IP Update, Vol. 19, No. 1

Post-Grant PTAB Procedures are Constitutional

In a case of first impression, the U.S. Court of Appeals for the Federal Circuit upheld the constitutionality of inter partes review (IPR) proceedings. The Federal Circuit ruled that because patents were a public right, Congress could delegate adjudicatory authority to an Article I court such as the Patent Trial and Appeal Board (PTAB or “Board”) at the U.S. Patent and Trademark Office (PTO) without violating Article III or the Seventh Amendment. MCM Portfolio LLC v. Hewlett-Packard Co., Case No. 15-1091 (Fed. Cir., Dec. 2, 2015) (Dyk, J.).

The case arose from an IPR involving a flash memory patent. MCM Portfolio (MCM) sued Hewlett-Packard (HP) on a patent covering error correction technology in flash drive readers. HP responded by petitioning the PTAB for an IPR, asserting that the involved patent was invalid for obviousness. The PTAB instituted an IPR proceeding, eventually invalidating the claims. MCM appealed.

The Federal Circuit first discussed a threshold issue of whether, under the statute, it had jurisdiction to review institution decisions. MCM argued that it could and that the IPR should have been time-barred since MCM had already sued one of HP’s suppliers on the same patent. However, the Court, citing 35 U.S.C. § 314(d), concluded that it lacked jurisdiction to review institution decisions.

The Federal Circuit then moved on to the constitutionality challenges under Article III and the Seventh Amendment. MCM argued that only an Article III court has the right to invalidate a patent and that assigning that authority to the executive interfered with separation of powers and violated Article III. MCM also argued that the Seventh Amendment precludes IPR proceedings as they deprive patent owners of a trial by jury. The Court rejected both arguments.

With respect to the Article III argument, the Federal Circuit concluded that Congress could grant the PTO the authority to review patents since they are a “public right.” Public rights are those that either exist between a person and the government or that are “so closely integrated to a public regulatory scheme” that agencies may resolve them. The Court explained that because patents flow entirely from a federal legislative regime, Congress may authorize the PTO to resolve questions of validity, particularly since the Court had already approved a similar process, ex parte reexamination, when Congress introduced that proceeding.

Turning to the Seventh Amendment argument, the Federal Circuit concluded that the IPR process was constitutional, again noting that a patent is a public right. Citing Supreme Court precedent, the Court explained that when Congress authorizes agencies to adjudicate a public right, the Seventh Amendment does not apply, since such a circumstance would defeat the very purpose of having an expert agency rule on those issues.

Cuozzo Expanded to CBMs to Bar Appellate Review of Institution Decisions

Addressing the bar on appellate reviewability of the Patent Trial and Appeal Board’s (PTAB or Board) decisions, the U.S. Court of Appeals for the Federal Circuit concluded that § 324(e) bars review of the Board’s decision to institute a Covered Business Method (CBM) patent review, even when the Board relies on grounds not alleged in the CBM petition. SightSound Tech., LLC v. Apple Inc., Case Nos. 15-1159, -1160 (Fed. Cir., Dec. 15, 2015) (Dyk, J.).

Apple filed petitions seeking CBM review of two SightSound patents relating to methods for selling digital audio over telecommunications lines. Apple’s petition was limited to multiple anticipation grounds under § 102 but did not specifically include obviousness grounds under § 103. Nevertheless, the Board determined that the petition showed a reasonable likelihood that the challenged claims were anticipated or obvious and instituted review accordingly.

In its institution decision, the Board stated that it was exercising its “discretion to institute a covered business method review” on § 103 obviousness grounds, even though they had not been raised in the petition. The Board pointed to the “references themselves” as providing the necessary motivation to combine. After SightSound argued that the Board’s institution on § 103 obviousness grounds improperly deprived it of a fair opportunity to respond to those new grounds, the Board authorized SightSound to file a sur-reply along with a new declaration addressing obviousness. In its final written decision, the Board held that the patents were invalid as obvious under § 103. SightSound appealed.

On appeal, SightSound argued that Board exceeded its authority to issue a final decision based on a ground that had not been raised by the petitioner in the initial petition. The Federal Circuit characterized the argument as an appellate challenge to the Board’s decision to institute CBM review, a challenge that is specifically barred by § 324(e). Equating § 324(e) (applicable to CBMs and post-grant reviews) with § 314(d) (applicable to inter partes reviews, or IPRs), the Court reiterated its reasoning from In re Cuozzo Speed Technologies, 793 F.3d 1268 (Fed. Cir. 2015) (IP Update, Vol. 18, No. 2) and applied the same interpretation to CBM appellate review as it had previously applied to IPRs: nothing in the statute limits the Board’s authority to base its final decision on grounds not raised in the petition, and the statute bars appellate review of the grounds on which the Board instituted review. The Federal Circuit therefore concluded that it did not have jurisdiction to review the Board’s decision to institute under § 103.

The Court also rejected SightSound’s argument that the patents did not qualify as “covered business method” patents under the statute. Even though the challenged claims admittedly required technical components, the Court agreed with the Board that merely using known technology to perform financial activities nature does not transform the method into a “technological invention” that could escape CBM review. Ultimately, the Court agreed with the essence of the Board’s claim construction and affirmed the Board’s final determination that the challenged claims were unpatentable as obvious.

"Substantial Evidence" Review Dooms PTAB Appeal

Addressing the issue of obviousness in the context of an inter partes review (IPR), the U.S. Court of Appeals for the Federal Circuit affirmed a decision by the Patent Trial and Appeal Board (PTAB or Board) under a substantial evidence standard, finding that the contested claims of the patent-at-issue were invalid as obvious. Merck & Cie v. Gnosis S.P.A., Case No. 14-1779 (Fed. Cir., Dec. 17, 2015) (Hughes, J.) (Newman, J. dissenting) (Gnosis I).

The patent at issue, owned by Merck, related to methods of using folates to lower levels of homocysteine in the human body. Gnosis instituted inter partes review of certain claims, and the PTAB found that all of the claims-at-issue were obvious under § 103 in light of three prior art references. The PTAB also considered objective indicia of non-obviousness and concluded that Merck failed to demonstrate an adequate nexus between the novel features of the patent-at-issue and the evidence of commercial success, licensing, copying and industry praise. It also found that evidence of long-felt but unmet need, unexpected results and industry skepticism was unpersuasive. Merck appealed.

The Federal Circuit agreed with the PTAB that the asserted claims were obvious, concluding that the PTAB’s factual findings with respect to both motivation to combine and lack of adequate nexus for the secondary considerations were supported by substantial evidence. In addressing the motivation to combine, the Federal Circuit emphasized that the prior art must be considered as a whole. As to the secondary considerations of non-obviousness, the Federal Circuit noted that Merck’s evidence of commercial success, copying and industry praise were based on products that had material features beyond those disclosed and claimed in the patent-at-issue. The Court also noted that Merck failed to show an adequate nexus between the objective indicia factors and the novel features of the asserted claims. Similarly, the Federal Circuit found Merck’s evidence of licensing to be weak because the licensing agreement covered several other patents, and it was difficult to determine the extent to which the licensing agreement was the result of the novel features of the patent-at-issue as opposed to those other patents.

Judge Newman dissented on several grounds, voicing her concern that the PTAB and the majority departed from the “explicit and implicit provisions of the [America Invents Act] statute.” First, she noted that the lower burden of proof in the PTAB—preponderance of the evidence to prove invalidity—established a powerful incentive to challenge patent validity in the PTAB instead of the district court. Second, Judge Newman noted the AIA’s provision for finality after the PTAB decision and any appeal to the Federal Circuit, arguing that that the majority’s deferential “substantial evidence” standard of review was at odds with the benefits that Congress intended. Finally, Judge Newman disagreed with the majority’s holding, stating that the record did not support a motivation to combine the prior art references or a reasonable expectation of success. Rather, according to Newman, such a conclusion only comes from hindsight reconstruction using the teachings of the inventors. She also stated that the majority discounted Merck’s evidence of objective indicia of non-obviousness for the same reasons.

The same day, the Federal Circuit issued another opinion affirming a decision by the PTAB in a companion case, finding that the contested claims of the patent-at-issue were invalid for obviousness. South Alabama Med. Sci. Found. v. Gnosis S.P.A., Case Nos. 14-1778, -1780, -1781 (Fed. Cir., Dec. 17, 2015) (Hughes, J.) (Newman, J. dissenting) (Gnosis II). At issue in this case were three patents owned by South Alabama Medical Science Foundation (SAMSF) that related to administering the natural stereoisomer of 5-methyl-tetrahydrofolic acid and other vitamins to treat symptoms associated with folate deficiency.

For the same reasons discussed in Gnosis I, the Federal Circuit concluded that the PTAB’s factual findings of a motivation to combine the prior art references and lack of adequate nexus with the merits of the claimed invention with respect to the objective indicia of non-obviousness were supported by substantial evidence. The Court noted that the PTAB did err in discounting SAMSF’s licensing evidence, stating that the relevant inquiry is “whether there is a nexus between the patent and the licensing activity itself, such that the factfinder can infer that the licensing ‘arose out of recognition and acceptance of the subject matter claimed’ in the patent.” However, the Federal Circuit held the PTAB’s error was harmless because the licensing evidence was not enough to overcome the strong evidence of obviousness found in the prior art and expert testimony. Judge Newman dissented for the same reasons as in Gnosis I.

Petitioners: Put All Needed Evidence in Your Petitioner

Addressing the rules governing admissibility of supplemental information during an inter partes review (IPR) proceeding, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the Patent Trial and Appeal Board (PTAB or Board) denying petitioner’s motion to submit supplemental information and affirmed the PTAB’s decision finding the claims to not be obvious under § 103. Redline Detection, LLC v. Star Envirotech, Inc., Case Nos. 15-1047 (Fed. Cir., Dec. 31, 2015 (Wallach, J.).

Redline filed an IPR petition challenging patent claims directed to methods of generating smoke to enable detection of leaks in fluid systems. Redline sought review on 12 separate grounds, including obviousness, but did not submit an expert declaration in support of its petition. The PTAB instituted an IPR proceeding on two of the asserted grounds of obviousness. Later Redline filed a motion to add supplemental disclosure of new exhibits, including an expert declaration that included testimony regarding the motivation to combine. The PTAB denied Redline’s motion.

The regulation governing motions to submit supplemental evidence provides that once a trial has been instituted, a party may file such a motion within one month of the institution date if the information sought to be added is relevant to a claim for which the trial has been instituted. In denying Redline’s motion, the PTAB noted that Redline “did not make any attempt to justify the submission of an expert declaration after filing its petition and after a decision to institute has been made” and also did not allege that any of the arguments or evidence in the newly submitted declaration was information that reasonably could not have been submitted with Redline’s IPR petition. Redline acknowledged that cost savings was the “primary driving factor” in its decision to forgo submission of an expert declaration in its IPR petition. By waiting until the institution decision, Redline’s expert declaration need only address the two grounds on which the PTAB had instituted review rather than all 12 grounds asserted in the petition.

During the ensuing appeal, Redline argued that because its motion was submitted within the one-month timeframe, the PTAB was obligated to grant the motion and admit the evidence. The Federal Circuit disagreed. The Court explained that requiring “admission of supplemental information so long as it was timely submitted and relevant to the IPR proceeding would cut against” the mandate of the PTAB to “ensure efficient administration of the Office and the ability of the Office to complete IPR proceedings in a timely manner.” The Court also rejected Redline’s argument that the PTAB’s decision to deny its motion was arbitrary and capricious in view of the PTAB’s rulings in other cases. The Court explained that the case on which Redline relied were distinguishable since in those cases, the supplemental information related to whether or not a particular reference qualified as prior art and were in response to issues raised by the patent owner.

Redline further argued that the PTAB’s decision on nonobvious was improper in that the PTAB impermissibly excluded Redline’s evidence of motivation to combine as provided in its excluded expert declaration. While the PTAB instituted review in the absence of an expert declaration, at trial the patentee’s expert testified that a person of ordinary skill would not have been motivated to combine the references relied upon by Redline. Having no expert testimony of its own on which to rely, Redline was left to counter the patentee’s expert opinion with arguments regarding inferences that should be drawn from the text of the references. The PTAB found that the patent owner’s unrebutted expert testimony regarding lack of motivation to combine overcame Redline’s unsupported arguments to the contrary. Finding that substantial evidence supported the PTAB’s ruling, the Court affirmed.

Practice Note: Best practice is to submit an expert declaration addressing, at a minimum, motivation to combine in support of an IPR petition explaining how any why claims would have been obvious in view of the prior art.

No Second Life for Fetal Test

By a poll of active justices, the U.S. Court of Appeals for the Federal Circuit denied a petition for an en banc rehearing of Ariosa Diagnostics, Inc., et al. v. Sequenom, Inc. et al. (IP Update, Vol. 18, No. 7) and issued two concurrences and one dissent. Previously, the Federal Circuit had ruled that under Mayo Collaborative Services v. Prometheus Labs., Sequenom’s patent claims for prenatal diagnostic methods using maternal blood samples were not patent-eligible under 35 U.S.C. § 101 because they were based on the analysis of a natural phenomenon using well-known techniques. Ariosa Diagnostics, Inc., et al. v. Sequenom, Inc., et al., Case Nos. 14-1139. -1144 (Fed. Cir. Dec. 3, 2015) (Lourie J., concurring with Moore J., joining) (Dyk, J., concurring) (Newman, J., dissenting).

Judge Lourie’s concurrence echoed Judge Linn’s concurrence from the original panel decision, bemoaning the clear, groundbreaking advancement offered by the invention, but the clear necessity to invalidate it under Mayo. Judge Lourie argued that the claims were not abstract, did not improperly claim natural laws and relied on performing physical steps on physical material. But the physical steps were well-known techniques to measure natural phenomenon and therefore Mayo required invalidation.

In his concurring opinion, Judge Dyk agreed that a framework like that presented by Mayo and Alice Corp. v. CLS Bank is essential to prevent highly anticompetitive patents that exploit natural phenomenon or abstract concepts. But, while this framework works well for well-known phenomenon or concepts, it conflicts with other Supreme Court precedent and overlooks the possibility that inventive concepts can come from discovering something new in nature. He suggested that claims involving new laws of nature be allowed when the claims are narrow, specific and actually reduced to practice.

Judge Newman dissented on the grounds that Mayo allowed for claims applying natural phenomenon, which Sequenom did by claiming a diagnostic rather than the scientific fact of the discovery, and that Mayo was distinguishable because the technology there lacked any innovative advance.

Practice Note: Judge Lourie’s concurrence (like Judge’s Linn’s concurrence from the panel decision) appears to be a clear plea to the Supreme Court to modify its ruling in Mayo, Judge Lourie concluded that the Mayo rule against claims based on natural phenomenon and conventional techniques was “unsound,” but that his hands were effectively, and legally, tied. Considering tone of the concurrences, as well as the evident disagreement on interpretation of Supreme Court precedent, it would seem that a writ of certiorari is almost certain. In the meantime, practitioners may want to consider Judge Dyk’s suggestions on narrow patent drafting. Were such a case to come before the Federal Circuit for resolution, it would present a path for an appellate decision that would give the Supreme Court an opportunity to revisit the Mayo/Alice framework. Interestingly, Judge Dyk recognizes that even his suggested patent eligibility framework would not have saved the Sequenom patents because he believes, like Judge Lourie, that the claims are overbroad.

There is More than One Way to Slice the Apportionment Analysis

Addressing the application of the smallest salable patent-practicing unit analysis, as well as the impact of a patent’s standards essential status on apportionment and the relevance of prior licenses between the parties, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a damages award, explaining that the smallest salable unit is not mandatory for every apportionment analysis, especially when there are relevant prior licenses between the parties. Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc., Case No. 15-1066 (Fed. Cir., Dec. 3, 2015) (Prost, C.J.).

In the early 1990s Commonwealth Scientific and Industrial Research Organisation (CSIRO) was granted a patent that covered the IEEE 802.11a wireless standard. CSIRO committed to license the patent on reasonable and non-discriminatory (RAND) terms for the 802.11a standard, but refused to commit to RAND terms for later variations of the standards. Between 1996 and 2005 CSIRO agreed to various licenses with Cisco at royalty rates based on total sales volume and per unit prices. In July 2011 CSIRO sued Cisco asserting the patent. After Cisco stipulated not to contest infringement or validity, the district court awarded CSIRO $16.2 million in damages. Cisco appealed.

The Federal Circuit started by re-affirming that damages must “reflect the value attributable to the infringing features of the product, and no more.” The Court emphasized that to be reliable, apportionment models must be “sufficiently tied to the fact of the case,” but rejected Cisco’s argument that all apportionment models must begin with the smallest salable patent-practicing unit.

In terms of the district court reliance on the parties past licenses, the Federal Circuit found that because the parties’ prior negotiations centered on the asserted patent, apportionment was already built into the analysis despite the licenses being based on total sales volume and per unit prices. The Federal Circuit explained that damages models based on comparable licenses remained reliable, even where the licenses are not based on the smallest salable patent-practicing unit. Thus, the Court found error in the district court’s conclusion that the parties’ prior licenses for the same patent were not relevant to the damages analysis. Rather, the Court explained that as an actual agreement between the parties that was contemporaneous with the hypothetical negotiation, entered before the newest 802.11 standard was established and focused on the chips at issue, was pertinent and should be taken into account.

The Federal Circuit next turned to the “unique considerations” applicable to apportionment in the context of a standards essential patent. The Court restated the Ericsson test, requiring that the patented feature be apportioned from all the unpatented features reflected in the standard, as well as that the royalty is based only on the patented feature, not any value added by the standard’s adoption of the patented feature. The Court rejected CSIRO’s argument that Ericsson only applied to patents encumbered with RAND obligations, explaining that Ericsson explicitly applies to both encumbered and unencumbered standards essential patents. Thus, the Court concluded that the district court erred in failing to account for the value of the asserted patent accruing from the adoption of the new 802.11 standard, requiring that the damages award be vacated and the case remanded for a new determination of a reasonable royalty.

Practice Note: Damages analysis is usually highly fact-specific. The overarching principle here is that the Federal Circuit will allow courts to retain the necessary flexibility to ensure that patentees are adequately, but not overly, compensated for innovation.

Lowering the Bar for Irreparable Harm: Infringing Feature Need Not Be the Exclusive Driver of Consumer Demand

How does a patent owner prove it has been irreparably harmed when the protected feature is only a small part of an infringing device? The U.S. Court of Appeals for the Federal Circuit answered that question in the ongoing IP battle between Apple and Samsung, explaining that Apple needed only to show “some connection” between the infringing features and the demand for Samsung’s products, and finding that the district court erred by requiring Apple to show that the infringing features were the “exclusive” or “predominant” drivers of consumer demand. With that clarification of the standard, the Court held that Apple established it met the irreparable harm prong of the eBay factors. Apple Inc. v. Samsung Elecs. Co., Case No. 14-1802 (Fed. Cir., Dec. 16, 2015) (Moore, J.) (Reyna, J., concurring) (Prost, C.J., dissenting).

Apple sought a permanent injunction for several patents covering features of its iPhones and iPads, such as, e.g., swipe-to-unlock. Rather than seeking to enjoin Samsung smartphones and tablets outright, Apple sought to enjoin only the infringing features of Samsung’s products. Despite the relative narrowness of Apple’s proposed injunction, the district court denied Apple’s motion, finding that Apple had not shown that it would suffer irreparable harm. In particular, the district court found that Apple had failed to demonstrate a causal nexus linking Samsung’s infringement to Apples alleged harm—which Apple argued was lost sales and damage to its reputation.

As to the other eBay factors, the district court found the public interest and balance of hardships favored Apple, but that monetary damages were adequate due to the lack of irreparable harm. Consequently, Apple’s request for a permanent injunction was denied. Apple appealed.

Apple argued to the Federal Circuit that its narrowly tailored proposed injunction—which sought to exclude only infringing features and not entire products—eliminated the causal nexus requirement. The Court disagreed, explaining that the purpose of the causal nexus requirement is to establish the link between the act of infringement and the actual harm alleged, thus ensuring that an injunction is not entered for irreparable harm caused by otherwise lawful competition. Therefore, a causal nexus linking the harm and the infringing act must be established regardless whether a feature-based injunction or product-based injunction is sought.

The Court next addressed what Apple was required to demonstrate in order to establish a causal nexus between Samsung’s infringement the alleged harm—Apples lost sales. The Court clarified that although a finding that the competitor’s infringing features drive consumer demand for its products satisfies the causal nexus inquiry, it is not a required element of proof. Recognizing that such a showing may be nearly impossible from an evidentiary standpoint when an accused product has thousands of features, the Court warned that such a requirement would preclude companies like Apple from ever satisfying the eBay test for an injunction against products that compete with its iPad or iPhone and from exercising its right as a patent holder to exclude others. Critically, as pointed out in the Court’s analysis “that the infringing features are not the only cause of the lost sales may well lessen the weight of any alleged irreparable harm, [but] it does not eliminate it entirely.”

The majority found the district court thus erred by requiring Apple to prove that the infringing features were the “exclusive” or “predominant” reason why consumers bought Samsung’s products. Instead the district court should have considered whether there is “some connection” between the infringed features, and the demand for Samsung’s products, i.e., where Apple demonstrated that the patented features “impact consumers’ decisions to purchase the accused devices” and “were important to customers when they were examining their phone choices.” In this way, the causal nexus between infringement and irreparable harm can be shown with evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions.

In the majority’s opinion, evidence of the infringing features impacting consumers’ purchasing decisions include, for example, evidence that the infringer valued the infringing feature, evidence that the infringer’s customers or partners disapproved of the non-infringing alternatives and evidence that the patentee’s customers valued the patented feature. The Court further instructed that although copying, by itself, does not establish causal nexus, it is not wholly irrelevant either and must be considered on a case-by-case basis.

Based on the record, the majority concluded that Apple had sufficiently demonstrated irreparable harm, entitling it to a permanent injunction. In her dissent, Chief Judge Prost strongly disagreed with the majority’s interpretation of the case law, account of the evidentiary record and finding of irreparable harm.

Though Apple also argued that it suffered irreparable harm from injury to its reputation as an innovator, the majority never reaches this issue, stopping at lost sales. In his concurrence however, Judge Reyna explains that he would find that Samsung’s continued infringement would irreparably injure Apple’s reputation as an innovator and that reputational injury, in and of itself, would be a sufficient basis on which to grant an injunction. According to Reyna, when, as here, the disputing parties are “direct competitors,” and when the customers find the patentee’s innovation appearing in a competitor’s products, the patentee’s reputation as an innovator will “certainly” be damaged.

What Is the Printed Matter Doctrine?

The U.S. Court of Appeals to the Federal Circuit addressed the obscure “printed matter doctrine,” concluding that a claim limitation should be considered as printed matter only if the claim pertains exclusively to the content of information. In re DiStefano, Case No. 15-1453 (Fed. Cir., Dec. 17, 2015) (Prost, C.J.).

Up on appeal for the second time, following a remand of the original anticipation rejection of the U.S. Patent and Trademark Office Board of Appeals (Board), the Federal Circuit this time addressed the Board’s application of the printed matter doctrine. At issue in this case is inventor DiStefano’s patent on a method for designing web pages. The Board’s analysis focused on a limitation reciting “selecting a first element from a database including web assets provided to the user interface from outside the user interface by the user” (the “selecting limitation”). The Board found that the recitation of selecting elements from a database constituted “printed matter” and, as such, should not be afforded patentable weight. Relying in part on this analysis, the Board found the claim invalid as anticipated.

The printed matter doctrine requires the Federal Circuit to apply a two-step test: determine whether a claim limitation recites printed matter and evaluate whether the matter is functionally or structurally related to the physical substrate holding the printed matter. The Federal Circuit previously held that a limitation is only printed matter if it claims the content of information; consistently limiting the printed matter rule to matter claimed for its communicative content. This doctrine has been applied to U.S. Food and Drug Administration (FDA) labels providing dosage instructions for using a medical product, labels instructing a patient to take a drug with food, instructions on how to perform a DNA test and numbers printed on a wrist band.

In this case, the Federal Circuit found that “although the selected web assets can and likely do communicate some information, the content of the information is not claimed.” The limitation does not call for origin identification to be inserted into the content of the web asset. Thus, the Court explained that the Board erred in finding that the origin of the web assets constituted printed matter in the claims at issue and vacated the finding of anticipation. The case was remanded yet again for further consideration.

It Ends Not with a Bang but a Whimper *Web Only*

The patent case between Commil and Cisco, a case that made new law at the Supreme Court on the issue of the intent requirement in cases of induced infringement allegations, came to an end with a whimper on remand back to the Federal Circuit. After trial, retrial, Federal Circuit appeal, and Supreme Court appeal, the U.S. Court of Appeals for the Federal Circuit has found no infringement by the defendant Cisco, largely based on the Court’s agreement with the district court claim construction ruling. Commil USA, LLC v. Cisco Systems, Inc., Case No. 12-1042 (Fed. Cir., Dec. 28, 2015) (Prost, C.J.).

Commil sued Cisco eight years ago on a patent covering a method for faster and more reliable handoffs of a mobile device as it moves throughout a mobile network. At trial, the jury found that Commil’s patent was valid, that Cisco was liable for direct infringement, but not induced infringement, and awarded Commil $3.7 million in damages. Commil requested and received a retrial on induced infringement and damages, and the second jury entered a verdict for Commil on induced infringement and awarded $63.7 million in damages.

Cisco appealed, raising a number of issues. In that appeal the Federal Circuit remanded the case without reaching Cisco’s non-infringement arguments. While the case was on remand back to the district court, Commil sought certiorari on the limited question of whether Cisco’s good faith belief that Commil’s patent is invalid is a defense to an allegation of induced infringement.

The case then made headlines when the Supreme Court granted certiorari and ultimately reversed the Federal Circuit, ruling that a good faith belief that a patent is invalid is not a defense to induced infringement (IP Update, Vol. 18, No. 6), a ruling highly favorable for Commil and patentees in general.

But its success at the Supreme Court ultimately did not help Commil on remand. Back at the Federal Circuit, the Court addressed the non-infringement arguments it did not reach in the original appeal, this time concluding that neither Cisco nor its customers directly infringed Commil’s patent.

The Federal Circuit decision turned on the district court’s construction of a claimed “running” step, which the lower court construed as requiring a base station to run “a copy” of a low-level protocol supporting a connection for a single mobile device. Cisco argued its system could not infringe because it uses a single copy of the protocol for all the connected mobile devices, not one copy for each, as required by district court claim construction. Commil, using expert testimony that Cisco’s platform tracked state information for each device, argued that the system used a process that is equivalent to having a copy of the protocol for each device. The Federal Circuit disagreed, finding that there was not substantial evidence to support the jury’s finding that Cisco’s devices, when used, perform the “running” step of the asserted claims.

De Novo Review Used in Remand in Claim Construction *Web Only*

Addressing issues of claim construction after a remand from the Supreme Court, the U.S. Court of Appeals for the Federal Circuit again reversed the district court’s judgment of infringement, finding that it was based on an incorrect claim construction. CardSoft, LLC v. Verifone, Inc., Case No. 14-1135 (Fed. Cir., Dec. 2, 2015) (Hughes, J.)

The patents-in-suit describe software for controlling a payment terminal. According to the patents, prior art payment terminals used a variety of “different hardware/software architectures.” But this variety meant that each application program for a payment terminal needed to be written specifically for that terminal, making programming alterations not “portable” between different types of devices. To solve this problem, the specification describes a “virtual machine,” acting as an “interpreter” between an application program and a payment terminal’s underlying hardware and operating system. The district court construed “virtual machine” as “a computer programmed to emulate a hypothetical computer for applications relating to transport of data.” The issue on appeal was the appropriate construction of this term.

This is the second time the Federal Circuit has been asked to review the district court’s construction of the term “virtual machine.” In the first appeal, in 2014, the Federal Circuit vacated a $15.4 million jury verdict in favor of the plaintiff CardSoft because it was based on a “correct, but incomplete” claim construction of the term “virtual machine,” which the Federal Circuit held “does not reflect the ordinary and customary meaning” of the term, and because CardSoft waived any argument of infringement under the correct construction. (See IP Update, Vol. 17, No. 11.) CardSoft petition to the Supreme Court for cert, and post-Teva the Supreme Court vacated and remanded the decision for reconsideration in view of the Teva standard for district court review of claim construction. (See IP Update, Vol. 18, No. 1.)

On remand, the Federal Circuit applied a de novo review, noting that the district court’s construction was based only on intrinsic evidence. Had the district court resolved factual disputes regarding any extrinsic evidence, the district court’s factual findings would have been reviewed for clear error in accordance with Teva. In this case, applying de novo review, the Federal Circuit reversed the district court’s judgment of infringement, again finding that the district court’s construction of the term “virtual machine” was correct but incomplete, as it “improperly conflates the claimed virtual machine with applications written to run on the virtual machine.” By so doing, the Federal Circuit agreed with VeriFone that the district court erred by not requiring the claimed “virtual machine” to include a limitation that the applications it runs are not dependent on any specific underlying operating system or hardware, a construction that reflects the ordinary and customary meaning of “virtual machine.”

Finally, although CardSoft recognized VeriFone’s argument that it does not infringe under VeriFone’s construction, CardSoft had failed to appropriately address the issue on appeal. The Federal Circuit found that CardSoft has waived any argument of non-infringement under VeriFone’s construction and granted VeriFone’s judgment of non-infringement as a matter of law.

Repeated Disparagement of the Prior Art in the Specification Can Operate as a Clear and Unmistakable Disavowal of Claim Scope *Web Only*

Addressing issues of claim construction, the United States Court of Appeals for the Federal Circuit affirmed the district court’s narrow construction based on a disclaimer in the specification. Openwave Systems, Inc., NKA Unwired Planet, Inc. v. Apple Inc. et al., Case No. 15-1108 (Fed. Cir., Dec. 15, 2015) (O’Malley, J.).

All three patents asserted by the plaintiff, Unwired Planet, against the defendants, Apple and Research in Motion, had previously been litigated at the International Trade Commission (ITC). Both at the ITC and before the district court, the issue was whether the claimed “mobile devices” encompassed “computer modules.” Unwired Planet argued that “mobile device” should be given its plain and ordinary meaning, thereby leaving open the possibility that a “mobile device” was one that contained a computer module. However, both the ITC and the district court disagreed, concluding that the specification of the asserted patents disclaimed devices that also functioned as a “computer module.” Based on this construction, Unwired Planet conceded non-infringement and appealed the construction to the Federal Circuit.

Addressing the disavowal issue, the Federal Circuit, like the district court, found that plain and ordinary meaning should not attach, because the patentee distanced the claimed invention from a device containing a computer module. In particular, the asserted patent specifications addressed in great detail the perceived problems with prior art mobile devices, repeatedly making derogatory statements about early “intelligent communication devices”—devices that combined a mobile device with a computing module. According to the patentee’s characterizations, these devices were too large, too expensive to produce and ran on processors that could not be effectively commercialized. As the patentee explained the claimed invention was distinguishable from the prior art in that the asserted patents, the patentee devised a way to divert computing power to a remote server, thus eliminating the need for mobile devices having computing capacity on their own. Indeed, according to the specifications of the asserted patents, the cellular telephone pictured in the patents was not a combination of a computer module and a wireless communication module.

Because the common specification taught mobile devices that deliberately lacked the type of computing power that would be inherent to a computer module, the Federal Circuit concluded as a matter of law that the derogatory characterizations of the prior art implementations was a disavowal of the scope of the patent claims. Accordingly, the Federal Circuit upheld the district court’s construction.

Clarifying the Obscure (Claim Indefiniteness)

Clarifying the application of the indefiniteness standard set forth in the Supreme Court’s Nautilus case, a divided U.S. Court of Appeals for the Federal Circuit denied a combined petition for rehearing and rehearing en banc while also criticizing the panel’s jurisdiction to hear the appeal. The Dow Chemical Co. v. Nova Chemicals Corp. et al., Case Nos. 14-1431, -1462 (Fed. Cir., Dec. 17, 2015) (Prost, C.J.) (Wallach, J.; Dyk, J., concurring) (Moore, J.; Pauline, J.; Newman, J.; O’Malley J.; Taranto, J., concurring-in-part) (O’Malley, J.; Reyna, J., dissenting-in-part).

At issue were two Dow patents directed to improved ethylene polymer compositions for use in making thinner films without comprising their strength. The claims at issue require “a slope of strain hardening coefficient greater than or equal to 1.3.” At trial, the defendants argued the claims are indefinite for failing to teach one skilled in the art how to measure “strain hardening.” A jury found the asserted claims to be infringed and not invalid. The Federal Circuit affirmed the decision, but remanded the case back to district court to address supplemental damages. The district court granted supplemental damages, and both parties appealed to the Federal Circuit. While the appeal was pending, the Supreme Court decided Nautilus, Inc. v. Biosig Instruments, Inc. (IP Update, Vol. 17, No. 6), which set forth a new standard for indefiniteness. Applying the new Nautilus standard, the Federal Circuit found the claims indefinite and reversed the supplemental damages award (IP Update, Vol. 18, No. 5).

Dow’s filed a combined petition for rehearing and rehearing en banc, which was denied. Judge Moore, joined by Judge Pauline, Newman, O’Malley and Taranto in full (Chen in part) concurred with the denial in order to clarify the impact of the panel’s opinion on the law of indefiniteness. First, contrary to Nova Chemical’s claims, “the panel did not and cannot stand for the proposition that extrinsic evidence cannot be relied upon to determine, whether in light of the state of knowledge of the skilled artisan at the time, a patent’s specification is sufficiently definite.” In rejecting Dow’s claim that the panel changed the law of indefiniteness, Judge Moore explained that, consistent with Supreme Court and prior Federal Circuit precedent, findings of fact that rely upon extrinsic evidence on the issue of indefiniteness must be given deference on appeal. Judge Moore’s concurring opinion also noted that the burden of proving indefiniteness remains with the party challenging validity.

Chief Judge Prost, joined by Judges Wallach and Dyk, filed a separate concurrence, agreeing with Judge Moore, that the standard for establishing the invalidity of a patent is clear and convincing evidence and that the burden rests on the accused infringer. The concurring opinion also explained that if a skilled person would choose an established method for measurement, that may be sufficient to defeat indefiniteness, even if such method is not set forth in haec verba in the patent.

Judge O’Malley, joined by Judge Reyna, dissented with respect to jurisdiction, criticizing the original panel’s reliance on Nautilus because “the panel could not reopen a validity determination that had been the subject of a final judgment that was affirmed on appeal, and as to which the Supreme Court declined review,” even in light of the change in law for indefiniteness as a result of Nautilus.

Supreme Court to Consider (1) PTAB AIA Claim Construction and Reviewability of Institution Decisions and (2) Attorney Fee Awards in Copyright Cases *Web Only*

The U. S. Supreme Court granted certiorari to review a panel decision of the U.S. Court of Appeals for the Federal Circuit’s decision that the U.S. Patent and Trademark’s Patent Trial and Appeal Board (PTAB or Board) was entitled to perform claim construction in inter partes review proceedings using the broadest reasonable interpretation standard. IP Update, Vol. 18, No. 2. The basic rational of the panel decision was that the PTAB can use the broadest reasonable interpretation standard because the PTO has used that standard in other post-grant proceedings (such as inter parte reexamination) for decades. The Supreme Court also agreed to consider the extent to which a PTAB decision to institute an IPR is reviewable in situations where the Board, in its institution decision, does not confine itself to the art and grounds asserted in the IPR petition. Cuozzo Speed Technologies, LLC v. Lee, U.S. No. 15-446, cert. granted Jan. 15, 2016.

In a 6-5 decision, the Federal Circuit refused to reconsider the question en banc, with Judges Dyk, Lourie, Chen, Wallach, Taranto and Hughes voting against rehearing and Chief Judge Prost and Judges Newman, Moore, O’Malley and Reyna dissenting (IP Update, Vol. 18, No. 8). In her dissent, Prost wrote that Congress “could not have been clearer” that America Invents Act (AIA) reviews are an alternative to district court litigation and should be subject to the same claim construction standard.

Cuozzo’s certiorari petition followed, having the following questions presented:

• Whether the court of appeals erred in holding that, in IPR proceedings, the Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning.
• Whether the court of appeals erred in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board’s decision whether to institute an IPR proceeding is judicially unreviewable.

The Supreme Court also granted certiorari in a case challenging a summary order issued by the U.S. Court of Appeals for the Second Circuit (IP Update, Vol. 15, No. 5), which found that a district court had the right to deny fees where the plaintiff had pursued an objectively reasonable litigation position in its copyright infringement suit. Kirtsaeng v. John Wiley & Sons, Inc., U.S. No. 15-374, cert granted Jan. 15, 2016.

Kirtsaeng argued the 2nd Circuit’s decision is predicated on whether the losing party’s claim or defense was objectively unreasonable, an emphasis not grounded in the Copyright Act’s fee provision. In deciding this case, the justices will need to resolve a circuit split on the appropriate standard for awarding attorneys’ fees to a prevailing party under § 505 of the Copyright Act. In his petition, Kirtsaeng noted that the precedent of different circuits varied widely on the issue.

The question presented is:

What is the appropriate standard for awarding attorneys’ fees to a prevailing party under § 505 of the Copyright Act?

This case last reached the Supreme Court in 2013 when a six-justice majority led by Justice Stephen G. Breyer reversed and remanded the Second Circuit’s ruling that the Copyright Act’s first-sale doctrine—which says that once a copy is sold the first time, it is out of the copyright owner’s control—applies only to goods made in the United States. (See IP Update, Vol. 16, No. 3).

PTAB: The Supreme Court Alice Decision Only "Clarified" the Law

Addressing estoppel issues in the context of a covered business method (CBM) proceeding, the Patent Trial Appeal Board (PTAB or Board) concluded that a clarification in existing patent-ineligibility case law was not an exception to estoppel under § 325(e)(1). Apple Inc. v. Smartflash LLC, Case Nos. CBM2015-00015, -00018 (PTAB, Dec. 8, 2015) (Elluru, APJ).

Apple filed petitions seeking CBM review of two Smartflash patents relating to data storage systems. After instituting the CBM proceedings, the Board issued an order estopping Apple from arguing that the patents were unpatentable pursuant to § 101. Under 35 U.S.C. § 325(e)(1), a petitioner may not maintain a ground for unpatentability that the petitioner could have raised during a previous post-grant review. Apple had previously challenged these same patents as being direct to obvious subject matter under § 103, but had not challenged patent eligibility under § 101. Apple argued that because the Alice decision happened after the previous final decision, the case law on which it would rely did not exist at the time of the original challenge. The Board disagreed, stating that § 325(e)(1) does not make exceptions for intervening case law that merely clarifies jurisprudence. Further, Bilski and Mayo had already issued at the time of the original challenge, finding computer-based method claims invalid under § 101.

After finding that Apple was estopped from challenging the claims under § 101, the Board dismissed Apple as a petitioner, explaining that there were no remaining grounds for Apple to present. Further, the Board held it would not hear any arguments as neither proceeding had a petitioner any longer.

Without a petitioner, Smartflash requested authorization to terminate the proceedings pursuant § 325(e)(1). The Board denied this request, holding § 325(e)(1) only speaks to actions of the petitioner and does not proscribe the actions of the Board. The Board explained that there remains a public interest in resolving the issues raised by these challenges. Smartflash requested a rehearing of the decision, arguing the Board misapplied the law and § 325(e)(1). The Board denied the motion for rehearing, explaining that its prior case law only established the Board could terminate the proceedings, not that it must. Therefore, the Board reiterated its denial of Smartflash’s request for authorization to file a motion to terminate the proceedings. The Board did, however, grant Smartflash’s request for an oral hearing on the merits, limiting it to 15 minutes for both cases. The Board reiterated that Apple would not be allowed to participate in the hearing.

Motion to Amend in IPR Must Establish Patentability Over Prior Art from Original Prosecution

Addressing whether a patentee must show that proposed claim amendments in an inter partes review (IPR) overcome not only the prior art in the IPR but also the prior art from the original prosecution, the U.S. Court of Appeals for the Federal Circuit affirmed the Patent Trial and Appeal Board (PTAB or Board) and concluded that it was reasonable to require that showing in this particular case. Prolitec, Inc. v. ScentAir Technologies, Inc., Case No. 15-1020 (Fed. Cir., Dec. 4, 2015) (Prost, C.J.) (Newman, J., dissenting).

ScentAir petitioned for institution of an IPR proceeding against Prolitec’s patent on a replaceable cartridge for air fresheners. The question of patentability turned on claim construction, with the patent owner advancing narrow constructions requiring certain claimed elements to be permanent and non-adjustable based on its position that the purpose of the invention was to provide disposable cartridges for one-time use. But the Board viewed the specification discussion regarding one-time use as merely optional and declined to interpret the claims narrowly. The Board also rejected the patent holder’s argument that the claims required a three-chamber device, which would have required the claimed “secondary chamber” to be interpreted as the third chamber.

Prolitec separately filed a motion to amend the claims to expressly require the “permanent” limitation it advanced during claim construction. In opposition, ScentAir resurrected a prior art reference from the original prosecution as meeting that narrower limitation. Prolitec’s reply denied anticipation by that reference but did not dispute that it taught the “permanent” limitation from its amendment. Based on this record, the Board denied the motion and found that Prolitec failed to demonstrate patentability over the original prosecution prior art in combination with the prior art at issue in the IPR. Prolitec appealed.

The Federal Circuit agreed with the Board’s claim constructions and affirmed its findings regarding unpatentability. Turning to the motion to amend, the Federal Circuit reiterated its holding in Proxyconn (IP Update, Vol. 18, No. 7) that the Board can require the patent holder to establish patentability over the prior art. The Court further explained that the prior art subject to that burden can include prior art from the original prosecution. The Court cautioned, however, that doing so was reasonable in this case only because the Board based its holding on the entire record for the motion and indicated that a patent holder’s required showing can be first made in a reply brief when the prior art is raised in an opposition brief.

Judge Newman dissented, arguing that the Board violated the IPR statute and the U.S. Patent and Trademark Office’s own regulations by not automatically entering an amendment that responded to a grounds of unpatentability in the IPR.

What Happens on Remand of a PTAB Inter Partes Review Decision from the Federal Circuit?

In Microsoft Corp., v. Proxyconn, Inc. (IP Update, Vol. 18, No. 7), the U.S. Court of Appeals for the Federal Circuit recognized that there are limits to the broadest reasonable interpretation standard, and explained, “[t]hat is not to say, however, that the Board may construe claims during [inter partes ;review] so broadly that its constructions are unreasonable under general claim construction principles.” Particularly instructive was the Court’s statement that in addition to the specification, the Patent Trial and Appeal Board (PTAB or Board) should “consult the patent’s prosecution history” when giving claims their broadest reasonable interpretation. Relying on these principles, the Federal Circuit vacated several of the Board’s unpatentability determinations on the basis that the claim constructions were “unreasonably broad,” reversed in part and remanded “for further proceedings” consistent with its opinion.

On this, the first remand back to the PTAB from a post-grant final decision, the PTAB agreed with the petitioner and ordered additional briefing on “the effect of the Federal Circuit’s . . . decision on our Final Written Decision” and further ordered that “no new prior art references or other evidence shall be presented by either party. ”The regulations and the Practice Guide are silent on the procedure to be utilized on remand. The petitioner proposed limited additional briefing on the effect of the Federal Circuit’s claim construction rulings. The patent owner suggested that additional briefing was unnecessary. Microsoft Corp. v. Proxyconn, Inc., IPR2012-00026/IPR2013-00109, (PTAB, Dec. 9, 2015) (Giannetti, APJ).

In the second final written decision, the PTAB concluded that the claims still were invalid under the more narrow constructions from the Federal Circuit, in some instances on obviousness grounds rather than for anticipation as initially found. The claim constructions provided by the Federal Circuit corresponded to the “claim constructions provided by” the patent owner” during the PTAB proceeding. As a result, the PTAB rejected the patent owner’s argument that reconsidering the merits of the case on remand resulted in unfairness or a denial of due process.

Practice Note: Although this decision provides guidance on what the PTAB is likely to do on remand from a post-grant proceeding, there are still many questions unanswered with respect to the treatment of future cases. For example, it is unclear what the PTAB will do where the Federal Circuit adopts a claim construction that was not proposed in the original trial. In such a case, it might be necessary to re-open discovery.

Weak and Redacted Evidence Fails to Carry the Day *Web Only*

Addressing the nexus requirement for secondary considerations raised as a defense to an obviousness challenge, the Patent Trial and Appeal Board (PTAB or Board) found that the patent owner failed to establish the required nexus with respect to its evidence of secondary considerations. The PTAB also denied the patent owner’s request to enter a revised protective order in connection with some confidential exhibits, explaining that the patent owner’s redactions to those exhibits and the parties’ lack of agreement prevented the Board from determining whether good cause existed to enter the order. Seagate Technology (US) Holdings, Inc. v. Enova Technology Corporation, Case No. IPR2014-01449 (PTAB, Dec. 18, 2015) (Goodson, APJ).

The patent owner, Enova, attempted to rebut a claim of obviousness based on several secondary considerations, including industry praise, commercial success, copying and licensing. Regarding industry praise, the patent owner provided examples of a company praising Enova’s products and of industry awards the patent owner had received. But the PTAB found that the patent owner failed to “establish a sufficient nexus between the merits of the claimed invention and industry praise of Patent Owner’s products,” noting that the patent owner did not “identify any praise due to specific elements that are recited in the challenged claims” and failed to “provide any analysis explaining how its products embody any of the challenged claims of the patent [at issue].”

Regarding commercial success, the patent owner pointed to its prior business relationship with the petitioner, Seagate, and claimed that the petitioner had praised and advertised the patent owner’s products. The PTAB noted that the patent owner did not establish that the petitioner’s products included the claimed features of the patent, but instead merely relied upon allegations disputed by the petitioner in a district court proceeding. The PTAB further noted that the patent owner provided no evidence of the size of market for comparison of the petitioner’s sales. Accordingly, the PTAB found that the patent owner’s proposed “objective indicia of commercial success” did not rebut the obviousness conclusion.

With respect to copying and licensing, the patent owner noted that several companies have licensed the patent at issue. Focusing again on the nexus requirement, the PTAB noted that the “it is not sufficient that a product is within the scope of a claim in order for objective evidence of nonobviousness tied to that product to be given substantial weight” and that “a showing of copying is only equivocal evidence of nonobviousness in the absence of more compelling objective indicia of other secondary considerations.” The PTAB also noted that the versions of licenses the patent owner produced were “almost entirely redacted” such that the patent owner’s assertions regarding the agreements could not be verified. Thus, the patent owner had not shown a nexus with respect to the licenses and evidence of copying.

Separately, the patent owner submitted a revised protective order in connection with its request to seal certain purportedly confidential exhibits, which it submitted in heavily redacted form. According to the patent owner, although the revised protective order reflects the terms of a protective order in a co-pending district court proceeding between the parties, the parties did not agree on the terms of the order. Focusing again on the redaction issue, the PTAB noted that it “cannot ascertain that the contents of the redacted Exhibits constitute the Patent Owner’s confidential information.” As such, and because the parties did not agree as to the scope of the revised order, the PTAB also rejected the patent owner’s proposed protective order and instead entered the default protective order.

Suggestion of Control Not Enough for RPI Challenge; Nexus Matters for Commercial Success

Addressing the real parties-in-interest (RPI) requirement for inter partes review (IPR) and the “nexus” requirement for commercial success to rebut an obviousness challenge, the Patent Trial and Appeal Board (PTAB or Board), found that the patent owner failed to establish that additional entities should have been named as RPIs on the petitioner side and also failed to establish a nexus between the patent claims and the commercial success of its own and its licensees’ products. Universal Remote Control, Inc. v. Universal Elec.’s Inc., IPR2014-01102 (PTAB, Dec. 15, 2015) (Pettigrew, APJ.).

Universal Remote Control (URC) filed an IPR challenging a patent owned by Universal Electronics (the patent owner). As required by 35 U.S.C. § 312(a)(2), URC certified that it is the real-party-in-interest. The patent owner, however, contended that URC should also have named its supplier, Ohsung Electronics, as a RPI. As evidence of the relationship between URC and Ohsung, the patent owner cited that URC and Ohsung share at least one employee, and that URC previously paid for office space for that employee; a 2004 settlement and license agreement between the patent owner and URC over a set of unrelated patents, a provision of which obligates Ohsung to pay royalties to patent owner; and Ohsung and URC shared litigation counsel in a related case. The Board was unpersuaded, finding that none of the evidence suggests that Ohsung actually exercised or could have exercised control over the petitioner’s participation in this proceeding.

The Board also addressed the patent owner’s claims of commercial success in rebuttal to an obviousness challenge under 35 U.S.C. § 103(a). According to the patent owner, several of its patents, including the patent at issue in the IPR, were licensed by a substantial portion of the industry, which shows commercial acquiesce and competitor acceptance of patent owner’s licensed patents. But as the Board explained, the “mere existence of several licenses, without more specific information about the circumstances surrounding the licensing, is not a good indicator of nonobviousness.” The patent owner did not provide evidence, for example, regarding whether decisions to take a license were “from acknowledged merits of the claimed invention” and “how many entities refused to take a license or why some entities, if any, refused to take a license.”

The patent owner also cited the “tremendous commercial worldwide success” of both its own products and products sold by its licensees. According to the patent owner, it has sold over $1 billion dollars in its own products, and one of its licensees (Logitech) has sold over $100 million dollars in licensed products. The Board was again unpersuaded. With respect to the patent owner’s product sales, the Board noted that the record lacks any evidence showing that the sales were a direct result of the unique characteristics of the invention and not a result of economic and commercial factors unrelated to the quality of the patent subject matter. As the Board explained, “absolute sales numbers without market share data do not establish commercial success.” As for the sales by Logitech, although the patent owner directed the Board to infringement claim charts prepared during its litigation with Logitech, the Board found such charts insufficient to establish nexus between the alleged commercial success and the claimed invention. Moreover, the Board found that the patent owner failed to provide any context of its litigation with Logitech, including, for example, “whether Logitech agreed to the charge of infringement.”

IPR Survives Despite Petitioner Failure to Name All Real Parties of Interest

Addressing the real parties in interest (RPI) requirement for inter partes review (IPR) petitions, a panel for the Patent Trial and Appeal Board (PTAB or Board) declined to terminate an already instituted IPR, despite the petitioner failing to identify each and every one of the patent owner’s real-parties-in-interest. Mako Surgical Corp. v. Blue Belt Techs., Inc., Case IPR2015-00630 (PTAB, Dec. 17, 2015) (Medley, APJ).

The petitioner Mako Surgical filed an IPR petition challenging certain claims of a patent directed to facilitating the implantation of an artificial component into an anatomical joint. The petition identified Blue Belt as the patent owner and also disclosed a pending litigation between the petitioner and Blue Belt related to the same patent. As part of its mandatory notice under 37 C.F.R. § 42.8, Blue Belt disclosed that it was the exclusive licensee of the patent at issue and identified Carnegie Mellon University (Carnegie Mellon) as the patent owner. The mandatory notice further identified counsel for Carnegie Mellon as backup counsel in the IPR. The Board instituted the IPR on all challenged claims.

After institution, Blue Belt filed its preliminary response and, on the same day, filed a contingent motion to amend each of the challenged claims if the Board did not terminate the IPR proceeding for failure to name Carnegie Mellon as a real-party-in-interest or based on the merits of the case. The contingent motion to amend was expressly joined by Carnegie Mellon.

Blue Belt also sought authorization to file a motion to terminate the IPR due to the petitioner’s failure to name Carnegie Melon as a real-party-in-interest. The Board denied authorization, explaining that § 312(a)(2) only requires that the petitioner identify all of its real parties in interest, not those of the patent owner. This position is further buttressed by 42 C.F.R. § 42.8, which requires each party to identify its own real-parties-in-interest in mandatory notices. According to the Board, the patent owner is in the best position to inform the Board of its real parties in interest, and the same is true for the petitioner. It would be unreasonable, the Board explained, to require the petitioner to name all of the patent owner’s real-parties-in-interest. In this case, Blue Belt named Carnegie Mellon as a real-party-in-interest in its mandatory notice, identified counsel for Carnegie Mellon as back-up counsel in the IPR, and it filed a contingent motion to amend that was joined by Carnegie Mellon. Thus, for purpose of the present IPR proceeding, the record was clear with respect to the real-parties-in-interest.

The Board also clarified that institution of an IPR is based on the likelihood of unpatentability of a patent’s claims, independent of who actually owns the patent. Indeed, not even a change in ownership of the patent over the course of an IPR proceeding or settlement between the parties are detrimental to the Board’s decision on whether to issue a final written decision on patentability.

Board to Petitioner: No RPI, No IPR

Addressing the requirement to disclose the real parties-in-interest (RPI) for an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) denied the petitioner’s request for rehearing regarding the dismissal of three IPRs due to the petitioner’s failure to list its parent and sister companies as real parties-in-interest. Corning Optical Comm’s RF, LLC v. PPC Broadband, Inc., IPR2014-00440, -00441, -00736 (PTAB, Dec. 9, 2015) (Bonilla, APJ.).

Petitioner Corning Optical filed three IPRs against the patent owner, PPC Broadband. In those petitions, the petitioner failed to list its parent and sister companies as real parties-in-interest. The patent owner did not initially raise the issue, and the IPRs were instituted. After the close of discovery the patent owner moved for (and was granted) additional discovery regarding whether the parent and sister company of the petitioner should have been listed as RPIs. After discovery, the patent owner moved to dismiss the IPRs. In its opposition, the petitioner maintained that the unnamed companies were not RPIs and argued that a failure to name all RPIs did not necessitate dismissal and, in any event, did not require rescinding the filing dates of the petitions. Although the petitioner’s opposition suggested that “even if the Board finds that a non-named party is an RPI, Petitioner should be permitted to amend its Petition and retain its filing date,” it never formally moved for such leave. The Board granted the patent owner’s motion, dismissed the IPRs, and vacated its Decisions to Institute.

The petitioner filed a Request for Rehearing, alleging that the Board abused its discretion by granting the motion to dismiss. In support of its request, the petitioner argued that the Board committed legal error in assigning the burden of proof, misapprehended evidence relating the RPI inquiry and ought to permit the petitioner to amend its petitions in the interest of justice. The Board was not persuaded. With respect to the burden of proof, the Board explained that, although the ultimate burden of proof was with the patent owner, once the patent owner came forward with sufficient evidence regarding the RPI issue, the petitioner had an opportunity to “produc[e] additional evidence and present [. . .] persuasive argument based on new evidence or evidence already of record” in its opposition. With respect to the merits of the evidence, the Board concluded that it had properly considered all the evidence raised in the petitioner’s Opposition to the Motion to Dismiss and continued to find it unpersuasive. As for the interest of justice, the Board noted that the petitioner’s continued failure to move for leave to correct its petitions, even after all of the facts regarding RPI were in the record, suggested that the petitioner made a strategic decision not to correct the RPI. Even in the absence of any evidence of bad faith, the Board concluded that this was an error of law on petitioner’s part that properly mandated dismissal under the Board’s relevant decisions and § 312(a)(2).

Discretion to Dismiss IPR Petition Pre-Institution *Web Only*

Addressing whether a petitioner seeking inter partes review (IPR) is entitled to withdraw its petition prior to an institution decision, the Patent Trial and Appeal Board (PTAB or Board) concluded that where the petitioners were time-barred permission to withdrawal was not required and that the Board has discretion to dismiss petitions in order to promote efficiency and minimize unnecessary costs. Samsung Elecs Co., Ltd v. NVIDIA Corp., Case Nos. IPR2015-01270; -01314 (PTAB, Dec. 8, 2015) (Bunting, APJ).

Samsung filed two IPR petitions. After NVIDIA filed its preliminary responses, but before the PTAB determined whether to institute the IPRs, Samsung filed a motion to dismiss both petitions. In its motion, Samsung noted that it was served with a complaint asserting infringement in the stayed district court action more than a year beforehand.

NVIDIA opposed Samsung’s motion on several grounds. NVIDIA first argued that termination is only allowed after an institution decision and that no provision allows termination prior to institution. NVIDIA also argued that dismissal would cause prejudice because it expended significant resources in opposing Samsung’s IPR petitions.

Rejecting both arguments, the Board granted Samsung’s motion. The Board first rejected the argument that a petitioner cannot withdraw its petition before institution, reasoning that the rules do not expressly preclude termination of an IPR during the preliminary proceeding state. The Board also rejected NVIDIA’s prejudice argument, reasoning that it failed to consider the requirements of IPR proceedings should trial be instituted. However, the Board noted that Samsung would be time-barred from filing additional IPR petitions on the challenged patents. Under these circumstances, the Board exercised its discretion and dismissed the petitions.

Late Request for Further Briefing to Supplement IPR Petition Not Allowed *Web Only*

Addressing the timing and availability of motions or presentation of substantive arguments in the context of an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) dismissed the petitioner’s belated request for additional briefing, finding that it could hamper the Board’s ability to decide on the IPR within statutory requirements and that the proposed arguments should have been presented in the IPR petition. Hewlett-Packard Co. v. U.S. Philips Corporation, IPR2015-01505 (PTAB, Dec. 16, 2015) (Chagnon, APJ).

Hewlett-Packard (HP) filed three separate IPR petitions challenging patents owned by Philips. HP requested the IPRs based on three non-patent references, which it alleged render the claims of the patent invalid as obvious. In its Preliminary Response, the patent owner argued that HP failed to provide evidence the non-patent references were publicly available. Prior art that may be used as a ground of invalidation in an IPR is limited to patents or printed publications. For non-patent prior art, a “printed publication” requires public availability.

In order to address the patent owner’s public availability argument, HP sought a telephone conference to request authorization to file a reply to the Preliminary Response. The patent owner opposed, submitting substantive arguments to the PTAB by email. The rule regarding filing of motions or other substantive correspondence in IPR proceedings, 37 C.F.R. § 42.20(b), expressly prohibits the filing of a motion without prior authorization from the Board.

The Board denied HP’s request for additional briefing, noting that HP waited for six weeks after the patent owner’s response before contacting the Board. By statute, the Board is required to make a determination on whether to institute the IPR within three months from the filing of the patent owner’s Preliminary Response. The Board reasoned that allowing additional briefing at such a late date could hinder the Board’s ability to reach a decision within the allowed time.

The Board further reasoned that an IPR may not be instituted unless the information presented in the petition shows a reasonable likelihood that the petitioner would prevail with respect to at least one challenged claim. Here, HP had the burden of establishing a reasonable likelihood of success in its petition, including making a threshold showing that the cited references are “printed publications” within the meaning of the rules. IPR petitions are limited to a strict 60-page limit. The Board further stated that allowing HP to file a reply “would be tantamount to providing additional pages for the Petition.”

Finally, the Board ordered the parties to limit email communications to the Board to requests for a conference call and avoid substantive discussions. Allowing substantive communications in email would circumvent the requirements in the IPR Rules that motions or other substantive correspondence may only be filed after authorization from the Board.

Practice Note: Parties wishing to file a paper prior to institution of an IPR that is not authorized by statute or PTAB rule should make the request promptly and without substantive argument by either party to the Board.

"Cut and Paste" Error Dooms for Petitioner *Web Only*

Over the petitioner’s request to withdraw its petition, the Patent Trial and Appeal Board (PTAB or Board) issued a final decision upholding the validity of certain claims challenged by a petitioner. The petitioner had attempted to withdraw its challenge due to a “copy and paste” error which resulted in a defective and “fatally flawed” petition. The Board, however, denied the request, concluding that entry of a final judgement and its attendant consequence of estoppel were appropriate due to the petitioner’s lack of diligence in both discovering and then seeking to correct the defect. Ericsson v. Intellectual Ventures LLC, IPR2014-01149 (PTAB, Dec. 9, 2015) (Capp, APJ).

The Board instituted a trial based upon a determination that petitioner Ericsson had made the requisite showing of a reasonable likelihood of prevailing on its challenge of several claims of the challenged patent as obvious over multiple prior art references. Nearly three months after the Board’s institution decision, Ericsson filed a motion to correct its petition alleging a clerical mistake, which the Board denied based in part upon the error being more substantive than clerical in nature. The PTAB ultimately authorized Ericsson to refile its motion.

In its motion, Ericsson presented three arguments for withdrawing its challenge to certain claims, all of which were unsuccessful. First, Ericsson argued that the Board possessed statutory authority to allow withdrawal of the challenged claims following institution of trial. The Board rejected that argument, noting that “the fact that a trial was instituted based upon evidence that Ericsson presented and later turned out to be incorrect, does not retroactively revoke the Board’s authority to institute a trial.” Next, Ericsson argued that its challenge should be withdrawn in view of provisions governing the withdrawal of an IPR as a result of a settlement or upon request of adverse judgment. The Board found that neither provision was available to the petitioner based upon the facts of the case. Finally, Ericsson argued that relief should be granted on the basis of the Board’s extraordinary and discretionary powers under 37 C.F.R.§ 42(a), which the Board rejected.

In its final decision, the Board faulted Ericsson for failing to exercise diligence both in discovering the error and in bringing the matter to the Board’s attention. The Board further explained that a petitioner, having sought and obtained institution of an IPR upon a subsequent determination that it would likely suffer defeat, should not be allowed to withdraw its challenge to avoid the estoppel provisions of 35 U.S.C. §315(e).

Practice Note: This case illustrates how an inadvertent error, if not timely recognized or acted upon, can result in dire consequences for a petitioner in terms of IPR estoppel. Since estoppel from an IPR attaches when the PTAB issues a final decision, the petitioner here is prohibited from later raising before the U.S. Patent and Trademark Office (USPTO), a district court or the U.S. International Trade Commission any ground of invalidity that the petitioner “raised or reasonably could have raised” during the IPR.

Disparagement Proscription of § 2(a) Is Unconstitutional

In the last several decades, the disparagement provision of § 2(a) of the Lanham Act has become a more frequent basis for rejection or cancellation of trademarks by the United States Patent and Trademark Office (PTO) and the Trademark Trial and Appeal Board (the Board). In the past year or two, the disparagement provision has seen significant analysis by the courts and legal experts with regard to a few high-profile cases, including the revocation of trademark registrations owned by the Washington Redskins. Now, the U.S. Court of Appeals for the Federal Circuit, sitting en banc, has resolved the debate regarding the constitutionality of § 2(a) and determined that the provision is unconstitutional since it permits the government to deny registration because it believes that the speech communicated by a trademark is likely to offend others. In re Simon Shiao Tam, Case No. 14-1203 (Fed. Cir., Dec. 22, 2015) (en banc) (Moore, J.) (O’Malley, J., concurring) (Dyk, J., concurring-in-part and dissenting-in-part) (Lourie, J., dissenting) (Reyna, J., dissenting).

Background

Simon Shiao Tam is the lead singer of the Asian-American dance-rock band, The Slants—a name adopted, in Mr. Tam’s own words, to “take ownership” of Asian stereotypes. After the Board affirmed on examining the attorney’s refusal to register Mr. Tam’s application for THE SLANTS covering live music performances on the basis that the mark referred to people of Asian descent and would be disparaging to a “substantial component” of those people, Mr. Tam appealed. On appeal, Mr. Tam argued that the Board erred in finding mark disparaging and also challenged the constitutionality of §2(a) of the Lanham Act.

In its earlier panel decision opinion in this case, the Federal Circuit agreed with the Board that the relevant evidence, such as dictionary definitions, cultural slang and known ethnic slurs, news articles, the band’s own Wikipedia page and even past statements by Mr. Tam indicate that THE SLANTS likely refers to people of Asian descent and is likely offensive to a “substantial composite” of people of Asian descent. As to the constitutionality of §2(a) of the Lanham Act, the panel cited the 1981 precedent of its predecessor court (the CCPA), In re McGinley, and rejected Mr. Tam’s argument that §2(a) conditions the benefit of trademark registration on the relinquishment of speech. See IP Update, Vol. 18, No. 5.

In the panel decision, Judge Moore authored additional views noting Mr. Tam’s goals in seeking to register THE SLANTS, both as a source-identifier of the band’s services (i.e., for commercial purposes) and also for the purpose of political and cultural commentary. She urged the court to revisit, the In Re McGinley case en banc. Specifically, Judge Moore referenced the wide criticism that the McGinley decision has received over the past 34 years and noted that the protection afforded to commercial speech has evolved “significantly.”

Soon after, the Federal Circuit sua sponte vacated the panel decision and requested that the parties file new briefs addressing, for en banc review, the question of whether “the bar on registration of disparaging marks in 15 U.S.C. § 1052(a) [Lanham Act § 2(a)]violates the First Amendment.”

En Banc Decision

Starting from the premise that the disparagement provision is not content or viewpoint neutral and can therefore only be justified on the basis of a compelling state interest, the Federal Circuit explained that § 2(a) denies important legal rights to private speech on the basis of government disapproval of the message content, which renders the provision subject to strict scrutiny. Proceeding to find that the disparagement provision cannot survive strict scrutiny, the Court stated that “Section 2(a) is a viewpoint-discriminatory regulation of speech, created and applied to stifle the use of certain disfavored messages.” The Court further explained that the government cannot escape strict scrutiny review by arguing that §2(a) regulates commercial speech since it is always a mark’s expressive character and not its source-identifying function that is the basis for a disparagement refusal.

The government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by the marks. It cannot refuse to register marks because it concludes that such marks will be disparaging to others.

The government argued that § 2(a) does not implicate First Amendment rights at all because §2(a) does not ban speech, as Mr. Tam remains free to use the unregistered THE SLANTS trademark in commerce; trademark registrations constitute government speech, which the government can grant or deny without implicating the First Amendment; and §2(a) merely withholds a government subsidy, not speech.

Responding to the first argument, the Federal Circuit relied on its own precedent to conclude that federal trademark registration “bestows truly significant and financially valuable” benefits upon the trademark owner and that denial of those benefits creates a “serious disincentive” to adopt a mark that the USPTO may deem to be disparaging. Moreover, the “may disparage” language of the statute was found to have a chilling effect on speech due to uncertainty surrounding the application of the law, which the Court confirmed by reviewing the record of the USPTO grants and denials of certain trademarks over the years, citing inter alia, the REDSKINS trademark cancellation case.

As for the second argument, that the trademark registration process and the accoutrements of registration, such as the use of the ® symbol and the issuance of a certificate of registration constitute government speech, the Federal Circuit distinguished this case from the Supreme Court’s 2015 decision in Walter, Sons of Confederate Veterans (specialty license plates) and concluded that trademark registration is not government speech, since the purpose of a trademark as a source-identifier of goods and services is “antithetical to the notion that a trademark is tied to the government.” Rather, the Court analogized the government’s arguments to a suggestion that the process of copyright registration is also government speech, which would allow the government to prohibit the registration of any works of authorship that were deemed disparaging to others—i.e., censorship; a result that is inconsistent with the First Amendment.

As to the third argument, the Federal Circuit confirmed that trademark registration is a regulatory regime, not a government subsidy. Under the unconstitutional conditions doctrine, the Court concluded that the denial of an otherwise available benefit is unconstitutional where it has a “significant chilling effect” on private speech. Explaining that trademark registration is not a program through which the government conveys a message by using the (filing) receipts for funding, the Court found that the process does not implicate the government’s power to spend.

Although the Federal Circuit determined that §2(a) regulates expressive speech (rather than commercial speech), the Court went further and additionally reviewed the issue under the intermediate scrutiny standard for commercial speech in accordance with the 1980 Supreme Court case Central Hudson Gas & Electric v. Public Service Commission (holding that restrictions on commercial speech likely to deceive the public are permissible). The Court found that §2(a) would also fail constitutional muster under intermediate scrutiny, as there is nothing illegal or misleading about a disparaging trademark, and because there is insufficient government interest in the government’s disapproval of a message.

The Federal Circuit made it clear that it did not endorse Mr. Tam’s trademark, and it acknowledged that its decision likely would lead to an increase in registration of marks that offend communities of people. However, the Court concluded that since the government did not present a substantial government interest justifying the §2(a) proscription on disparaging marks, the proscription of §2(a) failed to pass constitutional muster.

Concurrences & Dissents

In addition to the majority opinion, several members of the en banc panel authored and joined concurring and dissenting opinions. Judge O’Malley, joined by Judge Wallace, agreed with the majority that §2(a) is unconstitutional on its face, but further opined that §2(a) is also unconstitutionally vague under the Fifth Amendment due to the “may disparage” language, such that the proscription would be unconstitutional whether or not it survived the First Amendment challenge.

Judge Dyk issued an opinion concurring in part and dissenting in part, with Judges Lourie and Reyna joining in the dissent. Dyk agreed with the majority view that the proscription on registration of disparaging marks is unconstitutional as specifically applied to Mr. Tam, but argued that the majority “errs in going beyond the facts of this case.” In Dyk’s view, “the statute is constitutional as applied to purely commercial trademarks, but not as to core political speech, of which Mr. Tam’s mark is one example . . . The government need not support the inevitable consequence of this decision—‘the wider registration of marks that offend vulnerable communities.’”

Judges Lourie and Reyna each filed dissenting opinions stating that they would affirm the PTO’s decision to refuse registration of Mr. Tam’s mark and would not overrule McGinley. Lourie’s opinion noted that the statute was 70 years old and constituted “settled law.” He focused on perceived interference with the longstanding congressional policy of delegating authority to the PTO to filter out certain undesirable marks from the federal registration system and stated that it is not clear that a trademark is protected non-commercial speech. Lourie focused on the observation that Mr. Tam may still use THE SLANTS trademark in commerce, with or without a registration. Similarly, in his dissent, Judge Reyna focused on his belief that trademarks are commercial speech subject to intermediate scrutiny and that § 2(a) directly advances a substantial government interest in the orderly flow of commerce.

Practice Note: Although the en banc ruling overrules McGinley, it is specifically limited to the §2(a) disparagement provision. Other potential questions raised by §2(a), such as the constitutionality of the prohibition of immoral or scandalous marks, will have to await consideration by future courts. In the meantime, and as the Federal Circuit itself noted, this decision likely will result in the increased filing and registration of trademarks that may be seen as disparaging to groups of people. The ruling here carries a potential impact on Washington Redskins trademark cancellation case, presently pending on appeal at the U.S. Court of Appeals for the Fourth Circuit.

Party Raising "First Sale" Defense to Copyright Infringement Bears Initial Burden of Proof

Addressing the appropriate allocation of the burden of proof related to the “first sale” defense to copyright infringement, the U.S. Court of Appeals for the Ninth Circuit confirmed that the initial burden of proof falls on the party raising the defense and affirmed a district court’s grant of summary judgment in favor of a software reseller defendant. Adobe Systems Inc. v. Christenson et al., Case No. 12-17371 (9th Cir., Dec. 30, 2015) (McKeown, J.).

Adobe Systems (Adobe) sued the defendant Joshua Christenson, for copyright infringement based on its unauthorized sale of Adobe software on the defendant’s website. The defendant asserted the “first sale” doctrine as a defense, which provides that a party who lawfully purchases or acquires title to a genuine copy of a work may “sell or otherwise dispose of” the copy without permission from the copyright holder. The defendant argued that he lawfully purchased genuine copies of the Adobe software from third-party distributors. Adobe challenged the first sale defense on the grounds that Adobe solely licenses, and does not sell, its software. In response, the defendant requested that the court place the burden of disproving the first sale defense on Adobe, as the defendant did not have access to the terms of Adobe’s contracts. The district court granted summary judgment in favor of the defendant on the copyright claim, finding that it was “uncontroverted” that the defendant lawfully purchased authentic copies of the Adobe software resold on his site. The burden then shifted to Adobe to prove the absence of a first sale. However, Adobe was unable to do so as the court barred the production of key evidence related to Adobe’s licensing practices because Adobe failed to timely identify or produce such documents during discovery. Adobe appealed.

The 9th Circuit acknowledged that Adobe “easily” established a prima facie case of copyright infringement. Adobe owned valid copyrights to the software in question, and the defendant sold copies of the software without Adobe’s authorization. Turning to the defendant’s first sale defense, the appeals court stated that, similar to civil claims, the burden of proof for an affirmative defense in a copyright action rests on the party asserting the defense. Thus, the party asserting the first sale doctrine as a defense to infringement has the initial burden to show it lawfully acquired title to the copy of the work. In the context of a software infringement case, the party raising the first sale defense satisfies its initial burden of proof by producing evidence sufficient for a jury to find that the infringer lawfully purchased or otherwise acquired title to genuine copies of the copyrighted software. Once the initial burden is satisfied, the burden of proof then shifts to the copyright holder to refute the defense, for example, on the grounds that a first sale did not occur because the software was granted by license. According to the 9th Circuit, this burden-shifting structure is consistent with the legislative history of § 109 of the Copyright Act and principles of fairness.

Ultimately, the Court agreed with the district court that the defendant met its initial burden of proof under the first sale defense by producing legitimate invoices from third-party suppliers evidencing lawful purchases of the Adobe software. Further, the 9th Circuit found that the district court did not abuse its discretion in excluding Adobe’s evidence of licenses, which led to Adobe being unable to meet its burden of proving the absence of a first sale. The appellate court thus affirmed the district court’s summary judgment in favor of the defendant on the copyright infringement claim.

No Appellate "Second Guessing" of Witness Credibility Determinations

Addressing whether nearly identical opening song lyrics showed copying and whether to give more weight to testimony from witnesses who contradicted themselves, the U.S. Court of Appeals for the Fifth Circuit determined that the songs in issue were not copies of each other and the overall lyrical themes and musical arrangements were not unique in the genre of the Tejano music the two pieces fell under. The Fifth Circuit also declined to second-guess the district court’s witness credibility determinations, which it concluded were “virtually unassailable on appeal.” Guzman v. Hacienda Records and Recording Studio, Inc., Case No. 15-40297 (5th Cir., Dec. 14, 2015) (Stewart, C.J.).

Corpus Christi, Texas is a hub for Tejano music, a genre of popular music originating in Northern Mexico and Texas. Jose Guzman of Corpus Christi wrote a song called Triste Aventurera (Triste). The song’s title references a woman rejected by her ex-lover, who tells the woman that she will forever be a sad adventurer. Guzman wrote Triste in the early 1970s. Until approximately 1990, local radio stations played Triste regularly, and Guzman’s band regularly performed the song at local music festivals. Then, in the 1990s, Guzman heard a song called Cartas de Amor (Cartas) on the radio. He concluded that Cartas must have been copied from his song, Triste, believing the songs shared lyrical themes and musical qualities.

Guzman filed suit alleging copyright infringement. After a three-day bench trial, the district court ruled against Guzman, concluding he had failed to show either that the defendants had “access” to his song, a necessary element of a copyright infringement claim or that Triste and Cartas were strikingly similar, such that access could be presumed. Guzman appealed.

The 5th Circuit accorded deference to the district court, which had discounted the witnesses’ testimony on whether the musicians behind Cartas had access to Triste. The witnesses gave unclear and inconsistent testimony on the frequency and time period that Triste was played on the radio. Guzman introduced no independent evidence—such as evidence of record sales, awards or royalties—that showed that the local radio stations frequently played Triste. The district court also discounted inconsistent testimony regarding how often Guzman’s band performed Triste live. The 5th Circuit saw no reason to overturn the district court’s credibility determinations, which it explained were “virtually unassailable on appeal,” as only a trial judge can observe a witness’s demeanor and tone of voice.

The 5th Circuit also rejected Guzman’s argument that a showing of “access” was not required because the two songs were strikingly similar. In the absence of proof of access, a plaintiff may establish copying by showing that the two works are strikingly similar, which requires that the similarities are sufficiently unique or complex to preclude an explanation other than copying. Here, the two songs were pop songs, and many pop songs, especially songs in the same genre, express the same attitudes and phrases. That the opening lyrics of Triste and Cartas were nearly identical did not establish striking similarity. The Court explained that the lyrics, regarding love letters and forgiveness, were not unique in the genre. The two songs’ melodies, rhythmic patterns and instrumental accompaniment were also common in Tejano music. The 5th Circuit concluded that the district court was not clearly erroneous in finding no striking similarity.

Finally, the Court declined to adopt a “sliding scale” analysis. Guzman argued that the Court should relax Guzman’s burden to show “access” because of the similarity between the songs. The 5th Circuit had never expressly adopted such a “sliding scale” analysis and declined to do so here, especially as there was no indication that the district court would have weighed the evidence differently under a sliding scale analysis.

Dismissal but No Fees for Innocent Bit Torrent Defendant

Addressing whether a copyright infringement action based solely on IP addresses is frivolous or unreasonable, such that attorneys’ fees should be awarded upon dismissal, the U.S. Court of Appeals for the Eighth Circuit affirmed the district court’s denial of fees and found no abuse of discretion. Killer Joe Nevada, LLC v. Leaverton, Case No. 14-3274 (8th Cir., Dec. 4, 2015) (Benton, J.).

Killer Joe Nevada, copyright holder for the film Killer Joe, sued 20 “John Doe” defendants for making unauthorized downloads of the film through BitTorrent. The complaint identified the defendants by Internet Protocol (IP) address only. After subpoenaing various Internet service providers for the subscriber information tied to each IP address, Killer Joe Nevada amended the complaint to name Leigh Leaverton as a defendant. Leaverton denied downloading the film, and Killer Joe Nevada filed a motion to voluntarily dismiss its complaint with prejudice. Leaverton opposed the motion, arguing the action should not be dismissed unless the court awarded her attorneys’ fees. The district court granted the motion to dismiss and denied Leaverton’s request for fees. Leaverton appealed.

Leaverton asserted that the district court abused its discretion in declining to award attorney’s fees, but the 8th Circuit disagreed. The appeals court noted that pursuant to 17 U.S.C. § 505, courts in copyright cases may use their equitable discretion to award attorneys’ fees to the prevailing party, but such an award is neither presumed nor automatic. Therefore, a denial of fees may only be reversed where a district court abuses its discretion by failing to consider a relevant factor, considering an irrelevant or improper factor, or committing a clear error of judgment in considering the sum of the relevant factors.

Leaverton first argued that the district court committed error when it ruled that Killer Joe Nevada reasonably sued the unnamed subscribers of each identified IP address. According to Leaverton, a plaintiff bringing a copyright infringement action must investigate whether the subscriber in fact infringed before filing suit. The Court, citing its 2005 decision in In re Charter Commc’ns Inc., held that it is reasonable for a copyright plaintiff to sue “John Doe” subscribers in order to seek further information about their identities.

The Court also rejected Leaverton’s remaining arguments. As the Court explained, it was not an abuse of discretion for the district court to find that Killer Joe Nevada did not have improper motives in bringing suit, given that Killer Joe Nevada dismissed its claims against Leaverton immediately after discovering she had not infringed. The district court also did not abuse its discretion by not explicitly addressing Leaverton’s financial status, and Leaverton was ultimately unable to cite any authority requiring consideration of a party’s financial status in determining whether attorneys’ fees should be awarded under § 505. Finally, Leaverton’s written submissions to the district court provided her with sufficient opportunity to make a record as to her request for fees.