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The Digital Millennium Copyright Act: Scope, Reach, and Safe Harbors

With businesses engaging in increasingly more commerce over the internet, it is crucial to understand the consequences of displaying, using, and transferring another entity’s works online. Enter The Digital Millennium Copyright Act (DMCA) of 1998, which was signed into law by President Clinton to keep pace with the new realities of internet technology and commerce. The Act sought to protect intellectual property rights while simultaneously advancing the growth and development of e-commerce.

The DMCA is divided into five titles.

Title I implements the 1996 World Intellectual Property Organization (WIPO) treaties and makes it unlawful to manufacture or distribute products, services, or technologies that can be used to circumvent any technological measures intended to control access to copyrighted works, such as passwords or encryptions.
Title II contains various “safe harbors” for internet service providers (ISPs) that limit their liability for direct, contributory, or vicarious copyright infringement.
Title III creates an exemption from infringement liability for computer program copying conducted for purposes of repair, diagnosis, or troubleshooting.
Title IV contains miscellaneous provisions for items such as ephemeral recordings and the transfer of rights to motion pictures.
Title V creates a new form of protection for vessel hull designs, overturning the United States Supreme Court’s Bonito Boats decision, which denied copyright protection to such boat designs.

Under the DMCA, ISPs such as AT&T, Comcast Xfinity, and Verizon, cannot be held liable for copyright infringement when they neither know, nor have reason to know, that they are providing internet services to a website that is engaged in copyright infringement. The safe harbors include:

A “storage safe harbor” that protects an online service provider’s hosting and storing, and makes available infringing matter stored at a third-party user’s direction.
A “transmission safe harbor” that protects the transmitting or providing of a connection to infringing material, typically evoked by telecommunications companies.
A “caching safe harbor” that protects an ISP from liability for intermediate and temporary storage of a third-party’s infringing material on a system or network either controlled or operated by the service provider or for the service provider.
A safe harbor for search engine websites that protects the linking or referring of users to online third-party locations with infringing material. In order for providers to invoke this protection, internet providers must make an ongoing investigation of their users’ material, “take down” any infringing material once they are made aware of the infringement and inform any of their subscribers of the illegal consequences of making use of that infringing material through, for example, a set of terms and conditions that appear on the site.

In light of the safe harbors, it is important to note what the DMCA does not protect against – trademark infringement, unfair competition, rights of publicity, invasion of privacy, defamation, foreign law copyright claims, the ISP’s own, directly infringing activities, and any collusion between ISPs and third parties to create infringing material. ISPs must therefore continuously monitor third-party conduct in addition to its own conduct to prevent any activity that could lead to liability or loss of an affirmative defense to copyright infringement.

Two recent cases illustrate the complexities of the DMCA. In Disney Enterprises Inc. et al. v. VidAngel Inc., a federal appeals court affirmed an injunction that shut down VidAngel, a web service that lets users stream Hollywood films without seeing nudity or violence. VidAngel essentially purchased authorized copies of DVDs and Blu-ray discs, decrypted one disc of each film to create a digital, unauthorized copy of the work, removed objectionable violent or obscene content from its created copy, and streamed a filtered version of the copy to its customers. Finding that VidAngel infringed on the studios’ copyrights and violated the ban on circumvention of digital encryption measures (VidAngel bypassed locks on the physical discs in order to upload and stream the movies), the district court issued a preliminary injunction to stop the company from streaming the altered films.

On appeal, the Ninth Circuit Court of Appeals sided with the district court despite VidAngel’s arguments that its actions were lawful because, as purchasers of the DVDs and Blu-ray discs, it was authorized by the Studios to decrypt the technical protection mechanisms installed to view the discs’ contents. The law, however, distinguishes between those entities the content owner authorizes to circumvent the access controls and those the owner authorized to access the work. Falling into the latter category, VidAngel was not be able to claim exemption from copyright liability under DMCA’s safe harbor provisions. The takeaway for business owners is that the DMCA cannot be used as a shield by purchasers of copyrighted works who use them for unlawful copying and dissemination.

In another case, Mavrix Photographs, LLC v. LiveJournal, Inc., 873 F.3d 1045 (9th Cir. 2017), a celebrity photography company that sells its photographs to celebrity magazines brought suit against LiveJournal for posting 20 of its copyrighted photographs online.

LiveJournal is an online platform where users create and run communities to post and comment on content. LiveJournal utilized the help of three unpaid administrative roles:

“Moderators” who reviewed posts submitted by users to ensure compliance with company rules;
“Maintainers” who reviewed and deleted posts and who had the ability to remove moderators; and
“Owners” who removed maintainers and monitors.

The district court held that the DMCA’s safe harbor provision protected LiveJournal from liability since the photos were stored at the direction of its users and not LiveJournal itself. On appeal to the Ninth Circuit, however, using principles of the law of agency, the court ruled that the moderators might be “agents” of the websites they police and could lose DMCA safe harbor immunity if they permit infringing content to be posted. The court stated that moderators were provided with specific directions from LiveJournal, and LiveJournal employees substantively supervised, selected, and removed the moderators. On the other hand, moderators were also free to stop working for LiveJournal and volunteer their time elsewhere. Nonetheless, the court vacated the lower court’s order denying discovery of the moderators’ identities because it believed that the newfound, possible agency relationship impacted the decision to conceal the moderators’ identities.

The implications of the LiveJournal decision remain unclear. Some have criticized the holding as inconsistent with the DMCA framework because the statute was enacted to create a safe harbor that broadly protects service providers for material stored at the direction of its users, not literally for material stored directly by users themselves. But going forward, internet businesses and content providers who previously approved and monitored posts the way LiveJournal did may consider opting to forego such thorough oversight of its users’ posted content if they believe they would be unable to assert a safe harbor defense to copyright infringement.

This post was written by Gene Markin of Stark & Stark Law Firm.

Read more news on the Digital Millennium Copyright Act on the National Law Review’s Intellectual Property page.

Brexit: Bracing for IP Changes

The United Kingdom is due to leave the European Union on March 29, 2019 (Brexit day). If the UK does leave the EU under the currently proposed terms, then the UK would enter a so-called transition period ending on December 31, 2020 and the current status quo would effectively be maintained during this period. However, the UK Parliament recently refused to ratify the current terms of withdrawal and there remains a risk that there will be a “no-deal” Brexit that would not include any transition period. From an intellectual property perspective, these uncertainties and tentative changes should be taken into consideration in the upcoming weeks when developing international filing strategies.

Trademarks

A no-deal Brexit has substantial implications for the continued protection and enforcement of EU trademarks in the UK. However, the position as it stands under the current agreement will be as follows:

EU trademark registrations currently on the register will have a duplicate UK registration automatically added to the UK register (no new filing required);
Current EU applications will have the same procedure once registered, even if the registration date is post-Brexit; and
For trademark applications post-Brexit, two filings will have to be made to cover the former 28 countries of the EU (one UK direct application and one EU application).

Under these prospective events moving forward, it is not anticipated that the EU Intellectual Property Office will decrease their costs for an EU application (because the territories covered decrease from 28 to 27). Accordingly, it may prove cost effective to file any anticipated EU applications before the March 29, 2019 deadline to avoid the need to file two applications.

Patents

There will be no change to the application processes for UK and European patents. Patents covering the UK are granted by two organizations: the UK Intellectual Property Office (UKIPO) and the European Patent Office (EPO). Applications for patents can be filed directly with the UKIPO or EPO, or can be made pursuant to an international patent application filed under the Patent Cooperation Treaty. Neither of these organizations are EU institutions and they will continue to function after Brexit.

Domain Names (.eu)

To register an .eu domain name, a person or entity must reside in or be established within the European Union. As a result, effective from March 30, 2019 (in the event of a no-deal Brexit) to January 1, 2021 (in the event the withdrawal agreement is ratified), entities that are established only in the UK – and natural persons who reside in the UK – will no longer be eligible to register .eu domain names, or to renew .eu domain names registered if they are .eu registrants, before Brexit day.

EURid, the registry manager of .eu domain names, has published a notice on its website which states that a no-deal Brexit will have the following consequences:

UK registrants of .eu domain names will have until May 30, 2019 to update their contact details to an EU address or to transfer their domain names to an EU resident. During this period, their domain names will remain active but cannot be transferred to a UK registrant and will not be automatically renewed (but instead moved to “withdrawn” status).
As of May 30, 2019 all registrants that do not demonstrate their eligibility will be deemed ineligible and their domain names will be withdrawn (that is, they can no longer support any active services such as websites or email), but they will remain in the .eu registry database and may be reactivated if the eligibility criteria are satisfied. On March 30, 2020 all the affected domain names will be revoked and will become available for general registration (which gives rise to a risk of cybersquatting).

Read more about Brexit on our National Law Review Global Page.

Adequacy of Explanation Remains Key Area of PTAB Reversal

In Vivint, Inc. v. Alarm.com, Inc., the Federal Circuit reversed a claim construction by the Patent Trial and Appeal Board (“PTAB”) which “suggest[ed] the opposite” of the teachings of the patents at issue, and gave guidance to practitioners on when the Board’s reliance on expert testimony entitles the Board’s construction to deference. The Court’s non-precedential opinion is consistent with a string of recent decisions stressing the PTAB’s obligation to adequately explain its decisions.

Vivint’s patents are directed to systems and methods for remotely monitoring home equipment, such as an HVAC system. “Communication device identification codes” are assigned to the user’s remote devices, and the system notifies a particular user in case of the equipment’s malfunction through “message profiles” (e.g., settings to notify different users if a malfunction occurs during the day versus at night). The Board construed “communication device identification codes” as “something ‘capable of uniquely identifying communication devices,’” which the Board found included either a device ID or a serial number of a device (variables from one of Vivint’s patent’s figures), but excluded phone numbers and email addresses.

The Federal Circuit reversed the Board’s construction, pointing out that Vivint’s patents did not define “communication device identification codes,” and that the exclusion of phone numbers or email addresses as identification codes “defie[d] the patents’ teachings” which “expressly [taught] that a phone number can uniquely identify a . . . communication device.” The Court explained:

Even assuming [the Board’s construction] is correct, however, the Board’s conclusion that a phone number or email address cannot uniquely identify a communication device defies the patents’ teachings. For example, both patents explain that a mobile identification number refers to a device in the same way that a phone number refers to a cellular phone, i.e. a communication device. . . . But the Board’s construction suggests the opposite. . . . That the ’123 patent includes “Device ID” and “Serial Number” variables in a particular figure, for example, suggests these variables might also be used to identify communication devices. It does not suggest that phone numbers and email addresses cannot also do so.

The Court also rejected Vivint’s assertion that the Board’s construction was “entitled to deference because it relied on extrinsic evidence,” Vivint’s expert testimony. The Court found that the Board’s construction was “without reference to any extrinsic evidence,” finding that although “[t]he Board did credit Vivint’s expert,” it did so “only in applying its construction . . . to the prior art.” As further support, the Court pointed to the Board’s statement that its construction was “[b]ased on [its] review of the claims and Specification of the ’601 patent.”

Takeaways:

Vivint clarifies for practitioners that expert testimony applying a construed term may not constitute a factual finding entitled to deference on appeal, as opposed to expert testimony that is cited in support of the proper construction itself. This distinction may be especially impactful in view of the Court’s “substantial evidence” standard of review for findings of fact, which is “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”

Vivint is also in line with a string of recent Federal Circuit decisions stressing the PTAB’s obligation to “set forth a sufficiently detailed explanation of its determinations both to enable meaningful judicial review and to prevent judicial intrusion on agency authority.” Rovalma, S.A. v. Böhler-Edelstahl GmbH & Co. KG, 856 F.3d 1019, 1024 (Fed. Cir. 2017). See, e.g., Icon Health & Fitness, Inc. v. Strava, Inc., 849 F.3d 1034, 1042-48 (Fed. Cir. 2017) (finding Board’s adoption of petitioner’s brief did not “transform [the petitioner’s] attorney argument into factual findings or supply the requisite explanation that must accompany such findings”); In re Van Os, 844 F.3d 1359, 1361 (Fed. Cir. 2017) (Board’s finding that it would have been intuitive to combine prior art lacked the requisite reasoning because “[a]bsent some articulated rationale, a finding that a combination of prior art would have been ‘common sense’ or ‘intuitive’ is no different than merely stating the combination ‘would have been obvious.’”); Emerson Elec. Co. v. SIPCO, LLC, No. 2017-1866, 2018 U.S. App. LEXIS 24499, at *1 (Fed. Cir. Aug. 29, 2018) (non-precedential) (“Because the Board did not adequately explain its reasoning on a point that was central to its analysis and its conclusion on that point was contrary to another Board opinion on nearly identical facts, we vacate the Board’s determination as to the appealed claims and remand for further proceedings.”). Practitioners preparing an appeal strategy would do well to keep in mind the Court’s focus on the PTAB’s obligation to fully explain its determinations.

Citation: Vivint, Inc. v. Alarm.com, Inc., ___ F.3d ___, 2018 U.S. App. Lexis 35817 (Fed. Cir. Dec. 20, 2018).

This post was written by Jafon Fearson and James Naughton of Brinks Gilson & Lione.

SAS Indirectly Strengthens the Impact of Estoppel

The Supreme Court decision in SAS Institute v. Iancu^[i]will likely strengthen a patent owner’s ability to argue in favor of estoppel and keep a petitioner from getting multiple bites at the invalidity apple in parallel PTAB and district court proceedings. At first glance the Supreme Court’s recent decision appears to be another setback to patent owners. Instead of quickly defeating post grant challenges to at least some challenged claims pursuant to a denial of institution, patent owners will now have to fight petitions even if the Board finds merit with only a single ground challenging patentability. Upon closer examination, however, SAS’s implications for estoppel are favorable and may even resolve a split concerning the scope of estoppel.

The Supreme Court Directive in SAS

SAS addressed the PTAB’s “partial institution” policy, under which the PTAB claimed the power to institute an IPR with respect to only some of the claims challenged in a petition. In SAS, the Supreme Court rejected that policy. The Court explained that if the PTAB decides to institute an IPR, 35 U.S.C. § 318(a) provides that PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” Emphasizing the statute’s use of the phrase “any patent claim,” the Court held that PTAB cannot pick and choose which claims to address, but must instead take the petition as it finds it.^[ii] The Court found further support for its interpretation in the structure of the inter partes review process “in which it’s the petitioner, not the Director, who gets to define the contours of the proceeding.”^[iii]

The Split on Estoppel

The partial institution policy that SAS rejected has created a split in the interpretation of estoppel under 35 U.S.C. § 315(e). Section 315(e)(2) provides that “[t]he petitioner in an inter partes review . . . that results in a final written decision under section 318(a) . . . may not assert . . . in a civil action . . . that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” Congress intended this provision to preclude the same party from re-litigating invalidity in the district court once it had chosen to do so through an IPR. As then-Director of the PTO David Kappos testified, the “estoppel provisions mean that your patent is largely unchallengeable by the same party.”[iv] Similarly, Senator Grassley stated that IPR review “will completely substitute for at least the patents-and-printed-publications portion of the civil litigation.”^[v]

Notwithstanding the apparently broad estoppel envisioned by Congress, some courts have interpreted § 315(e) more narrowly. For example, in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., the Federal Circuit explained that where PTAB partially instituted an IPR, the petitioner was not estopped from raising a ground in district court that it had included in its IPR petition but on which PTAB did not institute. The court reasoned that the non-instituted ground was not raised “during th[e] inter partes review.”^[vi]Similarly, in HP Inc. v. MPHJ Technology Investment, LLC, the Federal Circuit explained that “noninstituted grounds do not become a part of the IPR,” and “[a]ccordingly, the noninstituted grounds were not raised and, as review was denied, could not be raised in the IPR.” The court therefore held that “the estoppel provisions of § 315(e)(1) do not apply.”^[vii]Other courts have followed suit and even extended that holding.^[viii]

A broader interpretation of estoppel tracks what many believe to be the statutory intent, however, as a party should not get two bites at the apple and be able to seek review at both the PTAB and in the district court. Adopting this view, the court in Biscotti Inc. v. Microsoft Corp. cabined Shaw and HP to their facts, holding that they “exempt an IPR petitioner from § 315(e)’s estoppel provision only if the PTAB precludes the petitioner from raising a ground during the IPR proceeding for purely procedural reasons.”[ix] Thus, the court held that § 315(e) estopped the petitioner from asserting any ground that (1) was included in PTAB’s final written decision, (2) was not instituted for non-procedural reasons, or (3) was not included in the petition.[x] Any other decision would result in needlessly protracted litigation as petitioners would re-litigate arguments similar to those that it had already lost or strategically chose not to include in a petition.[xi] The court in Douglas Dynamics, LLC v. Meyer Products LLCtook a similar view with respect to non-petitioned grounds, holding that estoppel applies “to grounds not asserted in the IPR petition, so long as they are based on prior art that could have been found by a skilled searcher’s diligent search.”[xii]

SAS Strengthens Patent Owners’ Estoppel Arguments Because a Petitioner is Deemed to be the “Master of its Complaint”

While SAS had nothing to do with estoppel on its face, much of the disagreement regarding the scope of estoppel arose out of the PTAB’s partial institution policy and the effect of estoppel on non-instituted claims. Because the PTAB no longer has discretion as to partial institution, courts will no longer have to struggle with whether a petitioner is estopped from raising non-instituted grounds for unpatentability in a subsequent or parallel district court proceeding. While a few open issues remain, the patent owner will still be able to argue that SAS supports the idea that petitioners should only get one opportunity to challenge patentability—either at the PTAB or before a jury. The Supreme Court directive from SAS, coupled with recent guidance from the PTAB, suggests that the divide between the broad (Biscotti and Douglas Dynamics) and narrow (Shaw and HP) interpretations of estoppel—at least with respect to pre-institution decisions from the PTAB—may be merging.

Moreover, while SAS does not explicitly resolve whether a petitioner is estopped from arguing non-petitionedclaims in a parallel district court case, the premise behind the Supreme Court’s decision—that the petitioner is the master of its own petition—suggests that estoppel should apply. Some commentators have predicted that because PTAB must now choose between full institution and full denial, “petitioners [will] have an incentive to focus their petitions even further—when choosing claims to challenge, grounds to assert, and prior art to cite—in order to ensure that the likelihood of full institution is greater than the likelihood of full denial.”^[xiii] But filing a targeted (and therefore stronger) petition may run the risk of estoppel on any non-petitioned claim. As Biscotti and Douglas Dynamics indicate, petitioners should not be permitted to hold arguments in reserve in case of an unfavorable result at the PTAB. Moreover, SAS supports Biscotti’s and Douglas Dynamic’s interpretation of the meaning of “during” the IPR. While Shaw characterized an IPR as not beginning until institution,^[xiv]SAS depicts post grant review as a single process that begins with petitioner defining the scope of the proceeding in its petition.^[xv]Applying estoppel to non-petitioned claims would not be inconsistent with a courts’ concern “that estoppel applies only to those arguments, or potential arguments, that received (or reasonably could have received) proper judicial attention^.”[xvi]

Further, SAS will still enable patent owners to rely on the same line of cases to argue for procedural estoppel. Before SAS, the PTAB frequently denied institution in view of procedural deficiencies.^[xvii]Now, however, the PTAB will be faced with either denying institution for failure to comply with PTAB rules or allowing institution on all grounds even where some of the challenges are procedurally improper. For example, petitioners could present a single procedurally proper argument to open the door to review and evade page limit requirements by packing the remainder of the petition with grounds that must also be instituted under SAS but that are supported only by improper incorporations by reference.^[xviii] While denying institution because of procedural failings could preclude the petitioner from filing another (procedurally proper) petition making the same arguments,[xix] the petitioner, as “master of its complaint,” could have drafted its petition correctly from the start.^[xx]In short, the petitioner’s failure to follow the rules should not justify a second bite at the validity apple.

Finally, pending petitions subject to partial institution could have the same consequences depending on the action of the petitioner post-SAS. PTAB guidance indicates that in such cases, “the panel may issue an order supplementing the institution decision to institute on all challenges raised in the petition.”^[xxi] If a petitioner fails to seek supplemental institution or fails to appeal the PTAB’s refusal to supplement, estoppel could apply. While some courts might continue following Shaw and HP by holding that non-instituted claims were not raised “during” the IPR, petitioner “could have raised” those claims and arguments “during” the IPR—even under Shaw’s interpretation—given SAS’s holding because the petitioner should have sought to remedy the non-institution.

The Takeaway

While not obvious at first glance, SAS follows recent decisions like General Plastics that tend to protect patent owners’ rights. While the focus of SAS was on institution and the scope of institution, the Court has armed patent owners with another weapon with which they can challenge serial review of the same patent on the same grounds in multiple petitions and district court proceedings.

_{[i] No. 16-969 (Apr. 24, 2018).}

_{[ii] Id., slip op. at 1, 4-5.}

_{[iii] Id., slip op. at 12.}

_{[iv] Hr’g on H.R. 1249 Before the Subcomm. on Intell. Prop., Competition and the Internet of the H. Comm. on the Judiciary, 112th Cong. (2011) (statement of David Kappos, Dir., USPTO) (“Those estoppel provisions mean that your patent is largely unchallengeable by the same party.”)}

_{[v] 157 Cong. Rec. S1360-94 (daily ed. Mar. 8, 2011) (statement of Sen. Grassley) (claiming that the estoppel provision “ensures that if aninter partes review is instituted while litigation is pending, that review will completely substitute for at least the patents-and-printed-publications portion of the civil litigation”).}

_{[vi] 817 F.3d 1293, 1300 (Fed. Cir. 2016) (quoting 35 U.S.C. § 315(e)(2)).}

_{[vii] 817 F.3d 1339, 1347 (Fed. Cir. 2016).}

_{[ See, e.g., Verinata Health, Inc. v. Ariosa Diagnostics, Inc., 2017 U.S. Dist. LEXIS 7728, at *8-10 (N.D. Cal. Jan. 19, 2017); Illumina, Inc. v. Qiagen N.V., 207 F. Supp. 3d 1081, 1089 (N.D. Cal. 2016).viii]}

_{[ix] 2017 U.S. Dist. LEXIS 144164, at *21-22 (E.D. Tex. May 11, 2017).}

_{[x] Id. at *22.}

_{[xi] Id. at *17-18, *20-21.}

_{[xii] 2017 U.S. Dist. LEXIS 58773, at *15.}

_{[xiii] Saurabh Vishnubhakat, First Steps After SAS Institute, Patently-O (Apr. 27, 2018), https://patentlyo.com/patent/2018/04/first-steps-institute.html}

_{[xiv] 817 F.3d at 1300.}

_{[xv] Slip op. at 6, 9.}

_{[xvi] Verinata, 2017 U.S. Dist. LEXIS 7728, at *10.}

_{[xvii] See, e.g., Shenzhen Huiding Technology Co., Ltd. v. Synaptics Incorporated, IPR2015-01741, Paper 8 at 29-31 (PTAB Aug. 7, 2015) (partially denying institution due to improper incorporation by reference); Bomtech Elec., Co. Ltd. v. Medium-Tech Medizingeräte GmbH, Case No. IPR2014-00138, Paper No. 8 at 32-33 (PTAB Apr. 22, 2014) (same).}

_{[xviii] See 37 C.F.R. § 42.6(a)(3).}

_{[xix] General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper 19 (PTAB Sept. 6, 2017).}

_[xx] Id.

_{[xxi] Guidance on the Impact of SAS on AIA Trial Proceedings (Apr. 26, 2018) (emphasis added).}

This post was written by Scott W. Hejny and Chelsea Priest of McKool Smith.

Patent Damages: How Many Essential Features in a Smart Phone?

On March 20, 2018, the public version of Eastern District of Texas Magistrate Judge Roy Payne’s March 7, 2018 order tossing a $75 million jury verdict obtained by Ericsson against TCL Communication was released. Ericsson Inc., et al, v. TCL Communication Technology Holdings, Ltd., et al, Case No. 2:15-cv-00011-RSP, Doc. No. 460 (redacted memorandum opinion and order) (E.D. Tex. March 7, 2018) (“Order”). Judge Payne’s order sheds important light on the damages analysis for infringement of patents covering features of smartphone technology and potentially provides lessons to future litigants seeking damages for smartphone innovations.

After a jury verdict finding infringement, Ericsson also won a damages verdict of $75M due to TCL’s ongoing and willful infringement of U.S. Patent No. 7,149,510 (“the ’510 patent”). Ericsson contended that the ’510 patent covers smartphone functionality that allows a user to grant or deny access to native phone functionality to a third-party application, which is a standard feature in all Android smartphones. After trial, TCL moved for judgment as a matter of law on infringement and damages, or in the alternative new trials. Judge Payne indicated that he was going to uphold the infringement verdict, but ordered a new trial on damages. Order at 1.

Ericsson’s damages case relied on two experts: Dr. Wecker and Mr. Mills. Dr. Wecker analyzed a consumer survey that attempted to approximate the apportioned value of the patented feature in the accused products. Mr. Mills determined a royalty rate based both on that apportionment and on a hypothetical negotiation between Ericsson and TCL. Dr. Wecker determined that 28% of TCL customers would not have purchased a TCL smartphone if the smartphone did not have the patented feature in the ’510 patent. This would have resulted in a loss of 28% of TCL’s sales and profits. From this, Mr. Mills determined that the at-risk profit for TCL was $3.42 per device sold by TCL, which is the average profit per device for all accused devices, after a 28% loss rate discount. Mr. Mills determined that during the hypothetical negotiation Ericsson would have recovered nearly all of the at-risk profit, likely obtaining a rate of $3.41 per device, but in any event would have secured no less than half of the at-risk profits, or $1.72 per product. These rates would have justified a damages award ranging from $123.6M to $245M for damages across the life of the ’510 patent. Mr. Mills further determined that the parties would have negotiated a lump sum payment discount for both pre-trial and post-trial infringement rather than a running royalty. Based on this expert testimony, the jury awarded Ericsson a $75M lump sum.

Judge Payne threw out the jury’s award for two reasons. First, Judge Payne found error in Ericsson’s argument that TCL would have settled up front with a lump sum covering the entire royalty for the projected future sales of 111 million smartphones during the remaining life of the ’510 patent. According to Judge Payne these products could not be part of the infringement base because they did not exist at the time of trial and could not have been adjudicated to infringe. These future products could not be part of a damages order. See Order at 12-14.

But the real meat of Judge Payne’s order is in his other justification for throwing out the damages verdict. Judge Payne faulted Ericsson for painting the consumers’ choice of whether to buy a TCL phone as a binary decision based on the presence of the accused feature. Judge Payne noted that the case originally had five patents and consumer surveys were done which noted that if each feature of three of the asserted patents was missing from TCL products, TCL would have lost 64% of its profits due to sales lost due to the absence of those features. Judge Payne concluded that each of these features individually could not be responsible for a quarter of TCL’s profits per phone, and noted the following:

It is not difficult to see how this lost profit number quickly becomes unrealistic. Subtracting just three features covered by a mere three implementation patents would have allegedly cut TCL’s profit by more than half. The evidence from both sides suggested that there were at least a thousand implementation patents that might cover a TCL phone. Regardless of the number, there is no dispute that a phone with an Android-operating system has many patented features, and that, according to Dr. Wecker’s survey results, consumers would likely find numerous features essential. According to Mr. Mills, any one of these allegedly essential features could independently be worth more than a quarter of TCL’s profit on the phone. By removing even three additional features covered by an implementation patent, on top of the features allegedly covered by the ’510, ’931, and ’310 patents, TCL would have lost all its profit (conservatively), according to Mr. Mills’ theory.

Order at 10-11 (emphasis added) (internal citations omitted). Judge Payne faulted Ericsson for not considering that a consumer’s decision to purchase or not purchase a phone would be based on whether numerous features were included, not just the ones covered by the asserted patents, and that Ericsson’s theory would erode all of TCL’s profits. See Order at 11. The judge further noted that:

To conclude that any one of these features—simply because it is considered essential to a consumer—could account for as much as a quarter of TCL’s total profit is unreliable and does not consider the facts of the case, particularly the nature of smartphones and the number of patents that cover smartphone features.

Order at 11. Put simply, Judge Payne found that a single feature could not possibly account for $75M in damages for TCL’s smartphones, particularly in view of the many other features that are subject to patent protection. Judge Payne noted that both sides agreed that Ericsson possessed potentially at least a thousand patents covering features of TCL phones. Order at 10. To Judge Payne, it could not possibly be the case that each of these patents accounted for 25% of the profits made by TCL.

This decision underscores the importance of securing a defensible damages analysis, especially in the context of the multifaceted technology embodied in modern smartphones. Judge Payne’s concerns in his non-precedential opinion seemed to flow largely from unstated anxiety relating to royalty-stacking that made the logical extrapolation of the experts’ rubric unreasonable and erroneous. In this context, it will be interesting to see how Ericsson recasts its damages theory in the next round of this litigation. We will continue to follow this case to see the approach, as we fully expect a notice of appeal to the Federal Circuit from Ericsson.

This post was written by Michael T. Renaud, Andrew H. DeVoogd and Daniel B. Weinger of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

For more IP news, check out the National Law Review’s Intellectual Property Page.

PTO Releases Revised Guidance on Compliance with Mayo/Alice Rule

On April 19, the USPTO released a Memorandum from Robert Bahr, The Deputy Commissioner for Patent Examination Policy, that summarized the support required for a finding if a claim directed to a judicial exception to s. 101 eligibility under Step 2A of the Mayo/Alice analysis chart of MPEP 2106 – a natural phenomenon, an abstract idea or a product of nature [ ed. note “PAIN’]– contains an additional inventive concept that, taken alone or in combination, would not represent well-understood, routine, or conventional [“WRC”] activity. The Memorandum was prompted by the recent decision in Berkheimer v. HP, 881 F.3d 1360 (Fed. Cir. 2018).

At virtually the same time, Director Iancu released a Request for Comments on Determining Whether a claim element is [WRC] for the Purposes of Subject Matter Eligibility, and it pretty much repeats the factors listed in the Bahr Memorandum. For a detailed summary of the factual underpinnings that an examiner must make in order to support a rejection on the basis that a claim directed to a PAIN does not meet the inventive concept requirement because it is WRC, please refer to my post of April 20^th.

I criticized the four factors outlined in the Memorandum/Request for using the s. 112 standard that that which is known to the art need not be set forth fully in the specification, as a blaze mark to guide examiners in determining whether the additional elements(s) in the claim are WRC. In other words, if the specification does not give the details of how to measure a biomarker, the examiner can use such facts to support a WRC finding. This relying on material not present in the specification is repeated in Factors 1, 3 and 4. I also criticized Factor 2 as permitting examiners to simply cite to “one or more court decisions discussed in MPEP 2106(5)(d)(2)” as noting the WRC nature of the additional element(s) in the claim, primarily due to the breadth of the summaries of the cases in this section of the MPEP.

The Revised Guidance in the May 8^th Presentation (which is available as a slideshow from the PTO) takes these two criticisms to heart. It drops the reference to the value of a s. 112 analysis in Factors relating to the evidence of WRC provided by the specification, the disclosures in the prior art and the ability of the examiner to take official notice of the WRC, which usually will be based upon disclosures in the prior art.

The Revised Guidelines start out by stating that the examiner should conclude that a claim element(s) represents only WRC activity only if he/she can conclude that the element(s) is “widely prevalent or in common use in the relevant industry,” a conclusion that must be supported by factual determinations. Here is a quick run-down of the four “Options” that the examiner can use to demonstrate that a claim directed to PAIN does not contain more than elements that are WRC (These are mostly my words):

Applicant makes a “statement against interest” in the specification or during prosecution that a claim element(s) is conventional, widely prevalent or in common use, or is a commercially available product.
The examiner can cite to one or more court decisions as noting the WRC nature of the additional elements, as reported in MPEP 2106(d)(II). I criticized this as overly broad, especially in view of the fact that there is almost no case law involving diagnostic testing or methods of medical treatment. Interestingly, in Vanda v. West-Ward, the Fed. Cir. stated that the Mayo claims were diagnostic claims. This is a stretch – What condition did they diagnose? The recited patient had been treated with the drug before any sample testing was carried out. However, the revised guidelines make it clear that the additional element in the claim must be the same as the element addressed in the court case, as well as the fact that the case must be on the MPEP list. Vanda v. West-Ward should be added to this list.
The examiner finds prior art publication(s) that demonstrate that the element(s) in questions are WRC, not just in existence at some point in the past. This should come from the prior art located in the search done by the Examiner or disclosed by Applicant.
The examiner is permitted to take official notice of the WRC of the additional element(s) but only to be used when the examiner is certain thereof based upon his/her personal knowledge. For all but the most indisputable WRC, the examiner may be required to provide a declaration under 37 CFR 1.104(d)(2).

If more than one element is present, the examiner must show that the combination of the elements is WRC in the pertinent art. If the examiner cited to a publication not previously of record in response to an argument by applicant, the office action should not be made final.

Comments must be received by Aug. 20, 2018 by submitting them to Eligibilty2018@USPTO.gov.

This post was written by Warren Woessner of Schwegman, Lundberg & Woessner, P.A.

Read more updates on Mayo/Alice on the National Law Review’s Intellectual Property Page.

Getting Closer to put the UPC into Force

April 26, 2018 is a remarkable date: first it’s World IP Day celebrating IP around the world. Second, and this is unique, the British IP Minister Sam Gyimah MP announced that the UK ratified the Unified Patent Court Agreement (UPC Agreement). By doing so the UK agreed to be bound to both the UPC agreement and the UPC’s Protocol on Privileges and Immunities (PPI). The UPC will be a court common to the contracting member states within the EU having exclusive competence in respect of European Patents and European Patents with unitary effect.

In addition to Paris and Munich, London hosts a section of the Court’s central Division dealing with patents in the field of life sciences and pharmaceuticals. The way is now open for discussion about UK’s future within the UPC system after-Brexit. As of today, the UPC Agreement is ratified by 16 countries of the European Union.

To bring the Agreement into force, UK, France and Germany have to ratify the UPC Agreement and the PPI, now everyone is waiting for Germany, as France has already ratified.

Germany’s completion is currently on hold due to a constitutional complaint pending before the German Federal Constitutional Court. According to rumours abound in the German IP community this complaint might be dismissed and the ratification will be finished during this year.

It’s time to get ready for playing with the new system!

This post was written by Christiane Schweizer of K & L Gates.

Read more on intellectual property on the National Law Review’s Intellectual Property Page.

IP Litigation: Raising an Ensnarement Defense Defeats the Doctrine of Equivalents

Is the Doctrine of Equivalents (DOE) dead, once again? Effectively, yes.

All an alleged infringer needs to do is raise an ensnarement defense (a claim that a DOE enlarged hypothetical claim reads on the prior art), and then show that the equivalent element was known in the prior art. Most equivalent elements (not considering other claim elements) are known in the art, which is why they are equivalent!

Under current CAFC precedent, all an alleged infringer has to do is offer some prior art. There is no burden on the alleged infringer to show that a DOE enlarged claim is either anticipated or obvious in view of the prior art.For example, if the equivalent element is presented in any prior art reference, the burden then shifts to the patent owner to prove patentability. But patentability cannot be proven. To do that, one would have to present all that is known in order to argue that the prior art does not disclose the invention. And, of course, this is impossible. Could one even begin to present all knowledge in order to show the absence of some knowledge? Certainly not.

That is why, outside of a DOE enlarged hypothetical claim, at either the U.S. Patent Office (PTO) or before any court, someone arguing a claim is invalid first has the burden of at least presenting a prima facie case of anticipation or obviousness. The burden then shifts to the one urging claim validity to refute the prima facie case. Outside of ensnarement, the concept of proving patentability simply doesn’t exist, and for good reason.

The CAFC’s current precedent regarding how to consider the validity of a doctrine of equivalents enlarged hypothetical claim (hereafter hypothetical claim) is summarized In JANG v. BOS. SCI. CORP. & SCIMED LIFE SYS., INC., 2016-1275, 2016-1575, decided: September 29, 2017.

The Court stated:

“The first step is “to construct a hypothetical claim that literally covers the accused device.” Next, prior art introduced by the accused infringer is assessed to “determine whether the patentee has carried its burden of persuading the court that the hypothetical claim is patentable over the prior art.” Emphasis added.

“The burden of producing evidence of prior art to challenge a hypothetical claim rests with an accused infringer, but the burden of proving patentability of the hypothetical claim rests with the patentee.” Emphasis added.

This precedent does not require the alleged infringer to do any more than merely present the prior art. It fails to require the alleged infringer to provide a prima facie case of anticipation or obviousness.

Before Jang, there was an acknowledgment that the hypothetical claim should be one that would have been allowed by the USPTO. “The pertinent question then becomes whether that hypothetical claim could have been allowed by the PTO over the prior art. WILSON SPORTING GOODS CO. V. DAVID GEOFFREY & ASSOCIATES, 904 F.2d 677 (1990).” But the CAFC has failed to recognize that this means the alleged infringer must then first provide a prima facie case of claim invalidity, as would be required at the PTO.

Thus, the Doctrine of Equivalents is for all intents and purposes dead.

This post was written by James E. Lowe, Jr of Davis & Kuelthau, s.c.

Aqua Products Sinks PTAB Decision in Bosch v. Matal

The odd title of this post arose from the fact that defendant Autel U.S., Inc. chose not to appeal its IPR win against Bosch that included invalidation of the claims in suit, and the refusal of the Board to enter an amended claim set proposed by Bosch. With Autel out of the picture, the PTO effectively represented the Board and Acting Director Matal was named as the defendant: Bosch Automotive Service Solutions, LLC v. Joseph Matal (Intervenor), Appeal no. 2015-1928 (Fed. Cir., December 22, 2017).

The technology claimed was directed to an improved device for transmitting data from the tire pressure sensor to the receiving unit in the vehicle, that was “universal” in that the user could check the data when working with different types of tires and receivers (U.S. Pat. No. 6,904,796).

In the IPR judgment, the Board found one set of Bosch’s proposed claims to be indefinite and one set to be obvious. The Fed. Cir. affirmed the Board’s ruling that the original claims were obvious but vacated the Board’s denial of Bosch’s contingent motion to substitute the amended claim set and remanded “for further proceedings consistent with this opinion.” Even though the Board had provided some rationale for why the first group of claims proposed by Bosch was indefinite, the Fed. Cir. ruled as to both claim sets that the Board had impermissibly placed the burden of establishing the patentability of both proposed claim sets on Bosch, in contravention to Aqua Products.

“See Aqua Products, 872 F.3d at 1311 (‘Where the challenger ceases to participate in the IPR and the Board proceeds to final judgment, it is the Board that must justify any finding of unpatentability by reference to evidence of record in the IPR’).”

Although not argued by the parties, the Fed. Cir. ruled that proposed amended claims could be challenged under s. 112.

Perhaps the most important sentence in the opinion is in the Fed. Cir.’s discussion of the Board’s erroneous holding that it was Bosch’s burden to establish the unobviousness of the proposed claims:

“In its final decision, the Board concluded that it was ‘unpersuaded that Bosch has demonstrated that the proposed substitute claims are patentable’ over the prior art… [Citing an earlier Board decision] the Board stated that ‘[t]he patent owner bears the burden of proof in demonstrating patentability of the proposed substitute claims over the prior art in general, and, thus, entitlement to add these claims to its patent.’”

Of course, this suggests that a failure of the Board or of the challenger to meet this burden of proof to demonstrate unpatentability would entitle the patent owner to add the substitute claims. This decision, strongly affirming Aqua Products, tilts the legal playing field, to favor the patentee, even as it requires more work by the Board.

The Fed. Cir.’s analysis of the original (affirmed) obviousness rejection contains a very thorough discussion of the secondary factors of commercial success, licensing and acclaim by the industry, that I won’t try to summarize, except to note that these remain very difficult to “prove up” in an obviousness dispute, particularly if the patented technology is complex.

This post was written by Warren Woessner of Schwegman, Lundberg & Woessner, P.A.

US Launches Investigation into China’s Technology Transfer & IP Practices

United States Trade Representative (“USTR”) Robert E. Lighthizer launched an investigation under Section 301 of the Trade Act of 1974 (“Section 301”) into acts, policies, and practices of the Chinese government as they relate to “technology transfer, intellectual property [IP], and innovation.” The August 18 announcement of the investigation came just days after President Donald Trump signed a memorandum directing the USTR to consider whether to launch an investigation of China’s IP laws and practices that “may inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services, and innovation.”

While Section 301 was a frequently used tool between the 1970s and 1990s (including when Ambassador Lighthizer was Deputy USTR during the 198os), the number of such investigations declined significantly after the World Trade Organization (WTO) dispute settlement system was established. Use of Section 301, however, is consistent with this Administration’s apparent willingness to use a broader range of trade tools to more aggressively combat potential unfair trade practices.

Section 301 allows—and, in certain circumstances, requires—the USTR to investigate and take unilateral retaliatory action in response to certain trade-related harms. The USTR must take appropriate action if the rights or benefits of the United States under any trade agreement are denied, violated, or otherwise harmed, or if its international legal rights are infringed in a way that burdens or restricts U.S. commerce. The USTR may take action at his or her discretion if an act, policy, or practice is unreasonable or discriminatory and burdens or restricts U.S. commerce. Among other things, a Section 301 action may be taken if a foreign country denies adequate and effective intellectual property protection or fair and equitable market opportunities, even if its behavior is consistent with its obligations under the World Trade Organization’s (“WTO”) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

The Federal Register notice launching the investigation highlights concerns that the Chinese government uses the transfer of foreign technology and intellectual property to advance its industrial policy goals. The USTR investigation will first examine acts, policies, and practices of the Chinese government that fall into the following four categories:

The use of “a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies;”
Acts, policies, and practices that “reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China;”
Direction and/or unfair facilitation of “systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans;” and
Conduct or support of “unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information” (as well as the harm they may cause to U.S. companies and the competitive advantages they may bring to Chinese companies).

Beyond the categories enumerated above, which are focused on technology/IP transfer and cyber-theft, the USTR notice also invites submissions of “information on other acts, policies and practices of China relating to technology transfer, intellectual property, and innovation described in the President’s Memorandum,” leaving open the possibility for the investigation to widen. The announced scope of the investigation highlights the discretionary factors to be considered under the statute, indicating that USTR is not focused solely on actual violations of China’s obligations under international trade law.

Consistent with the statute, the notice provides that USTR has 12 months to make a determination as to whether action is warranted. If it is determined that action is warranted, USTR may consider a broad range of retaliatory tools, including the withdrawal of trade concessions, the imposition of duties or other import duties, and “all other appropriate and feasible action within the power of the President that the President may direct the Trade Representative to take…to enforce such rights or to obtain the elimination of such act, policy, or practice…[with actions that may be taken being] within the power of the President with respect to trade in any goods or services, or with respect to any other area of pertinent relations with the foreign country.” Retaliatory actions may be targeted at industries other than those directly linked to the identified harm. USTR also has the discretion to come to an agreement with the foreign country’s government to eliminate or obtain compensation for the identified harm. As required by law, USTR has requested formal consultations with the Chinese government regarding the issues under investigation.

The behavior targeted by this Section 301 investigation reflects concerns of the international business community in China. For instance, 43 percent of companies responding to AmCham China’s annual Business Climate Survey in 2017 reported that reducing the need to engage in technology transfer would have at least a somewhat significant impact on increasing their investment levels in China. These companies may find this investigation to be an opportunity to advance their specific concerns. Meanwhile, Chinese companies that may be at risk for retaliatory action under Section 301, and U.S. companies potentially vulnerable to counter-retaliation by Chinese authorities, should carefully monitor the situation.

The Chinese government has expressed its concerns about the investigation. Suggesting that the United States is sending the wrong signal to the international community, a statement from the Ministry of Commerce asserts, “The United States’ disregard of World Trade Organization rules and use of domestic law to initiate a trade investigation against China is irresponsible, and its criticism of China is not objective.” While launching an investigation of China’s unfair trade practices is not, in and of itself, inconsistent with U.S. WTO obligations, imposition of some—though not all—of the retaliatory measures authorized under U.S. law could potentially violate WTO rules. China’s statements indicate that should the U.S. investigation lead to unilateral retaliatory action, China will respond in various ways, including by considering a challenge to such measures at the WTO.

The USTR notice calls for written comments by interested persons to be submitted by September 28. The interagency Section 301 Committee, which is chaired by the USTR, is scheduled to hold a hearing in Washington, D.C., on October 10. Requests to appear at the hearing are also due on September 28.

Zhijing Yu contributed to the preparation of this article.

For more legal analysis go to The National Law Review

Tag: IP

The Digital Millennium Copyright Act: Scope, Reach, and Safe Harbors

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