Category: Intellectual Property

Design Patent Basics

Lewis & Roca

Design patents are often a forgotten form of intellectual property despite the fact that they have been available to inventors and designers for over 150 years.  A design patent protects a new and original ornamental design of a useful product.  For example, a design patent can protect the shape of a bottle or the pattern on the bottom of a shoe or the ornamental design of a unique-looking bird house.  Design patents can be incredibly valuable to a company since they protect “iconic” designs ranging from Apple’s iPhone graphics to the original glass Coca-Cola bottle.

Design patents are a cost-effective mechanism to add value to a company and combat copying of products. The typical cost for obtaining a design patent is anywhere from $1,500 to $3,000.  For a company whose long-term goal is to sell its products or technology in the future, a collection of design patents can significantly increase the selling price.  But the timeframe of that value is limited to the 14-year term of the design patent itself.

Requirements for patentability are that the design be new, original and ornamental.  The design cannot be completely functional as there must be some significant aspect of the design not dictated by function alone.

Design Patent Application Tips:

General

Claim the broadest possible design and not just one embodiment of the design.  Because the scope of the design patent claim is the drawings, the most important features of the design patent are the drawings.  In order to broaden protection, think about filing more than one design patent applications, each covering a different aspect of the design.  Or filing several design patent applications, each one covering a separate embodiment of a design.

Drawings

There is no limit on the number of views an applicant can include in a design patent application.  The application should include as many views “as necessary” to fully disclose every novel feature of the invention.  Depending on a number of variables such as disclaimed features, alternate positions, and number of embodiments, the number of views required may vary greatly.  There is a standard number of views that is a good starting point.  They are perspective view, front view, back view, top view, bottom view, and side views (for example, left side view and right side view).

Shading

Proper use of shading is critical in design patent application drawings.  The drawings should be provided with appropriate surface shading which shows clearly the character and contour of all surfaces of any three-dimensional aspects of the design. Surface shading is also necessary to distinguish between any open and solid areas of the design. Solid black surface shading is not permitted except when used to represent the color black as well as color contrast. Lack of appropriate surface shading in the drawing as filed may result in a rejection of the application. Additionally, if the shape of the design is not evident from the disclosure as filed, addition of surface shading after filing may be viewed as new matter and not allowed. New matter is anything that is added to, or from, the claim, drawings or specification, that was neither shown nor suggested in the original application.

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Brain Spray and the Law

Womble Carlyle

Now that we can capture and use the signals emitted by human brains, we should consider whether brain signals are public property. If your face and voice become available to the public through use, is the same true for your thoughts, when they can be read by others?

Several recent news items have illustrated the progress humans have made in understanding the brain’s workings and harnessing an active brain for practical purposes. For example, this week, Duke University researcher Miguel Nicolelis used microchips and the internet to connect the brains of two mice on different continents, so that the thoughts of one can influence the actions of the other. Much of Dr Nicolelis’s work involves creating an exoskeleton that a paralysed person could operate with brain signals.

Similarly, University of Pittsburgh researcher Andrew Schwartz has been working since 2006 to find ways for a person to control a robotic arm with only brain signals. In February 2013, surgeons implanted four microchips in a paralysed patient’s brain that translate her brain’s signals into movement in robotic equipment. 60 Minutes and ABC News showed a video of the Pittsburgh patient feeding herself ice cream through brain signals to a robotic arm.

Such scientific work involving directed brain signals seems like science fiction, but the technology is available right now, and will only improve over time, and soon will be available commercially. Right now, the most rudimentary brain-driven technology can be purchased. High-end toy emporium Hammecher Schlemmer sells a “Telekinetic Obstacle Course” that use focused brain waves to manoeuvre a ball through an obstacle course. The game comes with a headband to read your brain signals and then wirelessly transmit those signals to the game’s air fan, which increases or decreases speed depending on your signal, blowing a foam ball around an obstacle course.

For example, Australian scientist and entrepreneur Tan Le, the founder of Emotiv Lifescience, has created a headset that serves as an interface for reading the wearer’s brainwaves, making it possible to control virtual and physical objects with directed thoughts. Eventually the headset will be conditioned for diagnostic use, but current products using the brain-interface headset for videogames, allowing users to drive virtual race cars with their concentrated thoughts.

Modern science has identified two types of “brain spray”, or signals that can be harnessed from outside of a person’s skull. The first is the directed thoughts described in the examples above, where certain voluntary brain signals, created by the subject concentrating on a goal or action, are read and translated by either a device worn by the subject or by microchips placed in the subject’s head. Research into this field, including US government funded research by DARPA, may lead to practical solutions allowing wounded veterans or other people with disabilities to grasp, drive, walk and talk again.

This type of brain spray will lead to legal concerns. For example, if a wounded soldier is offered a limb that responds to his thoughts, the company providing the limb will want to capture information from the electronics that capture brain signals, both for understanding and improving the equipment and for monitoring its use. Could a disabled person say “no” to the company who was offering a newly functional life, or would he be forced to sign away his brain spray for benefit of science and a company providing the equipment.

We all know that our signals from laptops and smartphones are captured by any number of companies – telephone signal providers, hardware manufacturers, app developers, banks and payment businesses – when we undertake actions or transactions over the internet. There is no reason that the same rules would not apply to our directed thoughts when our computing devices are controlled by focused brain signals. Google is already testing computing in the form of eyeglasses that could easily be equipped to read such brain spray and turn it into both action and data. Our thoughts would be available to our service providers.

The other brain spray that can be captured and turned to practical use is translation of brain activation signals currently read by functional magnetic resonance imagining machines (fMRI). These signals are more intrusive than the focused brain signals described above, because the fMRI provides pictures of what part of a human brain is activated by situations or stimuli. The fMRI pictures can easily be interpreted as triggers for various emotions. Because certain emotions trigger activity in specific parts of the brain, fMRI brain spray comes close to showing what the subject is feeling about the situation he is in.

Scientists currently read and interpret the emotional and logical meanings of fMRI signals from the human brain. In a 2008 article for Atlantic Monthly, Jeffrey Goldberg submitted himself to brain readings where scientists used MRI scanning to observe which areas of Goldberg’s brain reacted to certain images. The scientist showed Goldberg pictures of personal, political and cultural figures, recording his brain’s involuntary reactions with the MRI machine and noting when his brain activated in areas indicating affection and affinity for certain pictures (Goldberg’s wife and Bruce Springsteen) and revulsion at other pictures (Osama bin Laden).

This technology is attractive to corporations wanting to know how to stimulate your urge to buy their products and to see how you react to their advertising. However, do you want companies to know this much about you? Current law holds that if you have no reasonable expectation of privacy, then you cannot stop anyone from harvesting information from you. For example, when you are out on the public roads or when you walk up to an Automated Teller Machine at the bank, you are subjecting your appearance, your facial expressions and even your body itself, to scrutiny, photography, recordation and information capture by other people (or the bank) who share your public space.

If your appearance, your voice, and even your DNA is available to everyone in public (many US courts allow police to collect a suspect’s DNA in public places without a warrant), then why would this rule not extend to your brain spray when you enter the public area at a time that mobile fMRI technology or other brain signal capture technology is commercially available? Exposing your brain signals in public may be no different from exposing your face or your voice at the same time. Why would you have a reasonable expectation of privacy in your brain spray when you know it can be read by anyone with the right equipment? Many will argue that once your body is in a public space, then it can be read by the government or business in any way that they are able.

If there were limits to the use of this technology to read your exposed brain signals, situational rules would have to be developed. For example, when fMRI technology is cost-effective and practical to use from a distance, should you automatically submit to brain scanning just by walking into a certain store, casino, bank or government building? Will companies provide notice before scanning you? Will the scan data be linked to your credit card purchases to identify you, linked to the uniform identifier in your smartphone, or linked to RFID tags in the products you buy?

This technology also has national security applications for interpreting malice in sensitive situations. The government may be able to read a suspect’s brain activity to identify intent to act before the crime takes place, scanning banks and airports for signs of potentially criminal intent. But our criminal law is based on punishment for actions, not thoughts or intentions. Everyone has intemperate thoughts of anger, frustration and fantasies of outrageous exploits, but people manage to keep those ideas in their heads and not act on them. How much do you want the government to know about your unfiltered thoughts, once those thoughts can be read from outside your head?

Once the technology is widely available, anyone could use its invasive and interpretive powers. Employers may examine their workers for hostile thoughts toward management or sympathetic thoughts toward labour organisers. Colleges can probe their applicants’ level of enthusiasm for learning. The military could test for signs of homosexuality in recruits without asking or telling. Lawyers and investigators in divorce cases would have a new avenue to examine unfaithful behaviour. How quickly would enthusiastic opposition dig up the thought crimes of political candidates?

Our laws are inadequate for addressing these issues or protecting the privacy of our brain spray. Current privacy law in the United States would not prohibit harvesting brain spray and would not even require an individual’s permission to do so. The current American privacy laws relating to reading your biometric measurements and physical condition only apply to body signs taken for health care purposes.

If a hospital records your blood type or your DNA to test for disease, those records are private and you have the right to keep them from being used for other purposes. However, a reading of your body, including your DNA and your brain spray, is not protected from transmission or sale between companies if the reading was taken for security, marketing or intelligence purposes. The recorded thoughts showing your excitement at the perfect little black dress or those used to power your prosthetic arm may be transferred to anyone. The law leaves you vulnerable.

Brain spray is the ultimate prize in the larger security and privacy debate concerning what personal facts may be captured by commercial or governmental interests. Why bother asking you what you think about a politician or a product when a company can read it directly from your brain? Without legal change, finding out who really loves “mom”, apple pie and America could soon be as simple as a head examination.

Originally published March 22, 2013 in the International edition of Intellectual Property Magazine Online

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Impact of Trademark Trial and Appeal Board (TTAB) Rulings in Court Decisions

Katten Muchin

The US Patent and Trademark Office’s Trademark Trial and Appeal Board (TTAB) provides, among other things, a forum for trademark owners to oppose the issuance of a certificate of registration for a mark filed by a third party which it believes is confusingly similar to its registered mark. Although the TTAB can issue a decision as to whether two marks are confusingly similar such that one of them should not be entitled to registration, the issue of whether one mark infringes another is beyond the scope of a TTAB proceeding and is instead left to the courts.

Therefore, when a trade mark owner is formulating its enforcement strategy, a common question that arises is whether a TTAB decision holding that two marks are confusingly similar would be dispositive when the same two marks are the subject of a trademark infringement claim before the courts. This issue was recently addressed by the Eighth Circuit in the case of B&B Hardware, Inc v Hargis Industries, Inc and the conclusion reached in this case can be helpful to brand owners contemplating their approach to brand enforcement.

B&B Hardware, the owner of a trade mark registration for the mark Sealtight covering a fastener product that is used predominantly in the aerospace industry, had successfully opposed a trade mark application filed by Hargis for the mark Sealtite covering a line of self-drilling and self-taping screws that are commonly used in the construction of metal buildings. Subsequently, B&B Hardware sued Hargis, making claims of trade mark infringement and unfair competition. The District Court rejected B&B Hardware’s claims and in doing so decided not give preclusive effect to the TTAB decision (that is, the Court did not allow the decision to preclude the issue from being re-litigated) which held that there was a likelihood of confusion between the two marks.

B&B Hardware appealed the decision to the Eighth Circuit arguing that the TTAB’s determination that there is a likelihood of confusion between the two marks should have been given preclusive effect by the District Court on the claim of trade mark infringement which, in turn, would have necessitated a finding by the District Court in B&B Hardware’s favour. The Eighth Circuit, however, affirmed the District Court’s decision, holding that regardless of whether the TTAB is an agency whose decisions are entitled to preclusive effect, the decision rendered in the opposition proceedings was not so entitled. Specifically, the Eighth Circuit ruled that preclusive effect should not be given to the TTAB decision at issue because the likelihood of confusion test applied by the TTAB when considering B&B Hardware’s opposition to Hargis’ attempt to register the Sealtite mark did not equate to a determination of likelihood of confusion for purposes of analysing a claim for trade mark infringement.

The decision issued by the Eighth Circuit was not without dissent, however. The dissent took the position that when an administrative agency is acting in a judicial capacity and resolves disputed issues of fact which the parties had the opportunity to litigate, the courts should give the decision issued preclusive effect. In short, the dissent believed that Hargis should not have had the opportunity to re-litigate the dispute at the District Court level after already having done so before the TTAB.

This case, therefore, stands for the proposition that a ruling by the TTAB may not be serve as the final decision on the existence of a likelihood of confusion between two marks. However, as indicated by the dissent, the holding in this case may not be universally applied so careful consideration should be given by a trade mark owner when pursuing a claim of trade mark infringement when the marks at issue were already the subject of a TTAB decision.

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The “Dot-Brand” Explosion: What You Need To Do Now

Dickinson Wright LogoEarlier this year the company that manages the global internet address system (the Internet Corporation for Assigned Names and Numbers, or ICANN) accepted the first round of applications for new “generic top level domains,” or gTLDs – the part of an address that goes to the right of the dot. Most businesses register domain names that use the familiar “.com” suffix or one of a handful of other available options such as “.org” or “.biz.” The new program makes it possible to register a business name, a trademark – indeed, virtually any word in any language – as a TLD in its own right. Depending on whose crystal ball you consult, this Dot-Brand initiative could revolutionize the way the internet works, or hopelessly complicate it, or both.

The initial application window recently closed. The list of applications offered a few surprises, a number of omens for the future – and some important action items for brand owners who did not apply for a gTLD this time around.

  • One surprise was the sheer number of applications. Originally, ICANN was anticipating 500 or so. In the end there were almost 2,000 (at $185,000 apiece!) The unexpected volume slowed down the application process, and will surely slow the review and approval process even more.
  • Many of the applications were for famous brand names (.chevy, .nikon, .walmart) and several were for geographic locations (.paris, .nyc, .amersterdam). The most interesting ones were for generic terms like .art, .tech, and .store, which will be of interest to a great many people. Lots of brand owners in the auto industry, forexample, may want to be part of the “.cars” domain.
  • Not surprisingly, many of these generic domains are the subject of multiple applications: thirteen for .app; seven each for .mail and .news; nine for .shop. There will be a lengthy dispute-resolution process, probably culminating in an old-fashioned auction to the highest bidder, to see who ultimately gains control of these domains.

A recent survey of attorneys responsible for protecting trademarks found that while 91 percent were aware of the new gTLD program, only 36 percent had read the Applicant Guidebook, which explains how the process work. That Guidebook, and the initial application list, suggests some important steps you should take now to protect your brand:

1. Make sure no one has applied for a domain that incorporates one of your trademarks. A formal objection period for addressing such issues is now open and will run until January 2013.

2. Identify “generic” domains of interest, and investigate the applicants and their business plans. If you’re in the financial services sector, for example, you’ll want to know who’s behind the applications for .bank, .broker, .finance, .fund, .insurance, .investsments, .lifeinsurance, .loans, .money, .mutualfunds, and others. A 60-day comment period, open to anyone, runs through August 12; if there is something ICANN ought to know about one or more of the applicants or proposed domains, now is the time to tell them.

3. Start planning for defensive domain-name registrations in appropriate generic and geographic domains. Depending on the business you’re in, you may want to make sure you are the first to register your company name and key trademarks within appropriate domain names – before someone else does. The “someone else” could be a competitor, or just an old-fashioned cyber-squatter of the sort brand owners have been dealing with in the .com sphere for years. And don’t forget about domains like “.sucks,” where having someone else register your brand could be embarrassing.

The best defense is a good offense. Starting in October 2012, for a small fee you will be able to list your brand names in ICANN’s Trademark Clearinghouse; anyone that tries to register your brand as a domain name will be advised of your rights.

SAP Joins Patent and Trade Office against Versata in Eastern District of Virginia

Schwegman Lundberg Woessner

You may recall that Versata sued the Patent Office in the Eastern District of Virginia to challenge the PTAB’s decision to institute a CBM review of Versata’s U.S. 6,553,350 patent.  Versata Development Group, Inc. v. Rea, 1:13-cv-00328-GBL-IDD (E.D. VA).  It turns out that SAP America, Inc. and SAP AG (collectively “SAP”) filed a Motion to Intervene in that suit.  On June 24, 2013, Judge Gerald Bruce Lee granted SAP’s Motion to Intervene over Versata’s objections (the PTO did not oppose the motion).  The motion was granted under Federal Rule of Civil Procedure 24(b).  SAP is now an intervenor in the lawsuit.

SAP also filed a motion to dismiss the suit under Federal Rule of Civil Procedure 12(b)(1), alleging a lack of subject-matter jurisdiction.  That motion has not yet been decided; however, this is a very important case for all post-grant practitioners because it will likely give guidance as to which types of PTAB decisions may be appealed.   First, SAP argues that the decision is not appealable under the AIA, in particular 35 U.S.C. § 324(e).  Second, SAP contends that a decision to institute trial is not appealable because it is not a final decision by the PTAB; it is the very beginning of the PTAB trial.  In its Memorandum in Support of Motion to Dismiss, SAP stated:

First, Versata invokes the APA to challenge a decision by the Director of the United States Patent and Trademark Office (“PTO”) made on her behalf by the newly-created Patent Trial and Appeal Board (the “Board”). 37 C.F.R. §§ 42.2, 42.4. Specifically, Versata challenges the Board’s initial decision to institute a post-grant review proceeding. But under the America Invents Act (“AIA”), Congress expressly precluded judicial review of the exact decision that Versata seeks to challenge: “The determination by the Director whether to institute a post-grant review . . . shall be final and nonappealable.” 35 U.S.C. § 324(e). Simply put, the APA does not apply—and this Court cannot exercise jurisdiction—where, as here, a “statute precludes judicial review.” 5 U.S.C. § 701(a)(1).

SAP’s Memorandum in Support of Motion to Dismiss, page 1 (italics in original).

This is certainly an interesting development.  We will stay tuned into the future events of this matter.

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Does a Valid Copyright Exist in the Song “Happy Birthday To You”?

Mintz Logo

Ownership of a copyright in one of the most popular songs in the English language has recently been challenged in several lawsuits around the country.  At the heart of the dispute is whether the music publisher Warner Chappell legitimately owns a copyright in, and thus has the right to license (and enforce) the rights to, the ubiquitous song “Happy Birthday to You.”  Since it acquired a company in 1998 that claimed to own the rights in this song, some have estimated that Warner makes as much as $2M per year licensing the rights to use this song in various movies and television shows.  Two recently filed lawsuits are challenging this ownership claim and seek a ruling that the rights to the song have passed into the public domain.

The long and tortured history of the song, which has been methodically detailed by Professor Robert Brauneis in his excellent article on the topic, begins with the melody of the song which was originally written in the late 19th Century by two sisters, Mildred and Patty Hill.  Although there is still some dispute over the originality of the melody, Professor Bauneis’s research indicates it may have been wholly original even if loosely based on prior folk songs. What is undisputed, however, is that the Hill sisters’ melody was first published in a collection of children’s songs in 1893.  That melody (with different lyrics) was originally titled “Good Morning to All,” and was intended to be used as a greeting by teachers to their students.  What may be forever lost to history is who combined the current words with the Hill sisters’ melody and when. There is evidence from as early as 1911 that the current words and melody (i.e., the “Good Morning to All” melody) were being used together.

 Warner argues that its rights stem from two principal sources acquired over the years through many corporate mergers: (1) a 1935 piano arrangement of the melody of the song, which critics have noted is a specific arrangement of the song that is not the popular version known today, and (2) a copyright registration in a 1924 songbook containing the lyrics.

The suits challenge Warner’s claimed rights on several grounds. One is lack of originality. To be protected by copyright, a work must be sufficiently “original.”  Plaintiffs allege that Warner’s claimed versions of the song are not original enough, and do not protect the version of the song we know today.  Second, they allege that the version of the music in which Warner claims rights, the specific 1935 piano arrangement of the song, is not sufficiently similar to the current version to enable it to claim any rights in the current version. Finally, according to the Plaintiffs, any copyright in the prior versions expired long ago, either through term limits on copyright protection or through the failure of the original owners to properly renew those rights many years ago.

Since the license fees Warner charges for use of the song are not exorbitant, there has been little financial incentive for anyone to take Warner to court over the rights to the song. Since multiple litigations are now pending, there will likely be amicus briefs filed on plaintiffs’ side from many sources. This “crowdsourcing” of history, knowledge and effort (and cost) in re-creating as accurate a picture as possible of the history of the rights of this song is probably the best chance yet of getting to the bottom of the long open question regarding the ownership of “Happy Birthday to You.”

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America Invents Act – Practical Considerations for Portfolio Companies

McDermottLogo_2c_rgb

Private equity funds should familiarize themselves with recent changes to U.S. patent law that affect patent protection strategies for their portfolio companies.  In September 2011, the U.S. Congress enacted the America Invents Act (AIA) patent reform bill, which significantly overhauled U.S. patent law.  This article summarizes practical considerations that private equity funds should bear in mind when evaluating and managing the patent portfolio of their investments.

First Inventor to File 

In the broadest sense, the AIA converts U.S. patent law into a “first-inventor-to-file” system from a “first-to-invent” system.  This conversion harmonizes U.S. patent law with the rest of the world’s patent laws.  In practice, it means that businesses should not delay filing patent applications, as they can no longer antedate patent-defeating prior art with an earlier invention date.

Challenges to Patent Rights 

Effective September 12, 2012, the AIA provided businesses new post-issuance patent validity challenge options that may be exercised before the U.S. Patent and Trademark Office (USPTO).  The new post-issuance challenges provide businesses new and predictable avenues to test the validity of a competitor’s patent that is, or may in the future be, an impediment to commercialization.  These post-issuance challenges include post-grant review, inter partes review and the Transitional Program for Covered Business Methods.  Each of the three post-issuance challenges is defined briefly here.

Post-Grant Review

Someone other than the patent owner may file a petition for post-grant review challenging the validity of a patent within nine months of the patent’s date of issue or reissue on any statutory grounds for invalidity.  Thus, even if a patent has been grated to a portfolio company, it may be subject to challenge by third parties in the time period immediately following issuance.  Similarly, a portfolio company could elect to challenge a competitor’s rights, even after a patent has been issued.

Inter Partes Review 

Someone other than the patent owner may file a petition for inter partes review challenging the validity of the patent nine months after the date of issue or reissue on limited invalidity grounds.  Inter partes review may only be instituted after the time period for post-grant review has expired and offers only a subset of the challenges available in post-grant review.  This means that throughout the entire life of an issued patent, generally 20 years from the filing date of the earliest priority document, it may be subject to challenge and invalidation.  Private equity funds should closely consider any potential challenges that could be lodged against a portfolio company and should evaluate potential risk before investing.

Transitional Program for Covered Business Methods

With regard to business method patents, someone other than the patent owner may file a petition for covered business method review challenging the validity of a patent if (1) the petitioner has been sued for infringement or threatened with an infringement suit, and (2) the patent claims a financial product or service.  Practically speaking, this scope is broader than mere financial products or services, such that any patent claiming anything related to money may potentially be challenged using a covered business method review.  Versata Development Group Inc. recently filed suit against the USPTO in the Eastern District of Virginia alleging that such a scope is impermissibly broad.  Until the result of that case or guidance is issued by the USPTO, private equity funds should proceed under the broad definition of “financial product or service” when evaluating a portfolio company with patents that may be challenged under the covered business method review.

Conclusion

Whether used against competitors’ patents or in defense of a business’ own interests, the new post-issuance challenges available under the AIA are powerful new tools in a portfolio company’s strategic toolbox.

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Update on Advanced Micro Devices (AMD) Trade Secret Misappropriation Case: Judge Hillman Issues Narrow Interpretation of the Computer Fraud and Abuse Act (CFAA)

RaymondBannerMED

As originally discussed on this blog back in February, a lawsuit brought by Advanced Micro Devices (AMD) against former employees accused of taking AMD trade secrets with them to competitor Nvidia has been ongoing and a recent opinion in the case highlights the uncertainty surrounding the Computer Fraud and Abuse Act (CFAA).

A recent opinion issued by Judge Timothy S. Hillman narrowly interpreted the CFAA in this case. Judge Hillman declined a broad interpretation of the CFAA and held that AMD’s allegations in its complaint are insufficient to sustain a CFAA claim.

The relevant portion of the CFAA provides that it is a violation of the CFAA to:

Knowingly and with intent to defraud, [access] a protected computer without authorization or [exceed] authorized access, and by means of such conduct [further]the intended fraud and [obtain] anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period.

computer broadcast world

There exists a circuit split on the interpretation of this clause. As Judge Hillman noted, the 1st Circuit has not clearly articulated its position on the issue. The broad interpretation defines access in terms of agency or use. That is, whenever an employee breaches a duty of loyalty or a contractual obligation and acquires an interest adverse to their employer, then all subsequent access exceeds the scope of authorized access. Proponents of the narrower interpretation argue that the intent of the CFAA was to deter computer hacking and not to supplement common law trade secret misappropriation remedies and therefore fraudulent means must be used to obtain the information initially.

Judge Hillman utilized a narrow interpretation of the CFAA and held that AMD had not pleaded sufficient facts to maintain a cause of action under the CFAA. AMD had pleaded that the defendants used their authorized access to computer systems to download and retain confidential AMD information which they retained when they left to go work at Nvida. The complaint, while alleging the defendants had the intent to defraud AMD, provided no facts which support the allegation that the defendants obtained the information through fraudulent or deceptive methods.

Judge Hillman did not outright dismiss the claim given the truncated evidentiary record and has allowed AMD the opportunity to plead specific details indicating that some or all of the defendants used fraudulent or deceptive means to obtain the confidential information and that they intentionally defeated or circumvented technologically implemented restrictions to obtain the confidential information. If other judges in the 1st Circuit follow Judge Hillman’s approach, plaintiffs will need to ensure that they plead with sufficient detail that the defendants obtained the information through a fraudulent or deceptive method as opposed to simply obtaining the information through permissible access.

Defense of Marriage Act (DOMA) Goes Down – Copyright Goes Up – U.S. v. Windsor, Supreme Court, No. 12-307, Decided June 26, 2013

Sheppard Mullin 2012

The Supreme Court handed down a far reaching decision throwing out an attempt by Congress to deny the benefits conferred by federal law on same sex couples legally married under state law holding that the Defense of Marriage Act (“DOMA”), as so applied, constituted a deprivation of the equal liberty of persons protected by the Fifth Amendment. In so doing, and perhaps without realizing it, the Supreme Court was also writing an important copyright case.

Much of copyright law is devoted to legal protection for intellectual property under a social contract allowing authors to exclusively benefit for a limited time from the fruits of their creative endeavors in exchange for enhancing the marketplace of ideas. The presently effective Copyright Act of 1976, and its predecessors including the Copyright Act of 1909, further establish a mechanism for succession assuring that certain defined classes of individuals, the author’s “statutory heirs”, may continue to enjoy those benefits following the author’s death. These classes generally include the author’s surviving spouse and children and, in certain circumstances, the grandchildren next of kin and/or the author’s executor. Since copyrights are expressly solely a matter of federal law for the federal courts, any such federal benefits would have likely been denied by DOMA had it survived judicial scrutiny.

For example, the renewal copyright provisions allow the recapture of a deceased author’s original term copyright (copyrights secured prior to 1978) by an author’s surviving spouse and children as a class. Should there be no surviving spouse or child, the renewal right passes to the author’s executor, if there is a will, or to the author’s next-of-kin in the absence of a will. Clearly DOMA would have denied the benefits of renewal to a surviving, non-author, gay spouse even though such was legally married under state law. What would instead have happened is that an author’s children (possibly by a first marriage) would have enjoyed the entire renewal copyright to the exclusion of the legal, non-author spouse. It should, in this regard, be noted that, much to the surprise of many estate attorneys even today, the renewal and other copyright privileges flow directly from the statute to the statutory heirs without regard to the author’s plan of testamentary distribution or the state laws of intestacy.

Another example would have been the right of termination of transfers by which the author’s statutory heirs are allowed to serve Notices of Termination on prior transferees. In most cases, the author’s surviving spouse and children must jointly exercise the termination. Of course, if DOMA had survived instead of the non-author gay spouse, the children would have exclusively owned the termination rights with no legal obligation to a possibly disfavored second spouse who might be left with nothing from the estate of his or her devoted marital partner.

Neither of these scenarios will now happen…at least not from a direct application of DOMA to the provisions of the Copyright Act. Instead, the Copyright Act will continue to neutrally apply to all legally married spouses regardless of their sexual orientation.

The children, whatever their feelings may be about their father or mother’s choice of marital partner, should not feel deprived. The Supreme Court had already long ago shown favor to them. In an often forgotten decision, De Sylva v Ballentine, 351 US 570 (1956), the Supreme Court determined that even children born out of wedlock were entitled to the benefits conferred by the copyright laws on “children” as a class. However, the Supreme Court just as clearly stated that identifying who qualified as a “child” was a matter left to the states, hence, entirely consistent with the DOMA ruling. Following, De Sylva, the New York federal appellate court, the Second Circuit, applied the ruling of the Alabama Supreme Court to hold that Cathy Yvonne Stone, the out of wedlock daughter of the famous country singer, Hank Williams, was entitled to share the benefits of Williams’ renewal copyrights. Once Alabama state law identified Stone as a legal child, the Copyright Act then extended renewal copyright benefits to her as a member of the federally defined class of “children”. Stone v. Williams, 970 F2d 1043 (2d Cir. 1992).

Trusts and Estates attorneys, however, are not entirely out of business. The DOMA decision leaves substantial need for their services if only to determine the impact on pre-planned and future estates. The Supreme Court, both in De Sylva and Windsor, has made it clear that state law still governs who will be considered a legal spouse or child. In fact, Windsor expressly leaves intact the state law provisions of DOMA. If that were not enough, the Supreme Court’s companion decision, Hollingsworth v Perry, No. 12-144, decided June 26, 2013, leaves in place a determination, under California state law, that same-sex partners could not be denied the benefits of marriage. In short, DOMA is one piece in the same-sex marriage mosaic, but not the final piece…not close to it. Instead, the Windsor and Hollingsworth decisions will only increase the need to carefully examine the impact of state law on the effective and predictable management of literary and artistic estates.

Supreme Court Holds That Reverse Payment Patent Settlements Are Subject to Antitrust Scrutiny

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For over a decade, the antitrust enforcers at the Federal Trade Commission have challenged the type of patent settlement where a brand-name drug manufacturer pays a prospective generic manufacturer to settle patent challenges, and the generic manufacturer agrees not to bring its generic to market for a specified number of years. The lower federal courts have over the years rejected the challenges. However, on June 17, 2013, the Supreme Court addressed the issue in Federal Trade Commission v. Actavis, and in a 5-3 decision held that such settlements are subject to rule of reason antitrust scrutiny. However, beyond that conclusion, the Court left the questions of how to structure and resolve the rule of reason issue to the lower courts and future cases.

As Justice Breyer’s majority opinion summarized the issue and its holding:

Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent’s term expires, and (2) Company A, the patentee, to pay B many millions of dollars. Because the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a ‘reverse payment’ settlement agreement. And the basic question here is whether such an agreement can sometimes unreasonably diminish competition in violation of the antitrust laws.

In this case, the Eleventh Circuit dismissed a Federal Trade Commission (FTC) complaint claiming that a particular reverse payment settlement agreement violated the antitrust laws. In doing so, the Circuit stated that a reverse payment settlement agreement generally is ‘immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.’ And since the alleged infringer’s promise not to enter the patentee’s market expired before the patent’s term ended, the Circuit found the agreement legal and dismissed the FTC complaint. In our view, however, reverse payment settlement such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws. We consequently hold that the Eleventh Circuit should have allowed the FTC’s lawsuit to proceed. (Citations omitted.)

The Court reasoned that even if the settlement agreement’s anticompetitive effects fall within the scope of the exclusionary potential of the patent, that fact or characterization cannot immunize the agreement from antitrust attack. Justice Breyer found that “it would be incongruous to determine antitrust legality by measuring the settlement’s anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well” and that “patent and antitrust policies are both relevant in determining the ‘scope of the patent monopoly’ — and consequently antitrust law immunity — that is conferred by a patent.”

Justice Breyer acknowledged that a conclusion of antitrust immunity would find some degree of support in a general legal policy favoring the settlement of dispute. However, he concludes that this factor should not “determine the result here” but is offset by five sets of considerations:

First, the specific restraint at issue has the potential for genuine adverse effects on competition. To the Court, even though the settlement permitted the challenger to enter the market before the patent expired, the settlement also entrenched the patent holder for the period the challenger agrees to stay out of the market in exchange for a payment, delaying the potential for lower prices. As the Court put it, “The patentee and the challenger gain; the consumer loses.”

Second, these anticompetitive consequences will at least sometimes prove unjustified. To be sure, in some circumstances, the reverse payment may amount to no more than a rough approximation of the litigation expenses saved through the settlement, or compensation for other services the generic has promised to perform. In such circumstances, a patentee is not using its monopoly profits to avoid the risk of patent invalidation or a finding of no infringement. In the antitrust proceeding, the Court concludes, the patentee should have to show that such legitimate justifications are present.

Third, where a reverse payment threatens to inflict unjustified anticompetitive harm, the patentee likely possesses the power to bring that harm about.

Fourth, the majority believes that an antitrust action would be administratively feasible. The majority did not believe that it would be necessary to litigate patent validity to normally answer the antitrust question — an unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival. “In a word, the size of the unexplained reverse payment can provide a workable surrogate for a patent’s weakness, all without forcing a court to conduct a detailed exploration of the validity of the patent itself.”

Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling in some other way, without the potential to maintain and share patent-generated monopoly profits.

The FTC advocated that the Court adopt a rule that reverse payments are “presumptively unlawful” and that they be analyzed under a “quick look” approach, requiring the patentee to show empirical evidence of procompetitive effects. The Court rejected this position, instead instructing the issue undergo a full rule of reason analysis. In doing so, it left to the lower court the structuring of this and other rule of reason antitrust litigation on the issue.

In practical terms, the decision leaves many difficult issues to be grappled with, and the majority’s apparent confidence that the antitrust question is answerable without getting into the patent issues themselves may prove more aspirational than practical. Chief Justice Roberts’s dissent exposes one flaw:

The majority seems to think that even if the patent is valid, a patent holder violates the antitrust laws merely because the settlement took away some chance that his patent would be declared invalid by a court. …This is flawed for several reasons.

First, a patent is either valid or invalid. The parties of course don’t know the answer with certainty at the outset of litigation; hence the litigation. But the same is true of any hard legal question that is yet to be adjudicated. Just because people don’t know the answer doesn’t mean that there is no answer until a court declares one. Yet the majority would impose antitrust liability based on the parties’ subjective uncertainty about that legal conclusion.

The Court does so on the assumption that offering a ‘large’ sum is reliable evidence that the patent holder has serious doubts about the patent. Not true. A patent holder may be 95% sure about the validity of its patent, but particularly risk averse or litigation averse, and willing to pay a good deal of money to rid itself of the 5% chance of a finding of invalidity. What is actually motivating a patent holder is apparently a question district courts will have to resolve on a case-by-case basis. The task of trying to discern whether a patent holder is motivated by uncertainty about its patent, or other legitimate factors like risk aversion, will be made all the more difficult by the fact that much of the evidence about the party’s motivation may be embedded in legal advice from its attorney, which would presumably be shielded from discovery.

The FTC has hailed the decision:

The Supreme Court’s decision is a significant victory for American consumers, American taxpayers, and free markets. The Court has made it clear that [reverse payment] agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws. With this finding, the Court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices.

The FTC’s “victory lap” is probably premature. To be sure, we now know that blanket antitrust immunity for reverse payment settlements does not exist. However, everything else remains up for grabs. Until there are additional decisions grappling with the actual issue of liability issued, and reviewed, the extent and circumstances of antitrust liability is unclear. The risk-averse patent holder to whom Justice Roberts alluded might well be motivated to avoid utilizing reverse payments in structuring settlements in the future. In addition, the Competition Office of the European Union actively continues to examine reverse payments settlements, and there have been renewed calls for federal legislation banning such settlements.

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