Transfers Out of Eastern District of Texas More Likely in Light of Recent Decisions
By Michael R. Houston ([email protected])
In May 2009, the Federal Circuit issued another decision that increases the ability of defendants to transfer cases out of the Eastern District of Texas. In In re Genentech (Genentech), — F.3d —, 2009 WL 1425474 (Fed. Cir., May 22, 2009), the Federal Circuit granted a petition for a writ of mandamus ordering the Eastern District of Texas to transfer a patent infringement case to the Northern District of California. The decision comes just a few months after the Federal Circuit’s decision granting a similar petition in In re TS Tech USA Corp. (TS Tech), 551 F.3d 1315 (Fed. Cir. 2008).
Those opinions, and decisions by the Eastern District of Texas since TS Tech, give insight into the factors favoring a transfer out of the Eastern District. Since TS Tech, Eastern District courts have ruled on at least 14 contested transfer motions. Slightly more than half of those motions were ultimately granted — up from about one-third prior to TS Tech. The decisions show that a case has the best chance of transfer if it appears to be regional in nature, or if another court already has experience with the patents-in-suit. See ICHL, LLC v. NEC Corp. of Am. (ICHL), 2009 WL 1748573 (E.D. Tex. June 2, 2009) (In sum, when a dispute is national or global in its reach, courts in this district are not usually finding that any one particular forum is “clearly more convenient” than another.).
1. Motions to Transfer Under 28 U.S.C. § 1404(a)
Section 1404(a) governs motions to transfer and, assuming that the case could have been brought in the district to which transfer is sought, provides for a venue change upon a showing that the transferee venue is “clearly more convenient” than the venue chosen by the plaintiff. In analyzing a motion to transfer, a district court weighs two categories of interests. The “private interest” factors (i.e., the convenience of the litigants) include: (1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make a trial easy, expeditious, and inexpensive. The “public interest” factors (i.e., the fair and efficient administration of justice) include: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems stemming from conflicts of laws or in the application of foreign law.
2. The Relevant Forum Non Conveniens Factors After TS Tech and Genentech
- Private Interest Factors
- Relative Ease of Access to Sources of Proof
First in TS Tech, and again in Genentech, the Federal Circuit made it clear that where the bulk of the physical evidence and documents are located near the transferee venue, this factor should weigh in favor of a transfer. The Genentech court noted that in patent infringement cases “the bulk of the relevant evidence usually comes from the accused infringer,” which favors transfer if the alternative venue is the defendant’s hometown. Some district court decisions, however, have deemphasized the location of documents, noting that most documents are now stored electronically and can be transmitted across the country with relative ease. See Aten Int’l Co. v. Emine Tech. Co. (Aten), 2009 WL 1809978 (E.D. Tex. June 25, 2009) (noting the “fiction” that voluminous documents must be transported to the trial venue, and focusing on which party has the largest volume of documents). Since the analysis regarding the location of documentary evidence remains somewhat unsettled, defendants would be well served to focus on the location of physical evidence to the extent possible. If physical evidence is not a factor, but most of the documentary evidence happens to exist in one location in or near the proposed venue, this factor should favor transfer. - Ability to Secure the Attendance of Witnesses
This factor concerns potential non-party witnesses who cannot be compelled to attend trial absent a transfer of venue, but who possess relevant and material information; pursuant to Genentech, defendants need not show that such witnesses are “key.” District court decisions show that if no potential witnesses reside in the Eastern District of Texas, this factor will favor transfer if at least some of the witnesses would fall under the subpoena power of the transferee court. - Cost of Attendance for Witnesses
This factor considers the convenience of both party and non-party witnesses, although deference is given to non-party witnesses in the venue transfer analysis. Importantly, the location of counsel is not to be considered.
This factor has been a primary focus of the recent Federal Circuit mandamus decisions. First, TS Tech noted and applied the Fifth Circuit’s “100-mile” rule: When the distance between an existing venue and a proposed venue is more than 100 miles, the relative inconvenience to witnesses increases directly with the additional distance to be traveled. Decisions since TS Tech have struggled to apply the 100-mile rule, especially regarding distances to be traveled by overseas witnesses. Moreover, no post-TS Tech decisions have acknowledged the relative convenience of direct versus indirect flights.
Genentech clarified the overseas witness issue, noting that witnesses traveling from distant countries will be inconvenienced nearly equally, regardless of where trial occurs in the United States. Genentech also pointed out that the transferee venue need not be more convenient for all of the witnesses. As a result, defendants seeking transfer should select a venue where a significant number of potential witnesses are located, and hope that no witnesses reside in the Eastern District
- Relative Ease of Access to Sources of Proof
- Public Interest Factors
- Administrative Difficulties Flowing From Court Congestion
Eastern District courts often weighed this factor against transfer when the Texas court’s patent docket was relatively fast compared to the rest of the country. Although the time-to-trial in the Eastern District has now slowed significantly, there are no published Eastern District decisions suggesting that this factor now weighs in favor of transfer. Since TS Tech, Eastern District courts have typically held time-to-trial differences to be negligible, and usually treat this factor as neutral. The Genentech decision may reinforce this tendency, since the Federal Circuit noted that court congestion “appears to be the most speculative” factor in the transfer analysis.
To maximize the chances that this factor will favor transfer, defendants should propose a transferee district having an average time-to-trial or time-to-disposition that is significantly faster than the Eastern District, and should, if possible, cite statistics that are specific to patent cases. If a relatively slow district must be proposed for other reasons, Genentech makes clear that this factor alone is not controlling where other factors favor transfer. - Local Interest in Having Localized Interests Decided at Home
Since TS Tech, this factor will typically be neutral, although it may favor transfer if the transferee venue has identifiable ties to the parties, witnesses, and events involved.
- Administrative Difficulties Flowing From Court Congestion
3. Transfer Strategies for Defendants in the Eastern District of Texas
Since the Federal Circuit’s decision in TS Tech, at least 14 opinions have issued from the Eastern District of Texas deciding contested transfer motions under § 1404(a), with half being granted and half denied. One of the denials was subsequently reversed in Genentech, for a transfer rate of about 58 percent. Of those motions granted, the movants were able to identify a locus of evidence and witnesses within or near the transferee forum, and effectively argued that the “regional” nature of the case justified a transfer. By way of contrast, of the motions denied, the parties, witnesses, and evidence were typically widely dispersed across the country or world, thwarting the movants’ attempts to identify a clearly more convenient venue. Two decisions out of the Eastern District since Genentech — ICHL and Aten — uphold this trend.
The single biggest factor under the control of a defendant seeking transfer out of the Eastern District is the selection of the proposed transferee venue. Before choosing the proposed venue, defendants must quickly identify and determine the location of the potentially relevant witnesses and evidence. Even after the Federal Circuit decisions granting mandamus transfers in TS Tech and Genentech, defendants must choose a transferee venue carefully and use all of the available evidence to swing as many factors as possible in favor of transfer.
Supreme Court Grants Certiorari to Review the Standard for Patent Eligibility Under 35 U.S.C. § 101
By David G. Luettgen ([email protected]) and C. Edward Polk, Jr. ([email protected])
On June 1, 2009, the U.S. Supreme Court agreed to hear an appeal concerning the standards used to determine whether a process is eligible for patent protection under 35 U.S.C. § 101. Bilski v. Doll, U.S. (Bilski), No. 08-964, 2009 WL 221232 (June 1, 2009) (granting certiorari). As discussed in the fall edition of Legal News: IP Litigation (http://www.foley.com/publications/pub_detail.aspx?pubid=5519), the Court of Appeals for the Federal Circuit held that a process is patent eligible under § 101 if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” In re Bilski, 545 F.3d 943, 954 (Fed. Cir. 2008). The Supreme Court’s review of this case will play an important role in defining whether business methods and other computer-implemented processes are patentable.
The Questions Presented to the Supreme Court for Review in Bilski
The petition in Bilski presents two questions for consideration by the Supreme Court:
- Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. §101, despite the Federal Circuit’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”
- Whether the Federal Circuit’s machine-or-transformation test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear congressional intent that patents protect “method[s] of doing or conducting business.” 35 U.S.C. §273.
The second question indicates that the Supreme Court also may consider not only the broad question of the standard for patent eligibility, but also more specifically the patent eligibility of business method patents. In its en banc decision, the Federal Circuit explicitly declined to adopt a broad exclusion against business method patents. The Supreme Court, however, appears poised to directly tackle business method patents, and whether “methods of doing or conducting business” somehow guide the breadth to be afforded the term “process” as used in § 101.
The Supreme Court’s Recent Interest in Patentable Subject Matter
In recent years the Supreme Court has suggested that it is interested addressing the issue of patent-eligible subject matter. In 2006, the Court granted certiorari in LabCorp v. Metabolite (Metabolite), to answer whether a patent was invalid on the ground that it sought to “claim a monopoly over a basic scientific relationship.” The Court, however, eventually dismissed the petition as being improvidently granted because the defendant did not specifically refer to 35 U.S.C. § 101 as a basis for its appeal. In a dissent from that dismissal, Justices Breyer, Stevens, and Souter asserted that the case should be considered and decided. Indeed, the dissent identified clarification of the scope of patentable subject matter as an “important consideration of the public interest” and indicated their belief that the law in this area should be clarified “sooner rather than later.” Based upon the dissenting opinion, the patent in Metabolite would have been invalidated as being directed to “an unpatentable ‘natural phenomenon.’”
That same year, in eBay v. MercExchange, LLC (eBay), several justices raised questions about the value of some business method patents. Specifically, in referring to the possibility of granting injunctions for some business method patents, Justices Kennedy, Stevens, Souter, and Breyer commented, “injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.” The Supreme Court’s comments in Metabolite and eBay could give some indication of how at least some justices may view Bilski.
Potential Industry and Patent Litigation Impact
The Supreme Court’s decision in Bilski will likely have a broad impact on many industries, including the software, financial services, insurance, and biotechnology industries. The decision also will affect companies that rely heavily on computers in their customer-facing business operations, even if those companies are not in the software industry.
If the Supreme Court narrows the scope of patent-eligible subject matter under 35 U.S.C. § 101, the impact on existing and future patent litigation could be significant, especially if the Court places any particular focus on business method patents. In recent years, there have been a large number of lawsuits brought against corporations based upon their business methods. These suits cover a wide range of business activities in all fields, most notably general methods of doing business over the Internet. Certainly, patent holders and applicants will keep a close eye on how the Supreme Court decides the Bilski case because it has the potential to alter the patent landscape in this area.
Briefing on the merits should be completed by September 2009. A decision in the case is likely to be handed down sometime in the first half of 2010. In the meantime, companies should consider continuing to proceed with filing patent applications, even if those patent applications are directed to subject matter that may not be patent eligible under the machine-or-transformation test. Any such patent applications filed now will likely be pending long after June 2010, and will be analyzed by the USPTO under whatever new standard is formulated by the Supreme Court. At the same time, efforts should be made to prepare patent application claims that comply with the machine-or-transformation test to the extent possible.
Rescuecom Corp. v. Google, Inc.: Sale of Trademark as a Keyword Constitutes Use Under the Lanham Act
By James E. Griffith ([email protected])
For several years, courts have been divided as to whether the sale of a trademark as a “keyword” by an Internet search engine constitutes a “use in commerce” of the mark for purposes of the Lanham Act. This issue is central to determining whether such sales of keywords can constitute trademark infringement. While most courts that have addressed this question have answered in the affirmative, until recently the position of the influential Second Circuit Court of Appeals was unclear.
The Second Circuit addressed this issue squarely in Rescuecom Corp. v. Google Inc. (Rescuecom), 562 F.3d 123 (2d Cir. 2009), holding that that Google’s recommendation and sale of Rescuecom’s trademark to third-party advertisers under Google’s “AdWords” program was a trademark “use” that could result in liability for trademark infringement under the Lanham Act.
Case History
Google, the largest and most successful search engine on the Internet, receives most of its revenue from advertising, including its AdWords program. AdWords allows advertisers to purchase the right to keywords that trigger the display of advertisements or Web site links in response to a search containing the purchased keyword. In addition, Google’s Keyword Suggestion Tool provides suggestions of keywords to purchase for a specific business or industry.
Rescuecom, a computer repair service franchise, filed suit against Google, which suggested, offered, and sold the RESCUECOM trademark as a keyword to third-party advertisers, including Rescuecom’s competitors.
In 2006, the district court dismissed Rescuecom’s complaint for failing to state a claim. The district court found that no “use” of the RESCUECOM mark had been made because neither Google’s suggestion or sale of keywords nor the third-party advertisements or Web site links triggered by Google’s algorithms actually displayed Rescuecom’s trademark to consumers. Rather, the district court found that Google’s use was an “internal use” of the mark not subject to Lanham Act liability.
The district court based its reasoning on the Second Circuit’s 2005 decision in 1-800 Contacts, Inc. v. WhenU.com, Inc. (1-800 Contacts), 414 F.3d 400 (2d Cir. 2005). In that case, the court rejected a trademark infringement claim stemming from pop-up advertisements triggered by the defendant’s software when the plaintiff’s domain name was entered into the user’s browser. That interpretation of 1-800 Contacts, which was adopted by the Rescuecom district court and adopted by several other district courts in the Second Circuit, takes a narrow view of the liability that could result from the use of trademarks as search engine keywords or in other internal computing processes.
(Re)Consideration of the “Use in Commerce” Requirement
In reversing the district court, the Second Circuit clarified its view of the types of trademark “use” capable of giving rise to Lanham Act liability. Specifically, the Second Circuit found that Google’s suggestion, offer for sale, and sale of Rescuecom’s trademark as a “keyword” to third-party advertisers constituted a “use in commerce” sufficient to form the basis of a trademark claim.
The Second Circuit rejected as overbroad Google’s argument, supported by several amici, that inclusion of a trademark in an internal search algorithm or directory could not give rise to an actionable trademark claim. In so holding, the Rescuecom panel found that such uses could result in trademark liability if likely to cause confusion in the marketplace, implicitly overruling several lower-court decisions in the Second Circuit that had adopted a contrary view. Moreover, the Second Circuit noted that Google’s suggestion and sale of Rescuecom’s mark to advertisers as a search term went beyond the term’s mere inclusion in an internal directory, and instead constituted a display of “Rescuecom’s mark to Google’s advertising customers when selling its advertising services.”
The Second Circuit also dismissed Google’s argument that the keyword program was comparable to non-infringing product placement of generic products next to similarly packaged brand name products on retail shelves. The issue according to the Second Circuit was not whether such practices constitute trademark use, but whether they are likely to cause confusion. If Rescuecom can prove that consumers are likely to be confused by Google’s placement of advertisements triggered by Rescuecom’s trademark, then Lanham Act liability may result.
While the 1-800 Contacts decision was not explicitly overruled, the Second Circuit distinguished the earlier case on its facts, stating that the defendant in 1-800 Contacts was not subject to Lanham Act liability because it did not use the plaintiff’s trademark in any way. Rather, the pop-up software at issue in that case triggered advertisements when the user entered a domain name. Further distinguishing the case, the Second Circuit noted that the defendant in 1-800 Contacts did not solicit, or even permit, advertisers to request or purchase competitors’ trademarks as search terms.
Conclusions
The Second Circuit’s decision in Rescuecom is a clear victory for trademark owners. The decision brings much-needed clarity to the question of whether the sale of a trademark as a keyword constitutes a “use in commerce” sufficient to form the basis of a trademark claim. Trademark owners can now have confidence that such claims will be heard in the Second Circuit and not be subject to dismissal at the outset. Whether such practices are sufficiently confusing to consumers to result in liability under the Lanham Act, however, will continue to be made on a case-by-case basis.
In re Kubin: Application of KSR and “Obvious to Try”
By Martin J. Cosenza ([email protected])
The Federal Circuit recently provided some guidance regarding the “obvious to try” aspect of the obviousness analysis set forth by the Supreme Court in KSR Int’l. Inc. v. Teleflex, Inc. (KSR), 550 U.S. 398 (2007). In In re Kubin, 561 F.3d 1351 (Fed. Cir. 2009), the Federal Circuit applied the “obvious to try” concept to the DNA sequence that encodes the NAIL protein, which was known to play an important role in activating cells that fight tumors and viruses. Affirming the rejection of the Board of Patent Appeals and Interferences (Board), the Federal Circuit held that the claims were obvious in view of the combination of two prior art references, one of which disclosed the NAIL protein and the other of which provided instructions for isolating and sequencing DNA molecules. The affirmation of the Board’s decision also required the Federal Circuit to address its prior decision, In re Deuel, 51 F.3d 1552 (Fed. Cir. 1995), which had similar facts but found the claimed DNA sequence non-obvious. In Deuel the court further held that “?[o]bvious to try’ has long been held not to constitute obviousness.” It is this holding regarding the “obvious to try” test that the Federal Circuit focused on in Kubin. This holding has potential implications on not just patent prosecution, but also patent litigation strategies, particularly in the unpredictable arts.
Applying KSR in Kubin, the Federal Circuit held that “KSR unambiguously discredited [the] Deuel holding” that “the obviousness inquiry cannot consider that the combination of the claim’s constituent elements was ‘obvious to try.’” The Kubin court further looked to its 1988 decision by Judge Rich, In re O’Farrell, 853 F.2d 894, 903 (Fed. Cir. 1988) for guidance to “differentiate between proper and improper applications of ‘obvious to try.’” Specifically, the Federal Circuit asked the question it originally asked in O’Farrell: “[W]hen is an invention that was obvious to try nevertheless nonobvious?” Some commentators have argued that based on KSR, the Supreme Court would likely answer this question: “never.”
The Federal Circuit endeavored to answer this question by identifying two situations in which “obvious to try” does not equate to obviousness under Section 103. First, the Federal Circuit opined that “obvious to try” is not obvious when:
… What would have been “obvious to try” would have been to vary all parameters or try each of numerous possible choices until one possibly arrived at a successful result, where the prior art gave either no indication of which parameters were critical or no direction as to which of many possible choices is likely to be successful.
The Federal Circuit, however, qualified this situation, stating that under the first situation, “obvious to try” would equate to obviousness where “a skilled artisan merely pursues ‘known options’ from a ‘finite number of identified, predictable solutions,’” citing KSR.
Second, the Federal Circuit stated that “obvious to try” is not obvious when:
… What was “obvious to try” was to explore a new technology or general approach that seemed to be a promising field of experimentation, where the prior art gave only general guidance as to the particular form of the claimed invention or how to achieve it.
In this second situation, however, “obvious to try” would equate to obviousness unless “the improvement is more than the predictable use of prior art elements according to their established functions,” again citing KSR.
After resurrecting O’Farrell, the Federal Circuit held that held that the prior art before the Board in Kubin disclosed the protein at issue, a motivation to isolate the gene coding for the protein, and illustrative instructions on cloning. Accordingly, the Federal Circuit held that the claimed DNA sequence was “‘the product not of innovation but of ordinary skill and common sense.’” The Federal Circuit further qualified the “obvious to try” analysis by restating that “[o]bviousness does not require absolute predictability of success … all that is required is a reasonable expectation of success.”
So, what does Kubin mean for patent litigators? At the outset, it is clear from Kubin that the KSR obviousness analysis is applicable to not only the allegedly “predictable” arts, but also to the so-called “unpredictable” arts such as the chemical, pharmaceutical, and biotechnology arts. Further, in cases involving claims directed to DNA sequences encoding proteins, Kubin arguably may make it easier to invalidate those claims when the prior art identifies the protein, at least unless the patent owner can show that the cloning of the DNA sequence was particularly difficult or technically challenging. On the other hand, some commentators have suggested that Kubin may have little impact because most biotechnology patent applications today are directed to monoclonal antibodies and engineered second-generation proteins and not cloned DNA, which was key in the earlier years of biotechnology. It remains to be seen, however, exactly how the application of the “obvious to try” test will play out with respect to the “unpredictable” arts in the district courts.
Resellers of Trademarked Products Beware: Are You Selling Materially Different Products?
By Katherine L. Tabor ([email protected]) and Pauline A. (Pam) Mueller ([email protected])
The 10th Circuit Court of Appeals (Court) recently addressed the applicability of the “first sale” doctrine to the resale of genuine radar detectors that had their original serial numbers removed. Beltronics v. Midwest Inventory Distribution (Beltronics), 562 F.3d 1067 (10th Cir. 2009). In affirming the grant of a preliminary injunction, the Court held that the resold radar detectors were materially different from the original trademarked goods, and the defendants’ disclaimer did not sufficiently reduce the risk of confusion. Accordingly, the Court held that the unauthorized resale of the radar detectors without the original serial numbers constituted trademark infringement.
The plaintiff, Beltronics, sells electronic devices, including radar detectors for vehicles. Two of Beltronics’ distributors, in violation of their distribution contract, sold Beltronics radar detectors to the defendants. In most cases, prior to shipping the radar detectors, the distributors removed the Beltronics serial numbers and replaced them with phony serial numbers, or shipped the detectors with no serial numbers at all. On rare occasions, the defendants removed the serial numbers before reselling the radar detectors as “new” on eBay.
The purchasers of Beltronics’ radar detectors with original serial numbers are eligible for benefits such as warranty protection, software updates, assistance, rebates, and recall notifications. Purchasers of the defendants’ “Beltronics” radar detectors on eBay, however, were not entitled to any of these benefits. According to a Beltronics’ customer service manager, when such purchasers called Beltronics to request warranty protection and were refused, many were angry, felt deceived, and blamed Beltronics for their inability to receive service on the product they had purchased. As a result, Beltronics filed suit against Midwest alleging counterfeiting, trademark infringement, false designation of origin under the Lanham Act, and unfair competition and passing off under state law.
In opposing Beltronics’ motion for a preliminary injunction, the defendants relied on the first sale doctrine because they were selling genuine Beltronics’ radar detectors that were not physically different from the trademarked originals. Under the first sale doctrine, companies or individuals who resell genuine trademarked products are not liable for trademark infringement. In other words, a trademark owner’s right to control its product generally ends following the first sale of the product. The Court, however, noted that the first sale doctrine does not apply when an infringer sells trademarked products that are materially different from those sold by the trademark owner. According to the Court, products are materially different when the difference confuses consumers and “impinges on the … trademark holder’s goodwill.”
Defendants argued that their “Beltronics” radar detectors were not “materially different” because (1) they were not different in physical quality; and (2) Beltronics’ warranties and other services were “collateral” to the physical quality. Relying on First Circuit and Federal Circuit cases, the Court rejected the defendants’ position that a material difference must be physical and held that it may include the presence or absence of a warranty and other associated services. The defendants further argued that this holding would enable any trademark owner to completely eliminate the resale of its products, simply by making the warranty only available to purchasers who buy products directly from the trademark owner. The Court, however, left room for resellers of products to operate by pointing out that the first sale doctrine necessarily works in tandem with the Lanham Act, and thus, resold products that are not deceptive or likely to cause confusion or mistake are not subject to this analysis.
The defendants further argued that even if their “Beltronics” radar detectors were materially different, no infringement existed because the radar detectors sold on eBay were subject to a disclosure, which stated that the manufacturer would not honor the warranty if purchased on eBay. Given the facts that purchasers did not receive software updates, rebates, recall notifications, or other services and that the defendants failed to rebut Beltronics’ evidence of actual confusion, the Court held that the defendants’ disclosure was inadequate to “ameliorate the risk of consumer confusion.”
The 10th Circuit’s decision is a strong reminder that the first sale doctrine protects resellers of trademarked products only if they are not materially different from the original trademarked products. . Accordingly, any resold products that lack the same warranty or customer service benefits may be deemed materially different, and liability for trademark infringement may attach. To avoid such a claim, resellers would need to sufficiently disclose how and why the resold product differs from the original trademarked product. This disclaimer — which should serve to inform consumers of the specific differences between the original and resold products — must be consistently and prominently displayed in or order to reduce any potential confusion.
Synthes v. G.M. Dos Reis: Federal Circuit Applies the Federal Long-Arm Statute for the First Time
By Veronica S. Ascarrunz ([email protected])
The Federal Circuit recently provided important guidance to U.S. patent holders looking to sue foreign entities that have limited contact with the United States. In Synthes (U.S.A.) v. G.M. dos Reis Jr. Ind. Com. de Equip. Medico, 563 F.3d 1285 (Fed. Cir. 2009), the Federal Circuit applied Fed. R. Civ. P. 4(k)(2), the “federal long-arm statute,” for the first time when reviewing a district court’s decision dismissing a patent infringement action against a Brazilian company for lack of personal jurisdiction. The Federal Circuit concluded that it was proper to exercise personal jurisdiction over the company based on its participation in, and display of allegedly infringing products at, a U.S. trade show.
Background
Synthes, the assignee of a U.S. patent directed to a bone plating system and method for fracture fixation of bone, brought a patent infringement action against GMReis, which designs, manufactures, and markets orthopedic and other medical devices, including bone plates. GMReis has no offices, employees, or assets in the United States, and sells its products only in South America, Europe, and Asia. GMReis had made only one sale in the United States, to a company in Massachusetts.
In February 2007, the CEO and an employee of GMReis attended the American Association of Orthopedic Surgeons Annual Meeting (AAOS trade show) for three days in San Diego, California, where they displayed five samples of GMReis’ locking bone plates. According to the CEO and employee, their intent was to show the bone locking plates to the many non-U.S. surgeons in attendance. No products or samples were sold, and no prices were displayed or discussed. Further, because GMReis’ products were not approved by the FDA for use in the United States, the CEO displayed prominent signs and product literature stating that GMReis’ products were not for sale in the United States.
On taking limited jurisdictional discovery, Synthes learned that GMReis received two inquiries from U.S. companies after the AAOS trade show asking if GMReis’ bone plate systems would be available in the United States. Synthes further learned that GMReis had other contacts with U.S. companies, including exhibitions at seven prior trade shows, purchases of parts and a manufacturing machine in the United States, purchases of products for resale, and meetings with American companies regarding potential purchase and development of components for non-accused products.
The district court dismissed Synthes’ complaint for lack of personal jurisdiction, finding that GMReis’s contacts within the United States as a whole were not “sufficiently substantial and ‘continuous and systematic’ to justify the exercise general jurisdiction.” Furthermore, GMReis’ trade show activities were insufficient to establish specific jurisdiction because they were not purposefully directed at U.S. residents and GMReis “expressly discouraged the forum residents from purchasing its products.”
The Federal Circuit’s Application of Rule 4(k)(2)
On appeal, the Federal Circuit stated that a court may exercise personal jurisdiction over a defendant under Rule 4(k)(2) if the following criteria are satisfied: (1) the plaintiff’s claim arises under federal law; (2) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction; and (3) the exercise of jurisdiction comports with due process. The Federal Circuit had no trouble concluding that Synthes’ patent infringement claim arose under federal law. Regarding the second requirement, neither party disputed that GMReis was not subject to personal jurisdiction in any forum in the United States. Finally, with respect to the third requirement, the Federal Circuit applied its standard analysis of general and specific personal jurisdiction.
The Federal Circuit agreed with the district court that GMReis’s contacts with the United States, including attendance at various trade shows, purchases, and sales of unrelated products and equipment, did not constitute “continuous and systematic general business contacts,” sufficient to confer general jurisdiction.
The Federal Circuit then applied its tri-parte specific jurisdiction test and concluded that the district court erred in finding no specific jurisdiction over GMReis. The Federal Circuit held that GMReis satisfied the first prong of the test by purposefully directing its activities to the United States — travel to the United States and importation and display of the bone plates at a trade show attended by U.S. residents. In reaching this conclusion, the Federal Circuit disagreed with the district court that GMReis’ activities were not purposefully directed at U.S. residents because the trade show displays and brochures prominently disclosed that GMReis’ products were not FDA approved. Second, the Federal Circuit found that Synthes’ patent infringement claim arose out of GMReis’ activities in the United States, and noted that it was not necessary at this stage to determine whether GMReis had made a prima facie showing of infringement. Finally, the Federal Circuit held that the assertion of personal jurisdiction was reasonable and fair considering the relative burdens, interests, and policies.
Application and Unanswered Questions
With this decision, the Federal Circuit has taken the first step in establishing a standard for determining the nature and extent of contacts required within the United States under Rule 4(k)(2) to exercise personal jurisdiction over a foreign company accused of patent infringement. While the Federal Circuit appears to have taken the approach that only a very few purposefully directed contacts are needed for jurisdiction, it remains to be seen whether this decision will lead to more courts actually exercising jurisdiction over foreign corporations.
A.V. v. iParadigms: Transformative Purpose Leads to Finding of Fair Use
By Andrew Baum ([email protected]) and Akiva M. Cohen ([email protected])
In A.V. v. iParadigms LLC (A.V.), 562 F.3d 630 (4th Cir. 2009), the Fourth Circuit Court of Appeals held that digitally coding and archiving complete copies of student papers was a “transformative” fair use because the purpose of the copying was to create a database for detecting plagiarism. The decision may have significant positive implications for companies that aggregate copyrighted material to use as raw material for the output of reports or data.
Fair Use
The fair use doctrine permits unauthorized use of copyrighted material for limited purposes “such as criticism, comment, news reporting, teaching … scholarship or research.” 17 U.S.C. § 107. The doctrine is designed to be flexible, but the statue requires courts to consider four factors: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion of the copyrighted work used; and (4) the effect of the use on the potential market for the copyrighted work. In Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994), the Supreme Court held that the first factor turns largely on whether the defendant’s use is “transformative.” In A.V., the Fourth Circuit focused almost exclusively on the transformative nature of the defendant’s use in finding no infringement.
The Case
iParadigms is the owner and operator of “Turnitin,” a plagiarism-detection service marketed to colleges and high schools. Students at schools subscribing to Turnitin are required to submit written papers through Turnitin’s Web site or the schools’ interface with the Turnitin Web site. When submitting papers, each student must “agree” to the terms of a “clickwrap agreement” that states that iParadigms shall not be liable for any damages. Turnitin’s software then compares the paper against its database of student papers and other articles and sources. Based on the comparison, Turnitin generates an “Originality Report” identifying the percentage of the paper that may not be original. If schools choose to have Turnitin archive their students’ papers, the papers are added to Turnitin’s database of publications against which Turnitin compares future papers.
The A.V. plaintiffs were four high school students whose schools had subscribed to Turnitin and elected to have Turnitin archive papers. All four plaintiffs obtained copyright registrations for each of their papers prior to submission to Turnitin. Three of the four plaintiffs submitted their papers with school-provided passwords and with “disclaimers” objecting to Turnitin archiving the papers. The fourth student used a password his attorney located on the Internet belonging to a university student. Thereafter, the plaintiffs sued iParadigms for copyright infringement.
The district court granted summary judgment dismissing the plaintiffs’ claims, both because the clickwrap agreement prohibited any award against iParadigms and because iParadigms’ use of the students’ papers constituted fair use. On appeal, the Fourth Circuit declined to address whether the clickwrap agreement was an enforceable contract once it determined that iParadigms’ use of the papers was a protected fair use.
In affirming the finding of fair use, the Fourth Circuit analyzed the four statutory fair use factors and relied on the transformative nature of the use of the copyrighted works. The Fourth Circuit held that Turnitin’s use of the students’ papers was transformative because Turnitin “uses the papers for an entirely different purpose, namely, to prevent plagiarism” — a function distinct from the original purpose of the work (as a form of creative expression and school assignment). The fact that iParadigms did not alter the copyrighted work did not make the use any less “transformative.” It was enough that the unaltered work was used for an “entirely different function and purpose.”
The Fourth Circuit reached its conclusion despite the following facts, which usually weigh against a finding of fair use: (1) iParadigms’ use was undisputedly commercial; (2) the plaintiffs’ works were unpublished; (3) iParadigms archived the entirety of the papers; and (4) the papers were creative (fiction and poetry), not factual. The fact that the archived papers were fictional was found to be irrelevant since Turnitin’s use — comparing word choice and structure to other documents in its database — was akin to using the “historical facts” of a document without regard to its creative expression and, therefore, was “unrelated to any creative component” of the work. Thus, the Fourth Circuit bootstrapped its finding on the transformative nature of defendants’ use to conclude that all of the first three fair-use factors (purpose and character of the use, nature of the copyrighted work, and amount and substantiality of the portion used) were either neutral or favored iParadigms.
As to the fourth fair use factor — effect of the defendant’s use upon its potential future market —the Fourth Circuit noted that while the presence of the student papers in a plagiarism-detection service might suppress the market for them to the extent that the students would consider selling them to other students or plagiarism services (the students had admitted at deposition that they would not do so because that was dishonest), Turnitin’s archival copy would not supplant the original works in the market by acting as a substitute for them. The Fourth Circuit, therefore, had no trouble finding the fourth factor favored a finding of fair use.
Implications
The A.V. decision gives comfort to data aggregators making transformative, commercial use of copyrighted works so long as the use does not act as a market substitute for the original work. A.V.’s treatment of the words and structure of creative works as “historical facts” may be helpful to those who warehouse copyrighted works to index or recover “facts” about the works. It will be interesting to see how courts treat these issues when the plaintiffs are not students but motion picture companies or commercial publishers.
Patent Reform Act Stalls in Congress
By Peter G. Hawkins ([email protected])
Few intellectual property topics have been as hotly debated as — and could have the far-reaching effects of — the patent reform legislation currently pending in the House and Senate. The legislation, commonly known as the 2009 Patent Reform Act (Act), has the potential of making fundamental changes to all aspects of patent law, including patent litigation. While proponents of the Act were initially optimistic that the Act would be passed in 2009, recent revisions to the Act as well as unrelated political developments have made that less likely.
The Act was introduced on March 3, 2009 as dual bills in both the House and Senate, with Senator Leahy serving as the lead sponsor of the Senate Bill (S. 515) and Representative Conyers serving as the lead sponsor of the corresponding House Bill (H.R. 1260). The Act is rooted in the previous patent reform bills introduced in 2005 and 2007, and several of the provisions have been carried over from those earlier proposals in identical or slightly modified form.
Some of the more controversial provisions of the Act include:
First-to-File Replaced by First-to-Invent: As currently drafted, 35 U.S.C. § 102 would be amended so that the first person to file an application for patentable subject matter would be awarded the patent instead of the first person who actually invented the subject matter. While both the House and Senate have agreed in principle to amend § 102, the House has included additional language delaying the enactment of this provision until the European and Japanese patent offices implement a grace period in their first-to-file regimes.
Changes to Damages Calculations: Perhaps the most contested portion of the Act would amend 35 U.S.C. § 384 to require trial judges to use one of three methods to calculate damages in patent infringement actions. As originally introduced, the permitted methods would have been: (1) analyzing the entire market value of the invention; (2) looking to previously established royalties received for the invention; or (3) making a value calculation based on the invention’s contribution to the prior art. The Senate Judiciary Committee eliminated this provision and replaced it with one giving trial judges a gatekeeper role to decide the “methodologies and factors” relevant to the damages analysis. The House has yet to accept these amendments, and negotiations in the House and Senate are ongoing regarding this portion of the Act.
Venue: The Senate bill would amend 28 U.S.C. § 1400, adding language from the Federal Circuit’s In re TS Tech. USA Corp. 551 F.3d 1315 (Fed. Cir. 2008) decision, instructing courts to transfer a patent action where the transferee venue is clearly more convenient than the current venue. The House and Senate continue to negotiate this provision as well.
Other, less contentious provisions that would still affect patent litigation include the following:
Elimination of Best-Mode Defenses in Litigation: The Act would amend 35 U.S.C. § 282(b) to eliminate the failure to disclose best mode as a defense to patent infringement. Notably, patent applicants would still need to disclose their best mode under 35 U.S.C. § 112 in order to obtain a patent.
Codified Willfulness Standard: The Act would codify the holdings from cases such as Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (concerning failure to rely on advice of counsel) and In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. (2007) (concerning standards to prove willful infringement), making it more difficult to prove willful infringement and prohibiting any adverse inference from the decision not to rely on an opinion of counsel.
New Post-Grant Review Proceedings: The Act creates a new avenue of post-grant review, known as a Petition for Cancellation. The Petition would typically be filed within 12 months of issuance of the patent by a third party seeking to invalidate the patent. Given that the Act suggests litigation-style discovery proceedings, Petitions for Cancellation may have a significant impact on patent litigation. As currently drafted, the commencement of a Petition for Cancellation would not prevent the patent owner from suing for infringement.
Creation of a Patent Court Pilot Program: Judges in various district courts across the country would volunteer to handle patent cases. Judges who are not part of the program could transfer patent cases on their dockets to the designated patent judges.
Progress of the Act in the Senate and House
While the amended version of the Act passed the Senate Judiciary Committee, a full Senate vote has not been scheduled. The Act has made even less progress in the House, where it awaits approval by the House Judiciary Committee. Adding to the delays are two events outside of the patent sphere, namely Senator Arlen Specter’s switch to the Democratic Party and the nomination of Honorable Sonia Sotomayor to the Supreme Court. Senator Specter is a proponent of patent reform and was considered a key asset in obtaining consensus from the Republican members of the Senate. Meanwhile, the nomination of Judge Sotomayor will be a top priority of the Senate, likely pushing the Act to the back burner. Whether the Patent Reform Act becomes a reality in 2009 remains to be seen.
President Obama to Nominate David Kappos as the New Head of the USPTO
On June 18, 2009, President Barack Obama announced his intent to nominate David Kappos, an intellectual property attorney, as the new Under Secretary of Commerce for Intellectual Property and Director of the USPTO. Mr. Kappos earned an electrical engineering degree from the University of California at Davis in 1983 and went to work as an engineer at IBM. In 1990, Mr. Kappos graduated from law school and worked his way up to his current position, Vice President and Assistant General Counsel for Intellectual Property Law and Strategy. Mr. Kappos currently oversees and manages IBM’s patent and trademark portfolios. In addition, he serves on the boards of directors of the American Intellectual Property Law Association and the International Intellectual Property Society, and he serves as vice president of the Intellectual Property Owners Association. Mr. Kappos is also a proponent of the pending patent reform legislation and supports pre-issuance submission of information by third parties, post-issuance opposition proceedings, restrictions on damages awards in patent infringement cases, and enhanced inter partes reexamination procedures.
In May, Foley was privileged to have Mr. Kappos participate in its Web conference, “IP Outlook in the Reform Era,” during which he spoke on how new technology can impact the patent system. View the Web conference event page at http://www.foley.com/news/event_detail.aspx?eventid=2779.
Foley’s IP Practice in Boston Continues to Grow With the Addition of Three Prominent Litigators
In May 2009, Foley had the pleasure of announcing that three leading IP litigators, Matthew B. (Matt) Lowrie, Aaron W. Moore, and Robert (Bob) Silverman, joined Foley’s Boston office as members of the firm’s Intellectual Property Litigation Practice. Matt and Aaron joined as partners and Bob as senior counsel. Prior to joining Foley, Matt was a founding partner of Lowrie, Lando & Anastasi, LLP, where Aaron and Bob also were partners.
“Matt, Aaron, and Bob are highly successful patent litigators,” said Susan Pravda, Foley’s Boston Office Managing Partner. “Given the significant number of companies in Boston that are currently involved in patent litigation, combined with emerging companies that may address patent litigation in the future, the addition of these skilled attorneys will complement an IP litigation team that is already one of the most experienced in the market.”
Matt focuses his practice in the areas of patent litigation, counseling, and the patent acquisition process. With a strong technical background, Matt has substantial experience handling matters involving computer architecture, algorithms and software, analog and digital circuits, semiconductor design, telecommunications, consumer products, and medical devices. He currently chairs the Patent Litigation Committee of the Boston Patent Law Association and is a frequent speaker and author. Matt also is an adjunct professor at Suffolk University Law School, where he teaches patent law.
“Foley’s intellectual property practice is comprised of extraordinary legal talent, and its expansive platform provides tremendous opportunities for my practice as well as that of my colleagues, Aaron and Bob,” said Matt. “I am thrilled to join a firm with such national and international prominence in the patent litigation arena and look forward to growing the practice both in Boston and nationally.”
Aaron’s practice includes patent and trademark prosecution and counseling and drafting infringement and patentability opinions as well as patent, copyright, and trademark litigation. He has experience in a number of technology areas and has represented a broad array of clients, including manufacturers of medical devices, computer hardware and software, sporting goods, industrial machinery, water-filtration equipment, floor coverings, lighting, and climate-control equipment.
He has been involved in patent litigation proceedings before federal district courts across the country as well as in the Court of Appeals for the Federal Circuit and in the International Trade Commission. His practice has covered all facets of trademark litigation — including enforcement, active litigation, and settlement — in cases in federal court and before the Trademark Trial and Appeal Board of the USPTO.
Bob’s practice emphasizes all aspects of intellectual property litigation with experience that includes patent counseling, prosecution, and drafting infringement and patentability opinions. His practice has involved a variety of technology, including medical devices, chemical processing instrumentation, medical imaging equipment, automotive technology, semiconductor memory products, business methods, consumer products, sporting goods, and copyrighted photographs.
“All three attorneys have well-deserved reputations for excellence in the legal and technical areas of patent litigation,” said Sharon Barner, Foley Intellectual Property Department Chair. “Their unique mix of talent and experience further solidifies Foley’s standing as a leading law firm with a patent litigation practice that is consistently ranked as one of the top 10 practices in the country.”
