Publications / McDermott Newsletters / IP Update, Volume 8, No. 7, July 2005

IP Update, Volume 8, No. 7, July 2005

July 2005

Articles In This Issue

Copyright / File Sharing

Your Kindergarten Teacher Was Wrong—Sharing Is Not (Always) Good
by James Griffith and Paul Devinsky

In a landmark copyright decision, the U.S. Supreme Court, in reversing the Ninth Circuit ruling that distribution of software capable of substantial non-infringing uses did not result in contributory infringement, unanimously held that companies that develop and distribute file-sharing software may be held responsible for infringement committed by the software’s users if the companies intended the software to be used to commit infringement. Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., Case No. 04-480 (June 27, 2005) (Souter, J.). The decision reversed and remanded a Ninth Circuit ruling.

The defendant in the case is a developer and distributor of computer software programs that enable users to trade files with one another over the internet. While a small minority of users employ the software to trade material in the public domain, or otherwise not subject to copyright protection, the vast bulk of traded files consist of copyrighted music and motion picture files. The plaintiff filed suit for contributory copyright infringement alleging illegal file sharing on a massive scale using the defendant’s software programs; infringement that resulted in billions of dollars in lost revenue and ongoing, rampant theft.

The specific issue addressed by the Court was “under what circumstances the distributor of a product capable of both lawful and unlawful use is liable for acts of copyright infringement by third parties using the product.” The Ninth Circuit had affirmed summary judgment for the defendant, basing its decision on the Supreme Court’s opinion in Sony Corp. of America v. Universal City Studios, Inc. In that case, the Ninth Circuit held Sony could not be held liable by copyright owners for the conduct of consumers who used Sony’s Betamax VCRs to make copies of movies, even though some of those copies were infringing, since the VCR was also capable of commercially significant (or substantial) non-infringing uses; namely, authorized uses and fair use. The defendant in Grokster argued, and the lower courts agreed, that their file-sharing software was protected under the Sony doctrine because the software, like a VCR, could be used for substantial non-infringing uses, such as the distribution and trading of un-copyrighted and authorized material. Additionally, the defendant argued they could not stop the infringement committed by users of their software because neither company maintained or controlled a central server through which users accessed or located copyrighted material.

The Supreme Court disagreed, holding the Sony test applied only where the plaintiff tried to impute intent to infringe based on the characteristics of a product. However, the Court held that nothing in Sony required a court to ignore actual evidence of intent if such evidence exists. Because the evidence in this case raised a genuine issue of material fact regarding whether the defendant expressed an intent for its software to be employed by users to infringe the plaintiff’s copyrights, the Court remanded with the instruction that “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.”

The Court cited facts that established the defendant’s intent to stimulate users to engage in copyright infringement, such as advertisements promoting the software programs as an alternative to or compatible with Napster; affirmatively assisting users in locating and illicitly downloading copyrighted materials; failing to develop a filtering tool or other mechanism to reduce infringing activity; and following a business model whereby the software was distributed free to users and revenue was generated through advertising, whose value turned on high-volume use. Further, the record demonstrated the actual use of the program was overwhelmingly infringing.

In a concurring opinion, Justice Ginsburg and three justices noted the defendant failed to establish that their software products fell within the Sony safe harbor for products “capable of commercially significant non-infringing uses” because the file-sharing programs were “overwhelmingly used to infringe.” In another concurring opinion, Justice Breyer and three other justices disagreed and suggested the scope and amount of user infringement was comparable to that in Sony; the Ninth Circuit’s conclusion that the software fell within the safe harbor was correct. However, because three other justices offered no opinion on this issue, the Court left for lower courts the circumstances under which file-sharing software and other controversial products could be distributed without running afoul of copyright laws. Also left unanswered was whether a plaintiff can establish liability when the evidence of purposeful intent to infringe is less obvious than it is in this case.

In apparent response to the many amici briefs voicing concern that imposing indirect liability here could chill technological innovation by introducing legal uncertainty into the product development and marketing process, the Court acknowledged the issue of contributory copyright liability for software and technology companies required balancing the copyright interests of content owners with the free development of new technologies and consumer products. The Court found, however, the argument for imposition of indirect liability in this case overwhelmed the risk posed to development of future technology because the defendant here clearly intended and promoted its product to be used in an infringing manner.

Patents / Claim Construction

Federal Circuit Abandons "Dictionary-First" Rule of Claim Construction
by Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit has now issued its long expected en banc decision, touching on most of the issues identified by the Court in its en banc order but expressly declining to address whether it should accord any deference to trial court claim construction rulings. Phillips v. AWH Corp., Case Nos. 03-1269, -1286 (Fed. Cir. July 12, 2005) (en banc) (Bryson, J.) (Mayer, J. dissenting).

The majority opinion provides a useful, going-forward overview of claim construction protocols and canons of construction as well as a clear retreat from the Texas Digital “dictionary-first” approach to claim construction that has permeated many recent cases. The Phillips decision heralds a return to the intrinsic/extrinsic hierarchal evidence approach of Vitronics v. Conceptronic (1996) and the line of cases that followed. In Vitronics, the Federal Circuit set out a hierarchal framework for claim construction in which one starts with the intrinsic evidence, i.e. the claims, the specification and the prosecution history, to interpret the claims. If the meaning of the claim is clear from examining the intrinsic evidence, the inquiry is over. If the meaning is still unclear, one examines the extrinsic evidence, such as dictionaries, the prior art, the testimony of experts and, in rare occasions, the testimony of the inventor.

The Federal Circuit also reemphasized the importance of the specification for construing claims, citing the venerable (1967) Court of Claims case, Autogiro. The Court instructed the specification’s role is not limited to instances where the inventor expressly defines or limits a term in the specification. Rather, it noted the specification is often the single most important claim construction tool and is more helpful than the prosecution history.

Interestingly, while the Federal Circuit stressed both that “[t]he inquiry into how a person of ordinary skill in the art understands a claim term provides an objective baseline from which to begin claim interpretation,” it also warned against undue reliance upon expert testimony—particularly, testimony which is conclusory, unsupported or contradicted by the intrinsic evidence. The Court likewise noted that dictionaries, particularly technical dictionaries, are often helpful to understand how a claim term would be construed by one of skill in the art in question. However, the Court warned dictionary definitions should not be overemphasized since dictionaries attempt to aggregate all possible definitions for particular words and applying all definitions not expressly disclaimed will result in unduly broad claims.

The Court also warned that even though there are times claims should be construed to preserve their validity, that maxim is not a “regular component of claim construction” and generally only applies when the scope of the claim is still ambiguous after applying all of the available tools of claim construction.

By declining to rule on the deference issue the Court maintained its present practice of giving no deference to district court claim construction rulings. Indeed, it was this refusal to accord deference to the more fact-like claim construction inquiries that prompted Judges Mayer and Newman to dissent.

Practice Note
Litigants can now expect that future Markman hearings will be far more focused on intrinsic claim construction evidence and far less on what had become the “battle of the dictionary definitions.” It is also less likely future Markman rulings will result in breathtakingly broad literal claim scope as compared to cases decided under the Texas Digital “dictionary-first” rule.

Patents / Enablement

Federal Circuit Confirms Disparate Enablement Standards for Section 112 and Anticipation
by Christopher D. Bright

Attempting to reconcile two apparently conflicting lines of precedent, the U.S. Court of Appeals for the Federal Circuit has held that “what constitutes proper enablement of a prior art reference for purposes of anticipation under section 102…differs from the enablement standard under section 112.” Rasmusson v. Smithkline Beecham Corp., Case Nos. 04-1192, -1192 (Fed. Cir. June 27, 2005) (Bryson, J.).

In a patent interference, the Board of Patent Appeals and Interferences found Rasmusson’s application was not entitled to the benefit of an earlier filing date and, therefore, did not establish priority over Smithkline’s patents. The Board also found Smithkline’s patents were not anticipated by a published European patent application. The Federal Circuit affirmed the Board’s finding on Rasmusson’s effective filing date but reversed and remanded on anticipation.

The count in the interference was a method of treating prostrate cancer. Rasmusson sought the benefit of earlier-filed applications disclosing a chemical compound (finasteride) known to inhibit an enzyme that converts testosterone into an androgen (DHT) now known to be associated with prostrate cancer. The Federal Circuit agreed with the Board that Rasmusson’s earlier-filed applications failed to show the efficacy of the chemical compound finasteride as a way to treat prostrate cancer (in part because Rasmusson failed to provide experimental data). According to contemporaneous literature in the art, it was not clear that DHT caused prostrate cancer, and finasteride’s anti-tumor effects may have been due to inhibition of testosterone receptor binding instead of DHT enzyme inhibition. The Federal Circuit held that the enablement requirement under §112 requires more than “an unproved hypothesis,” namely, disclosure of a practical utility of the invention.

At the same time, the Federal Circuit declined to apply this standard to whether a prior art reference was sufficiently enabling to anticipate. Unlike §112, §102 does not require the prior art permit “use” of the invention: “[A] prior art reference need not demonstrate utility in order to serve as an anticipating reference under section 102.” Although the prior art reference failed to demonstrate the efficacy of finasteride in treating prostrate cancer, the Federal Circuit—holding the reference could still be enabling and anticipatory—remanded for further findings by the Board.

Practice Note
This decision is of particular importance in the chemical and biological arts. Applicants tempted to file their applications quickly, before testing their inventions, should be mindful they may actually be called upon to prove the practical utility and efficacy of their inventions.

Patents / Enablement

When Is Experimentation "Undue"?
by David Larson

Showing uncharacteristic deference to a jury’s findings regarding validity, a divided panel of the U.S. Court of Appeals for the Federal Circuit struck down two patents directed to antennas designed to receive both satellite and terrestrial broadcast signals at the same frequency. Northpoint Technology, Ltd. v. MDS America, Case Nos. 04-1249, -1295 (Fed. Cir. June 28, 2005) (Bryson, J.). The Court upheld jury findings that the patent claims were invalid due to lack of enablement, holding there was substantial evidence to show undue experimentation would be necessary to practice the patents.

Northpoint devised and patented a system that receives both satellite and terrestrial signals in the same frequency range. The preferred embodiment shows a first directional antenna, pointed north, receiving the terrestrial signal, and a second directional antenna, pointed south, receiving the satellite signal. The terrestrial signal does not interfere with the satellite signal because—in the phrase used in the patent claims—the signal received by each antenna will be outside the “directional reception range” of the other antenna.

The defendants argued the “directional reception range” limitation was not enabled because the patents did not disclose how to ensure an antenna would not receive signals from unwanted directions. The defendants introduced evidence that many additional parameters besides physical direction, such as power level, flux density and carrier frequencies—none of which were described in the patents—are necessary to avoid interference between the two antennas. This evidence included testimony of a named inventor and a report by Northpoint to the U.S. Federal Communications Commission detailing interference mitigation techniques. Although Northpoint argued these techniques would be obvious to one of skill in the art, the Court concluded “[b]ased on that evidence, the jury could properly conclude that the techniques for avoiding interference were not so plain to a person of skill in the art so as to obviate the need for any enabling disclosure in the patent.” As for the jury finding, the majority stated, “[w]hile determining whether the required amount of experimentation is ‘undue’ is an inherently imprecise undertaking, the jury was properly instructed as to its task, and it reached a reasonable conclusion.”

Judge Dyk, writing in dissent, sharply disagreed that the evidence was sufficient to show undue experimentation, arguing the defendants’ evidence merely “establish[es] that experimentation was required to determine the required power level.” Observing that no witness testified the experimentation required was “undue,” Dyk said “[u]ndue experimentation is a matter of law based on underlying fact,” and “the evidence presented by MDS was legally insufficient to establish lack of enablement.”

Practice Note
This case highlights that patent prosecutors should take care to avoid later second-guessing as to whether implementation techniques prescribed on the specification are sufficiently enabling by including as much detail as practical, especially if the applicant has published such details elsewhere. Litigators should take note of the deference the Federal Circuit showed the jury finding that the patents have insufficient detail for them to be enabling where too much material known to the applicant was left out of the patent applications.

Patents / §271(f)

Closing a Loophole, for Now!
by Stephen K. Shahida and Ted Jou*

For Microsoft and the global software industry, the U.S. Court of Appeals for the Federal Circuit has resolved a longstanding open question in the patent laws. After deciding in March of this year the term “component” in 35 U.S.C. § 271(f) includes software (Eolas Technologies, Inc. v. Microsoft Corp.), the Court has now decided the term “supplied” in the same statute includes copies of the software made overseas from a single master disk shipped from the United States. AT&T Corp. v. Microsoft Corp., Case No. 04-1285, 2005 U.S. App. LEXIS 14082 (Fed. Cir. July 13, 2005) (Lourie, J.).

The question before the Court was simple: If software designed, developed, tested, marketed and supported in the United States infringes a U.S. patent when in operation, can the software company escape liability by transferring the last step, installing the software onto a computer, overseas? The AT&T Court answered the question with an unequivocal no.

The facts in AT&T were not in dispute. Microsoft developed the Windows operating system and stored the Windows software on a limited number of “golden master” disks in the United States. Some of these golden masters were shipped abroad, where foreign computer manufacturers replicated the disks. These copies were then installed onto computer hardware that was ultimately sold to consumers.

The relevant statute, 35 U.S.C. § 271(f), creates liability where an infringer “supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention.” Congress first enacted this law in 1984 after the Supreme Court in DeepSouth v. Laitram found that potential patent infringers could avoid liability by manufacturing components of a patented product in the United States but assembling it abroad. According to the Congressional Record, § 271(f) was passed to “close a loophole in patent law.”

Microsoft believed this loophole was still open for software. First, it argued the word “component” should not apply to software. The Court, however, noted it had already rejected that contention in Eolas, while the AT&T appeal was still pending. Second, Microsoft argued that although it admittedly supplied the “golden master” disk from the United States, it could not be held to have “supplied” the foreign-replicated copies actually installed onto computer hardware abroad. Microsoft drew an analogy to a master key sent abroad to be copied, but the Court found this lock-and-key hypothetical “unpersuasive and irrelevant to this case.” In rejecting Microsoft’s arguments about the legal and factual distinctions between “supplying” and “copying,” the Federal Circuit considered “the nature of the relevant technology and business practices” and concluded that for software, “the act of copying is subsumed in the act of supplying.” The Court refused to permit a “technical avoidance of the statute by ignoring the advances in a field of technology.”

Practice Note
The Federal Circuit’s definitive ruling in the AT&T case is sure to have far-reaching effects not just in the multi-billion dollar software industry, but also in many other advanced technology fields such as fabless semiconductor manufacturing.

*Ted Jou is a summer associate at McDermott Will & Emery LLP and is currently attending the University of Virginia School of Law, where he will be receiving his JD in 2006. He attended the California Institute of Technology and holds a bachelor's of science degree with a concentration in Applied & Computational Mathematics.

Patents / Anticipation

Optional Inclusion in Prior Art Reference Defeats Express Exclusion of Element in Anticipation Analysis
by Astrid R. Spain

The U.S. Court of Appeals for the Federal Circuit affirmed summary judgment holding claims for the composition of a vitamin supplement invalid and, therefore, not infringed because the claims, which stated a requirement the composition be “essentially free of antioxidants,” were anticipated and obvious in light of an earlier European patent application that “optionally includes” antioxidants. Upsher-Smith Lab. v. Pamlab, LLC, Case No. 04-1405 (Fed Cir. June 17, 2005) (Rader, J.).

Upsher-Smith sued PamLab and claimed PamLab was infringing Upsher-Smith’s patents covering vitamin supplements that are essentially free of antioxidants. The relevant claims of the patent recite vitamin supplement compositions containing folic acid and B12 that are “essentially free of antioxidants.” The prior art both taught vitamin compositions that included adding other vitamins and antioxidants for additional health benefits and recognized that several substances known to be antioxidants destroy certain vitamins. However, the prior art did not teach that it was the “antioxidizing” properties of those substances that were responsible for the destruction. The discovery that antioxidant properties of substances destroy vitamin B12 and folic acid, stated as an express exclusion of antioxidants, was admittedly the only distinction between the claims at issue and the prior art. An earlier European patent application taught compositions both with and without antioxidants.

Reiterating the century-old axiom of patent law that a product “which would literally infringe if later in time anticipates if earlier,” the Federal Circuit found the European patent application anticipated the claims because compositions made without antioxidants according to the European application would infringe claims expressly excluding antioxidants. The Federal Circuit rejected Upsher-Smith’s arguments that the European application teaches away from expressly excluding antioxidants, stating “a reference is no less anticipatory if, after disclosing the invention, the reference then disparages it. Thus, the question whether a reference ‘teaches away’ from the invention is inapplicable to an anticipation analysis.” The Court similarly rejected the argument that the European application teaches a “genus” that could not anticipate the claimed “species,” stating the claimed compositions were equally broad as those taught by the European application. The Federal Circuit concluded the claims were both anticipated and obvious, noting regardless of the significance of the inventor’s discovery, it did not entitle him to “withdraw some vitamin compositions from the public domain by explaining or purporting to claim the scientific underpinnings of their operation.”

Patents / Claim Construction / Prosecution History Estoppel

Applicant’s Silence in Response to Examiner’s Characterization of Claim Is Not Clear and Unambiguous Surrender
by Michael R. O’Neill

The U.S. Court of Appeals for the Federal Circuit held that an applicant’s silence in response to the unilateral statement of an examiner regarding claim scope made in stating reasons for allowance does not reflect the necessary clear and unambiguous disavowal of claim scope or acquiescence so as to give rise to prosecution history estoppel. Salazar v. Procter & Gamble Co., Case No. 04-1013 (Fed. Cir. July 8, 2005) (Rader, J.)

Salazar brought suit against Procter & Gamble (P&G), alleging infringement of Salazar’s patent claiming a toothbrush with “elastic stimulator rods and elastic polishing rods.” During prosecution, the examiner rejected the sole independent claim as obvious over two prior art references and objected to the remaining dependent claims as allowable subject matter dependent upon a rejected base claim. Salazar canceled the original claims and filed new claims based on the allowable subject matter. The examiner issued the claims without rejection. In the notice of allowance, however, the examiner stated the claims were allowable because, although the prior art recited “rods” made of nylon, nylon is not considered to be “elastic.” The notice of allowance was the first and only time during prosecution that the examiner mentioned the term “elastic.” Salazar did not respond to the examiner’s statement.

P&G moved for summary judgment on the ground its accused toothbrushes do not include the “elastic” limitation. Based on the examiner’s remark in the notice of allowance, the district court construed the term “elastic” as “any material other than nylon, capable of returning to an initial state or form after deformation.” Based on that construction, the court granted summary judgment of no literal infringement and also held the doctrine of prosecution history estoppel barred Salazar from asserting infringement under the doctrine of equivalents. Salazar appealed.

The Federal Circuit reversed and remanded for further proceedings, noting that, in construing claims, the court must consider the prosecution history to determine whether the applicant clearly and unambiguously disclaimed any interpretation of a claim during prosecution in order to obtain allowance. The Court further noted that under Festo, prosecution history estoppel serves to limit the doctrine of equivalents when an applicant clearly and unmistakably surrenders subject matter through arguments made to the examiner. The Court also noted, however, that under the applicable U.S. Patent and Trademark Office regulations, an applicant is not required to respond to the unilateral statements of an examiner in stating reasons for allowance and held that if the applicant declines to respond, it is not deemed to have acquiesced to those reasons. On that basis, the Court concluded an applicant’s silence or lack of response to an examiner’s unilateral statement of reasons for allowance does not amount to a clear and unambiguous disavowal of claim scope or a clear and unmistakable acquiescence to the examiner’s characterization.

Patents / Jurisdiction

Case or Controversy Depends on the Timing of Covenant Not to Sue
by Jiri Smetana

In deciding whether the district court properly dismissed as moot the defendant’s unenforceability counterclaim on the ground there was no outstanding case or controversy in light of a post-verdict covenant not to sue, the U.S. Court of Appeals for the Federal Circuit distinguished a previous ruling and found that a post-verdict covenant not to sue did not deprive the district court of jurisdiction to hear the defendant’s counterclaim. Fort James Corp. v. Solo Cup Co., Case No. 04-1365, 2005 U.S. App. LEXIS 11924 (Fed. Cir. June 22, 2005) (Gajarsa, J.) (Shell, J., dissenting).

Fort James brought suit against Solo Cup alleging infringement of three patents related to disposable pressed paperboard containers and their methods of manufacture. Solo Cup denied the infringement allegations and counterclaimed for declarations the patents were invalid, unenforceable and not infringed. The district court bifurcated the trial to preclude Solo Cup from presenting evidence to the jury on inequitable conduct and unclean hands, the issues underlying Solo Cup’s unenforceability counterclaim and its request for attorney fees. A jury trial was held, and the jury returned a verdict finding Solo Cup did not infringe any of the patents-in-suit. Immediately after the jury was dismissed, Solo Cup asked the court to schedule a hearing on the bifurcated issues, inequitable conduct and unclear hands. Fort James opposed Solo Cup’s request on the ground the jury verdict negated the controversy underlying the unenforceability counterclaim. As an exhibit to its post-trial brief, Fort James attached a declaration of its general counsel stating Fort James covenanted not to sue Solo Cup on the three patents originally at issue, and it would not seek to overturn the jury's verdict (the post-verdict covenant). The district court, relying on Super Sack Mfg. Corp. v. Chase Packaging Corp., dismissed Solo Cup’s unenforceability counterclaim as moot.

In Super Sack, the Federal Circuit stated “a patentee defending against an action for a declaratory judgment of invalidity can divest the trial court of jurisdiction over the case by filing a covenant not to assert the patent at issue against the putative infringer with respect to any of its past, present, or future acts.” However, in the present case, the Federal Circuit found the district court’s literal application of the holding of Super Sack failed to comprehend the unique procedural posture of the instant case. In Super Sack and its progeny, the patentee’s covenant not to sue was filed prior to consideration or resolution of the underlying infringement claim. In such circumstances, the promise not to sue obviated any reasonable apprehension that the declaratory judgment plaintiff might have of being held liable for its acts of infringement. However, the post-verdict covenant had no effect on Fort James’s claim for infringement because that controversy had already been resolved by the jury’s verdict. The question then became whether the court retained jurisdiction to hear Solo Cup’s declaratory judgment counterclaim after the jury determined Solo Cup’s products did not infringe Fort James’s patents.

The Federal Circuit, citing the Supreme Court in Cardinal Chem. Co. v. Morton Int'l, Inc., explained that a counterclaim questioning the validity or enforceability of a patent raises issues beyond the initial claim for infringement that are not disposed of by a decision of non-infringement. The Federal Circuit found the district court erred as a matter of law in holding it did not have jurisdiction to hear Solo Cup’s counterclaim. The Court remanded for resolution of the issues properly before the court prior to its order to bifurcate, including Solo Cup’s claim of unenforceability on the basis of inequitable conduct.

In dissent, Judge Schall agreed this case differed from Super Sack in that Fort James did not issue its covenant until after the jury’s finding of non-infringement, but in his view, that did not create or sustain the controversy between the parties. He reasoned that while the timing of the covenant may have seemed unfair to Solo Cup, the fact remained Solo Cup was no longer at risk of liability for infringement. Judge Shall conceded that while it may seem unfair to allow a patentee to first proceed with its infringement claim and, if the result is not favorable, eliminate the court’s jurisdiction over the accused infringer’s counterclaim by covenanting not to sue, fairness is not part of the jurisdictional inquiry.

Patents / Inventorship

Were You Lying Then, or Are You Lying Now?
by Thomas Wolfe

Addressing the issue of inventorship, the U.S. Court of Appeals for the Federal Circuit reversed a decision granting summary judgment of invalidity of a patent based on contradictory declarations by the same person because a genuine issue of material fact exists as to which declaration is the truth. Checkpoint Systems, Inc. v All-Tag Security S.A., Case No. 04-1395 (Fed. Cir. June 20, 2005) (Schall, J.).

Checkpoint sued All-Tag for infringement of a patent Checkpoint had acquired through the purchase of other business interests. The patent application from which the patent issued was filed by a sole inventor, Mr. Jorgenson, and included language in a declaration stating the inventor identified himself as an independent inventor. Two others who worked with Mr. Jorgenson submitted declarations during prosecution that stated Mr. Jorgenson was the sole inventor. After the litigation began, the inventor and the two other declarants submitted new declarations stating Mr. Jorgenson was not the sole inventor. The new declarations also stated that another of the declarants was a co-inventor, and this other inventor’s name was intentionally left off of the application. All-Tag moved for summary judgment to find the patent invalid because it violated §102(f) of the patent statute for incorrectly listing the inventors of the patent. The district court granted summary judgment in favor of All-Tag.

After reviewing the facts, the Federal Circuit succinctly stated the issue was whether summary judgment was proper when the same declarants made contradicting statements. In this case, the defendants proffered a later set of declarations stating that two of the declarants were co-inventors, while the plaintiff proffered the original declarations from the patent application which stated the only inventor was Mr. Jorgenson. The Federal Circuit found, because there was flatly contradictory evidence related to the matter critical to determining validity under §102(f), the record was not amenable to summary judgment. In fact, the Federal Circuit stated the question remaining is whether the declarants lied to the U.S. Patent and Trademark Office in 1988, or whether they are lying to the courts now.

Patents / Claim Construction

Penny-wise but Pound-Foolish: Arguing Patentability of Groups of Claims May Not Be Effective
by Thomas Wolfe

Addressing an issue of claim construction involving reliance on prosecution history to limit a claim term, the U.S. Court of Appeals for the Federal Circuit reversed a district court decision of infringement and revised the district court’s claim construction. Seachange International, Inc. v C-Cor, Inc., Case Nos. 04-1375, -1498 (Fed. Cir. June 29, 2005) (Linn, J.).

The patent at issue is directed to the concept of extending the RAID-5 storage protocols to a distributed computer system. At issue, for purposes of claim construction, was whether the processor systems within the distributed computer systems were connected by any network or were limited to a network that connected every processor system through direct, point-to-point, two-way channel interconnections.

The district court found infringement of Seachange’s patent. C-Cor appealed, arguing the court had improperly construed the terms “network for data communications,” “distributed computer systems” and “processor systems.” When these terms are properly construed, C-Cor argued it would be entitled to a judgment of non-infringement.

The Federal Circuit reviewed the file history of the patent and found the applicant made two arguments related to patentability of a group of claims that included the claims at issue in this case. The examiner had rejected the entire group as un-patentable as being obvious over a pair of references. In responding, the applicant indicated it would treat a single claim as representative of the entire group. The applicant then argued the prior art did not show at least three processors interconnected, and the prior art did not describe a system where each processor was connected with each other processor in a point-to-point, two-way channel system. The applicant never separately argued any of the claims at issue in this case were patentably distinct on any other basis than these two arguments. The Federal Circuit found, given the manner in which these arguments were presented in the prosecution history, the applicant had applied both arguments to all of the claims in the group. Thus, each of the claims in the group were limited to a system where each processor is connected with each other processor in a point-to-point, two-way channel system.

Practice Note
While making arguments to groups of claims may save time, it may be safer to analyze arguments related to patentability on a claim-by-claim basis.

Patents / Hatch-Waxman

An NDA Holder Can Market a Generic During the H-W 180-Day Exclusivity Period
by David Beckwith

The U.S. Court of Appeals for the District of Columbia Circuit affirmed the district court’s granting of summary judgment for the U.S. Food and Drug Administration (FDA) ruling that the Hatch-Waxman amendments do not prohibit the holder of an approved new drug application (NDA) from marketing a “branded generic” version of its drug during the 180-day exclusivity period provided to the first to file an abbreviated new drug application (ANDA) to market a generic drug. Teva Pharmaceutical Industries v. Crawford, Case No. 05-5004 (D.C. Cir. June 3, 2005) (Ginsburg, C. J.).

Teva began marketing Gabapentin, the generic equivalent of Pfizer’s name brand Neurontin, pursuant to an ANDA application. Pfizer began direct competition with Teva during Teva’s 180-day exclusivity period provided to the first ANDA filer by marketing its own “generic” version of Gabapentin, using a generic trade dress and distributing its “branded generic” Gabapentin through the same distribution channels as Teva.

Teva petitioned the FDA to prohibit the marketing and distribution of “authorized generic” versions of brand name products until after the expiration of the 180-day exclusivity period. In the alternative, Teva demanded the FDA require Pfizer to submit a supplemental new drug application before marketing or distributing any generic version of its name brand drug. The FDA denied Teva’s petition, finding no statutory basis for imposing additional requirements on drugs already approved under an NDA that are marketed as “authorized generics.” Teva sued in the FDA district court, which agreed with the FDA that nothing in the Hatch-Waxman amendments prohibit an NDA holder from entering the market with an authorized generic drug during the exclusivity period provided the first filer upon approval of an ANDA application.

Teva appealed, arguing a literal interpretation of §355(j)(5)(B)(iv) would defeat the statutory purpose since it would permit the holder of the name brand drug to encroach upon the 180-day exclusivity period in the generic market provided to the generic drug manufacturer and urging the adoption of a “functional” interpretation. The D.C. Circuit rejected this argument, noting the statutory language does not limit how the holder of an approved NDA may market its drug. The court held the statutory language could not be interpreted to prevent the holder of an approved NDA (who does not need to file an ANDA and certainly would not challenge its own patent) from marketing a “branded generic” product—even during the exclusivity period provided to other companies who must file an ANDA to obtain approval for a generic equivalent.

The court also refused to require the holder of an approved NDA to submit a supplemental new drug application for its own generic, holding the FDA may not require such supplemental applications for reasons unrelated to safety or efficacy of the brand company’s product.

Practice Note
This opinion effectively approves of the rapidly emerging strategy of branded-drug pharmaceutical companies protecting their overall market share by introducing “brand-generic” versions during the 180-day exclusivity period, thereby disrupting generic drug manufacturers’ efforts to gain market share.

Patents / Doctrine of Equivalent / Willfulness

Not with a Bang but a Whimper: Festo and Knorr-Bremse Cases Both Resolved on Remand
by David M. Stein

The intellectual property world has likely witnessed, within a week of each other, the swan song of two cases with lengthy, some would say tortured, histories. On June 6, the U. S. District Court for the Eastern District of Virginia, on remand, decided the case of Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., Case No. CIV.A. 1:00CV803, 2005 WL 1383325 (E.D. Va. June 6, 2005). Four days later, on June 10, 2005, the U. S. District Court for the District of Massachusetts, also on remand, decided Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Case. No. Civ. A. 88-1814-PBS, 2005 WL 1398528 (D. Mass. June 10, 2005).

In a colorful opinion, the Festo district court judge noted, “[t]his case has had as many twists and turns and ups and downs as the Thunder Mountain amusement park ride it facilitated.”

As the district court observed, “[t]en years after trial, and following two sojourns to the Supreme Court, this seventeen-year-old suit is back on remand from the Federal Circuit.” The remand addressed the narrow issue, which the court deemed the “(hopefully) final question” in this saga, of whether (under the Supreme Court Festo test) Festo had rebutted the presumption that its patent claims were entitled to no range of equivalents under the doctrine of equivalents. The court found “[b]ecause both the single sealing ring and non-magnetizable sleeve were foreseeable to a person of ordinary skill in the art at the time of the 1981 [patent claim] amendments, Festo is unable to rebut the presumption of surrender of those two elements.” Thus, the district court found that prosecution history estoppel barred application of the doctrine of equivalents.

In Knorr-Bremse, the Federal Circuit had remanded the case for a “fresh weighing,” considering the totality of the circumstances surrounding the infringement, without any adverse inference that any opinion of counsel was, or would have been, unfavorable. On remand, the district court applied the newly minted totality of the circumstances test, again finding willful infringement. Because there were no monetary damages, however, there was nothing to enhance (e.g., treble). The trial court also found the case was not “exceptional,” so it declined to award the patent owner attorney fees under §285. For these litigants, then, the Knorr-Bremse decisions were indeed much ado about nothing.

Trademark / Use in Commerce

Pop-Up Advertising Does Not Constitute Trademark Infringement under the Lanham Act
by Linda Lamberson and Sarah Brown

The U.S. Court of Appeals for the Second Circuit recently held there was no “use” of a trademark within the meaning of the Lanham Act either where a defendant marketing company used activity monitoring software that caused pop-up ads of the plaintiff’s competitors to appear when computer users attempted to access the plaintiff’s website, or where the trademark owner’s website address was included in an unpublished directory of terms triggering the delivery of those pop-up ads. 1-800 Contacts, Inc. v. WhenU.com, Inc., Case. No. 04-0026-cv (L) (2nd Cir. June 27, 2005) (Walker, C.J.).

The defendant, WhenU, offers computer users a software package comprising a directory of unpublished website addresses and search terms. As users search the internet, this software contemporaneously analyzes their interests, randomly selecting and delivering to each user various pop-up ads relating to corresponding product or service categories. The plaintiff, 1-800 Contacts, alleged the defendant infringed its trademarks by delivering pop-up ads of its direct competitors to users who intentionally accessed the plaintiff’s website. The district court agreed, granting the plaintiff a preliminary injunction. WhenU appealed.

On appeal, the Second Circuit not only reversed the grant of the injunction but dismissed the plaintiff’s trademark infringement claims with prejudice. In so doing, the court concluded that any number of activities may be “in commerce” or may create a likelihood of confusion, but such activity is not actionable under the Lanham Act absent the “use” of a mark.

The court found the defendant did not “place” plaintiff’s trademarks on any goods or services “in order to pass them off as emanating from or authorized by 1-800.” Indeed, the court noted the defendant’s pop-up ads did not even display the plaintiff’s trademarks. Rather, the ads appeared in a separate window branded with the WhenU mark. The court further noted the ads did not alter or affect the plaintiff’s website in any way, nor did they divert or misdirect users away from the plaintiff’s website. The pop-up ads would be triggered by a number of search terms, e.g., “contacts” or “eye care,” regardless of a user’s search for the plaintiff’s website address or the appearance of the 1-800 trademark on the website, and they were randomly selected, i.e., a competitor could not pay to have its ad appear on certain websites or otherwise manipulate the appearance of these ads. While such overall conduct may have been an attempt by the defendant to capitalize on the plaintiff’s goodwill and reputation, it did not constitute trademark infringement under the Lanham Act because there was no improper “use” of the plaintiff’s trademarks.

Additionally, the court found the defendant included the plaintiff’s website address, not the “1-800” trademark, on its internal directory, and this directory was inaccessible to users and the general public. The court concluded “[a] company’s internal utilization of a trademark in a way that does not communicate it to the public is analogous to a [sic] individual’s private thoughts about a trademark. Such conduct simply does not violate the Lanham Act.”

Practice Note
The Second Circuit seems to refine further the limits of trademark law as applied to the internet, viewing WhenU’s practices merely as “product placement” marketing strategies for the internet where the user is distracted with additional consumer choices for related products or services.

Copyright / Substantial Similarity

No Substantial Similarity Where Only Non-Copyrightable Subject Matter Is Used in Common
By John J. Dabney and Francine Hochberg

The U.S. Court of Appeals for the First Circuit has held that a musical composition that was not sufficiently similar to a registered composition to give rise to an inference of actual copying does not infringe that composition. Johnson v. Gordon, Case No. 04-2475 (1st Cir. May 31, 2005) (Selya, J.).

Between 1992 and 1994, the plaintiff, Calvin Johnson, composed “You’re the One (For Me)” for a band called Special Edition. In 1994, Johnson met with an executive at RCA Records (a division of BMG music) and gave him a videotape and audio demo tapes of performances of “You’re the One (For Me)” in hopes of obtaining a recording contract. RCA did not sign Special Edition, but, in March 1996, BMG released a single entitled “You’re the One,” recorded by Sisters With Voices (SWV). The single quickly became a hit and was included on SWV’s album “New Beginning,” which became a gold album.

After the releases of SWV’s single and album, Johnson obtained a copyright registration for a short version of his musical composition “You’re the One (For Me)” and sued 18 defendants, including SWV, alleging copyright infringement and false designation of origin.

The district court entered summary judgment for the defendants finding Johnson’s copyright infringement claim failed, and the Lanham Act does not safeguard authors from false designation of the origin of their creative expressions. Johnson appealed on the copyright claim only.

The First Circuit affirmed. While it was undisputed Johnson owned a valid copyright in the short version of the song, the Court considered whether Johnson had shown that wrongful copying had occurred. As there was no direct evidence SWV had copied Johnson’s song, Johnson had to show probative similarities between the works from which actual confusion might be inferred and that there was a substantial similarity between the works demonstrating wrongful appropriation.

Applying the Ricordi doctrine, the First Circuit determined copyright protection only extended to the elements of Johnson’s longer version of the song were drawn directly from the registered short version. The court then analyzed point-by-point the allegedly similar sections of SWV’s and Johnson’s songs. After considering the testimony of Johnson’s expert, the First Circuit determined there was no similarity between the melodies of the relevant segments of the songs, and a harmonic progression used by Johnson in his song was not original and not in SWV’s composition, and, therefore, Johnson failed to present evidence to support an inference of actual copying. Moreover, although the two songs use the phrase “You’re the One for Me” in their titles and lyrics, this usage is common and has been used and registered by hundred of composers and therefore is too “trite to warrant copyright protection.” Because Johnson failed to identify a degree of similarity between the works sufficient to give rise to an inference that actual copying occurred, Johnson could not, as a matter of law, establish the actual copying element required for his copyright infringement claim.

Trade Secret

Internet Information Posted on a Publicly Accessible Website Is Not a Trade Secret (Web Only)
by Paul Devinsky

In reversing an Indiana superior court’s grant of a preliminary injunction motion, the State of Indiana First District Court of Appeals found that domain names and other information contained on a publicly accessible website could not be the subject of a trade secret action under Indiana’s version of the Uniform Trade Secret Act. Paramanandam v. Herrmann, Case No. 84A01-0408-CV-345 (Ind. Ct. App. May 24, 2005).

Victoria Hermann hired Ivan Paramanandam and other business associates to improve the website for her internet scale distribution business (Dynamic Scales). In addition to modifications to the website, Mr. Paramanandam registered 400 domain names and developed 6,000 corresponding keywords on behalf of Ms. Hermann’s business. Dynamic Scales subsequently developed the largest online retail store in the scale industry.

Mr. Paramanandam terminated his employment with Dynamic Scales and started his own internet scales business (Scalable Scales). Aside from the name and logo, Scalable Scales’ website was nearly identical to that of Dynamic Scales. Scalable Scales also utilized domain names previously registered to Dynamic Scales and used keywords to redirect searches for “Dynamic Scales” toward the Scalable Scales site.

Ms. Hermann sued Mr. Paramanandam, alleging “the information contained on [Dynamic Scales’] website” and “domain names developed, created and maintained by Dynamic Scales” were stolen trade secrets. The superior court found likely the misappropriation of trade secrets and granted a motion for preliminary injunction. Mr. Paramanandam appealed.

The appellate court limited its analysis to whether there was a prima facie case of misappropriated trade secrets. In Indiana, the definition of trade secret, which is based on the Uniform Trade Secrets Act (UTSA), requires the secret be the “subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

The appellate court concluded Dynamic Scales failed to establish that any efforts were made to maintain the secrecy of the information alleged to be a trade secret. The court noted Dynamic Scales did not restrict the access to its website via a password or paid subscription, and the identity of domain names was likewise publicly accessible. The court further noted Dynamic Scales “seeks to prevent competition by its former agent more than it seeks to protect a trade secret.” However, Dynamic Scales had not protected itself with a non-competition agreement.

Patents / Invalidity

Patents Invalidated By Expansive Literal Claim Scope (Web Only)
by Patrick D. Richards

The U.S. Court of Appeals for the Federal Circuit, for the second time in this contentious case, reversed the district court; this time finding the asserted claims of plaintiff’s patents invalid as anticipated. Prima Tek II, L.L.C v. Polypap, S.A.R.L., Case Nos. 04-1411, -1421 (Fed. Cir. Jun. 22, 2005) (Dyk, J.).

Prima Tek and Polypap are competitors in the floral products market. Polypap’s accused product is a disposable device for holding floral arrangements. The patents-in-suit are directed to a decorative assembly for a floral grouping. Prima Tek filed an infringement suit against Polypap in 1999. The district court granted summary judgment of non-infringement. In the first (2003) appeal, the Federal Circuit held the district court had used an incorrect construction of the “floral holding material” term, vacated the district court’s judgment and remanded the case for further proceedings. On remand, the district court held Polypap infringed the patents. Polypap appealed.

On appeal, the Federal Circuit reviewed the validity of the asserted patents, this time construing two additional disputed claim terms, “without any pot means” limitation and “crimping means.” The Court also revisited a term from the prior appeal, deciding that the previously construed “floral holding material” did not need to meet the additional limitation imposed on it by the district court – namely that it be capable of holding a predetermined shape.

First, the Federal Circuit, in finding the claims anticipated by a prior art reference that had been considered by the U.S. Patent and Trademark Office during prosecution, disregarded the district court’s construction of the term “pot,” as well as the alternative constructions proffered by the parties on appeal, and relied on a dictionary definition to arrive at an extremely broad construction of the term “pot”—noting that based on this definition, the prior art met the “without a pot means” limitation. Next, the Federal Circuit found that the district court improperly imported the “hold a predetermined shape” limitation from the described preferred embodiment into the claims and that without this limitation, the prior art disclosed the “floral holding material” as well. Finally, the Federal Circuit found that, based on the undisputed evidence in the record, the prior art had overlapping folds that inherently met the “crimping means” limitation.

Practice note:In light of the Federal Circuit’s subsequent en banc decision in Phillips v. AWH Corp., Case Nos.03-1269, -1286 (Fed. Cir. July 12, 2005), the Federal Circuit is more likely to focus on intrinsic evidence to construe claims, which may help patentees protect their claims from the expansive literal claim scope the Federal Circuit used to invalidate Prima Tek’s patents.

Patents / Software (EU)

Software Patents Remain Available in Europe
by Justin Hill, Ph.D.

On July 6, 2005, European technology companies breathed a sigh of relief as the European Parliament voted, overwhelmingly, to reject the much criticized draft directive on patent protection for computer-implemented inventions. This vote means that existing European law and established software case law will prevail.

Under existing patent law, computer-implemented inventions, including software inventions, benefit from what most regard as a reasonable level of patent protection. Software inventions will continue to qualify for patent protection in Europe if, in addition to meeting the usual criteria of novelty, inventive step and industrial applicability, a limiting technical character is evident.

In the case of software, the usual interaction between software and the hardware on which it runs is not sufficient to establish a technical character. Regardless, the “technical character hurdle has traditionally been low in that technical character has been recognized,” for example, where software concerns:

  • control of industrial processes

  • processing of data representing physical entities (e.g. images)

  • internal functioning of computer systems, interfaces or networks (e.g. improvements in efficiency, such as processing speed or data rate, increased security or reliability, or better management of resources, etc.)

The inventive-step test is increasingly used by the European Patent Office (EPO) to dispose of weak software applications. EPO examiners look for a technical contribution to the art in a “non-excluded” (e.g., business method) area to identify an objective technical problem solved by the invention. The solution to the problem constitutes the technical contribution. For example, if the problem is to overcome speed limitations in a prior art computer processor, the solution (technical contribution) could lie in a novel mode of control of mathematical operators (hardware) in the processor’s execution unit.

Practice Note
Patent prosecutors need to take care to ensure the specifications they are drafting provide adequate technical disclosure, in an appropriate form, of the components and methods that will later be used to demonstrate technical character and the technical contribution made to the field in question. Not all patent specifications exported from the United States meet these requirements, although they may be perfectly acceptable under U.S. law. Describing and claiming only high level business processes is not recommended because there is nothing to fall back on when asked to demonstrate what technical effect or contribution the invention makes.

Trademark / Counterfeiting (Italy)

New Anti-Counterfeiting Law Hits Purchasers of Counterfeit Goods
by Margherita Barié

In a bid to strengthen the Italian anti-counterfeiting system, Italy has implemented Law 80/2005, which was published in Official Gazette 111 of May 14, 2005 and came into force on May 15, 2005. The new law has helped to implement Law Decree 35/2005 of March 14, 2005 concerning “urgent provisions within the plan for social, territorial and economic development.” It brings into effect the broad set of provisions against counterfeiting contained in Law Decree 35/2005, which include administrative fines of up to €10,000 for people who purchase or accept, without first ascertaining the lawfulness of the source of the products, goods that are believed to infringe laws on the protection of IP rights.

In addition to the measures already covered by Law Decree 35/2005, the new law provides that the administrative seizure of counterfeit goods will be applied in all cases. The broad language of the legislation is likely to dramatically increase the level of protection available against counterfeiting, since it is directed towards purchasers, as well as the manufacturers and traders, of infringing goods.

Law 80/2005 also establishes a new post of high commissioner who will be responsible for coordinating all aspects of the fight against the infringement of intellectual and industrial property rights. The office of high commissioner will replace the National Anti-Counterfeiting Committee. Pursuant to the new law, the high commissioner will be appointed by decree of the Italian prime minister upon the proposal of the minister of productive activities and will cooperate with existing equivalent bodies or individuals in other countries.

McDermott Will & Emery

McDermott Will and Emery