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Out of Tune: Eleventh Circuit Permits Retrospective Relief for Timely Copyright Claims under Discovery Rule

by | Mar 9, 2023 |

The US Court of Appeals for the Eleventh Circuit furthered a circuit split in holding that, as a matter of first impression, a copyright plaintiff’s timely claim under the discovery rule is subject to retrospective relief for infringement occurring more than three years before the suit was filed. Nealy v. Warner Chappell Music, Inc., Case No. 21-13232 (11th Cir. Feb. 27, 2023) (Wilson, Jordan, Brasher, JJ.)

Section 507(b) of the Copyright Act includes a three-year statute of limitations that runs from the time the claim accrues, and a claim may only accrue one time under the discovery rule. In 2014, the US Supreme Court held in Petrella v. Metro-Goldwyn-Mayer, Inc., that the equitable doctrine of laches does not bar copyright claims that are otherwise timely under the three-year limitations period set forth in § 507(b). The circuits are split on Petrella’s application—the Second Circuit strictly limits damages from copyright infringement to the three-year period before a complaint is filed, whereas the Ninth Circuit permits retrospective relief for infringement occurring more than three years before the lawsuit’s filing as long as the plaintiff’s claim is timely under the discovery rule.

Music Specialist and Sherman Nealy (collectively, Music Specialist) filed a copyright infringement suit against Warner alleging that Warner was using Music Specialist’s musical works based on invalid third-party licenses and in violation of 17 U.S.C. § 501. The alleged copyright infringement occurred as early as 10 years before Music Specialist filed the present lawsuit. The district court denied Warner’s motion for summary judgment on statute of limitation grounds, finding that there was a genuine dispute of material fact regarding when Music Specialist’s claim accrual occurred. In a separate order, the district court certified for interlocutory appeal whether “damages in this copyright action are limited to the three-year lookback period as calculated from the date of the filing of the Complaint pursuant to the Copyright Act and Petrella.” Music Specialist appealed.

The Eleventh Circuit concluded that where a copyright plaintiff has a timely claim for infringement occurring more than three years before the filing of the lawsuit, the plaintiff may obtain retrospective relief for that infringement. The Court found that Petrella focused on the application of 17 U.S.C. § 507(b) to claim accrual under the injury rule, not the discovery rule, and was therefore inapplicable. The injury rule precludes recovery for harms occurring earlier than three years before the plaintiff files suit. On the other hand, the discovery rule permits damages recovery for infringing acts that copyright owners reasonably become aware of years later. Therefore, the discovery rule permits timely claims for infringement that occurred more than three years before the suit. The Eleventh Circuit found that the Supreme Court expressly reserved application of the discovery rule’s propriety for a future case and that, in the Eleventh Circuit’s opinion, the plain text of the Copyright Act does not place a time limit on remedies for an otherwise timely claim.

Practice Note: The Eleventh Circuit disagreed with the Second Circuit’s [...]

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Patent Law Principles Apply to Claim Scope: Orange Book Delisting and Listing and Regulations

by | Mar 9, 2023 |

The US Court of Appeals for the Federal Circuit ordered that the only Orange Book patent asserted in a lawsuit must be delisted since its claims were directed to the computer-implemented distribution system and not a method of use. Jazz Pharms., Inc. v. Avadel CNS Pharms., LLC, Case No. 23-1186 (Fed. Cir. Feb. 24, 2023) (Lourie, Reyna, Taranto, JJ.)

Jazz Pharmaceuticals holds a new drug application (NDA) for Xyrem, an oral sodium oxybate solution prescribed to help those with certain narcolepsies manage cataplexy. Sodium oxybate itself is no longer covered by patents because it has been used in relation to narcolepsy since the 1960s. For this reason, Jazz built its patent portfolio around Xyrem’s formulation, use and distribution.

Jazz uses a single-pharmacy distribution system for Xyrem, known as a risk evaluation mitigation strategy (REMS). Implementing REMS was a condition of Xyrem’s US Food & Drug Administration (FDA) approval because it mitigates safety risks of dangerous active pharmaceutical ingredients such as sodium oxybate. One of Jazz’s patents is directed to this REMS distribution system. Abbreviated New Drug Application (ANDA) 505(b)(2) NDA (Hybrid NDA) approval is similarly conditioned on implementing a REMS that is sufficiently comparable to any that the NDA holder must implement. The FDA eventually determined that single-pharmacy systems were unnecessary for Xyrem and potentially detrimental.

Avadel submitted a hybrid NDA for a drug that requires only a single nightly dose, unlike Xyrem, which requires a patient to wake up during the night to ingest a second dose. Avadel’s application also proposed a more lenient REMS that utilizes multiple pharmacies. In view of these differences, Avadel believed that it could avoid a lengthy FDA approval process because all of Jazz’s Xyrem Orange-Book-listed patents seemed addressable without making any Paragraph IV certifications. As for the REMS patent, Avadel filed a statement under 21 U.S.C. § 355(b)(2)(B) because the patent was listed as claiming a method of use and Avadel was not seeking approval for the REMS system to which that patent’s claims were directed.

Jazz sued Avadel asserting seven patents, of which the REMS patent was the only Orange-Book-listed patent. Avadel asserted a counterclaim requesting that the district court order Jazz to delist the REMS patent from the Orange Book. The district court subsequently held a Markman hearing finding that the REMS patent’s claims were directed to a system and not a method. The district court granted Avadel’s motion for judgment on the pleadings, finding that the REMS patent did not claim “the drug for which the application was approved” and thus had to be delisted from the Orange Book. Jazz appealed.

Jazz argued that because the FDA permitted the REMS patent to be Orange Book listed, Avadel was prohibited from availing itself of the statutory delisting provision. The Federal Circuit disagreed, concluding that the language of the delisting provision was only concerned with whether a listed patent met the provisions’ conditions at the time of the triggering litigation.

Jazz also argued that there was no evidence that Congress imported patent-law [...]

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Compelling Clarity: PTO Director Explains Compelling Merits Test

by | Mar 9, 2023 |

US Patent & Trademark Office (PTO) Director Katherine K. Vidal issued a precedential opinion clarifying the standard under which the Patent Trial & Appeal Board (Board) can institute on an inter partes review (IPR) petition despite the Fintiv factors militating toward denial. CommScope Techs. LLC v. Dali Wireless, Inc., IPR2022-01242 (PTO Feb. 27, 2023) (Vidal, Dir.) (precedential).

This opinion follows the Director’s Interim Procedure for Discretionary Denials memorandum (Guidance Memo) and her opinion in OpenSky Indus. v. VLSI Tech. In the guidance memo, the Director explained that when there is “compelling evidence of unpatentability,” the Board may decline to exercise its discretion to deny IPR institution.

In this case, Dali Wireless sued CommScope in the district court, alleging infringement of its patent. CommScope filed a petition to institute an IPR proceeding against the asserted patent. The Board granted the petition and instituted an IPR proceeding while the district court litigation was ongoing.

In granting the petition, the Board acknowledged that it would normally perform a Fintiv analysis to determine whether it should deny the petition in light of the parallel district court proceeding. However, considering the Guidance Memo and the “compelling invalidity challenge” presented by the petitioner, the Board skipped the Fintiv analysis and instituted on the petition. The Director instituted sua sponte review.

Recognizing some ambiguity in both OpenSky and the guidance memo, the Director made her decision precedential to clarify:

My Guidance Memo states that “the PTAB will not deny institution based on Fintiv if there is compelling evidence of unpatentability.” Although I now recognize that this instruction could be read to allow for a compelling merits determination as a substitute for a Fintiv analysis, that was not my intent. By that instruction, I intended for PTAB panels to only consider compelling merits if they first determined that Fintiv factors 1–5 favored a discretionary denial . . . . In circumstances where . . . the Board’s analysis of Fintiv factors 1–5 favors denial of institution; the Board shall then assess compelling merits. In doing so, the Board must provide reasoning sufficient to allow the parties to challenge that finding and sufficient to allow for review of the Board’s decision.

A determination of whether the petition presents a compelling merits case for invalidity requires a merits case that meets a higher standard than the “reasonable likelihood” test required by 35 U.S.C. § 314(a).

The Director found that the Board’s decision was deficient in both parts of the analysis. The Board did not perform any analysis of the Fintiv factors but instead went straight to a determination of whether the petition presented a compelling invalidity challenge. In connection with that determination, the Board failed to provide any reasoning that explained why it found the merits case presented in the petition compelling.

Finding that the Board’s reasoning was conclusory, the Director vacated the Board’s decision to institute IPR review and remanded for further proceedings consistent with her decision.

Practice Note: Less [...]

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Thank You to Our Readers

by | Mar 6, 2023 |

We greatly appreciate our readers over the past year and are pleased to share that we were recently recognized for our intellectual property thought leadership in the 2023 JD Supra Readers’ Choice Awards, which acknowledge top authors and firms for their thought leadership in key topics during all of last year.

Sarah Bro, a regular contributor to IP Update, was recognized as a “Top Author” for trademarks. She focuses her practice on trademark prosecution, enforcement and brand portfolio management, as well as licensing, due diligence, copyright, right of publicity and domain name matters.

Through our various blogs and thought leadership pieces, we are dedicated to maintaining our position as a leading firm for intellectual property work and keeping clients abreast of significant and relevant topics in the industry.



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Little Weight Given to Conclusory Expert Declaration That Repeats IPR Petition Verbatim

by | Mar 2, 2023 |

The US Patent & Trademark Office Director affirmed and designated as precedential a Patent Trial & Appeal Board (Board) decision denying institution of an inter partes review (IPR) petition where the expert declaration presented conclusory assertions without underlying factual support and repeated verbatim the petitioner’s argument. Xerox Corp. v. Bytemark, Inc., IPR2022-00624 (PTAB Aug. 24, 2022) (Wood, Grossman, Tartal, APJs); Xerox Corp. v. Bytemark, Inc., IPR2022-00624 (Feb 10, 2023) (Vidal, Dir.)

Bytemark owns a patent directed to a method and system for distributing electronic tickets. According to the patent, a user can procure and store an electronic ticket on a device such as a mobile phone, and when the user presents the ticket, the ticket taker can verify the ticket by inspecting a visual object that a human can perceive without a machine scan. In addition to using a validating visual object, the patent teaches data integrity checking to ensure that the ticket data and the software managing that ticket data on the user’s device has not been altered improperly. As to the data integrity concept, the claims of the patent recite a server that is configured to “store in a data record associated with the user account a data value indicating the fraudulent activity” (fraud limitation).

Xerox filed an IPR petition challenging certain claims of the patent as obvious over the Terrell prior art reference in combination with various secondary references. Xerox argued that Terrell disclosed that after fraudulent activity is detected, “the purchaser of the ticket could be blocked from further use of the system or pursued in respect of their potential fraud.” Xerox asserted that a skilled artisan would understand that such blocking would require recording the blocking in a data record associated with that user’s account, and would find it obvious that blocking the account of the purchaser from further use of the system would include storing a data value indicating the fraudulent activity in a data record associated with the user account.

Bytemark responded that Terrell, at most, taught blocking a ticket purchaser from further use of the Terrell system based on potential fraud, but nowhere indicated that this would be achieved by using a data value indicating fraudulent activity, as opposed to some other manner of blocking a user, such as deleting the user’s account or reporting the user for fraud. Bytemark further argued that Xerox’s argument that a skilled artisan would find the fraud limitation obvious was conclusory and an improper attempt to use a skilled artisan’s common knowledge to supply a wholly missing claim limitation without evidentiary support.

The Board agreed with Bytemark, finding that Xerox did not provide sufficient evidence or persuasive reasoning to support either of Xerox’s arguments. The Board explained that Terrell taught blocking the purchaser rather than the account of the purchaser and that it was far from clear that blocking the purchaser would “require” recording the blocking in a record in the purchaser’s account, as opposed to deleting the purchaser’s account altogether. The Board noted that the [...]

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Free Speech Shines Bright, Illuminates Patent Owner’s Right to Allege Infringement

by | Mar 2, 2023 |

The US Court of Appeals for the Federal Circuit reversed a district court’s preliminary injunction prohibiting a patent owner from communicating its view that a competitor infringed, finding that the speech restriction was improper because the infringement assertions were not objectively baseless. Lite-Netics, LLC v. Nu Tsai Capital LLC, Case No. 23-1146 (Fed. Cir. Feb. 17, 2023) (Lourie, Taranto, Stark, JJ.)

Lite-Netics and Nu Tsai Capital d/b/a Holiday Bright Lights (HBL) compete in the market for holiday string lights. Both companies use similar magnetic mechanisms that allow users to secure the end of the lights. Lite-Netics owns several patents that describe and claim magnetically secured decorative lights. In June 2017, Lite-Netics sent a cease-and-desist letter to HBL demanding that it stop selling lights alleged to infringe Lite-Netics’s patents. After remaining silent for five years, Lite-Netics sent another cease-and-desist letter in April 2022 demanding that HBL either explain why its products did not infringe the Lite-Netics patents or stop selling the products.

When HBL refused to stop selling the allegedly infringing products, Lite-Netics sent communications to HBL’s customers notifying them of their infringement claim and threatening “all legal rights and remedies” to stop the sale of HBL’s products. Lite-Netics then filed a lawsuit against HBL for infringement of the patents. HBL asserted counterclaims, including tortious interference with business relationships, defamation under Nebraska law and bad faith patent-infringement communications. HBL also sought a preliminary injunction to prevent Lite-Netics from publishing further accusatory statements. Finding that HBL would likely succeed on its tortious interference and defamation claims and that Lite-Netics’ infringement allegations were “objectively baseless,” the district court granted the preliminary injunction. Lite-Netics appealed.

The Federal Circuit reversed the district court, finding that in cases where an injunction restricts a party’s rights to First Amendment protected speech about its federal patent rights, federal law preempts state tort law. The Court explained that federal law requires a higher “bad faith” standard of proof for a preliminary injunction that would impinge on those federal rights. The Court found that HBL had failed to show that Lite-Netics’s allegations and the publication of its allegations were made in bad faith or that those allegations were objectively baseless. The Court therefore reversed and remanded to the district court for further proceedings.



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PTO Introduces Trademark Decisions and Proceedings Search Tool

by | Mar 2, 2023 |

On February 17, 2023, the US Patent & Trademark Office (PTO) announced the launch of the new Trademark Decisions and Proceedings Search Tool. This tool allows users to filter and search expungement and reexamination proceedings, administrative orders and sanctions, and precedential director decisions. Under the Expungement and Reexamination Proceedings tab, users can find all petitions filed by third parties requesting expungement or reexamination, as well as director-initiated proceedings and reexaminations. The Administrative Orders and Sanctions tab includes administrative and sanctions orders issued under the authority of the PTO Director against parties found to violate PTO trademark rules of practice or terms of use for PTO websites and filing systems.  Decisions on petitions to the PTO Director will be added to the search tool later in 2023.

The Trademark Decisions and Proceedings Search Tool can be found here.



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The Alice Eligibility Two-Step Dance Continues

by | Mar 2, 2023 |

The US Court of Appeals for the Federal Circuit affirmed a district court’s dismissal of a Fed. R. Civ. P. 12(b)(6) motion, holding that patent claims directed to abstract ideas and lacking inventive steps that transform abstract ideas into patent-eligible inventions fail the Alice two-step test and are not patent eligible under 35 U.S.C. § 101. Hawk Tech. Sys., LLC v. Castle Retail, LLC, Case No. 22-1222 (Fed. Cir. Feb. 17, 2023) (Reyna, Hughes, Cunningham, JJ.)

35 U.S.C. § 101 states that laws of nature, natural phenomena and abstract ideas are not patentable. The Supreme Court of the United States in Alice v. CLS Bank Int’l (2014) articulated a two-step test for examining patent eligibility: a patent claim falls outside § 101 if it is directed to a patent-ineligible concept such as an abstract idea and lacks elements sufficient to transform the claim into a patent-eligible application.

Hawk Technology sued Castle Retail alleging infringement of its patent directed to security surveillance video operations in Castle Retail’s grocery stores. The patent relates to a method of viewing multiple simultaneously displayed and stored video images on a remote viewing device of a video surveillance system using result-based functional language. Castle Retail moved to dismiss on the basis that the claims were not patent eligible under § 101. After conducting a technology briefing, the district court granted the motion. The district court ruled that the claims were abstract because surveillance monitoring is a common business practice and the claims recited little more than taking video surveillance and digitizing it for display and storage in a conventional computer system, and the claims did not limit the abstract idea to a new technological improvement in video storage/display that could transform the abstract idea into a patent-eligible invention. Hawk Technology appealed.

The Federal Circuit, reviewing de novo, affirmed. Addressing Alice step one, the Court found that the patent’s required functional results of receiving/digitizing video images, converting images to selected format and storing/displaying/transmitting the images were similar to claims that the Court previously ruled as abstract. The results-oriented claim language failed to concretely recite how the claimed invention improved the functionality of video surveillance systems and was therefore abstract. Regarding Alice step two, the Court analyzed the claim elements, both individually and as an ordered combination in light of the specification, for transformative elements. The Court explained that although the claims recited the purported inventive solution and referenced specific tools/parameters, they neither showed how monitoring and storage was improved nor required anything other than off-the-shelf, conventional computer, network and display technology for gathering, sending and presenting the specified information.

Procedurally, the Federal Circuit found that the motion to dismiss was not decided prematurely because the technology briefing was purely a procedural step conducted in each patent case and there was no evidence that the district court’s decision hinged on new facts constituting matters beyond the pleadings. Hawk had argued that because the district court considered Castle’s testimony and evidence, it was required to convert the [...]

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PTO Seeks Comments on Role of Artificial Intelligence in Inventorship

by | Mar 2, 2023 |

The US Patent & Trademark Office (PTO) published a Request for Comments Regarding Artificial Intelligence and Inventorship seeking input from stakeholders on inventorship issues that may arise as artificial intelligence (AI) and emerging technologies play a greater role in the innovation process. The deadline to submit comments is May 15, 2023.

As background, the PTO held its inaugural AI and Emerging Technologies Partnership meeting, during which panelists discussed AI’s increasing role in innovation, in June 2022. Although there appeared to be consensus that AI cannot “conceive” of inventions, some panelists contended that AI is merely a tool like any other tool used in the inventive process, while others pointed to situations in which AI systems can output patentable inventions or contribute at the level of a joint inventor. While the PTO has been exploring the contours of inventorship law with respect to AI-generated inventions, in August 2022, the US Court of Appeals for the Federal Circuit issued its decision in Thaler v. Vidal, finding that inventorship is limited to natural persons. The Court explained, however, that it was not confronted with “the question of whether inventions made by human beings with the assistance of AI are eligible for patent protection.”

Recognizing the uncertainty surrounding the role of AI inventorship in the wake of the Thaler decision, the PTO seeks public comment on several questions, including the following:

1. How is AI, including machine learning, currently being used in the invention creation process?

2. How does the use of an AI system in the invention creation process differ from the use of other technical tools?

3. If an AI system contributes to an invention at the same level as a human who would be considered a joint inventor, is the invention patentable under current patent laws?

4. Do inventions in which an AI system contributed at the same level as a joint inventor raise any significant ownership issues?

5. Is there a need for the PTO to expand its current guidance on inventorship to address situations in which AI significantly contributes to an invention? How should the significance of a contribution be assessed?

6. Should the PTO require applicants to provide an explanation of contributions AI systems made to inventions claimed in patent applications? If so, how should that be implemented, and what level of contributions should be disclosed? Should contributions to inventions made by AI systems be treated differently from contributions made by other (e., non-AI) computer systems?

7. What additional steps, if any, should the PTO take to further incentivize AI-enabled innovation (e.g., innovation in which machine learning or other computational techniques play a significant role in the invention creation process)?

8. What statutory changes, if any, should be considered as to US inventorship law, and what consequences do you foresee for those statutory changes?



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All the Benefits of a Reverse Triangular Merger, None of the IP Merger Mess

by | Mar 2, 2023 |

The US Court of Appeals for the Eleventh Circuit affirmed a district court’s summary judgment dismissal of plaintiff’s claim that the defendant failed to provide a payment conditioned on the sale, merger or transfer of certain intellectual property since ownership was not transferred via the merger. GSE Consulting, Inc. v. L3Harris Techs., Inc., Case No. 22-10647 (11th Cir. Feb. 8, 2023) (Rosenbaum, Lagoa, Wetherell, JJ.)

L3Harris specializes in defense and information technology and until recently was known as Harris Corporation. The name change from Harris to L3Harris was the result of a reverse triangular merger it executed over 2018 and 2019 whereby its subsidiary, Leopard Merger Sub, merged with its target, L3 Technologies.

In 2008, Harris and GSE combined forces to develop an oil sands heavy oil recovery process. In addition to yielding intellectual property relating to the process’s corresponding radio frequency heating technology, the collaboration resulted in a consulting agreement that would have extended through December 31, 2022. Under the consulting agreement, GSE provided its specialized infrastructure and energy consulting services on call and assigned all its rights to intellectual property developed under the agreement to Harris. In return, GSE received base pay and the right of first refusal for 10% of the direct labor workshare of Harris’s radio frequency heating projects.

The consulting agreement also included several payment conditions to benefit GSE or mitigate its risk. GSE believed that the Harris-L3 merger triggered the following condition to the tune of $4 million:

6.b. Payments calculation for the following to be 3% of market capitalization, capped at $4M:

 

  1. in the event the IP is sold, merged or transferred and the primary basis of the sale is not the IP.

GSE argued that the intellectual property relevant to the consulting agreement had “merged” because the Harris-L3 plan of merger addressed that intellectual property and included it in the merger. GSE therefore issued a $4 million invoice to L3Harris.

L3Harris rejected the invoice, arguing that while the plan of merger addressed the relevant intellectual property, the relevant language declared that the merger would have no effect on Harris and L3’s respective ownership interests: “all such rights will survive unchanged after the consummation of the [merger].” According to L3Harris, ownership of the relevant intellectual property did not change through the merger. Not long after rejecting GSE’s invoice, L3Harris also shut down its radio frequency heating program.

GSE subsequently filed a lawsuit alleging breach of contract, and the parties filed competing summary judgment motions. GSE maintained its position that it was owed $4 million but also argued that if the district court found the payment provision ambiguous then it should consider testimony from those who brokered the agreement demonstrating that a corporate merger was sufficient to trigger payment. L3Harris argued that the provision was unambiguous and thus Florida law prohibited considering extrinsic evidence. L3Harris also argued that its merger didn’t involve anything that triggered payment (i.e., the relevant intellectual property was not sold, merged or transferred).

The district court granted [...]

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