which the Court continued to wrestle with the notion of divided infringement under 35 U.S.C.§ 271.   In short, the Court refused to extend a new joint tortfeasor approach to direct infringement under 35 U.S.C. § 271(a), noting that to do so would make the other indirect infringement provisions of §§ 271(b) and (c) redundant.  Instead, the Court reiterated that for direct infringement under §271(a) to occur, all steps of a method claim must be performed by or attributable to a single entity.   

When can the combined acts of multiple parties be “attributed” to a single party?  Yet again, the Court pointed to a “mastermind” theory in which one party exercises “direction or control” over the entire process to the point that every step is attributable to the controlling party. 

The Court also outlined when vicarious liability might trigger direct infringement under §271(a): (1) principal-agent relationships; (2) contractual relationships; and (3) joint enterprises.  The most interesting was “joint enterprise,” which occurs when there is an agreement between members sharing a “community of pecuniary interest” in a “common purpose,” with each having an “equal right to voice direction of the enterprise,” thereby giving “equal right of control.”  What’s important to note is that none of these scenarios involved arms-length seller-customer relationships. 

Since the Supreme Court last decided Akamai, the safest bet for patent prosecutors has been to craft claims to capture infringing activity by a single party. The Federal Circuit’s comments that “the claim drafter is the least cost avoider of the problem of unenforceable patents due to joint infringement” only reinforce this approach. Claiming the acts of your customers is rarely beneficial and, in light of the Federal Circuit’s recent decision, will not make your infringement case any easier.

Chances Were Slim to None: Shapewear Claims Fall Short

Just when you thought that you heard it all, the FTC announced yesterday that it settled with marketers of caffeine-infused “shapewear” over unsubstantiated weight loss claims.  According to the FTC, marketers urged consumers to wear a fabric that was allegedly infused with, among other things, caffeine for metabolizing fat.  The caffeine was supposed to dehydrate fat cells, making the wearer appear slimmer and firmer.  Claims like “[t]ake up to 2” off hips,” “[i]nstant trimming when you wear them,” and “works with your body to eliminate cellulite” came under attack by the Commission. The FTC was critical of the studies that had been offered as alleged substantiation.  Besides being uncontrolled and unblinded, the studies revealed average reported hip reductions of less than of fractions of an inch. Outlier results were not persuasive.  In the end, the companies entered into proposed Consent Orders requiring over $1.5 million to be refunded to consumers. Once again, companies have been pursued when the Commission felt that they distorted results and made outlandish claims.  Consumers continue to search for quick fixes for weight loss and the FTC continues to hold companies accountable.  This sector has been a priority for the Commission for years due to the inherent health-related concerns associated with specious weight loss claims. Any company operating in this domain should err on the side of caution in its advertising.

Copyright Office Does Not Monkey Around

Selfies (self-portrait photographs) appear daily on the Internet. However, you don’t often see them taken by a monkey. There has been a lot of recent press about the ownership rights associated with a macaque monkey’s “selfie” created with a British photographer’s camera.  The monkey allegedly swiped the photographer’s camera back in 2011 while he was trekking in an Indonesian forest.  Wikimedia Commons got a hold of the photo and made it available for free, public use.  Arguing that the monkey was akin to his assistant, the photographer claimed that the photo had been misappropriated and that he had lost tens of thousands of dollars in revenue associated with this photograph that went viral. Rarely does the government react so quickly to resolve private disputes, but on Tuesday, the U.S. Copyright Office updated its Compendium of U.S. Copyright Office Practices and addressed this very issue.  The Office clarified that it “will not register works product by nature, animals or plants. . . Examples: A photograph taken by a monkey….”  In case there was any doubt, “[a] mural painted by an elephant” is also not protected. While it’s generally not advisable to take someone else’s work, for now, the works of the animal kingdom are fair game.

AAA Trap: What Rules Apply?

It’s not uncommon for companies to use an arbitration provision in their contracts to resolve disputes as an attempt to control costs. Many cite to the pending rules of the American Arbitration Association or AAA. Depending on whether your case is a “Large, Complex” case (i.e., your claims are at least $500,000), you might not have as much structure as you may desire to govern the handling of your dispute, thereby causing uncertainty and potentially driving up the cost. In the case of Large, Complex matters, the arbiter is granted more deference in establishing the discovery to be exchanged and depositions to be conducted.  In smaller matters, however, there is an argument that the arbiter does not have as much discretion.  More importantly, nowhere does it mention what procedural rules and limitations apply. For example, how many interrogatories or depositions will be permitted? What is reasonable notice for a deposition to occur? Normally, applicable state or federal rules of civil procedure  would provide a framework to answer these questions.  However, they don’t necessarily apply in arbitration unless specifically called out in the arbitration provision. This uncertainty can cause disputes between the parties, thereby driving up the cost.  Depending on which side of the dispute your company is on, you may or may not want to have extensive discovery to assist you with your case.  So, if you want more certainty, make sure to spell out what rules of civil procedure should apply in the event of arbitration.

What Will Be the Standard for Direct Infringement for Method Claims?

Much has been written about the Supreme Court’s recent Akamai decision.  However, a more interesting topic is whether the Federal Circuit will revisit its standard for direct infringement of a method claim. In Muniauction, the Federal Circuit held that for direct infringement of a method claim to occur, all of the claimed steps have to be attributable to a single actor, either by performing them itself or by directing or controlling others to perform them. In Akamai, the Supreme Court appeared to question this standard, stating that “[a]ssuming without deciding that the Federal Circuit’s holding in Muniauction is correct…” and allowing the Federal Circuit the opportunity “to revisit the § 271(a) question if it so chooses.”  Even though it acknowledged that under the Federal Circuit’s standard, a party could evade liability by dividing up performance of the steps of a method claim with another which the party did not direct or control, the Supreme Court was unwilling to create a new standard for indirect infringement that did not have a statutory basis. Until the Federal Circuit changes the law, the Muniauction standard stands- i.e., there can be no direct infringement of a method claim if all the steps are not attributable to one actor.  More importantly, if there is no direct infringement, there can be no indirect infringement. Patent prosecutors should keep this in mind when crafting claims and clients should consider this when they participate in a multi-step process.  Claims should be drafted to ensnare a single actor and clients should evaluate whether one entity directs or controls an entire process when a method patent claim is at issue.

The Good, The Bad And/Or The Ugly

In case you have been on vacation for the past two weeks, here is a quick update of some major developments in the intellectual property arena. Depending on your position, they may represent the “good,” the “bad” or the “ugly.” Alice Corporation Supreme Court Decision Yesterday, in the Alice Corporation case, the Supreme Court provided further comment on patent-eligible subject matter under 35 U.S.C. § 101 in the computer software context.  The patent claims-at-issue were directed to “a computerized scheme for mitigating ‘settlement risk.’”  The Court held, in part, that “the claims at issue [were] drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.”  The takeaway is that merely reciting a computer system configured to implement an abstract concept will not be patent-eligible subject matter. Rader Resigns As previously reported, Federal Circuit Judge Randall Rader stepped down as chief judge last month in the midst of criticism over his controversial e-mail.  Last week, Judge Radar announced that he will be retiring from the bench at the end of the month.  He intends to teach. Washington Redskins Trademarks Cancelled On June 18, 2014, the Trademark Trail and Appeal Board (“TTAB”) in the Amanda Blackhorse matter cancelled Pro-Football, Inc.’s trademark registrations consisting in whole or in part for the term REDSKINS for professional football-related services.  The marks were cancelled because they were found to be disparaging to Native Americans and as such, were obtained in violation of 15 U.S.C. §1052(a), which prohibits “registration of marks that may disparage persons or bring them into contempt or disrepute.”  The TTAB was quick to point out that its decision solely related to the right to register these marks and does not deal with the right to use such marks. This is an important distinction as this case will surely be appealed and does not extinguish any common law enforcement rights that may exist. Thus, if you are thinking about starting your own REDSKINS clothing line, you might want to rethink that decision.

Tesla Sparks Electric Vehicle Market

Yesterday, it was reported that Tesla Motors has made the decision to allow anyone to use its patented technology.  Expressing frustration with the evolution of long range electric cars, it hopes that this move will spark innovation.  Tesla allegedly owns about 200 patents in this area, all of which are available for use. Interestingly, this move also coincides with Tesla’s opening of the country’s largest lithium-ion battery plant. There’s speculation that Tesla may be trying to create other customers for its batteries with this bold move. So, what happens if Tesla’s strategy backfires? Will it ever be able to enforce these patents once Pandora’s Box has been opened to allow free, good faith use by all? It seems like a risky decision.

Rader’s Reign Comes to an End

The Federal Circuit Court of Appeals announced that Chief Judge Randall R. Rader will be stepping down as Chief Judge on May 30, 2014.  Judge Sharon Prost will succeed Judge Rader, who will remain active on the bench. The Federal Circuit is a unique court of appeals because its jurisdiction is not based on its geographic location, but rather on particular subject matter.  It is most well known for having exclusive jurisdiction over patent appeals from all U.S. District Courts. Nominated in 1990 by President Bush, Judge Rader has been one of the more outspoken and influential judges in the area of patent law.  Although there are rumors being circulated as to why Judge Rader has stepped down, we should remember that there are always two sides to every story.  Judge Rader could have remained within the Beltway all of these years, but, instead, he made an effort to assist practitioners across the country. We should keep this in mind in the coming weeks.

Old Attorneys’ Fees Provision Deemed “Unduly Rigid”

Today, in the Octane Fitness case, the Supreme Court lowered the bar for establishing an award of attorneys’ fees in “exceptional” patent infringement cases. In the past, such fees had been very difficult to obtain because of the onerous standard imposed by the Federal Circuit. Even when accused companies prevailed against unfounded allegations of patent infringement, they failed to recoup the millions of dollars expended on their defense. Section 285 of the Patent Act states: [t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” In order to be deemed an “exceptional” case, the Federal Circuit had previously required that it be shown that the litigation was brought in “bad faith” and was “objectively baseless.” A litigation was deemed to be “objectively baseless” when “no reasonable litigant could believe it would succeed.” Further, all of this had to be established by “clear and convincing” evidence. The Supreme Court did several notable things in its decision. First, it shunned the prior “clear and convincing” evidentiary burden in favor of a “preponderance of the evidence” (i.e., more likely than not or 51%) standard, which mirrors the burden for patent infringement. Second, it attempted to loosen what it deemed to be a “too rigid” standard by defining an “exceptional case” as “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Court left this determination to the U.S. District Courts’ discretion, considering the “totality of the circumstances.” It will be interesting to see how much clarity this new standard brings to future requests for attorneys’ fees. Showing how a case “stands out from others” should be quite an interesting exercise. Removing the “bad faith” requirement and lowering the evidentiary bar should increase companies’ chances of being awarded their fees. Now, companies should be even more concerned about pursuing specious claims of infringement.

REFLECTIONS OF A FORMER REGULATOR ON FTC AND IP ISSUES