IP Update, Vol. 18, No. 11

Federal Circuit Panel Rejects ITC Assertion of Authority Over Intangible Articles

Reviewing an interpretation by the U.S. International Trade Commission (ITC or Commission) of its enabling statute (§ 337 of the Tariff Act) for the second time in three months, a divided panel of the U.S. Court of Appeals for the Federal Circuit ruled that the term “articles” in § 337 is limited to tangible items, reversing the Commission’s finding of jurisdiction over electronic transmissions entering the United States. ClearCorrect Operating, LLC et al. v. Int’l Trade Comm’n, Case No. 14-1527 (Fed. Cir., Nov. 10, 2015) (Prost, J.) (O’Malley, J., concurring) (Newman, J., dissenting).

Appellant ClearCorrect manufactures orthodontic aligners. In the United States, ClearCorrect would scan a patient’s teeth and digitally recreate the tooth arrangement. The digital file was transmitted to Pakistan, where a new set of digital files of intermediate tooth positions was created. Those digital files were then transmitted back to the United States, where ClearCorrect would use a 3-D printer to make aligners from the digital files. The Commission found that transmission of the digital files into the United States was an importation of an “article” under § 337, that use of the digital files infringed method patents owned by intervenor Align Technology, and issued a cease and desist order to the Pakistani affiliate of ClearCorrect. ClearCorrect appealed both the merits and the Commission’s authority over importation of the digital files.

Before beginning its analysis, the majority argued that the en banc Federal Circuit interpretation of the term “articles…that infringe” in § 337, articulated in Suprema v. Int’l Trade Comm’n, (Fed. Cir. 2015) (IP Update, Vol. 18, No. 8 and IP Update, Vol. 18, No. 10), is not dispositive of the issue to be decided because “[Suprema] turned exclusively on the term ‘infringe’ as used in [§ 337],” and “the ‘articles’ in question in Suprema were physical objects, and thus do not inform the question before the Court.” The majority then reversed the Commission, finding that, under Chevron step one (whether the statute speaks to the precise issue under consideration), it was clear that the term “articles,” as defined by § 337, was limited to tangible goods. The majority looked to the original Tariff Act passed in the 1920s and cited contemporary dictionaries to support that “articles” was then commonly understood to mean tangible things. The majority further found that “articles” excluded intangibles because Custom’s tariff schedule did not include intangibles, and interpreting “articles” to include intangibles would create a violation with no remedy since intangible goods did not enter the United States through the Custom zone. Finally, the majority found that even if the term “articles” was ambiguous (under Chevron step one), the Commission’s interpretation of the term was unreasonable under Chevron step two and entitled to no deference. Judge O’Malley concurred, taking the further position that Chevron did not even apply to the Commission’s decision, because Congress did not intend to give the Commission jurisdiction over Internet transmissions.

Judge Newman dissented, agreeing with the Commission’s interpretation of “articles” as “articles of commerce.” The dissent noted Suprema’s statement that “the legislative history consistently evidences Congressional intent to vest the Commission with broad enforcement authority to remedy unfair trade acts,” and that there was no logical precedent for interpreting § 337 to cover digital data imported on a physical medium, which was unquestionably within the Commission’s authority, but excepting importation of the same data if done electronically. Judge Newman also noted that Customs itself considered electronic transmissions to be an importation, that other agencies had interpreted “articles” in the Trade Act to include intangible goods, and that Federal Circuit precedent held that lack of an effective remedy did not preclude a finding that § 337 had been violated.

Practice Note: The majority here comprised the same two judges who ruled against the ITC in the original panel decision in Suprema (IP Update, Vol. 16, No. 12), and Judge O’Malley (who authored the panel decision here) wrote the dissent in the Suprema en banc decision. Suprema is cited in the body of the ClearCorrect opinion solely for the notion that § 337 regulates international commerce, and that the ITC has authority to interpret its enabling statute where ambiguous. Finally, the majority noted, as in the original Suprema panel opinion, that the intervenor could seek relief in district court. The ITC may of course petition for en banc review (as it did in Suprema).

Prior Art Enablement Looks to Applicant’s Specification to Determine Ordinary Level of Skill

Addressing the issue of whether an anticipatory prior art reference was enabling, the U.S. Court of Appeals for the Federal Circuit affirmed the judgment of the U.S. Patent Trademark Office (USPTO) Board of Patent Appeals and Interferences (Board) as it pertains to the level of skill in the art standard by which in those cases where a non-frivolous challenge to enablement is raised, enablement of a prior art reference is judged. In re Morsa, Case No. 15-1107 (Fed. Cir., Oct. 19, 2015) (Prost, J.) (Newman, J., dissenting).

In Morsa I (IP Update, Vol. 16, No. 4), the examiner rejected certain claims as being anticipated over a publication reference entitled “Peter Martin Associates Press Release” (PMA). Morsa appealed the examiner’s rejections to the Board and argued that the short PMA press release was not enabling as to the claimed method steps that involved use of a computer network. Following the Board’s affirmation of the examiner, Morsa appealed.

On appeal, the PTO argued that PMA was presumed enabling and that Morsa failed to present evidence to the contrary, such as affidavits or expert declarations. The Federal Circuit disagreed that such evidence is necessary to challenge the enablement of a prior art reference, and that “[w]hen a reference appears to not be enabling on its face, a challenge may be lodged without resort to expert assistance.” Where an applicant raises a “non-frivolous” challenge to enablement of a prior art, the burden shifts to the PTO to determine whether the presumption of enablement has been overcome. Accordingly, the Federal Circuit vacated the finding of the anticipation and remanded the case for the PTO to provide a first instance analysis after Morsa’s substantial rebuttal of the presumption of enablement.

On remand, the Board considered Morsa’s enablement arguments and again determined that one of skill in the computing art would find the PMA was enabling. Morsa again appealed.

The Federal Circuit affirmed, explaining how “[i]n reaching its conclusion the Board looked to Mr. Morsa’s specification to determine what a person of ordinary skill in this particular field of art would know.” The Court explained that “[t]he Board found that the specification showed that only ‘ordinary’ computer programming skills were needed to make and use the claimed invention . . . [and] then determined that the PMA disclosure combined with what a skilled computer artisan would know rendered the PMA reference enabling.” On that basis the Board determined that PMA was anticipatory regarding the pertinent claims.

Morsa argued that the PMA was not enabling since it did not teach “a skilled artisan . . . [how] to make or carry out what it discloses in relation to the claimed invention without undue experimentation.” In dismissing that argument, the Federal Circuit echoed the Board’s use of admissions in the application regarding what one skilled in the art would have known at the time of the invention. Among other admissions, the Board cited how the “system as described in the patent can be implemented by any programmer of ordinary skill in the art using commercially available development tools” and that “search routines for accomplishing this purpose are well within the knowledge of those of ordinary skill in the art.” The Court therefore focused on how there are only four basic claim limitations, noting each of these limitations can be directly mapped onto the PMA reference.

In dissent, Judge Newman took issue with the Board’s use of official notice and the majority’s blessing of the Board’s analysis. Newman noted that there was no disclosure in the prior art of recited claim steps, a dilemma solved (by the Board) by taking what it called “Official Notice” of the missing subject matter. Newman observed that, “my colleagues solve this dilemma by finding the missing subject matter in the Morsa specification.”

Patent Applicant Must Provide Clear Evidence to Antedate a Prior Art Reference: ** WEB ONLY**

Addressing the requirements for antedating a prior art reference (for a pre-AIA patent application), the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the Board of Patent Appeals and Interferences that a table which purports to associate a date with a piece of evidence, but does not explain how the evidence corresponds to conception or reduction to practice, is insufficient to establish a date of invention or actual or constructive reduction to practice. In re Steed et al., Case No. 14-1458 (Fed. Cir., Oct. 1, 2015) (Newman, J.).

A group of inventors filed and prosecuted, pro se, an application for a “Web-Integrated On-Line Financial Database System and Method for Debt Recovery.” During prosecution, the examiner rejected all of the claims as obvious in view of a published patent application (Evans) alone or in combination with other references. After unsuccessfully arguing that the claimed invention was distinct from Evans, the inventors attempted to file a declaration to antedate Evans. The inventors argued that they conceived of the invention prior to the effective date of Evans and that they were diligent in actually or constructively reducing their invention to practice between their conception date and a time immediately after the effective date of Evans.

The evidence provided to the examiner included a declaration by the inventors that they had conceived of the invention several years before the effective date of Evans, as well as hundreds of pages of electronic or paper notes. The inventors also provided a table that identified certain evidence and the date corresponding to that evidence. The applicants requested that the examiner or the Board “call the inventors” if they need more information or a copy of any additional evidence. The examiner, finding the inventors’ showing insufficient to antedate Evans, continued to apply Evans as prior art.

The Board affirmed the examiner, concluding that the inventors failed to provide sufficient evidence to antedate Evans. The Board explained that the inventors failed to establish a date of either actual or constructive reduction to practice before the effective date of Evans. Furthermore, the Board found that the inventors waived any factual arguments that were not presented to the examiner and, in their appeal, had to rely only on the arguments presented to the examiner. Steed appealed.

The Federal Circuit affirmed the Board, explaining that while conception, reduction to practice and diligence are issues of law, they are based on factual determinations, and the Board’s findings are reviewed under a “sufficient evidence” standard. The Federal Circuit noted that the inventors never stated a date by which the conception or reduction to practice had been completed. Also, in terms of diligence, while the inventors provided a table that purported to show that a piece of evidence corresponded to a certain date, they did not explain what the evidence was, instead asking the examiner or Board to “call the inventors.” The “call the inventors” request was considered insufficient to establish the content of the evidence.

Regarding waiver, the Federal Circuit noted that the inventors had not waived any arguments regarding conception, reduction to practice or diligence, as it was clear from the record that the inventors disagreed with the examiner regarding those issues. Thus, the Court explained the inventors were free to elaborate on the arguments presented to the examiner before the Board.

A Substantially Pure Isomer Is Obvious When the Completely Pure Isomer Is Known In The Art

Many prior cases have addressed whether a pure stereoisomer is obvious when the corresponding 50/50 mixture is known in the prior art. In upholding a finding of summary judgment, however, the U.S. Court of Appeals for the Federal Circuit has for the first time addressed whether a substantially pure chemical enantiomer is obvious when both the 50/50 mixture and the pure stereoisomer are in the prior art. It is Spectrum Pharms., Inc. v. Sandoz Inc., Case No. 15-1407 (Fed. Cir., Oct. 2, 2015) (Lourie, J.).

Spectrum Pharmaceuticals markets leucovorin, a drug that helps alleviate the toxic effects of certain chemotherapy drugs. Leucovorin naturally exists as a mixture of two stereoisomers, which can be thought of in simple terms as mirror images—or “left hand” and “right hand” versions—of the same molecule. The patent at issue claims a pharmaceutical composition of leucovorin consisting of “at least 92%” or “at least 95%” by weight of the (6S) diastereoisomer. After the district court held certain claim invalid as obvious, Spectrum appealed.

The Federal Circuit agreed, finding the subject claims obvious over the prior art, which disclosed: the 50/50 mixture of leucovorin diastereoisomers, the pure (6S) diastereoisomer, a process for purifying the pure (6S) isomer from the 50/50 mixture and that the (6S) isomer was the particular isomer responsible for leucovorin’s therapeutic activity. In particular, the Court agreed with the district court that a person of skill in the art would have been motivated to modify the 50/50 prior art mixture to arrive at the claimed mixtures, which are substantially (but not completely) pure. Because it was known in the art that the biologic activity of leucovorin resides in the (6S) isomer, “surely, it is better, and there is generally motivation, to try and obtain the purest compound possible.”

The Court further noted that there was no evidence in the record to indicate that the 92 percent to 95 percent pure (6S) isomer possessed any unexpected advantages over the either the completely pure compound or the 50/50 mixture. For example, the Court agreed that a person of skill in the art “would not have expected there to be any differences in the biological properties between purified (6S) leucovorin with or without a small amount of (6R) impurity . . . because small amounts of the inactive isomer would not be noticeable in terms of therapeutic effects.”

The only objective indicium of non-obviousness at issue on appeal was long-felt but unmet need, and the Federal Circuit upheld the district court’s conclusion that no such long-felt need existed. Interestingly, the same factual findings that helped to defeat Spectrum’s non-obviousness arguments also served to defeat Spectrum’s long-felt need argument. In particular, the Court noted that even if there were a long-felt need, the substantially pure (6S) isomer could not have met that need because it was found to be clinically interchangeable with the 50/50 mixture and, similarly, did not show “any meaningful difference” from the completely pure (6S) isomer.

Proper Claim Construction Requires Context **WEB ONLY**

Addressing claim construction issues, the U.S. Court of Appeals for the Federal Circuit affirmed in part, reversed in part and remanded a district court’s summary judgment rulings finding that the district court did not properly consider the disputed terms in the context of the claims and the specification. Atlas IP, LLC v. Medtronic, Inc., Case Nos. 15-1071; -1105 (Fed. Cir., Oct. 29, 2015) (Taranto, J.).

Atlas sued Medtronic alleging infringement of a patent related to a protocol for controlling wireless network communications between a hub and remotes. The district court had already construed the claims of this patent in a related case (Atlas IP, LLC v. St. Jude Medical, Inc.), and adopted those constructions here. The district court granted summary judgment in Medtronic’s favor with respect to non-infringement and in Atlas’ favor with respect to a lack of anticipation or obviousness. Atlas appealed the non-infringement ruling, and Medtronic cross-appealed the validity ruling.

The Federal Circuit began its analysis noting that the question of infringement turned entirely on the proper construction for the term “establishing.” The district court held that the term “establishing” required the endpoint of the communication cycle to be communicated to the remotes before any remote transmits frames to the hub. On appeal, Atlas argued that the term “establishing” should be construed as “initiating,” in accordance with its plain and ordinary meaning. According to Atlas, “initiating” meant that the hub need not define the start and duration of communication cycles and their intervals, let alone transmit that definitional information. The Court disagreed, explaining that, in the context of the patent, the word must mean more than simply “initiating.” Rather, the context made clear that “establishing” means that information must be sent before the remotes begin transmitting. The Court also rejected Atlas’ reliance on a claim differentiation argument, explaining that the Court has “been cautious in assessing the force of claim differentiation in particular settings, recognizing that patentees often use different language to capture the same invention, discounting it where it is invoked based on independent claims rather than the relation of an independent and dependent claim, and not permitting it to override the strong evidence of meaning supplied by the specification.”

Next, the Court turned to the district court’s validity ruling, which likewise turned on a claim construction issue. Here, the Court found that “the district court’s construction is ambiguous on its face.” The district court’s construction was based on the plain and ordinary meaning of the disputed claim term. Looking again to the context provided by the claims and specification, the Court reversed the district court, finding that the district court erred by not “rely[ing] on anything for its construction except the claim words understood in isolation.”

The same day, the Federal Circuit issued another opinion vacating and remanding the district court’s summary judgment of non-infringement in the above-discussed related case, finding that the court’s holding was based on an incorrect claim construction. Atlas IP, LLC v. St. Jude Medical, Inc., Case No. 15-1190 (Fed. Cir., Oct. 29, 2015) (Taranto, J.). Here, the Federal Circuit disagreed with the district court’s construction of the term “in advance,” which appears in the same patent. According to the Court, the district court’s construction was overly narrow when the disputed term is properly considered in the context of the claim language and the specification.

Plaintiff with Injured Reputation May Have Standing in Inventorship Correction Case

Addressing for the first time whether harm to an inventor’s reputation alone could confer standing to sue, the U.S. Court of Appeals for the Federal Circuit reversed a lower court decision and found that a sufficiently concrete and particularized injury could give rise to standing in an inventorship correction case. Shukh v. Seagate Technology, LLC, Case No. 14-1406 (Fed. Cir., Oct. 2, 2015) (Moore, J.).

The case arose out of a dispute between Seagate and its former employee, Dr. Alexander Shukh. Dr. Shukh’s time at Seagate was undisputedly tumultuous. In 2009, Seagate terminated Shukh and 178 other employees. According to Dr. Shukh, he has been unable to find a job since then, despite sending out numerous applications. Shukh sued to have his name listed on six patents he claims Seagate wrongfully omitted him from. According to Shukh, Seagate’s omission negatively impacted his ability to find work by damaging his reputation in two ways. First, he alleges it reduced his apparent productivity during his time at Seagate. Second, he alleges his disputes over proper credit during his tenure at the company gave him a reputation in the industry as a poor collaborator.

Seagate moved for summary judgment, arguing that there was no genuine dispute as to whether the omissions harmed Shukh’s reputation. The district court granted that motion, finding that an alleged reputational injury did not confer standing. Shukh appealed.

The Federal Circuit reversed, finding that a “concrete and particularized” reputational injury can give rise to Article III standing. According to the Court, a trier of fact could conclude that Shukh’s reputation was damaged because he was not recognized as an inventor in the patents. In so finding, the Court reasoned that the purported omission could impact Shukh’s reputation because some companies may use an employee’s patent portfolio as a proxy for the employee’s productivity and their work’s quality. The Court also found that a genuine dispute of material fact exists as to whether Shukh’s omission from the disputed patents worsened his reputation as an employee.

The Federal Circuit also stressed that the economic impact of the reputational harm was important for the standing inquiry. Here, the Court explained that, because Dr. Shukh seeks to be employed in the field of technology covered by the disputed patents, and because a trier of fact could infer that the stronger Dr. Shukh’s reputation as an inventor, the more likely he is to be hired, there is an economic component to the alleged reputational harm.

Settlement Agreement Precludes Consideration of Order Criticizing Attorney Conduct

Addressing for the first time the effect of a settlement agreement on an appeal from an order criticizing two attorneys’ conduct, the U.S. Court of Appeals for the Federal Circuit concluded that the intervening settlement agreement ended the case or controversy, thereby stripping the court of jurisdiction to redress any harm to the attorneys’ reputation. Tesco Corp. v. Nat’l Oilwell Varco, L.P., Case No. 15-1041 (Fed. Cir., Oct. 30, 2015) (O’Malley, J.) (Newman, J. dissenting).

During trial, Tesco’s counsel made misstatements regarding potential prior art. After additional discovery to confirm that the attorneys’ statements were inaccurate, the district court sanctioned Tesco by dismissing its case with prejudice. According to the district court, the attorneys’ inaccurate representations during trial justified a finding of bad faith, but the district court did not otherwise sanction the attorneys or reprimand. Tesco and its attorneys then appealed the district court’s order. However, while the appeal was pending the parties reached a settlement resolving all outstanding issues. Notwithstanding that settlement, the parties continued to dispute whether the settlement agreement obviated Tesco’s attorneys’ rights to continue to pursue the appeal.

The Federal Circuit determined that to justify the Court’s jurisdiction over an appeal from an order criticizing an attorney’s conduct, there must be a formal sanction or reprimand against the attorney. The Federal Circuit, however, did not decide whether the district court’s order was functionally equivalent to a formal reprimand. Instead, the intervening settlement agreement ended the case or controversy upon which appellate jurisdiction was predicated. Once the parties entered into the settlement agreement, the case was complete. The Court explained that the district court’s order sanctioned Tesco, but not its attorneys, further supported the Federal Circuit’s conclusion that had no injury to redress.

The Federal Circuit also declined to address the district court’s finding of bad faith, reasoning that “Courts of Appeals review judgments, not opinions.” The Court explained that remanding for a full hearing on litigation misconduct would be an unnecessary waste of resources. Although a judicial opinion can harm an attorney’s reputation—which is one of an attorney’s most valuable assets—there was no remaining sanction or punishment on which the Court could use as a vehicle to redress reputational harm.

In a sharp dissent, Judge Newman reasoned that the sanctioned attorneys should have an opportunity to clear their names through an appeal or an additional hearing on litigation misconduct. The district court had refused to receive privileged notes and emails that arguably exculpated the attorneys. In Newman’s view, the incompleteness of the record potentially renders the sanctions against the attorneys unfair and a violation of due process.

Federal Circuit to Consider On-Sale Bar En Banc **WEB ONLY**

Addressing the application of the on-sale bar under § 102(b), the U.S. Court of Appeals for the Federal Circuit, in The Medicines Company v. Hospira, Inc., Case Nos. 14-1469; 14-1504, found that the claims of an asserted patent covering “pharmaceutical batches” for making Angiomax (bivalirudin) by a new process were invalid based on an agreement, dated more than one year prior to the application filing date, to have a third party, Ben Venue Laboratories, prepare three batches according to the process (IP Update, Vol. 18, No. 8).

Now, the Federal Circuit has agreed to consider en banc the issue of what constitutes a “commercial offer for sale,” initiating the one-year patent application filing requirement.

Specifically, the Court has asked the parties to brief the following questions:

• Do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 U.S.C. §102(b)?
• Was there a sale for the purposes of § 102(b) despite the absence of a transfer of title?
• Was the sale commercial in nature for the purposes of § 102(b) or an experimental use?
• Should this court overrule or revise the principle in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), that there is no “supplier exception” to the on-sale bar of 35 U.S.C. §102(b)?

The Court specifically invited the U S Department of Justice to file a brief expressing the views of the United States as amicus curiae.

PTAB Decisions on Instituting CBM Review Are Based Only on the Petition and Preliminary Response

Addressing whether a petitioner seeking a covered business method (CBM) review could file a reply to the patent owner’s preliminary response, the Patent Trial and Appeal Board (PTAB or Board) answered in the negative, explaining that a decision to institute a CBM review is based only upon the information and claims presented in the petition. American Express Company v. Signature Systems, LLC, Case No. CBM2015-00153 (PTAB, Oct. 23, 2015) (Tierney, APJ).

In June of 2015, American Express filed a petition requesting CBM review of a patent relating to a method and system for electronic exchange of reward points. The patent owner filed a preliminary response arguing that the institution of a CBM review is moot because the claims upon which the petition is based have been either amended or cancelled, as indicated in a Notice of Intent to Issue Ex Parte Reexamination Certificate that issued in September of 2015.

American Express requested to file supplemental briefing on the mootness issue raised in the preliminary response. American Express contended that the amended claims would likewise be unpatentable and requested to file a reply brief to be considered by the PTAB at the time of institution. The patent owner opposed the request, arguing that the issues are fully briefed and that the Board can render a decision on whether to institute a CBM based on the petition and preliminary response. Further, the patent owner contended that if the Board allows American Express to file a reply brief, then the patent owner should fairly be afforded an opportunity to file a sur-reply.

According to 35 U.S.C. § 324(a), a CBM review should be instituted if “the information presented in the petition…, if such information is not rebutted, would demonstrate that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable.” (Emphasis added.) The Board interpreted § 324(a) to mean that decisions on whether or not to institute a CBM review are based only on the petition and the preliminary response, if one is filed. Accordingly, the Board denied American Express’s request for additional briefing.

Practice Note: In this case the patent owner beat American Express to the PTO, filing for ex parte re-examination of the patent in question three months prior to American Express requesting inter partes review of the same patent. By so doing, the patent owner may have more control over the supplemental examination process, which can yield cost and strategic advantages.

Disclaimed Claims May Be Considered When Determining Eligibility for CBM Review

Addressing the issue of whether disclaimed subject matter may be considered in determining if a patent is eligible for a covered business method (CBM) review, the Patent Trial and Appeal Board (PTAB or Board) found that a statutory disclaimed subject matter may be considered as part of a CBM review but cannot be the basis for institution. The Board also found that claims of a non-expired patent should be construed using the broadest reasonable standard at institution, even if the Phillips standard will be applied in construing the claims of that patent in a final written decision. Compass Bank et al. v. Maxim Integrated Products, Inc., Case No. CBM2015-00102 (PTAB, October 7, 2015) (Weatherly, APJ).

Compass Bank filed a petition seeking a CBM review of a patent that was assigned to Maxim Integrated Products (Maxim). Compass Bank focused its petition on a single claim of the challenged patent, as one claim is all that is necessary to render the patent eligible for CBM review. After the petition was filed, Maxim filed a statutory disclaimer, under 35 U.S.C. § 253(a), of the challenged claim. Maxim then argued in its response to Compass Bank’s petition that the Board must treat the disclaimed claim like it “never existed.”

The Board noted that the disclaimed claim cannot be the basis for institution of a CMB review under 37 CFR 42.207(e), but disagreed with Maxim that it must treat the disclaimed claim like it never existed. Instead, the Board found that the disclaimed claim was simply used as an example, and Compass Bank’s arguments were likewise applicable to the rest of the challenged claims. The Board found the rest of the requirements under § 18(d)(1) of the America Invents Act (AIA) met and concluded that the challenged patent was eligible for review as a CBM patent.

Maxim also argued that the Board should apply the Phillips claim construction standard, as the patent will expire “months before” any final written decision. According to Maxim, applying the broadest reasonable interpretation standard of 37 CFR § 42.300(b) at institution in this instance would be contrary to 35 U.S.C. §324, would improperly favor institution, and waste resources of the Board and the parties. The Board found that Maxim failed to articulate a compelling reason for the Board to use its authority to “waive or suspend” § 42.300(b). Because the challenged patent has not yet expired, the Board applied the broadest reasonable claim construction standard for purpose of its institution decision. However, as the Board explained, if the patent does indeed expire prior to the issuance of the final written decision, then the Board will apply the Phillips standard in any final written decision.

PTAB Finds Claims to Be Directed to Covered Business Method, but Denies Institution Anyway **WEB ONLY**

Considering whether to institute a covered business method (CBM) review for a patent directed to mortgage loan systems and methods, the Patent Trial and Appeal Board (PTAB or Board) agreed that the patent was a covered business method patent, but found the unpatentability assertions to be lacking and denied institution. E-Loan, Inc. v. IMX, Inc., Case No. CBM2015-00144 (PTAB, Oct. 16, 2015) (Calve, APJ).

IMX brought suit against E-Loan, asserting infringement of a patent directed to processing mortgage loan applications. That case was stayed after the U.S. Patent and Trademark Office (USPTO) granted E-Loan’s request for ex-parte reexamination based on four prior art references. That proceeding was instituted prior to the availability of the 2013 AIA post-issuance proceedings. That re-examination concluded with most claims cancelled, but with four claims making it through unscathed. Meantime, E-Loan had filed another request for ex-parte re-examination, asserting five additional prior art references, but the USPTO denied that request.

A week after the first ex parte reexamination concluded, E-Loan filed a petition for CBM review, asserting that the four remaining claims are directed to ineligible subject matter under § 101. The Board first considered whether the patent was subject to CBM review and concluded that the claimed loan application processing qualified as a financial product or service, giving short shrift to IMX’s counter-arguments that the claims covered only the beginning stages of that process and could be used in other industries. Next turning to the technological invention exception, the Board disagreed with IMX that the patentability confirmation from ex parte re-examination was relevant. The Board instead concluded that the claims solved the non-technical, business problem of the conventional, paper-intensive loan application process. The Board thus found the claims subject matter eligible for CBM review. The Board largely relied on the patent’s own characterizations of automating previously manual processes to conclude that the claims likely cover ineligible subject matter. The Board thus instituted the CBM review.

Three days later, E-Loan filed yet another CBM request, this time asserting obviousness based on a combination of three newly advanced prior art references. The Board largely repeated its earlier financial service and technological invention discussion to again find the claimed subject matter to be eligible for CBM review. Then, turning to the merits, the Board concluded that the prior art combination lacked the bidding step called for by the claims and consequently denied E-Loan’s request to institute the second CBM review.

Citing a PTO’s Intervenor Brief, the PTAB Grants Rehearing and Clarifies Scope of Joinder

In a decision granting a petitioner’s rehearing request and joinder motion, an expanded panel of the Patent Trial and Appeal Board (PTAB or Board) reversed its earlier decisions, explaining that those decisions were based on an erroneously narrow interpretation of 35 U.S.C. § 315(c). Zhongshan Broad-Ocean Motor Co., Ltd. v. Nidec Motor Corp., Case No. IPR2015-00762 (PTAB, Oct. 5, 2015) (Tartal, APJ) (Wood, APJ, dissenting). Over the dissent of two judges, the Board clarified that it is permissible to allow joinder of additional grounds by the same party, and in doing so cited the director’s Intervenor Brief filed in the Sony Corp. v. Yissum Research Dev. Co. case on appeal at the U.S. Court of Appeals for the Federal Circuit.

After filing an initial inter partes review (IPR) petition in 2014, challenging claims of a Nidec patent, Zhongshan filed a second IPR petition within one month of the institution of the earlier IPR proceeding but after the one-year bar of § 315(b) had run. The § 315(b) bar was based on an infringement action earlier brought by Nidec. The second petition alleged only a single ground of unpatentability: anticipation based on a Japanese patent publication that had also been presented in Zhongshan’s first petition. The second petition included an affidavit attesting to the accuracy of the English translation of the Japanese reference, an omission that was fatal to the same invalidity ground urged in the initial IPR petition.

In the initial panel decision denying joinder, the Board concluded that Zhongshan had established a reasonable likelihood of prevailing on their challenge of the claims on the ground of anticipation. However, according to the majority of the three-member panel, § 315(c) prevented joinder with the earlier proceeding so the second petition was time-barred under § 315(b). The majority explained that, in their view, “the phrase ‘join as a party’ indicates that only a person who is not already a party . . . can be joined to the proceeding.’”

In granting the rehearing request, an expanded panel of the Board agreed with the petitioner that the initial denial of joinder was based on an “erroneously narrow interpretation” of § 315(c). Citing to Target Corp. v. Destination Maternity Corp., the majority concluded that “§ 315(c) permits the joinder of any person who properly files a petition under § 311, including a petitioner who is already a party to [an] earlier instituted inter partes review. ”The expanded Board panel also concluded that the joinder statute “encompasses both party joinder and issue joinder, and as such, permits joinder of issues, including new grounds of unpatentability, presented in the petition that accompanies the request for joinder.”

Practice Note: Perhaps the primary factor underlying the Board’s analysis was the PTO’s position on the interpretation of § 315(c) as explained in its intervenor brief filed in the Sony Corp. v. Yissum Research Dev. Co., a case on appeal at the Federal Circuit. As noted by the Board, “in an Intervenor Brief, the Office argued to the Federal Circuit that ‘the Board has consistently held [that] it . . . has the discretion to join IPR proceedings, even if § 315(b) would otherwise bar the later-filed petition, even if the petitions are filed by the same party.’”

The dissent—constituting the two-member majority of the initial panel—argued that the expanded panel majority’s decision, like that in Target Corp. v. Destination Maternity Corp., “used an expanded panel on rehearing to arrogate power beyond that granted by the Congress.” The dissent also argued that by reading too much into the word “any” as used in § 315(c), the majority’s decision “directly frustrates th[e] Congressional objective of curtailing avenues for harassment by sanctioning ‘repeated . . . administrative attacks,’” the prevention of which was the underlying objective of § 315(b).

PTAB Denies Institution Where Claim Indefiniteness Precludes Application of Prior Art to the Claims

The Patent Trial and Appeal Board (PTAB or Board) denied institution of inter partes review (IPR) after determining that the challenged claims were indefinite and that therefore the Board could not apply the prior art to them. American Honda Motor Company, Inc. v. Signal IP, Inc.,IPR2015-01003 (PTAB, Oct. 1, 2015) (Petravick, APJ).

The petitioner filed a petition requesting inter partes review of claims 1 and 7 of a Signal IP patent. Before considering the alleged basis for invalidity, the Board addressed construction of the claims (claims that had already been found to be indefinite by a district court in companion infringement litigation). The challenged claims, directed to a method of airbag control in a vehicle, require a vehicle passenger seat having an array of pressure (force) sensors on the passenger seat coupled to a controller for determining whether to allow airbag deployment based on sensed force and force distribution. The last three steps in the claimed method include determining the existence of a local pressure area when the calculated total force is concentrated in one of the seat areas, calculating a local force as the sum of forces sensed by each sensor located in the seat area in which the total force is concentrated, and allowing deployment if the local force is greater than a predefined seat area threshold force.

During claim construction, the analysis turned on the meaning of the term “concentrated,” the same term found indefinite by the district court. The Board categorized the term as one of degree but not inherently indefinite. The Board noted however, that the use of such a term requires the patent to provide some standard for measuring that degree. Using the plain and ordinary meaning, the construction proposed by the patent owner, coupled with disclosure in the specification, the Board found that the specification failed to provide objective boundaries for determining what percentages of total force would or would not be considered to be “concentrated.” Based upon its finding of indefiniteness, the Board declined to consider the prior art, noting that when a claim’s meaning is indefinite, any rejection based on prior art is improperly based on speculation.

Practice Note: While an IPR petitioner cannot rely on an indefiniteness challenge, PTAB panels routinely address claim construction prior to applying prior art to the challenged claims. This necessarily involves some consideration of 35 USC §112. While, in the context of an IPR, the Board cannot invalidate claims for indefiniteness, it can use such a determination as a basis for non-institution.

Since PTAB decisions on institution are not appealable, both patent owners and petitioners should carefully consider how a finding of indefiniteness might impact their position in a dispute. In cases where claim indefiniteness is a concern, a patent owner may consider including in its preliminary response a more robust discussion regarding claim construction, or filing a reissue application to clarify claim scope. Petitioners should consider the ramification of a potential finding of indefiniteness, which could result in a non-institution decision (as opposed to cancellation of claim) albeit under a shadow of a PTAB finding of indefiniteness (a finding that is neither dicta nor binding in a district court).

Board: No Rubber Stamp on Motions to Seal

Addressing the standard for sealing documents in inter partes review (IPR) proceedings, the Patent Trial and Appeal Board (PTAB or Board) denied a patent owner’s motion to seal documents where the only justification provided was that the documents “should be sealed because of the confidential information contained therein.” Samsung Elecs. Co. v. NVIDIA Corp., Case No. IPR2015-01028 (PTAB, Oct. 14, 2015) (Bunting, APJ).

The patent owner filed a preliminary response to an IPR request, along with several supporting exhibits, which it sought to seal. The patent owner premised its accompanying motion to seal on the naked assertion that the documents contain confidential information. The patent owner did not indicate that it had conferred with the petitioner regarding the motion and did not provide any proposed redactions to the exhibits. Citing a strong public policy in favor of open access to IPR records, the Board held that the patent owner had not satisfied its burden to show good cause why the exhibits should be sealed. The Board emphasized that the failure to file proposed redactions deprived the Board of the ability to evaluate whether the redactions are limited to truly confidential information. Nevertheless, the Board allowed the patent owner to refile its motion within two weeks, requiring the renewed motion to explain “why each document or redacted portion of a document is confidential such that it outweighs the public interest in an open record.” The Board agreed to treat the patent owner’s documents as confidential until the motion is decided.

Practice Note: The PTAB is committed to protecting the public’s right to access and learn from the records in its proceedings. When practicing before the PTAB, file proposed redactions alongside motions to seal. Redact sparingly and be prepared to justify each redaction.

Patent Owner’s Disclaimers Results in IPR Institution Denial; Not an Adverse Judgment

Addressing the effect of disclaimed claims challenged in an inter partes review (IPR) petition, a panel of the Patent Trial and Appeal Board (the PTAB or Board) determined that challenged claims disclaimed prior to IPR institution warrant institution denial and are not to be construed as a request for adverse judgment. FCA US LLC v. Jacobs Vehicle Systems, Inc., Case IPR2015-01234 (PTAB, Oct. 23, 2015) (Rice, APJ.).

Jacobs Vehicle Systems (the petitioner) filed an IPR petition challenging certain claims of FCA’s patent directed to systems and methods for providing variable actuation of intake, exhaust and auxiliary valves in an internal combustion engine. Each of challenged dependent claims depends from a single independent claim.

After the IPR petition was filed, the patent owner disclaimed the independent claim pursuant to 37 C.F.R. § 1.321(a). One day later, the patent owner filed its preliminary response in the IPR, arguing that institution should be denied because the independent claim was no longer in controversy. Additionally, the patent owner presented reasons why institution should be denied as to the remaining challenged (dependent) claims, which had also been disclaimed.

Pursuant to 37 C.F.R. § 42.107(e), which states that no IPR will be instituted based on disclaimed claims, the patent owner argued that there were no longer any challenged claims requiring resolution by the Board and that institution should therefore be denied. In response, the Board authorized the patent owner to file a motion for adverse judgment pursuant to § 42.73(b)(2), which allows a party to request judgment against itself upon cancellation or disclaimer of a claim such that the party has no remaining claim in the trial. After the patent owner declined, the petitioner urged the Board to require an adverse judgment request from the patent owner.

The Board subsequently issued a non-institution decision. In that decision the Board rejected the patent owner’s assertion that it lacked jurisdiction to consider the IPR petition, explaining that the post-petition disclaimers were not jurisdictionally determinative. Rather, the Board explained that it retained jurisdiction pursuant to 35 U.S.C. § 314, which provides only that an IPR may not be instituted unless there is a reasonable likelihood that the petitioner would prevail with respect to at least one challenged claim. However, the Board denied institution because the challenged claims had been disclaimed, explaining that the patent owner was not required to request adverse judgment because the claims at issue were disclaimed prior to an institution decision. The Board reasoned that § 42.73(b)(2) allowed a request for adverse judgment only upon disclaimer of a claim such that the party has no remaining claim in the trial and the term “trial” meant a contested case instituted by the Board.

Practice Note: A similar scenario came before the Board two years earlier in Hospira, Inc. v. Janssen Pharmaceuticals, Inc., Case IPR2013-00365, (PTAB, Oct. 24, 2013) (Green, APJ.), where a different panel concluded that a patent owner disclaimed, prior to an institution decision, all of the claims challenged in a pending IPR petition required it to enter adverse judgment and terminate the proceeding. That panel explicitly recognized that although there was no institution of a trial, the disclaimer of all challenged claims was to be construed as a request for adverse judgment pursuant to § 42.73(b). That the disclaimers were made prior to a decision on institution was apparently of no import.

Such contrasting decisions are a reminder that panel decisions are not binding, unless designated “precedential.”

No Observations Permitted on Your Own Witness

Citing both substantive and procedural reasons, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) ruled that a party was not entitled to present observations concerning the cross-examination of its own witness and that Fed. R. Evid. 106 does not provide a basis for such a submission. Seagate Tech. (US) Holdings, Inc. et al. v. Enova Tech. Corp., IPR2014–01178 (PTAB, Oct. 28, 2015) (Goodson, ALJ).

The patent owner tried to submit “observations” on the cross-examination of its own witness. More specifically, the patent owner filed a motion to present observation commenting on the cross-examination of its own expert, apparently frustrated by the out-of-context snippets of testimony that the petitioner relied on. Attempting to provide context around the testimony the petitioner cited and having no procedural opportunity for a sur-reply, the patent owner submitted its observations arguing the “observations [were] needed to help the [B]oard by having ‘context-providing statements identified by the adverse party.’”

The petitioner moved to expunge the observations, arguing that the scheduling order only authorized the patent owner to file observations on the cross-examination of a reply witness (not its own expert); and the Zhongshan case, upon which the patent owner relies, is not relevant because here it is the patent owner seeking to file observation a circumstance carved out of the Zhongshan ruling (“The rationale for observations does not apply . . . [when] it is [the] [p]atent [o]wner that seeks to file observations on the cross-examination testimony of its own witnesses.”)

Relying on FRE 106, the patent owner further argued that observations were necessary in order to address discrepancies in the testimony as cited and that the Zhongshan case was indeed applicable. Ultimately, the Board agreed with the petitioner, noting that the expert’s full deposition transcript was available to it.

The Board granted the petitioner’s motion to expunge and also expunged the petitioner’s response to the patent owner’s motion. The Board harshly criticized the patent owner’s procedural transgressions in filing a motion without prior authorization, noting that it has previously determined it is improper for a party to submit observations on the testimony if its own witnesses. As the Board stated: “The [S]cheduling [O]rder states that [a] motion for observation on cross-examination provides the parties with a mechanism to draw the Board’s attention to relevant cross-examination testimony of a reply witness because no further substantive paper is permitted after the reply.” The Board explained that “[t]he party taking the cross-examination files the observations,” while the opposing party may file a response to an observation, it may not file observations without express prior authorization.

Citing to Schott, the Board concluded: “it is the party taking the cross-examination that typically files observations, and the reason for permitting observations is that the cross-examination takes place after the party has filed its last substantive paper, such that the party has no way to bring relevant testimony to the Board’s attention.” But here, just as in Schott, [t]he rationale for observations does not apply . . . because it is [the] [p]atent [o]wner that seeks to file observations on the cross-examination testimony of its own witnesses.

Practice Note: The PTAB’s rules governing inter partes reviews (IPRs) do not provide a mechanism for a party to provide observations on cross-examinations of its own witnesses without express authorization by the panel. A patent owner may try to mitigate the problem confronted by the patent owner here by taking more robust re-direct, making it more difficult for the petitioner to cite out-of-context testimonial snippets.

Joinder Motions Do Not Nullify the One-Year Statutory Bar for Petitions **WEB ONLY**

Addressing whether the concurrent filing of a motion for joinder is sufficient to overcome the one-year statutory bar on inter partes review (IPR) petitions, the Patent Trial and Appeal Board (PTAB or Board) denied a petitioner’s request for rehearing, finding that such an interpretation would render the one-year statutory bar a nullity. ZTE Corp. v. Adaptix, Inc., Case No. IPR2015-01184 (PTAB, Oct. 16, 2015) (Blankenship, APJ).

Under 35 U.S.C. § 315(b), IPR petitions are barred if the petitioner was served with a complaint alleging infringement of the subject patent more than one year prior to the date of the petition. The petitioner, ZTE, argued that a petition is not subject to this time bar if the petition is accompanied by a request for joinder, even if the request for joinder is denied. The PTAB rejected ZTE’s argument. Indeed, as the Board explained, under ZTE’s interpretation, to avoid the one-year statutory bar, a petitioner would simply need to file a motion for joinder with some proceeding, even when the petitioner has full knowledge that the motion would be denied. Such an interpretation would make the rule meaningless. The PTAB also noted that, in the single case ZTE cited for the proposition that a motion for joinder overcame the one-year time bar, the motion for joinder was granted.

Non-Litigant, You Are Not Needed in This IPR

Addressing joinder issues, the Patent Trial and Appeal Board (PTAB or Board) denied a request to institute an inter partes review (IPR) and a request for joinder, finding joinder would complicate the instituted IPR and that instituting a new IPR would waste the Board’s resources. Unified Patents Inc. v. C-Cation Techs., Inc., Case No. IPR 2015-001045 (PTAB, Oct. 7, 2015) (Pettigrew, APJ).

The challenged patent is directed to multimedia communication systems. The petitioner, Unified Patents, is an entity that protects various technology sectors of its members by challenging the validity of patents. It uses subscription fees paid by its members to file post-grant proceedings on behalf of its membership. Unified Patents is not involved in any litigation with the patent owner. The Board had already instituted an IPR filed by the ARRIS Group over the same patent and also had already allowed another party (Cox Communications) to join the IPR.

Unified Patents’ IPR petition asserted the same grounds and made the same arguments as ARRIS. Unified Patents’ petition also relied on a declaration from the same expert retained by ARRIS. The patent owner’s arguments regarding the grounds of unpatentability in its Preliminary Response were virtually identical to those made in the ARRIS IPR. The main difference between the ARRIS IPR and Unified Patents’ petition was whether all real parties- in- interest had been identified, with the patent owner claiming that Unified Patents failed to identify all real parties- in-interest. According to the patent owner, Unified Patents “acts as a shill” for its anonymous members. Unified Patents filed a motion to join the ARRIS IPR that neither ARRIS nor the patent owner opposed. In its motion, Unified Patents agreed to consolidate filing and discovery and asserted it would only assume a primary role if ARRIS ceased to participate.

Despite not being opposed by the patent owner, the Board exercised its discretion and denied Unified Patents’ request for joinder, finding that it added a new “real parties-at-interest” issue, which would complicate the ARRIS IPR. According to the Board, because the “real parties-in-interest” issue was not previously addressed, joining Unified Patents into the IPR now could sidetrack the proceedings and shift focus from the substantive issues. The Board also disagreed that there was a need for a second party in the ARRIS IPR because Cox was already joined and could take the primary role if necessary.

The Board also exercised its discretion to decline Unified Patent’s petition because it would be a wasteful duplication of efforts to conduct two separate but parallel IPRs addressing the same patentability issues. The Board took into account that Unified Patents is not a party to any litigation and is not exposed to any threat of patent litigation based on its business model. As such, Unified Patents would not be subject to a bar under 35 U.S.C. § 315(b) and would still be able to refile its petition if the ARRIS IPR is terminated or Unified Patents is dissatisfied with the ARRIS IPR.

Ninth Circuit Does an About-Face in Military Watch Trademark Dispute

The U.S. Court of Appeals for the Ninth Circuit previously found that a jury could potentially find that online retailer Amazon.com created a likelihood of consumer confusion with the format of its product search returns when a customer searches for a branded wristwatch that is not sold through Amazon (Multi Time Machine, Inc. v. Amazon.com, Inc.; IP Update, Vol. 18, No. 8). In view of that controversial decision, other online retailers, search engines and technology companies, as well as intellectual property professionals, petitioned the court for a rehearing to reconsider the issue in view of modern approaches to Internet keyword search techniques. On panel rehearing, the 9th Circuit withdrew its opinion and issued a superseding opinion and dissent, holding that no rational trier of fact could find that a reasonably prudent consumer accustomed to shopping online would likely be confused by Amazon’s search results. Multi Time Machine, Inc. v. Amazon.com, Inc. Case No. 13-55575 (9th Cir., Oct. 21, 2015) (Silverman, J.) (Bea, J., dissenting).

Judge Silverman, who issued the dissent in the court’s original opinion, authored the rehearing opinion, and explained that the court’s Sleekcraft eight-factor test for likelihood of confusion is “not particularly apt” for this case, since the court is not comparing two similar trademarks, but is instead looking at the potential for confusion that may be caused by the design of Amazon’s search results page. In particular, Multi Time Machine (MTM) alleges that Amazon’s search results for the “MTM Special Ops” watches creates a likelihood of initial interest confusion, which may occur when the use of one party’s trademark causes consumer confusion that creates interest in a competitor’s product.

MTM argued that initial interest confusion may occur because Amazon keeps the “MTM Special Ops” search term displayed at least three times at the top of the page, which may cause consumers to believe that the resulting list of competitors’ watches are types of MTM watches. MTM also argued that in order to eliminate the likelihood of confusion, Amazon should expressly state that it does not offer MTM watches for sale before suggesting the alternative competing brands.

The Court explained that the ultimate test for determining likelihood of confusion is whether a “reasonably prudent consumer” in the marketplace is likely to be confused as to the source of the goods. The rehearing panel concluded that the current dispute could be resolved through an evaluation of the Amazon search results display and an objective evaluation of the relevant consumer. Citing the court’s decision in Network Automation, which dealt with the use of trademarks in the context of keyword advertising, Judge Silverman outlined two key questions: who is the relevant consumer and what would he believe based on what he saw on the screen?

In answering to the first question, the court found that, in view of the expensive price of the military-style wristwatch at issue, as well as the commonplace nature of online commerce, the relevant consumer is a “reasonably prudent customer accustomed to shopping online.” As regard to the second question, the court explained that the labeling and appearance of the products for sale on Amazon’s search return page is the most important factor, since the court’s decisions in Brookfield Communications, Playboy, and Network Automation have established that clear labeling can eliminate the likelihood of initial interest confusion. Examining Amazon’s search returns for “MTM Special Ops,” the court found that Amazon clearly labels each of the competing products for sale by brand name and model number, and that the screen returns are also accompanied by a photograph of the goods.

The court conceded that it is possible that “someone, somewhere might be confused by the search results page,” but reiterated that the unreasonable, imprudent and inexperienced web shopper is not relevant to the analysis. Instead, the court determined that Amazon’s “clear labeling” of its available watches with brand names and photos is unambiguous. Judge Silverman quoting from his previous dissent, opined that the Amazon search results are “not unlike when someone walks into a diner, asks for a Coke, and is told ‘No Coke. Pepsi.’”

Notwithstanding that the likelihood of confusion is often a question of fact, the court confirmed that summary judgment is appropriate in cases where a court can conclude that the alleged consumer confusion is highly unlikely by reviewing the product listing at issue. Accordingly, in light of Amazon’s “clear labeling of the products it carries,” the panel held that no rational trier of fact could find that a reasonably prudent consumer accustomed to shopping online would be confused by the Amazon results and affirmed summary judgment for Amazon.

Judge Bea, who authored the court’s now-withdrawn opinion, dissented, arguing that the panel departed from summary judgment jurisprudence and from the court’s own precedent in Brookfield Communications. Judge Bea believes that the issue of whether the Amazon search results are “clearly labeled,” and thus unlikely to cause initial interest confusion, is one for a jury, not the court.

“Voice of America” Belongs to the U.S. Government

Robert Namer, d/b/a Voice of America v. Broadcasting Board of Governors; Voice of America Addressing the issues of laches and the reliability of a consumer survey in a defense to a trademark infringement action under the Lanham Act, the U.S. Court of Appeals for the Fifth Circuit upheld a district court’s finding of reliability of the survey and no laches based on lack of prejudice. Robert Namer, d/b/a Voice of America v. Broadcasting Board of Governors; Voice of America, Case No. 14-31353 (5th Cir., Oct. 26, 2015) (Costa, J.).

This dispute arises out of the use of the phrase “Voice of America.” Since World War II, the Voice of America (VOA) has served as the official news outlet of the United States government in foreign lands. VOA is now a multimedia organization involving shortwave and FM radio, television and two websites. It is operated by the Broadcasting Board of Governors (the Board).

Namer began using the self-identifying phrase “Voice of America” in seminars, lectures, print, radio and television in 1968. In 1977 Namer formed the corporation Voice of America, Inc. He is the president and owns 100 percent of the stock of the corporation. In 1991 Namer began airing a radio program entitled Voice of America. The radio program is exclusively aired over the internet in the continental United States. In 1998 Namer registered the domain name www.thevoiceofamerica.com.

In 2007 the Board received a trademark registration from the U.S. Patent and Trademark Office for the word mark “Voice of America.” The Board sent Namer a letter demanding he stop using VOA to identify his radio program. The Board later sent a cease-and-desist letter notifying Namer of the mark’s registration. When Namer refused to cease use of the name, the Board filed a complaint under the Uniform Domain Name Dispute Resolution Policy seeking transfer of Namer’s website domain name to the Board.

In 2012 Namer filed suit seeking declaratory judgment to prevent the transfer of the website domain and a declaration that Namer has the legal right to continue doing business using “Voice of America” to his identifier. The Board counterclaimed for infringement under the Lanham Act. After the district court granted defendant’s motion for summary judgment on infringement and granted injunctive relief preventing Namer’s further use of the mark, Namer appealed.

On appeal, Namer argued that he was entitled to a laches defense and that the Board failed to establish a likelihood of confusion. Unconvinced, the 5th Circuit affirmed the summary judgment on infringement and concluded that Namer was not entitled to claim a laches defense.

Survey Evidence

At issue in the infringement claim was whether a study presented by the Board as part of its proof to establish a likelihood of confusion was properly conducted. The Board’s survey was conducted using individuals who would likely visit Namer’s website as the universe of relevant consumers. Namer contended that the proper universe is those individuals who would visit the Board’s websites. The difference is the inclusion of an international audience in Namer’s proposed universe. The 5th Circuit concluded that the Board’s survey relied on the correct sample of potential consumers, explaining that a useful or relevant survey estimating the likelihood of confusion resulting from use of an allegedly infringing mark should sample those most likely to purchase or use the alleged infringing goods or services, not users of the trademarked goods or services.

Laches Defense

Namer’s primary defense was that even if he is infringing, he is entitled to a laches defense. To establish a laches defense, a party must show delay in asserting trademark rights by the senior user, lack of excuse for the delay and undue prejudice to the alleged infringer caused by the delay. The district court found Namer failed to establish the prejudice requirement and the 5th Circuit agreed.

Although Namer established continued routine use of the website during the time when the Board allegedly sat on its rights, the court noted prejudice will rarely be shown when the infringer merely used the infringing mark in commerce; i.e., continued infringing. Namer failed to introduce any evidence showing the amount of money spent on investment or capital that could demonstrate prejudice. In fact, Namer refused to respond to discovery requests relevant to expenses incurred in developing his rights to use the mark. On appeal, Namer contended (for the first time) that the Board’s delay in bringing an infringement claim prejudiced his litigation strategy. However, the court found this argument had been waived, as it was not asserted before the district court.

Although Namer also raised other defenses including a First Amendment issue, violation of his due process rights and “prior use,” the 5th Circuit did not consider those claims concluding they were not sufficiently asserted before the district court to be preserved for appeal.

District Court Twice “Erred with Respect to Every [Confusion] Factor” **WEB ONLY**

The U.S. Court of Appeals for the Eleventh Circuit reversed a district court decision for the second time, explaining that on remand the district court “erred with respect to every factor” in determining whether confusion was likely between the two marks. Order of Malta in Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of Malta v. Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, Knights of Malta, The Ecumenical Order, Case No. 14-14251 (11th Cir., Oct. 15, 2015) (Pryor, J.)

The Order of Malta in Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of Malta (the Order) is a religious organization of the Roman Catholic Church that performs charitable works around the world and has diplomatic relations with numerous countries around the world. In 2009, the Order brought an infringement suit against Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, Knights of Malta, The Ecumenical Order (the Florida Priory) claiming infringement of its registered trademarks. The Florida Priory is a Christian group that is not tied to a specific church. Both groups stem from a group founded in Jerusalem in the 11th century.

The district court initially cancelled the Order’s registered trademarks reasoning that the Order’s representative before the U.S. Patent and Trademark Office should have been aware of the other group’s use of similar marks but said nothing. On appeal by the Order, the cancellation decision was reversed, the 11th Circuit finding that the district court hadn’t used the correct standard to evaluate confusion, had incorrectly relied on the leader of the Florida Priory’s “expert” testimony about historical facts and inappropriately relied on its own internet searches to find more information about the parties. IP Update, Vol. 15, No. 10. The Court further noted that comments made by the district court about the Order were offensive and unnecessary, but found no actual bias and refused to send the case to a different judge.

On remand, the district court followed the 11th Circuit’s protocol in reconsidering whether the marks of the parties are likely to cause confusion and came to the same conclusion. The Order again appealed. The 11th Circuit reversed again, explaining that while the district court’s confusion methodology was proper this time, it misapplied several of the infringement factors in its analysis. The 11th Circuit criticized the district court for again relying on improper expert historical testimony that the 11th Circuit previously deemed inadmissible, and for misinterpreting the appeals court instructions about consulting facts outside the record. However, the 11th Circuit denied the Order’s request to reassign the case to a different district judge, noting that reassignment wasn’t warranted because the district court’s actions were “more akin to garden-variety errors of the law” than “direct defiance” of the circuit court.

No Fresh Wrong, No Duty to Defend

Where an alleged trademark infringement began 16 months before an insurance policy took effect, the U.S. Court of Appeals for the Third Circuit affirmed the district court’s decision that the insurer had no duty to defend or indemnify pursuant to the “prior publication” exclusion which barred coverage for liability arising from materials first published before the policy began. Hanover Ins. Co. v. Urban Outfitters, Inc., Case No. 14-3705 (3d Cir., Oct. 23, 2015) (Roth, J.).

In February 2012, the Navajo Nation brought suit for trademark infringement and related statutory and common-law violations against Urban Outfitters and its affiliate companies. Urban Outfitters allegedly “advertised, promoted, and sold its goods under the ‘Navaho’ and ‘Navajo’ names and marks” both online and in stores “[s]ince at least March 16, 2009.”

Urban Outfitters gave notice of the complaint to insurers OneBeacon American Insurance Company and Hanover Insurance Company. Urban Outfitters’ coverage with OneBeacon was in effect until July 7, 2010, when a new “fronting policy” took effect that made Hanover the responsible insurer. Hanover later issued a separate commercial general liability and umbrella liability policy, effective July 7, 2011 to July 7, 2012. All the policies for which Hanover was the responsible insurer included an exclusion from coverage for “personal and advertising injury” liability “arising out of oral or written publication of material whose first publication took place before the beginning of the policy period,” i.e., prior to July 7, 2010.

The district court found that the “prior publication” exclusion applied, even as to certain new products using the “Navaho” or “Navajo” names that only became available after July 2010. Urban Outfitters appealed.

The 3d Circuit affirmed. Under the applicable state law, a court must examine the language of the policy and the allegations of the complaint to determine whether there is a duty to defend. Where the Navajo Nation had clearly alleged that Urban Outfitters’ infringement began no later than March 2009, Hanover owed no duty unless the complaint alleged “fresh wrongs” that occurred after Hanover’s policies became effective.

Acknowledging that this was an issue of first impression, the 3d Circuit examined the U.S. Court of Appeals Ninth Circuit’s recent analysis of “fresh wrongs” in Street Surfing v. Great American E & S Insurance. In Street Surfing, the 9th Circuit held that the post-coverage publications were not “fresh wrongs” because they were “substantially similar” to pre-coverage publications that carried out the same alleged wrong. Building on this analysis, the 3d Circuit articulated the standard that post-coverage advertisements that are mere “variations, occurring within a common, clearly identifiable advertising objective, do not give rise to ‘fresh wrongs.’” The Navajo Nation alleged a continuous pattern of infringement from 2009 and the filing of the complaint, and the post-coverage advertisements shared a common advertising objective with the pre-coverage advertisements: to use the goodwill or reputation associated with the “Navaho” and “Navajo” names for Urban Outfitters’ benefit. Thus, there was no “fresh wrong” triggering a duty on the part of Hanover.

Google Books Is Transformative and Therefore a Fair Use

Addressing the boundaries of fair use in copyright law, the U.S. Court of Appeals for Second Circuit found that the making of digital copies of tens of millions of books to establish a publicly available search function was a fair use under 17 U.S.C. § 107 and therefore not an infringement. The Authors Guild, et al. v. Google, Inc., Case No. 13-4829 (2d Cir., Oct. 16, 2015) (Leval, J.).

Through its Library Project and its Google Books project, Google has made digital copies of tens of millions of books, including the plaintiffs’, without permission of rights holders. Google Books provides a brief description of each book, including a list of the words and terms that appear with the most frequency in the book and, sometimes, a link to buy the book online or identification of libraries where the book can be found. The Google Books search engine allows members of the public to enter search words or terms and receive in response a list of all books in the database in which those terms appear, as well as the number of times the term appears in each book. The search function also displays a maximum of three “snippets” containing the word or term. This “snippet” view is designed to show the searcher just enough context surrounding the searched term to help her evaluate whether the book falls within the scope of her interest, without revealing so much as to threaten the author’s copyright interest.

The plaintiffs alleged that these activities infringe their copyrights, while Google argued its actions constitute “fair use” under § 107 and are therefore not an infringement. The 2d Circuit agreed with Google and found that Google’s making of a digital copy to provide a search function was transformative and thus a fair use. The court explained that Google’s use augments public knowledge by making available information about the plaintiffs’ books without providing the public with a substantial substitute for matter protected by the plaintiffs’ copyright interests in the original works or derivatives of them. The 2d Circuit emphasized that while authors are important intended beneficiaries of copyright, the ultimate and primary intended beneficiary is the public, whose access to knowledge is the interest copyright seeks to advance by providing rewards for authorship.

The 2d Circuit explained that Google Books is designed to make sufficient information about the digitally copied books available to allow a searcher to locate books containing a particular word or term of interest. The Court found that Google’s provision of the “snippet” function does not reveal matter that offers the marketplace a significantly competing substitute for the copyrighted work. The author’s derivative rights do not include an exclusive right to supply information about her works.

The 2d Circuit also considered whether Google’s profit motivation is enough to justify denial of fair use in these circumstances. The court relied on Campbell v. Acuff-Rose Music to find that “the more transformative the [secondary] work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.” The court found no reason why Google’s overall profit motivation should prevail as a reason for denying fair use over its highly convincing transformative purpose, together with the absence of significant substitute competition, as reasons for finding fair use.

Practice Note: When crafting arguments on copyright infringement, keep in mind the primary intended beneficiary of the copyright laws is the public, not the copyright holder.

Merry Christmas! Rights to “Santa Claus’ Is Comin’ to Town” Return to Songwriter’s

Baldwin v. EMI Feist Catalog, Inc. Addressing issues of copyright ownership and the effectiveness of copyright termination notices, the U.S. Court of Appeals for the Second Circuit reversed the district court’s summary judgment decision, terminating effective next year, the rights of the current copyright holder to the classic Christmas song, “Santa Claus is Comin’ to Town.” Tracing the history of rights to the song through decades that also included significant changes in copyright law, the Court held that the heirs of one of the songwriters, J. Fred Coots (the Coots Heirs), will own the rights to the song starting December 2016. Baldwin v. EMI Feist Catalog, Inc., Case No. 14-182-cv (2nd Cir., Oct. 8, 2015) (Livingston, J.).

In reaching its decision, the 2nd Circuit confronted two issues: identifying the agreement that was the source of EMI’s current rights in the song, and whether any of the termination notices served by the Coots Heirs terminated those rights.

The songwriters had sold the song and copyright to EMI in 1934. EMI and Coots later entered into an agreement in 1951 (1951 Agreement), where Coots assigned EMI rights to the song, as well as “all renewals and extensions” of the song’s copyright. Subsequently, Coots and EMI’s successor-in-interest entered into another agreement (the 1981 Agreement), wherein Coots assigned EMI’s successor-in-interest all of his rights and interests “whatsoever now or hereafter known or existing.”

The Court concluded that the 1981 Agreement was the source of EMI’s rights, because it granted EMI the same rights it had under the 1951 Agreement, and in addition, renewal rights. The Court found that the parties intended for the 1981 Agreement to replace and supersede the 1951 Agreement. Because the 1981 Agreement was the source of EMI’s rights, the Court concluded that Coots Heirs had the right, under 17 U.S.C. § 203, to terminate that agreement. Section 203 permits authors and their heirs to terminate grants executed on or after January 1, 1978 “beginning at the end of thirty-five years from the date of execution of the grant”—in this case, as of December 15, 2016.

The 2nd Circuit next addressed whether the 1981 Agreement had in fact been terminated and, if so, when that termination becomes effective. After negotiations with EMI failed, the Coots Heirs served EMI a termination notice in 2007. That notice stated that the 1981 Agreement would terminate on December 15, 2016. EMI argued that the 2007 termination notice could not be effective as of that date because the 1981 Agreement covered the right to publication, thus meaning that EMI’s rights could not be terminated until 2021. The Court rejected EMI’s argument, concluding that the 1981 Agreement did not cover the right to publication because publication happens when the work is first sold, in this instance well before the 1981 Agreement. Thus, the Court found that the termination notice was valid and its December 2016 termination date effective.

The Idea of Yoga Versus the Expression of It

Affirming the district court’s grant of partial summary judgment, the U. S. Court of Appeals for the Ninth Circuit concluded that a sequence of yoga poses and breathing exercises was directed to the idea or process of improving health, not to a protectable expression and therefore not entitled to copyright protection. Bikram’s Yoga College of India v. Evolation Yoga, LLC, Case No. 13-55763, (9th Cir., Oct. 8, 2015) (Wardlaw, J.).

In 1979, Bikram Choudhury wrote a book, Bikram’s Beginning Yoga Class, wherein he described a sequence of 26 yoga poses and two breathing exercises arranged in a particular order, which he calls the “Sequence.” In his yoga class, the Sequence is practiced over the course of 90 minutes, to a series of instructions (the “Dialogue”), in a room heated to 105 degrees Fahrenheit. Choudhury also offered a three-month Bikram Yoga Teacher Training course.

In 2002 and 2005, respectively, defendants Mark Drost and Zefea Samson enrolled in and completed Choudhury’s Bikram Yoga Teacher Training course. Then, in 2009, they founded Evolation Yoga, which offers, among other types and styles of yoga, a “hot yoga” course that was admittedly similar to Bikram’s Sequence because it included 26 postures and two breathing exercises that are done for 90 minutes while accompanied by a series of oral instructions in a room heated to approximately 105 degrees Fahrenheit.

Choudhury and his company, Bikram’s Yoga College of India, sued Evolation Yoga, Drost and Samson for copyright infringement. The district court granted the defendants’ motion for partial summary judgment that the Sequence is a collection of facts and ideas not entitled to copyright protection under § 102(a) of the Copyright Act. Choudhury timely appealed as to the “Sequence.”

Section 102(b) of the Copyright Act codifies the “idea/expression dichotomy” and expressly excludes protection for “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” Citing to the venerable (1879) Supreme Court case of Baker v. Selden, the 9th Circuit reflected on the fundamental idea/expression dichotomy under which only the expression of ideas are protected, but not the ideas themselves. The 9th Circuit concluded that like the book keeping system at issue in Baker, Choudhury’s book explaining the Sequence may enjoy copyright protection, but not the Sequence itself.

Rather, the Sequence was an idea, process or, more specifically, a system designed to improve health, rather than a protectable expression. Indeed, Choudhury’s book itself described the Sequence as a method to attain identifiable, spiritual and psychological result in the form of a “sense of well-being” and “boundless energy.” The appeals court rejected Choudhury’s contention that the Sequence’s arrangement of postures was “particularly beautiful and graceful,” because beauty is not a basis for copyright protection. The Sequence, like the meditation exercises that were codified in a manual that were the subject of the U.S. Court of Appeals for the Eleventh Circuit’s 2001 decision in Palmer v. Braun, constituted a process under § 102(b) that, even if original, is not entitled to copyright protection.

The 9th Circuit also rejected Choudhury’s argument that the Sequence is a coherent and expressive composition, and thus protectable as a compilation under §§ 101 and 103. The Court explained that even though the Sequence might be a compilation, it must still satisfy the requirements of § 102 to qualify for copyright protection. As the 9th Circuit explained, the “availability of copyright protection for compilations . . . does not eliminate Section 102’s categorical bar on copyright protection for ideas.”

Indeed, the 9th Circuit reasoned that extending copyright protection to the Sequence itself would frustrate the purpose of the book: inviting readers to practice the method it describes. Consumers of the book would have little reason to buy the book if, after doing so, then practicing the very activity it teaches and encourages turns them into copyright infringers.

Transformative Parody Entitled to Independent Copyright Protections

The U.S. Court of Appeals for the Second Circuit affirmed a district court in a rare instance where a playwright’s derivative work—a parody—fell within the fair use doctrine and acquired sufficient originality to warrant independent copyright protections. Keeling v. Hars, Case No. 13-694 (2nd Cir., Oct. 30, 2015) (Cabranes, J.).

Plaintiff Jaime Keeling wrote a script for a stage play called Point Break LIVE! The play was a parody of the 1991 film Point Break, starring Keanu Reeves and Patrick Swayze. Although Ms. Keeling incorporated the characters, plot, and dialogue of the film, she added jokes, props, exaggerated staging and humorous theatrical devices to the parody play. In particular, the script called for a member of the audience to read Keanu Reeves’s character lines from a cue card to mock the actor’s “reputedly stilted performance.”

Beginning in 2007, New Rock Theater Productions, LLC (New Rock) put on the Point Break LIVE! parody. The show’s first two months were staged in accordance with a production agreement between New Rock and Ms. Keeling. Thereafter, New Rock principal Eve Hars conferred with an entertainment attorney who advised her that Ms. Keeling did not have a license or other permissions from the original motion picture. Believing that Ms. Keeling did not own any rights in the parody play, Ms. Hars sought to produce the play without making further payments to Ms. Keeling. For four years, New Rock staged the Point Break LIVE! performance without payment to, or authorization from, Ms. Keeling. Meanwhile, Ms. Keeling registered a copyright in Point Break LIVE! script and filed suit for claims that included copyright infringement.

New Rock and Ms. Hars moved for summary judgment, arguing that the copyright registration for the Point Break LIVE! script was invalid because it was an unauthorized derivative work. The district court denied the motion based on the possibility that the script was lawful under the fair use doctrine. The case proceeded to trial. After being instructed on the fair use doctrine, a jury found New Rock had infringed of Ms. Keeling’s copyright in the parody script and awarded damages. Hars appealed.

The 2nd Circuit rejected Ms. Hars’ argument that the script was not within the bounds of fair use, explaining that if a “creator of an unauthorized work stays within the bounds of fair use and adds sufficient originality; she may claim protection under the Copyright Act.” The 2nd Circuit clarified that Ms. Keeling’s parody was lawful under the doctrine of fair use and could be copyrighted, noting that fair use does not itself give the work copyright protection, but the “originality of the derivative work” can be sufficiently transformative (i.e., can create a “new parodic meaning”) to merit its own protection. Indeed, the appeals court concluded that “[w]ithout any possibility of copyright protection against infringement for her original fair-use parody, playwrights like Keeling might be dissuaded from creating at all.”

Practice Note: Typically in copyright infringement suits, the derivative work author is the defendant. Here, Ms. Keeling was the plaintiff, whose unauthorized use of a well-known motion picture led to the creation of a new and original stage work. This decision may have implications for artists whose work intentionally misappropriates copyrighted materials, such as remix and mashup artists.