Failure to Provide Detailed Expert Analysis of Hypothetical Royalty Negotiations Causes Reversal of Damages Award Against Microsoft

Case: Lucent v. Gateway, Dell and Microsoft, Fed Cir. No. 08-1485 (9/11/09)

The One Sentence Summary: Lump sum reasonable royalty damages award was not supported by evidence where plaintiff's expert analysis had flaws including not using comparable licenses, and not addressing the small contribution that the patented date picker function made to the success of Microsoft's Outlook program.


What They Were Fighting About: Microsoft appealed a patent infringement damages award for $357,693,056.18. The patent was for graphically picking data to be filled into a form (a diagram from the patent is shown above). The jury found infringement by Microsoft products and awarded lump sum damages. Microsoft also appealed the district court's denial of motions for JMOL re anticipation and obviousness.

Federal Circuit Holdings:

• The jury's rejection of Microsoft's obviousness arguments was justified by expert evidence that claim limitations were not present in the prior art article relied upon by Microsoft.
  
• Microsoft challenged the indirect infringement finding. Direct infringement requires one person to perform all steps of claim.
  
• Circumstantial evidence was sufficient for jury to conclude that some users of accused Microsoft products used date picker functionality according to instructions issued by Microsoft.
  
• The date-picker component of Outlook could be a basis for a contributory infringement finding under 35 U.S.C. § 271(c) because the component had no substantial non-infringing use. The non-infringing uses of Outlook's other components did not prevent contributory infringement.
  
• Denial of JMOL on inducing infringement was appropriate where there was expert testimony supporting the conclusion that Microsoft encouraged users to use the infringing date-picker technology.
  
• Patent damages do not punish infringement, but make the patentee whole.
  
• Plaintiff must prove damages through either lost profits or reasonable royalty.
  
• Reasonable royalty award is based on a hypothetical negotiation of royalty.
  
• Approximation and uncertainty is part of reasonable royalty analysis.
  
• Microsoft's failure to object to admission of licenses in evidence waived its objections.
  
• Lump sum award was "problematic for several reasons. First, no evidence of record establishes the parties' expectations about how often the patented method would be used by consumers. Second, the jury heard little factual testimony explaining how a license agreement structured as a running royalty agreement is probative of a lump-sum payment to which the parties would have agreed. Third, the license agreements for other groups of patents, invoked by Lucent, were created from events far different from a license negotiation to avoid infringement of the one patent here, the Day patent."
  
• Jury should not have been encouraged to speculate about future use of patent.
  Other license agreements relied upon by plaintiff were "radically different" or their connection to the hypothetical negotiations here could not be ascertained.
  
• Broad license to Dell of all IBM computer related patents was not probative of hypothetical negotiations for a license of a single patent.
  
• Plaintiff failed in its burden of showing that licenses in evidence were comparable to the hypothetical negotiation regarding this technology.
  
• Jury was given no basis to compare running royalty agreements to a lump sum royalty which it awarded.
  
• A license for a component of a graphics board did not support the jury's award without testimony of how the licensed component related to the entire board (whether it was a small fraction) and how the license price related to the overall price of the board.
  
• The value of a cross-license in another license relied upon by plaintiff's expert was not explained to the jury.
  
• Under Georgia Pacific factor 2 for comparable licenses, the jury did not have a basis to award a lump sum of roughly three to four times the average amount of the licenses in evidence.
  
• The infringing date-picker feature was a small portion of Outlook, and a hypothetical negotiation would not have had the parties value the technology highly enough to justify the jury award. Georgia Pacific Factor 10 is "[t]he nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention." Georgia-Pacific, 318 F. Supp. at 1120. Factor 13 is "[t]he portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer." Id. These two factors, at least as applied to the facts of this case, both aim to elucidate how the parties would have valued the patented feature during the hypothetical negotiation. The evidence can support only a finding that the infringing feature contained in Microsoft Outlook is but a tiny feature of one part of a much larger software program.
  
• Post-infringement evidence such as the usage of a feature can be considered in determining the reasonable royalty a hypothetical negotiation would have yielded.
  
• Royalties are not necessarily strictly tied to usage because companies sometimes have incentives to license without measuring usage or when expected usage is infrequent. However, usage is relevant, and the jury had no evidence to determine how frequently the infringing form-filling features were used.
  
• The lump-sum jury award did not rest on substantial evidence and was against the clear weight of evidence. Microsoft and Lucent would not have agreed to a royalty rate of 8% of revenue from sales of Outlook for use of the infringing form-filling feature.
  
• Jury award could not be supported based on the entire market value rule where there was no evidence that the patented feature was the basis of consumer demand for Outlook, the infringing product.
  
• The opinion of plaintiff's expert of the entire market value rule was flawed. The expert improperly used a rate of 8% of the software price after his initial opinion of 1% of the computer price was rejected in a motion in limine.
  
• The base used in a running royalty calculation can be the entire market value provided the rate is set at a low enough rate as supported by the evidence.
  
• Summary judgment against plaintiff's means plus function claims was appropriate where plaintiff did not present evidence of how the accused product reached the results.
  
  
  

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Price Disclosed By Plaintiff to Customer Without Obligation of Confidentiality Was Not Plaintiff's Trade Secret

Case: Southwest Stainless, LP v. Sappington, 10th Cir. No. 08-5127 (9/21/09)

The One Sentence Summary: The panel affirmed damage and injunction awards in a case to enforce non-compete agreements under Oklahoma law, but reversed a trade secret finding based upon disclosure of a price to a customer without obligations not to disclose the price.


What They Were Fighting About: In an action to enforce non-competition agreements against former employees, there was a verdict for plaintiffs on trade secret and breach of non-competition agreement claims, and an award of damages and injunction under Oklahoma law.

Tenth Circuit Holdings:

• District court did not err in finding that specific sales had been lost and were recoverable as damages, but that all sales of defendant were not proven to be caused by the breach of the non-competition agreement.
  
• Reasonable certainty in damages found where former employee worked on bid for plaintiff before switching to defendant and submitting a lower bid and winning the contract.
  
• Panel affirmed finding that defendants interfered with contractual relationships with employees of plaintiff by hiring them away.
  
• Price which plaintiff disclosed to customer without efforts to stop the customer from sharing the price with defendants could not be a trade secret.
  
  

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Corporate Reorganization Caused Breach of Non-Transfer Provision of Software License

Case: Cincom Sys., Inc. v. Novelis Corp., Sixth Cir. No. 07-4142 (9/25/09)


The One Sentence Summary: Corporate reorganization of licensee caused a transfer of copyright license that was prohibited by express terms of license and by federal common law.

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Copyright and Trade Dress Claims for Spoiled Brat Characters Fall Due to Failure to Show Access and Secondary Meaning

Case: Art Attacks Ink v. MGA Entertainment, 9th Cir. No. 0756110p (September 16, 2009)

The One Sentence Summary: Summary judgment against copyright and trade dress infringement claims for copying of Spoiled Brat characters by Bratz dolls was affirmed where plaintiff did not make an adequate showing of defendant's access to the copyrighted images, and where trade dress claims failed to show secondary meaning of images as identifier of plaintiff.



Ninth Circuit Holdings:

• Plaintiff must make a fact-based showing of access to the copyrighted work.
  
• Chain of events was not sufficient to show that MGA's employee had access to plaintiff's design during displays at county fairs.
  
• Summary judgment was proper against copyright infringement claim where wide dissemination of work allowing access by defendant was not shown through display of work at fair, on t-shirts and by slow website without metatags.
  
• Showing of secondary meaning by purchasers associating the designs with plaintiff was insufficient.
  
• The advertising shown by plaintiff was not sufficient to allow a jury to conclude that the designs had secondary meaning.
  
• Extensive use without showing of exclusivity of use was not sufficient to establish secondary meaning requirement for trade dress claim.
  
• Actual confusion testimony from witnesses with relationships with plaintiff's president were insufficient to establish secondary meaning for trade dress claim.
  

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Cancellation of Trademark for Fraud Requires Intent to Deceive PTO

Case: In re Bose Corporation, Federal Circuit No. 08-1448 (Aug. 31, 2009)

The One Sentence Summary: In opposition proceeding, the Trademark Trial and Appeal Board erred in cancelling Bose's WAVE trademark for fraud when there was not clear and convincing evidence of an intent to defraud the Patent and Trademark Office.




Federal Circuit Holdings:

• Cancellation for fraud in procuring registration requires high standard of proof.
• A trademark is obtained fraudulently under the Lanham Act only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO.
• Deceptive intent can be inferred only from clear and convincing evidence.
  
  

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Invalidation of Means Plus Function Patent Claim Requires Evidence of Corresponding Structure in Prior Art

Case: Fresenius USA, Inc. v. Baxter Int'l, Inc. , Fed. Cir. No. 08-1306 (Sep. 10, 2009)

The One Sentence Summary: The panel ruled on several issues, some for patentee and some for the defendant, including a ruling that a means plus function claim could not be invalidated when defendant had failed to produce evidence that the corresponding structure was present in the prior art.


What They Were Fighting About: The Federal Circuit panel considered an appeal from jury verdicts and judgment as a matter of law ("JMOL") rulings after a patent trial involving touch screens on dialysis machines.

Federal Circuit Holdings:

• Argument not raised in detail to trial court was waived.
• JMOL overriding jury's finding of obviousness of a dependent claim was error where jury could have relied on testimony that the independent claim was anticipated and the limitations of the dependent claim were obvious.
• Claim in Markush form was anticipated by prior art showing that any of the Markush alternatives was in the prior art.
• JMOL overriding jury finding of invalidity of means plus function claim proper where defendant failed to provide evidence that the structure corresponding to the function was in the prior art.
• JMOL overriding jury's finding of obviousness was improper where jury was presented evidence that it was obvious to combine a touch screen interface with a dialysis machine.
• Injunction remanded in light of court's reversal of certain JMOL rulings.
• In considering royalty, court may consider post-verdict sales of parts that were not part of jury's damages verdict.
  

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Right of Publicity Claims by Paris Hilton Not Subject to Anti-SLAPP Motion to Strike

Case: Hilton v. Hallmark, 9th Cir. No. 0855443p (Aug. 31, 2009)

The One Sentence Summary: Anti-SLAPP motion properly denied where celebrity plaintiff could prevail on common law right of publicity claims.


What They Were Fighting About: Hallmark published a card showing Paris Hilton as a waitress saying "That's Hot," her trademarked phrase. The district court denied Hallmark Cards' motion to dismiss Lanham Act and right of publicity claims and Hallmarks' motion to strike under California's Anti-SLAPP (Strategic Lawsuit Against Public Participation) law, Cal. Code Civ. Proc. § 425.16.

Ninth Circuit Holdings:

• Court had appellate jurisdiction over denial of SLAPP motion.
• The denial of the motion to dismiss Lanham Act claim was not intertwined with SLAPP motion, and not separately appealable.
• The denial of a motion to dismiss a right of publicity claim was not appealable as "inextricably intertwined" with denial of anti-SLAPP motion.
• Loose standard on "furtherance" of free speech for SLAPP.
• The card was speech.
• The card was not "commercial speech" in First Amendment SLAPP analysis because it did not simply propose a commercial transaction.
• Statements about celebrity were of public interest under SLAPP statute.
• Hilton can establish common law elements of right of publicity claim.
• Transformative use defense raised by Hallmark raised factual questions as to whether plaintiff or defendant would prevail.
• No public interest defense because card did not report information.
• Because Hallmark was not entitled to win right of publicity claims as a matter of law, SLAPP motion was properly denied.
  
  
  

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Trademark "Tacking" Back to Earlier Registered Version Not Allowed

Case: One Industries, LLC v. Jim O'Neal Distributing, Inc., 9th Cir. No 08-55316 (8/24/09)

The One Sentence Summary: The changes in plaintiff's trademark were too significant to allow tacking of the marks, and summary judgment for defendant was appropriate where the marks were so dissimilar that there was no likelihood of confusion.




What They Were Fighting About: In a trademark dispute between makers of motorcycle gear, the district court granted summary judgment to defendant, ruling the marks were dissimilar.

Ninth Circuit Holdings:

• The plaintiff's stylized "O" marks had changed too much to allow tacking. Tacking of similar marks requires that marks create the 'same, continuing commercial impression' and the marks were too dissimilar.
• There was no likelihood of confusion on the disputed "O" marks or the words "O'Neal" and "ONE". The marks were not at all similar in sight, sound, or meaning.
  
  

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Bad Faith Trade Secret Claims Brought for Anticompetitive Reasons Justify $1.6M Sanction

Case: FLIR Systems v. Parrish, Cal. App. 2nd Dist. No. B209964 (6/15/09)

The One Sentence Summary: Bad faith sanctions of $1,641,216.78 in attorney fees and costs for bringing and maintaining a bad faith trade secret action were affirmed under California's Uniform Trade Secret Act, Civ. Code, § 3426 et seq.


What They Were Fighting About: Plaintiff had asserted trade secret claims against former executives who left to start a competing company. After trial on the claim for permanent injunction, the court denied plaintiff's claims and awarded sanctions against plaintiff for pursuing a trade secret claim in bad faith.

California Court of Appeal Holdings:

• Sanctions for bad faith trade secret claim were supported by trial court's factual findings that there was no threat of misappropriation.
• The inevitable disclosure theory is not recognized in California, and cannot justify plaintiff's claims.
• A hard drive download by one of the defendants which was not used to misappropriate trade secrets did not prevent trial court's factual finding of subjective bad faith supporting sanctions.
• Objections to patent applications did not establish threat of misappropriation.
• Plaintiff's proposal of an injunction that did not identify the trade secrets or distinguish from non-trade secrets was properly considered in bad faith finding.
• Bad faith settlement demands and request for non-compete justified sanctions.
• Rulings on summary judgment and non-suit motions and tentative statement of decision did not preclude bad faith finding.
• The bad faith finding was supported by the plaintiff's CEO's testimony that there was an anticompetitive motive for the trade secret claim.
  
  

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Injunction After Trade Secret Case Was Too Broad In Prohibiting Customer Solicitation

Case: Retirement Group v. Galante, Cal. App. 4th Dist. No. D054207 (Aug. 20, 2009)

The One Sentence Summary: A preliminary injunction against former employees in a trade secret case was too broad and in violation of California's prohibition on non-compete agreements (Business & Professions Code § 16600) in barring former employees from soliciting customers of the former employer whose identities were not trade secrets.

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Cross-Complaint Asserted to Counter Trade Secret Complaint Falls to Anti-SLAPP Motion

Case: Raining Data Corp. v. Barrenechea, Cal. App. No. G040902 (July 21, 2009)

The One Sentence Summary: Cross-complaint alleging unfair competition and related claims arising from filing of trade secret complaint was properly stricken with anti-SLAPP motion, and award of attorneys' fees was proper.




California Court of Appeal Holdings:

• Gravemen of cross-complaint arose from filing of plaintiff's trade secret claims, and was properly stricken under California Code of Civil Procedure section 425.16 (the anti-SLAPP [strategic lawsuit against public participation] motion).
• Detailed declarations without attorney time statements were sufficient to establish amount of attorneys' fees awarded to plaintiff for successful anti-SLAPP motion.
  
  

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Facebook Allowed to Pursue Copyright Claims Against Service Which "Scraped" Facebook Pages in Violation of Terms of Use

Case: Facebook v. Power Ventures, Inc., N.D. Calif. Case No. C08-5780 JF (May 11, 2009)

The One Sentence Summary: A complaint alleging copyright infringement and other claims against a service that "scraped" content from Facebook pages was sufficient to survive a motion to dismiss.


What They Were Fighting About: Facebook sued defendants ("Power.com") for operating an internet site that collected user information from Facebook's website. Facebook alleged violation of the Controlling the Assault of Non-Solicited Pornography and Marketing (“CAN-SPAM”) Act, 15 U.S.C. § 7701, et seq.; the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030 et seq.; and California Penal Code § 502. Facebook also alleged that Defendants committed direct and indirect copyright infringement when they made copies of Facebook’s website during the process of extracting user, and that the manner in which Power.com accessed the Facebook website constituted a violation of the Digital Millennium Copyright Act (“DMCA”), 17 U.S.C. § 1201, et seq. Facebook also asserted claims for relief based on state and federal trademark law, as well as a claim for relief under California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200, et seq. Defendants filed a motion to dismiss the complaint.

District Court Holdings:

• The copyright infringement claims were pleaded with adequate detail. Access and copying of just one page in violation of the Terms of Service ("TOS") would be sufficient to commit copyright infringement.
• Although Facebook does not have a copyright on user content, copying the Facebook page to get user content may violate Facebook's rights. An arrangement of non-copyrighted data can be protected by copyright.
• The complaint stated claims for indirect copyright infringement by alleging that defendants caused users to violate the Terms of Use.
• The court refused to dismiss the DMCA claim despite defendant's argument that the users could authorize Power.com to access their Facebook data. Such access was explicitly barred by the Facebook Terms of Use.
• The complaint's allegations of trademark infringement were sufficient to withstand the motion to dismiss.
• The court ordered that plaintiffs must provide a more definite statement of the basis for their unfair competition law complaint.
  
  

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Trade Secret Identification Under California Statute Need Not Always Include Differentiation From Skill in the Art

Case: Brescia v. Angelin, Cal. Ct of Appeal, No. B204003 (3/17/09)

The One Sentence Summary: In a trade secret action against Sylvester Stallone and others, plaintiff's identification of its trade secret formula for body building supplement pudding was sufficient to comply with section 2019.210 of the California Code of Civil Procedure, and plaintiff did not need to include details distinguishing the trade secret from the knowledge of those skilled in the field.



California Court of Appeal Circuit Holdings:

• The court summarized its holding as follows:

  "Code of Civil Procedure section 2019.210 (hereafter section 2019.210) provides: “In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act (Title 5 (commencing with Section 3426) of Part 1 of Division 4 of the Civil Code), before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code.” In the published portion of our opinion, we hold that section 2019.210 does not require in every case that a trade secret claimant explain how the alleged trade secret differs from the general knowledge of skilled persons in the field to which the secret relates. Rather, such an explanation is required only when, given the nature of the alleged secret or the technological field in which it arises, the details provided by the claimant to identify the secret are themselves inadequate to permit the defendant to learn the boundaries of the secret and investigate defenses or to permit the court to understand the designation and fashion discovery. Further, the trade secret designation is to be liberally construed, and reasonable doubts regarding its adequacy are to be resolved in favor of allowing discovery to go forward."



• Plaintiff could not complain about ad hoc dismissal of its complaint by demurrer where plaintiff had invited error by agreeing to that method of obtaining review of the trial court's discovery ruling regarding the adequacy of plaintiff's section 2019.020 ruling.
• The court wrote:

  "We conclude that whether a trade secret designation adequately distinguishes the allegedly protected information from the general knowledge of skilled persons in the field is a function of the particularity of the designation – that is, a function of whether the stated details themselves are sufficient, given the nature of the alleged secret and the technology in which it arises, to permit the defendant to ascertain whether and in what way the information is distinguished from matters already known, and to permit the court to fashion appropriate discovery. Absent a showing that the details alone, without further explanation, are inadequate to permit the defendant to discern the boundaries of the trade secret so as to prepare available defenses, or to permit the court to understand the identification so as to craft discovery, the trade secret claimant need not particularize how the alleged secret differs from matters already known to skilled persons in the field. Further, consistent with precedent, the trade secret designation is to be liberally construed, and reasonable doubts regarding its adequacy are to be resolved in favor allowing discovery to go forward."

  
  

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No Laches Found Where Defendant Had Not Invested in Brand Awareness For Infringing Domain Name During Period of Delay in Bringing Suit

Case: Internet Specialties West, Inc. v. Milon-Digiorgio Enterprises, Inc., 9th Cir. No. 07-55199 (3/17/09)

The One Sentence Summary: In affirming an injunction prohibiting use of an ISPWEST domain name for internet services, the panel affirmed jury instructions on likelihood of confusion, and affirmed a finding of no laches where the defendant had not invested in brand awareness during a period of delay.


What They Were Fighting About: A jury ruled for plaintiff finding trademark infringement of the domain name IS-WEST for internet services was infringed by defendant's use of its ISPWEST domain.

Ninth Circuit Holdings:

• The trial court's jury instruction in a trademark infringement case on likelihood of confusion properly stated the law that in Internet cases, the "Internet troika" of

  (i) similarity of plaintiff’s and defendant’s mark; (ii) relatedness of services; and (iii) simultaneous use of the Internet as a marketing channel

  are the most important factors in determining likelihood of confusion.
• On laches, the panel found that a presumption of laches applied because plaintiff knew of a potential trademark infringement claim starting in 1998 (when defendant first started offering internet services under a similar name), a period longer than the four year statute of limitations.
• The panel reviewed the district court's consideration of the factors for laches. The six factors are:

  1) the strength and value of trademark rights asserted; 2) plaintiff’s diligence in enforcing mark; 3) harm to senior user if relief denied; 4) good faith ignorance by junior users; 5) competition between senior and junior users; and 6) extent of harm suffered by junior user because of senior user’s delay. E-Systems, Inc. v. Monitek, Inc., 720 F.2d 604, 607 (9th Cir. 1983).



• The district court erred in determining that plaintiff was diligent when it waited until defendant offered DSL before suing. Natural expansion of defendant's internet services into DSL is not progressive encroachment that allows delay in pursuing a legal claim.
• The panel affirmed the district court's exercise of discretion in finding no prejudice to defendant due to delay in bringing the action. Prejudice must arise from investment in building brand awareness, not simple infringing use of the mark, and the trial court did not abuse its discretion in reaching the factual conclusion there was little investment in brand awareness.
• The district court's injunction against using the ISWEST trademark or confusingly similar variations was appropriate in scope.
  

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Breach of Confidence and Unfair Competition Claims Were Preempted By California's Trade Secret Act

Case: K.C. Multimedia v. Bank of America Technology & Operations, Cal. App. 6th Dist. H030494 (3/3/09)

The One Sentence Summary: The appellate panel affirmed court rulings and a jury verdict for defendant in a trade secret misappropriation case, including holding that breach of confidence and unfair competition claims arising from the same nucleus of facts as the trade secret claim were preempted.


What They Were Fighting About: Plaintiff K.C. Multimedia lost at trial on its claim that defendants misappropriated its trade secrets in a Palm application for accessing bank records.

California Court of Appeal Holdings:

• The jury's finding that plaintiff did not own trade secrets was supported by substantial evidence of a license that conveyed rights to the defendant.
• Plaintiff forfeited its objection to the trial court's use of a motion in limine to resolve preemption, an issue of law, because plaintiff's counsel failed to object to the procedure.
• Use of the motion in limine to resolve the preemption issue was not error.
• California's implementation of the Uniform Trade Secrets Act (UTSA) has a different preemption provision than the model act. Thus, decisions from states that implemented a different version of the preemption provision will not be persuasive in interpreting California's version of the UTSA.
• California's version of the UTSA is broad and intended to "occupy the field."
• The UTSA should be read to preempt other civil remedies that are based upon misappropriation of a trade secret. The court agreed with "the federal cases applying California law, which hold that section 3426.7, subdivision (b), preempts common law claims that are 'based on the same nucleus of facts as the misappropriation of trade secrets claim for relief.' Depending on the particular facts pleaded, the statute can operate to preempt the specific common claims asserted here: breach of confidence, interference with contract, and unfair competition."
• The causes of action for breach of confidence and statutory unfair competition relied on the same nucleus of facts as the trade secret claim and were therefore preempted.
  
  

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Patent Claims for Candle Design Which Prevented Scorching Were Invalid Due to Obviousness

Case: Ball Aerosol & Specialty Container, Inc. v. Limited Brands, Inc., Bath & Body Works, Inc., et al., Fed Cir. No. 2008-1333 (2/9/09)

The One Sentence Summary: Patent claims for a candle which prevented scorching by having feet on the base of the candle holder and having these feet rest on a cover used as a stand were invalid because the invention was obvious.





Federal Circuit Holdings:

• The district court properly construed the claim language in determining that the "seating" of the candle on the cover did not require locking or engaging.
• The district court should have found that the claimed invention was obvious in light of prior art disclosing a cover used as a stand and feet on the bottom of the candle to minimize scorching.
• The district court erred in finding infringement on summary judgment just because the accused object was capable of having the cover used as a stand. Capability to infringe was not enough. The plaintiff failed to show actual infringement by putting the candles in the infringing configuration.
  
  

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Non-Compete Clause Could Not Be Enforced Outside of Areas Where Comedy Businesses Were Operating

Case: Comedy Club, Inc. v. Improv West Assocs., 9th Cir. No. 05-55739 (1/29/09)

The One Sentence Summary: After remand from the Supreme Court, the Ninth Circuit panel reaffirmed its earlier decision holding that an arbitrator's award enforcing an in-term non-compete clause over the entire country was in manifest disregard of California's law barring restraints on competition, Business and Professions Code section 16600; the non-compete was only enforceable where a comedy club owned by the licensor was operating.



Ninth Circuit Holdings:

• After a remand to consider its earlier decision in light of Hall Street Associates L.L.C. v. Matel, Inc., 128 S. Ct. 1396 (2008), the panel concluded that manifest disregard of the law remains a ground upon which an arbitrator's decision may be reviewed and modified.
  
  

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Judicial Estoppel Prevents Party From Playing "Fast and Loose" By Taking Inconsistent Litigation Positions

Case: United Nat'l Ins. Co. v. Spectrum Worldwide, Inc., 9th Cir. No. 07-55833 (2/2/09)

The One Sentence Summary: In a suit by the insurer for recovery of advertising injury insurance proceeds paid to settle a trade dress infringement suit, the district court properly granted summary judgment for the insurer where there was no coverage due to a first publication exclusion and the insured was judicially estopped from arguing that first publication occurred after the policy went into effect.



Ninth Circuit Holdings:

• The first publication exclusion of the insurance policy was unambiguous and applied to infringement claims.
• Spectrum was judicially estopped from claiming that its first publication of the allegedly infringing material occurred after the insurance policy became effective. The estoppel arose because Spectrum argued successfully in earlier litigation that it had been using the elements of its label since before the policy became effective.
  
  

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Qualcomm Penalized for Failure to Disclose Patents to Standard Setting Organization and for Litigation Misconduct in Failing to Produce Evidence

Case: Qualcomm Inc. v. Broadcom Corp., Fed. Cir. No. 07-1545 (12/1/08)

The One Sentence Summary: The panel held that (1) Qualcomm's video patents are unenforceable against products compliant with an industry standard due to Qualcomm's intentional failure to disclose the patents to the standard setting organization; and (2) Qualcomm's failure to disclose the patents and its litigation misconduct of failing to produce evidence of its participation in the standard setting organization were a proper basis for an award of attorneys' fees to Broadcom.


What They Were Fighting About: Qualcomm appealed from the district court's judgment that two of its video patents were unenforceable due to Qualcomm's failure to disclose the patents to the joint video team standard setting organization ("JVT SSO") developing the H.264 video standard. Qualcomm also appealed an award of attorneys' fees based upon its non-disclosure and its litigation misconduct of failing to produce evidence of its participation in the SSO.

Federal Circuit Holdings:

• Qualcomm's failure to appeal a non-infringement judgment did not moot the appeal because Qualcomm appealed the district court's judgment of waiver of the patents against the entire world which was an order of larger scope.
• The panel affirmed the district court's finding that the JVT SSO participants had an obligation to use best efforts to disclose relevant intellectual property rights, and Qualcomm failed to present evidence that it did so.
• As to the scope of the duty to disclose, the panel affirmed the district court's finding that

  the language requires JVT participants to disclose patents that "reasonably might be necessary" to practice the H.264 standard. This is an objective standard, which applies when a reasonable competitor would not expect to practice the H.264 standard without a license under the undisclosed claims.

  
  
• The district court correctly concluded that the Qualcomm patents were required to be disclosed as reasonably necessary despite the jury's finding of non-infringement. Because Qualcomm had claimed infringement of the patents in bringing the suit, it could not now argue that the patents were not reasonably necessary to practice the H.264 standard.
• The panel affirmed the district court's findings of implied waiver of Qualcomm's right to assert the patents at issue in light of its intentional failure to disclose the patents to the JVT.
• Equitable estoppel was an alternative ground to affirm the district court's judgment. Qualcomm cannot be allowed to argue that equitable estoppel was waived where Qualcomm's discovery misconduct made it more difficult for Broadcom to show estoppel.
• The remedy for the waiver and patent misuse here must be tailored to the scope of the harm. The panel therefore narrowed the district court's unenforceability ruling to extend only to products designed to be compliant with the video standard:

  the broadest permissible unenforceability remedy in the circumstances of the present case would be to render the ’104 and ’767 Patents (and their continuations, continuations-in-part, divisions, reissues, and any other derivatives thereof) unenforceable against all H.264-compliant products (including the accused products in this case, as well as any other current or future H.264-compliant products).

• The panel affirmed the district court's award of attorneys' fees to Broadcom based upon the finding that this was an "exceptional case" under 35 U.S.C. § 285 due to Qualcomm's withholding of information from the JVT and its litigation misconduct of making false statements and withholding documents.
  

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Licensor of "Gone In 60 Seconds" Can Pursue Copyright and Trademark Claims for Retained Rights in the Character "Eleanor" the Car

Case: Halicki Films v. Sanderson Sales and Marketing, Carroll Shelby Int'l, 9th Cir. Nos. 06-55806, 06-55807 (11/12/08)

The One Sentence Summary: The licensor of remake rights for the movie "Gone in 60 Seconds" retained sufficient rights in the Eleanor car character to pursue trademark and copyright infringement claims on remand.



Ninth Circuit Holdings:

• The district court erred in interpreting a license agreement concerning the Eleanor car in a remake of the movie "Gone in Sixty Seconds." The license agreement and the extrinsic evidence supported plaintiff's position that she had retained the rights to market both the original and the remake Eleanor cars.
• On remand, the district court should consider whether the character Eleanor was sufficiently developed to qualify for copyright protection.
• Plaintiff potentially had standing to sue for trademark infringement (1) as the owner of the unregistered Eleanor mark and as the owner of merchandising rights in Remake Eleanor.
• With respect to the Gone in 60 Seconds mark, the district court erred in concluding that plaintiff's registered marks in toy cars were insufficient to create standing for an infringement claim regarding actual cars. "To establish standing under the Lanham Act, a plaintiff need only demonstrate that she is the registered owner of a mark for any class of products, even one that does not compete directly with the defendant’s products. See 15 U.S.C. § 1114." Non-competitive goods may still create confusion about the source or sponsorship of goods, and proximity or relatedness of goods is only one of eight factors in the likelihood of confusion analysis.
• Plaintiff had standing to seek cancellation of the "Eleanor" mark because she retained merchandising rights to Remake Eleanor and use of the mark "Eleanor" could create confusion.
• Plaintiff waived her challenge to summary judgment on her state law claims by inadequately briefing them in her appeal.
• The district court did not err in refusing to award attorneys' fees under 17 U.S.C. § 505 of the Copyright Act or 15 U.SC. § 1117(a) of the Lanham Act.
  

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First Amendment Barred Trademark Claims On Depiction of Strip Club in Video Game

Case: E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., 9th Cir. No. 06-56237 (11/5/08)

The One Sentence Summary: The First Amendment barred trademark infringement claims regarding a fictionalized "Pig Pen" strip club in the game "Grand Theft Auto."


What They Were Fighting About: ESS, the operator of the Play Pen strip club, sued Rock Star games for trademark infringement and state law claims for Rock Star's depiction of a fictionalized "Pig Pen" strip club in the Grand Theft Auto video game. The district court granted summary judgment for defendants.

Ninth Circuit Holdings:

• Trade dress claim arising from similarity of trademarks was disposed of with the same analysis as trademark claim.
• Nominative fair use defense did not apply where the video game "Pig Pen" mark was not referring or commenting on "Play Pen" mark.
  
• The panel applied the Second Circuit’s approach from Rogers v. Grimaldi, which

  “requires courts to construe the Lanham Act ‘to apply to artistic works only where the public interest in avoiding consumer confusion outweighs the public interest in free expression.’ ” Walking Mountain, 353 F.3d at 807 (emphasis in original) (quoting Rogers v. Grimaldi, 875 F.2d 994, 999 (2d Cir. 1989)). The specific test contains two prongs. An artistic work’s use of a trademark that otherwise would violate the Lanham Act is not actionable “ ‘unless the [use of the mark] has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless [it] explicitly misleads as to the source or the content of the work.’ ” Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894, 902 (9th Cir. 2002) (quoting Rogers, 875 F.2d at 999).

  
  
• The depiction of the Play Pen club in the video game had some artistic relevance.
• The use of the Play Pen club in the video game did not explicitly mislead players of the game.
  
• The trial court properly granted summary judgment for defendants.
  

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Copyright Fair Use Symposium at USF

Fair Use in the Sky with Diamonds: Examining the Derivative Works Right in the Face of Fair Use, a symposium at the University of San Francisco, explored difficult and interesting questions about copyright fair use.


Highlights included:

• Corynne McSherry of the Electronic Frontier Foundation and Jason Schultz of the Samuelson Law, Technology & Public Policy Clinic at Berkeley Law School spoke about fair use cases including the Lenz v. Universal case (the video of a toddler dancing to a Prince song that drew a DMCA takedown notice). This case generated a decision under 17 U.S.C. sec. 512 that sending a takedown notice requires the copyright holder to consider the question of whether the posting is fair use.
• Annette Hurst talked about defending the "artsurdist" who created parodies of Barbie and fifties kitchen appliances in the Mattel v. Walking Mountain case.
• Jim Marshall, a famous photographer known for his photographs of rock stars, voiced his perspective that "fair use" is often used to justify unfair rip-offs of his work. He spoke about his famous photograph of Johnny Cash flipping the bird. (Search for it on the Internet - the photograph is everywhere).
• Steve Vander Ark, the author of the Harry Potter Lexicon, discussed his creation of the Lexicon as a librarian's aid to finding details in the Harry Potter books. He described how writing the Lexicon was not about the money, but rather his love of the stories and the experiences like finding a headstone for James and Lilly Potter. In another panel, attorneys involved in the case discussed the trial and the principles involved.
• Another panel with Paul Edward Geller and Ysolde Gendreau explored international copyright and moral rights.
  

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Business Method Patents Are Limited by Federal Circuit in Bilski Decision

Case: In Re Bilski, Fed. Cir. No. 07-11130 (10/30/08)

The One Sentence Summary: Sitting en banc, the Federal Circuit held that a "process" under 35 U.S.C. § 101 is patentable when it is tied to a particular machine or apparatus or it transforms a particular article into a different state or thing.

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Patent Invalidity Due to Anticipation Requires that the Prior Art Include All Elements of the Claim Arranged or Combined as in the Claim

Case: Net Moneyin Inc. v. Verisign, Inc., Fed. Cir. No. 2007-1565 (10/20/08)

The One Sentence Summary: The panel upheld a finding of invalidity for failure to disclose a computer algorithm as supporting structure for a means-plus-function claim, but reversed the district court in finding anticipation of another claim because an anticipating reference must include all claim limitations arranged or combined as in the claimed invention.



Federal Circuit Holdings:

• The district court properly held that a claim including "means for generating an authorization indicia" was invalid for indefiniteness under 35 U.S.C. § 112 ¶ 6. The claim failed to include sufficient structure in the claim to rebut the presumption that it was a means-plus-function claim. Moreover, disclosure of a general purpose computer in the specification without disclosure of the algorithm for generating authorization indicia was not sufficient structure as required by section 112, paragraph 6.
• Plaintiff was not allowed to present a new and broader claim construction on appeal than that argued in the district court.
• A finding of anticipation under 35 U.S.C. § 102 requires that the single prior art reference disclose all the limitations of the invention "arranged or combined in the same way as in the claim." The reference relied upon by the district court to find anticipation of a claim did not meet this standard because it required picking parts of the protocols disclosed and recombining them to reach the invention.
  
• The district court did not abuse its discretion in denying a motion to amend the complaint to assert a previously-dropped claim of inducement of infringement.

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Antitrust Laws Did Not Prevent Reverse Payments to Generic Manufacturers to End Patent Validity Challenges

Case: In Re Ciprofloxacin Hydrochloride Antitrust Litigation, Fed. Cir. No. 2008-1097 (October 15, 2008)

The One Sentence Summary: Payments by a drug manufacturer to end patent invalidity claims did not violate antitrust laws because the anticompetitive effect was within the exclusionary scope of the patent.


What They Were Fighting About: Bayer had settled patent infringement claims against generic drug manufacturers with "reverse payments." The generic manufacturers had filed ANDA statements of intent to manufacture and challenged the validity of Bayer's patent for Ciprofloxacin (Cipro). The settlement agreements provided that Bayer would pay the generic manufacturers to dismiss their challenges to the patent and would supply Cipro for sale on the generic market. Plaintiffs sued Bayer and the generic defendants for federal and state antitrust violations. The district court ruled against plaintiffs on motions for dismissal and summary judgment, and plaintiffs appealed.

Federal Circuit Holdings:

• District court properly declined to find that the agreements were per se unlawful as unreasonable restraints of trade in violation of section 1 of the Sherman Act.
• "Any adverse anti-competitive effects within the scope of the ... patent [at issue] could not be redressed by antitrust law ... because a patent by its very nature is anticompetitive."
• The district court properly concluded that the settlement agreements were within the exclusionary scope of the patent.
  
• Settlement of patent disputes is to be encouraged despite the anticompetitive effect of ending a challenge to a patent's validity. The settlements did not prevent other generic manufacturers from filing ANDA statements and challenging the validity of the patents.
• The panel agreed "with the Second and Eleventh Circuits and with the district court that, in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment."
• The district court properly concluded that the agreements did not prevent challenges by other manufacturers to the validity of the patent. The Hatch Waxman Act provisions for an Abbreviated New Drug Application provided significant incentives for companies to challenge patents, and the settlement agreements did not prevent other companies from challenging the patents.
• The district court properly concluded that there was no manipulation of the 180 day exclusivity period for the first ANDA filer.
• Summary judgment for defendants on state law antitrust claims was proper because no fraud occurred.
  

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ITC's Exclusion Order in Cell Phone Chip Investigation Could Not Extend to Parties Not Named in Investigation

Case: Kyocera Wireless Corp. v. International Trade Commission, Fed. Cir. No. 2007-1493, -1494, -1495, -1496, -1497, -1498, -1499, -1514, -1573; 2008-1004, -1009, -1010, -1012, -1013, -1015, -1018, -1019 (October 14, 2008)

The One Sentence Summary: In reviewing the ITC's exclusion order regarding cell phone chips, the Federal Circuit affirmed claim construction, anticipation, and obviousness rulings, but vacated the remedy due to errors in finding induced infringement and in ordering a limited exclusion order against producers of downstream products who were not named as parties in the ITC investigation.



Federal Circuit Holdings:

• The ITC properly construed the claim term "different" in light of the specification.
• The GSM specification was properly construed as publicly available prior art, but was not a single anticipating reference because it consisted of many documents created at different times.
• The post-hearing decision by the Supreme Court in KSR did not allow Qualcomm to revive an obviousness defense that had not been asserted earlier.
• Broadcom failed to show direct infringement.
• The ITC's finding of inducement to infringe was vacated because the ITC did not make a finding of specific intent to infringe as required by the decision in DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1306 (Fed. Cir. 2006), that was issued after the ITC hearing. The matter was remanded for consideration in light of DSU.
• The Commission lacked authority under 35 U.S.C. § 1337(d) to issue its limited exclusion order against parties who made downstream products containing the accused devices but which were not named in the investigation.
  
  

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Patent Cases May Be Leaving the Eastern District of Texas Due to Fifth Circuit Opinion Ordering Transfer of Auto Accident Case

Case: In re Volkswagen of America, 5th Cir. 07-40058 (October 10, 2008)

The One Sentence Summary: The Fifth Circuit ordered the Eastern District of Texas to transfer a car crash product liability case from the Eastern District of Texas to Dallas, the site of the crash, leading patent attorneys to predict that patent infringement suits brought in the rocket docket in Marshall may now be transferred to other jurisdictions having a greater connection to the dispute.



Fifth Circuit Holdings:

• "A writ of mandamus should issue directing the transfer of this case from the Marshall Division of the Eastern District of Texas — which has no connection to the parties, the witnesses, or the facts of this case — to the Dallas Division of the Northern District of Texas — which has extensive connections to the parties, the witnesses, and the facts of this case."
  
  

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After Ten Years of Litigation and Three Appeals, Claims for Semiconductor Wafer Tracking Are Deemed Obvious

Case: Asyst Technologies Inc. v. Emtrak Inc., Fed. Cir. No. 07-1554 (10/10/08)

The One Sentence Summary: On the third appeal of a case involving patents for tracking semiconductor wafers through a manufacturing process, the panel affirmed the district court's finding on a judgment as a matter of law that the asserted claims were obvious in light of the test announced in the Supreme Court's KSR decision.



Federal Circuit Holdings:

• The substitution of a multiplexer for an electrical bus found in the prior art was obvious because multiplexers and buses were the two common ways for connecting and transmitting signals.
  
• The objective indicia of nonobviousness found by the jury — commercial success, long-felt need, and industry praise - were not linked to the features not disclosed by the prior art. Thus, the commercial success did not indicate that the invention was not obvious.
• The district court properly allowed defendant to introduce new invalidity defenses after the claim scope was interpreted by the Federal Circuit in a prior appeal.
  
  

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Implied Statutory Warranty to Deliver Goods Free from Rightful Claims by Third Parties Can Be Breached by Non-Frivolous Trademark Infringement Claims

Case: Pacific Sunwear of California, Inc. v. Olaes Enterprises, Inc., No. D051391 Fourth Dist., Div. One. (Oct. 9, 2008)

The One Sentence Summary: Unsuccessful trademark infringement claims asserted against the buyer of "Smile Now, Cry Later" Hot Sauce Monkey shirts supported the buyer's claim that the seller breached the statutory implied warranty of section 2312(3) of the California Uniform Commercial Code to provide goods that were free of "rightful claims."




What They Were Fighting About: Oales sold Hot Sauce Monkey t-shirts to Pacific Sunwear. These shirts depict on the front, a monkey drinking a bottle of hot sauce and, on the back, the same monkey in apparent pain, expelling fire. Centered underneath each of the images is a two-word caption: on the front, the phrase "Smile Now"; on the back, the phrase "Cry Later." SNCL, the holder of a registered trademark for Smile Now, Cry Later, made trademark infringement claims against Pacific Sunwear. In the trademark litigation in Hawaii, the court denied a motion for preliminary injunction, finding there was no likelihood of confusion after which the case settled.

Pacific Sunwear then sued Olaes for breaching the statutory warranty that the Hot Sauce Monkey T-shirts were "free of the rightful claim of any third person by way of infringement or the like." (§ 2312(3).)

The trial court granted summary judgment for Olaes, holding that the underlying claims of infringement were not "rightful claims" in light of the federal court's ruling that there was no likelihood of confusion.

California Uniform Commercial Code section 2312 states as follows:

"(1) Subject to subdivision (2) there is in a contract for sale a warranty by the seller that

"(a) The title conveyed shall be good, and its transfer rightful; and

"(b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

"(2) A warranty under subdivision (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

"(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications."

California Court of Appeal Holdings:

• The phrase "free of the rightful claim of any third person by way of infringement or the like" in California Uniform Commercial Code section 2312 should be interpreted by reference to the commentary to section 2-312 of the Uniform Commercial Code in the absence of other evidence of legislative intent as to the meaning of "rightful claim."
• The commentary to the Uniform Commercial Code makes it clear that the term "rightful claim" as used in the statute is intended to broadly encompass any nonfrivolous claim of infringement that significantly interferes with the buyer's use of a purchased good.
• Other states have interpreted their statutes enacting section 2-312 of the Uniform Commercial Code consistently with the commentary that a rightful claim need not be a meritorious claim.
• Public policy reasons also support interpreting section 2312 to extend to nonfrivolous claims. A merchant regularly dealing in goods of the kind has superior knowledge of potential claims and more incentive to resolve them than a buyer. Additionally, the parties can expressly contract to alter the implied warranty under section 2312.
• The existence of a reverse warranty from buyer to seller in the case of buyer-supplied specifications under section 2312(3) supports the interpretation of section 2312.
• Interpreting section 2312 to extend to nonfrivolous claims provides a clear allocation of risk that provides certainty to parties entering a commercial transaction.
• "[T]he warranty against rightful claims applies to all claims of infringement that have any significant and adverse effect on the buyer's ability to make use of the purchased goods, excepting only frivolous claims that are completely devoid of merit."
• Summary judgment against the plaintiff's warranty claim was inappropriate due to triable issues of fact as to whether the underlying infringement claim was nonfrivolous.
• Triable issues of fact precluding summary judgment also existed as to whether any damages such as Pacific Sun's litigation expenses were proximately caused by Olaes' failure to disclose the potential trademark claims by SNCL. The factual issues include whether Pacific Sun knew of the potential claims.
  
  

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Reissued Patent Claim Did Not Impermissibly Broaden the Scope of the Original Claim

Case: Predicate Logic, Inc. v. Distributive Software, Inc., Fed. Cir. No. 2007-1539 (10/9/08)

The One Sentence Summary: The district court erred in finding that claims for software analysis modified during reexamination were broader and different in scope than original claims.



Federal Circuit Holdings:

• A claim reissued after reexamination was not invalid due to broadening. The reissued claim was no broader because no hypothetical accused process could be conceived that would violate the reissued claim but not the original claim.
• Another reissued claim was not different in scope from the original claim, so activities before reissuance could still be infringing activities.
  
  

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District Court's Five Year Delay in Issuing Opinion After a Patent Trial Did Not Warrant Reassignment of the Case on Remand

Case: Cohesive Tech. Inc. v. Waters Corp., Fed. Cir. No. 08-1029 (10/7/08)

The One Sentence Summary: The panel considered several issues in affirming in part rulings by the district court on a dispute about patents for high pressure liquid chromatography, and refused to reassign the case despite a five year delay after trial before the district court issued its opinion.



Federal Circuit Holdings:

• Patentee did not expressly disavow claim scope and limit the term "rigid" to exclude polymeric molecules by submitting a declaration distinguishing certain polymeric molecules in a prior art references as non-rigid.
• Expert testimony provided sufficient evidence that the accused particles were "rigid" as required by the claim construction.
• The district court erred in refusing to allow the jury to consider an "iffy" anticipation argument in light of the obviousness argument. Anticipation and obviousness are separate defenses, and a jury could find anticipation even if it did not find obviousness.
• The district court did not err in rejecting an inequitable conduct argument by finding no intent to deceive. The district court accepted witness testimony that the prosecuting attorney felt that the information withheld from the PTO (an expert's disagreement as to whether flow was "turbulent") was not material.
• The district court erred in construing the term "greater than about 30 microns" to exclude the accused device. Claims must be construed in light of the claim language, not in light of the accused device.
• The district court's construction improperly read out of the claim the "about" language. The phrase "greater than about 30 microns" is broader than "greater than 30 microns." The meaning of "about" in this context must be determined in light of the purpose of the limitation in the invention. In light of the variation in particle sizes cited in the specification, the panel concluded that the proper construction of “greater than about 30 μm” in claim 1 of the ’874 patent is: either (1) greater than 25.434 μm, or (2) both greater than 23.044 μm and of sufficiently large size to assure that the column is capable of attaining turbulence.
• The district court's finding of no literal infringement by 25 micrometer particles was in error due to the claim construction and issues of fact as to the diameter of the accused particles.
• Although the doctrine of equivalents can be applied to broad claims, the use of the word "about 30 micrometers" necessarily included the scope of claims that would be encompassed by the doctrine of equivalents.
• The panel remanded for a determination of whether 20 micrometer columns were an acceptable non-infringing substitute for the damage analysis.
• The court affirmed a finding of non-willfulness based upon a close question of whether the claims were limited to non-polymeric materials.
• Enhanced damages were not available absent willfulness.
• Despite a 5 year delay by the district court in issuing its opinion, the panel would not reassign the case to another judge.
  
  

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Patent for Controlling Gas Flows Invalidated for Inequitable Conduct Where Witness Could Not Explain the Failure to Disclose References to the PTO

Case: Praxair, Inc. v. ATMI, Inc., Fed. Cir. No. 2007-1483, 2007-1509, 9/29/08

The One Sentence Summary: The panel affirmed in part, reversed in part and remanded after considering inequitable conduct, indefiniteness, and claim construction challenges.



Federal Circuit Holdings:

• The panel affirmed the district court's finding of inequitable conduct and unenforceability of the '115 patent for failing to disclose restricted flow orifices that were similar to the capillaries claimed in a patent to control discharge of high pressure fluids and gases. The RFO prior art was highly material because it was inconsistent with statements made in the prosecution of the patent. There was no credible explanation of the reason why the reference was not submitted to the PTO (general statements of not having an intent to deceive were entitled to no weight, and the witness could not recall specifically why the reference had not been submitted). Thus, the court properly inferred intent to deceive the PTO.
• An inequitable conduct finding as to a second patent (the '609 patent) was reversed because there was no basis for a finding of high materiality. The prosecution history statements relied upon in establishing materiality for the '115 patent did not infect the prosecution of the '609 patent.
• The panel reversed the district court's conclusion that the '895 patent was unenforceable due to 35 U.S.C. section 112 indefiniteness in the term "port body." The port body was sufficiently described in the specification and figures, it was not exclusively defined by its functionality, and extrinsic evidence of an expert's inability to identify the port body did not affect the legal interpretation of the term.
• The district's court's claim construction of the term "flow restrictor" was incorrect in requiring "severe" flow restriction when that was simply a preferred embodiment. However, the panel rejected the broader construction of any flow restriction where the specification made clear that the very character of the invention as described in the specification required that the flow restriction be sufficient to prevent hazardous flows of gases.
• The district court properly relied on a dictionary definition for construction of the term "capillary" that was not contradicted by the specification.
• Although "uniformity" of capillaries was often mentioned in the specification, it was simply a preferred embodiment, and it was added as a limitation by dependent claims to earlier independent claims, and thus should not be part of the claim construction.
  
  

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Implied License to Use Custom Created Software Defeats Copyright and Trade Secret Claims

Case: Asset Marketing v. Gagnon, 9th Cir. No. 07-55217 (9/9/08)

The One Sentence Summary: An implied license to use and modify software arose between a contractor who created customized software for a customer and the customer.



Ninth Circuit Holdings:

• Implied, unlimited license arose under copyright law from relationship where plaintiff created customized software for defendant where the contract was silent regarding a license, the contractor was paid on an hourly basis, and software was delivered without indication that there were any limits on use by the defendant.
• Trade secrets alleged to be in the software were not misappropriated where defendant had an implied license to use and modify the software.
• A non-compete agreement for plaintiff's fomer employees was unenforceable absent any trade secrets due to California Business & Professions Code section 16600.
  
  

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Watches Manufactured Abroad Bearing US Copyrighted Design Cannot Be Imported Without Copyright Owner's Consent According to Ninth Circuit

Case: Omega S.A. v. Costco Wholesale, 9th Cir. No. 07-55368 (09/03/08)
The Two Sentence Summary: The Ninth Circuit panel reaffirmed their precedent holding that importation and sale of imported "gray market" watches manufactured overseas bearing a copyrighted design registered in the United States was an infringement of copyright. The panel distinguished the Supreme Court’s decision in Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135 (1998), which held that the first sale doctrine allowed resale of gray market products which had been manufactured in the United States.

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Breach of Open Source Software License Allows Injunction for Copyright Infringement

Case: Jacobsen v. Katzer, Fed. Cir. No. 2008-1001 (8/13/08)

The One Sentence Summary: Applying Ninth Circuit law, the Federal Circuit reversed a denial of preliminary injunction, holding that an open source copyright license requiring attribution as a condition of use and distribution of software could be enforced by preliminary injunction and remanded for a determination of whether preliminary injunction standards were met.



Federal Circuit Holdings:

• The Federal Circuit had jurisdiction over the appeal because of patent claims in the case, but would apply Ninth Circuit law to the copyright issues on this appeal.
• In determining whether to issue a preliminary injunction, the Ninth Circuit requires demonstration of (1) a combination of probability of success on the merits and the possibility of irreparable harm; or (2) serious questions going to the merits where the balance of hardships tips sharply in the moving party's favor.
  
• In copyright cases, the Ninth Circuit has applied a presumption of irreparable harm, but this presumption may need to be reconsidered in light of the Supreme Court's decision in eBay Inc. v. MercExchange, 547 U.S. 388 (2006).
• Generally, a copyright owner who grants a nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement, and can sue only for breach of contract. Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1121 (9th Cir. 1999); Graham v. James, 144 F.3d 229, 236 (2d Cir. 1998). If, however, a license is limited in scope and the licensee acts outside the scope, the licensor can bring an action for copyright infringement. See S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9th Cir.1989); Nimmer on Copyright, section 1015[A] (1999).
• The Artistic License at issue created conditions to use of the software, and was a restriction on the scope of the license. Accordingly, plaintiff could sue for copyright infringement and seek an injunction.
  
  

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Even Reasonable and Narrow Non-Compete Agreements Are Barred by California Statute

Employment contracts with non-competition clauses are common outside of California, but a California statute, section 16600 of the California Business and Professions Code, prohibits non-compete contracts outside of a few statutory exceptions. In a decision issued on August 7, 2008, Edwards v. Arthur Anderson, No. S147190, the California Supreme Court held that section 16600 prohibits non-competition contracts even if the non-compete clause is reasonable or imposes only a “narrow restraint.” The Court further held that the employer had engaged in a wrongful act by requiring the employee to sign a release of claims under the non-competition contract.

Background:

Section 16600 provides that

“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

Statutory exceptions to section 16600 allow non-compete contracts in certain circumstances, including in connection with the sale of goodwill of a business (§ 16601) and the dissolution of a partnership (§ 16602) or limited liability corporation (§ 16602.5).

In Edwards, the plaintiff Edwards had signed a non-competition agreement as an employee of Arthur Anderson. The agreement barred Edwards from serving within 18 months any Anderson clients with whom Edwards had worked, and barred solicitation of clients of Anderson’s Los Angeles office. After Anderson became embroiled in the Enron scandal, HSBC sought to hire a group of employees including Edwards. HSBC and Anderson required the moving employees to sign a “Termination of Non-Compete Agreement” which released “any and all” claims against Anderson. Edwards refused to sign the termination agreement because he did not want to release indemnity claims against Anderson, and was therefore not hired by HSBC. Edwards then sued Anderson and HSBC for claims including interference with prospective economic advantage. Edwards lost in the trial court against Anderson but won at the California Court of Appeal (click here for a discussion of the lower court decision). The California Supreme Court then took the case.

California Supreme Court Holdings:

• The first question before the California Supreme Court was whether Anderson’s enforcement of the non-competition agreement (by forcing Edwards to sign an agreement terminating it) was a wrongful act. The Court held that enforcing the non-competition agreement was illegal under section 16600 and enforcing it was a wrongful act that could lead to liability for interference with prospective economic advantage. The Court noted that

  section 16600 reflects “a settled legislative policy in favor of open competition and employee mobility, . . . [it] ensures that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice [and it] protects the important legal right of persons to engage in businesses and occupations of their choosing.”



• In light of the broad statutory language of section 16600 and the limited statutory exceptions, the Court rejected decisions of federal courts which had ruled that section 16600 allowed “reasonable” non-compete contracts that imposed only a “narrow restraint” on competition. The Court stated “Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.”


• In a second part of the decision unrelated to the non-competition agreement issue, the Court also held that the release sought by Anderson as the employer for “any and all” claims was not unlawful because it could not be interpreted to release non-waivable employee indemnity rights under California Labor Code section 2802(a).
  

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Unsuccessful Patent Claims Did Not Allow Later Malicious Prosecution, Unfair Competition and Antitrust Claims

Case: Fisher Tool Co., Inc. v. Gillet Outillage, 9th Cir. No. 06-55996, 06-56165 (June 30, 2008)


The One Sentence Summary: District court properly granted summary judgment for defendants on malicious prosecution, Lanham Act, state law tort and antitrust claims arising out of earlier patent suit on plier patents where defendant and its attorneys had good faith basis to assert patent infringement.



Ninth Circuit Holdings:

• Summary judgment for defendant on a malicious prosecution claim arising from a dismissed patent infringement case was appropriate where the client relied on advice from an attorney, and where the attorney was not on notice of facts that plaintiff claimed made the patent invalid.
• Summary judgment against the malicious prosecution claim was also appropriate because the attorneys had probable cause to believe that infringement existed. Sheldon Appel Co. v. Albert & Oliker, 765 P.2d 498, 501 (Cal. 1989). The narrow Markman ruling by the district court did not mean that probable cause did not exist.
  
• Demand letters threatening suit did not allow a cause of action under the Lanham Act because they were not written in "bad faith."
• Antitrust claim was barred by the Noerr-Pennington doctrine because the underlying patent lawsuit was not objectively baseless.
  
  

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Exact Digital Models of Cars Not Protected by Copyright

Case: Meshworks v. Toyota, Tenth Cir. No. 064222 (June 17, 2008)

The One Sentence Summary: Exact digital models of cars were not copyrightable because there was no creativity involved in their creation.


Tenth Circuit Holdings:

• In derivative works cases, the court must separate out the preexisting work to determine what is copyrightable by the new author.
• Conveying reality does not create a copyrightable work.
  

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California Appellate Court Defines Statute of Limitations Period for Third-Party Trade Secret Actions

Case: Cypress Semiconductor Corp. v. Superior Ct. (Silvaco Data Systems), No. H032114 (Cal. Ct. App. May 30, 2008)

The One Sentence Summary: Court holds that the statute of limitations on a cause of action for third-party trade secret misappropriation begins to run when the plaintiff has any reason to suspect that the third-party knows or reasonably should know that the information is a trade secret.

What They Were Fighting About: Plaintiff Silvaco Data Systems had developed source code, which it held as a trade secret. A former employee with access to plaintiff's trade secret left for a competitor and used the secret source code in a competing software. Plaintiff sued the competitor for trade secret misappropriation and reached a settlement whereby the competitor admitted misappropriation. The competitor, however, had sold its infringing software to its customers. One customer, defendant Cypress Semiconductor Corporation, continued to use plaintiff's trade secret. Plaintiff sued for misappropriation under California's Uniform Trade Secrets Act (Civ. Code § 3426 et seq.). Defendant argued that the three year statute of limitations period had expired (Id. § 3426.6).

California Appellate Court Holdings:

• The court rejected the single-claim rule, whereby a plaintiff for misappropriation has but one claim and the clock on the statute of limitations commences when the plaintiff learns of the original misappropriation. Instead, the court held that "a plaintiff may have more than one claim for misappropriation, each with its own statute of limitations, when more than one defendant is involved."


• The court also rejected the plaintiff's argument that the statute of limitations should begin when a third-party defendant learns that it possesses plaintiff's trade secrets. Instead, the court held that the "proper focus, for purposes of the running of the statute of limitations, is not upon the defendant’s actual state of mind but upon the plaintiff’s suspicions." As such, the court held that the statute of limitations on a cause of action for third-party trade secret misappropriation begins to run when the plaintiff has any reason to suspect that the third-party knows or reasonably should know that the information is a trade secret.


• In the case at hand, the court concluded that whether the statute of limitations had expired was a factual question for the jury. The jury was tasked with determining "When did Silvaco first have any reason to suspect that a CSI customer had obtained or used DynaSpice [the infinging product] knowing, or with reason to know, that the software contained Silvaco’s trade secrets?
  
  

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Statutory Damages Were Not Available for Series of Infringements Where Work Was Registered After 1st Infringement

Case: Derek Andrew, Inc. v. Poof Apparel Corp., No. 07-35048, Ninth Circuit, June 11, 2008

The One Sentence Summary: Statutory damages for copyright infringement were not available where the first infringement in a series occurred before registration.


What They Were Fighting About: Defendant Poof had infringed hang tags on clothing, and default judgment was awarded against it, along with statutory damages and attorneys' fees.

Ninth Circuit Holdings:

• Statutory damages for copyright infringement were not available where the first infringement in a series occurred before registration.
• Attorneys' fees for willful infringement under Lanham Act were available where default was entered under complaint alleging willful infringement.
  
  

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Patent Exhaustion Doctrine Prevented Pursuit of Customers of a Licensee

Case: Quanta Computer, Inc., et al. v. LG Electronics, Inc., Supreme Court No. 06-937, June 9, 2008.

The One Sentence Summary: The patent exhaustion doctrine prevented an action against a buyer of a patented article from a licensee.



Supreme Court Holdings:

• The authorized sale of an article that substantially embodies a patent exhausts the patent holder's rights and prevents the patent holder from invoking patent law to control postsale use of the article. Here, LGE licensed Intel to practice any of its patents and to sell products practicing those patents. Intel's microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. Nothing in the License Agreement limited Intel's ability to sell its products practicing the LGE Patents. Intel's authorized sale to Quanta thus took its products outside the scope of the patent monopoly, and as a result, LGE can no longer assert its patent rights against Quanta.
  
  

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Parody Web Site That Criticized Critics of the LDS Church Did Not Infringe Trademarks or Constitute Cyber-Squatting

Case: Utah Lighthouse Ministry v. Discovery Computing, 10th Cir. No. 07-4095 (05/29/2008)

The One Sentence Summary: The panel affirmed summary judgment in favor of parody web site and domain names that used the mark of UTAH LIGHTHOUSE, a site criticizing the LDS Mormon church, to direct internet users to sites with opposing views.



Tenth Circuit Holdings:

• Evidence of search rankings was not sufficient evidence of secondary meaning:

  A mark acquires a secondary meaning if the words “have been used so long and so exclusively by one producer with reference to his goods or articles that, in that trade and to that branch of the purchasing public, the word or phrase [has] come to mean that the article is his product.” Educ. Dev. Corp. v. Econ. Co., 562 F.2d 26, 29–30 (10th Cir. 1977) (internal quotation marks omitted) (modification in original). The number of search engine hits, standing alone, is inadequate to demonstrate that consumers associate the mark with a particular product or producer, or perceive UTAH LIGHTHOUSE as a distinctive mark.



• Links on accused infringer's site to commercial sites via roundabout paths did not render the defendants' use of the trademark a use in commerce.
• Mere interference with sales on the plaintiff's site due to diversion in traffic was not a use in commerce under the Lanham Act.
• The court declined to hold that any use of a trademark on the internet was use “in connection with goods or services.”
• District court correctly concluded that parody web site did not create a likelihood of confusion.
• Registration of a domain name identical to trademark was not a violation of anti-cybersquatting act in absence of evidence of distinctiveness of mark or bad faith intent to profit from mark. Parody of mark was not an attempt to profit.
• Safe harbor under ACPA applied. Provision of ACPA precludes a finding of bad faith intent if “the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.” 15 U.S.C. § 1125(d)(1)(B)(ii). Defendant's belief that this was a parody precluded a finding of bad faith attempt to profit.
  
  

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Preparing Designs for Infringing Products Was Sufficient Preparation to Allow Declaratory Judgment Jurisdiction

Case: Cat Tech. LLC. v. Tubemaster Inc., Fed. Cir. No. 07-1443 (5/28/08)

The One Sentence Summary: The second prong of the Federal Circuit's declaratory judgment test survives after the Supreme Court's Medimmune decision, and was met here where the accused infringer had made preparations to infringe.


What They Were Fighting About: The Federal Circuit panel affirmed summary judgment of non-infringement for reactors that did not meet spacing requirements set out in claim language.

Federal Circuit Holdings:

• "[A]lthough MedImmune articulated a “more lenient legal standard” for the availability of declaratory judgment relief in patent cases, the issue of whether there has been meaningful preparation to conduct potentially infringing activity remains an important element in the totality of circumstances which must be considered in determining whether a declaratory judgment is appropriate. If a declaratory judgment plaintiff has not taken significant, concrete steps to conduct infringing activity, the dispute is neither “immediate” nor “real” and the requirements for justiciability have not been met." Slip opinion at 12.
• Preparation of CAD drawings of 3 versions of devices, and production of one was sufficient "meaningful preparation to conduct potentially infringing activity" to allow declaratory judgment action.
• Design of four infringing configurations met "reality" test for declaratory judgment because the accused configurations were fixed and not fluid.
• District court properly exercised discretion in ruling on declaratory judgment in order to give certainty to accused infringer without requiring betting the farm.
• Claim language interpretation of "a spacing" smaller than a particle size required that all spacings be smaller.
• Prosecution history of parent application supported interpretation that all spacings must be smaller than the particle size.

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Summary Judgment for Defense Affirmed in Copyright Action Where the Similarity in Architectural Plans Was in Unprotectable Concepts and Not Expression

Case: Oravec v. Sunny Isles Luxury Ventures, L.C. , No. 06-14495 (11th Cir. 5/14/08)

The One Sentence Summary: Summary judgment of non-infringement for defendants of copyright in architectural plans is upheld where similarities were only in non-protectable ideas and concepts rather than in expression of ideas.



Eleventh Circuit Holdings:

• "[N]on-infringement may be determined as a matter of law on a motion for summary judgment, either because the similarity between two works concerns only non-copyrightable elements of the plaintiff’s work, or because no reasonable jury, properly instructed, could find that the two works are substantially similar.”
• In comparing works, the court must determine if there is substantial similarity in expressions of ideas rather than the ideas themselves which cannot be copyrighted.
• "[W]hile individual standard features and architectural elements classifiable as ideas are not themselves copyrightable, an architect’s original combination or arrangement of such features may be."
• Differences in the designs "preclude a finding of substantial similarity. While it is true that Oravec’s designs and the Trump Buildings have a number of features in common, those elements are similar only at the broadest level of generality. At the level of protected expression, the differences between the designs are so significant that no reasonable, properly instructed jury could find the works substantially similar. As the district court observed, to conclude otherwise would require a finding that Oravec owns a copyright in the concept of a convex/concave formula or in that of using three external elevator towers that extend above the roof of a building. Such a conclusion would extend the protections of copyright law well beyond their proper scope."
• Protection of broad concepts under copyright would not be allowed because it would diminish the store of ideas available to other architects.
• Construction of a plan registered as a pictorial, graphic or sculptural work rather than as an architectural work under the Copyright law was not an infringement.
• “[A]lthough an owner of copyrighted architectural plans is granted the right to prevent the unauthorized copying of those plans, that individual . . . does not obtain a protectable interest in the useful article depicted by those plans.”
• Effective registration doctrine did not allow protection of unregistered elements of models in later registration as a pictorial, graphic or sculptural work that did not incorporate those models.
• The district court did not abuse discretion in denying late amendment of plaintiff's complaint.
  
  

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Assignment Agreement Incorporating Patent Law Terms Should Have Patent Law Principles in Jury Instructions

Case: Medtronic v. White, Ninth Circuit No. No. 06-16229, (May 15, 2008)

The One Sentence Summary: The Ninth Circuit panel reversed and remanded a jury verdict in a dispute over ownership of a patent where the district court gave agency instructions to the jury in lieu of patent law instructions regarding interpretation of a contract assigning inventions "conceived" or "reduced to practice" during employment.


Ninth Circuit Holdings:

• Objections to agency instructions were adequately preserved.
• The parties to a contract assigning inventions "conceived" or "reduced to practice" during employment incorporated patent law principles by reference to a policy stating that patent law principles would apply.
• Giving agency instructions rather than instructions defining the law of inventorship under patent law principles was clear error.
• An admission against interest by the inventor could be allowed without corroborating evidence although it concerned reduction to practice - corroborating evidence is only required with respect to reduction to practice when the inventor is the proponent of the testimony.
  
  

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In Doors Rock Band Dispute, Ninth Circuit Finds Insurer Duty to Defend Against Trademark Claims

Case: Manzarek v. St. Paul Fire & Marine Ins. Co., 9th Cir. No. 06-55936 (3/25/08)

The One Sentence Summary: District court erred in dismissing an advertising injury insurance coverage and bad faith lawsuit involving members of the rock band, The Doors, and claims of trademark infringement.



Ninth Circuit Holdings:

• Dismissal of plaintiff's complaint for insurance coverage for advertising injury and bodily injury was improper. A duty to defend existed due to a potential of coverage for claims alleging sale of trademarked merchandise and infliction of emotional distress. The "field of entertainment" exclusion relied upon by the defendant insurance company did not exclude all potential for coverage.
• The trial court should have allowed plaintiff an opportunity to amend his complaint.
  
  

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Patent Office Rule Changes Blocked by District Court's Permanent Injunction

Case: Tafas v. Dudas, Nos. 1:07cv846, 1:07cv1008 (E.D. Va. 4/1/08)

Judge James Cacheris of the United States District Court in Alexandria, Virginia issued a permanent injunction blocking the USPTO from implementing new rules for patent prosecution. The rules had been previously held up by a preliminary injunction issued on October 31, 2007.

In issuing the injunction, the court granted summary judgment to plaintiffs, holding that the rules were substantive rather than procedural, and that the USPTO did not have authority to issue the rules.

The litigation is likely not over because the ruling could be appealed to the Federal Circuit by the USPTO.

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Antisuit Injunction Not Available to Stop Litigation in China Despite Prior California Settlement

Case: TSMC North America v. Semiconductor Mfg. Int'l Corp., California Court of Appeal No. A117182, March 27, 20008

In Brief: After the parties settled an earlier patent infringement suit with a settlement agreement providing for California choice of law and submission to California courts for jurisdiction, disputes again arose causing one party to file litigation in California and the other to file a suit in the Peoples' Republic of China. The trial court denied a motion for an antisuit injunction barring further litigation of the case in China, citing concerns of international comity, and rejecting claims that the litigation in China would violate plaintiff's rights. The court of appeal affirmed.

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Use of Trademark in Keyword Search Caused Initial Interest Confusion

Case: Storus Corp. v. Aroa Mktg. Inc., N.D. Cal. C-06-2454 (Feb. 15, 2008)

The One Sentence Summary: Summary judgment of initial interest confusion under the Lanham Act was granted for plaintiff where defendant purchased keyword search advertisements using plaintiff's trademark and the advertisement displayed the trademark leading searchers to click on the advertisement.



District Court Holdings:

• SMART MONEY CLIP mark was a valid mark. Defendant failed to present any evidence that "smart money clip" was a general laudatory term.
• Applying the internet trinity of Sleekcraft confusion factors, (1) the similarity of the marks, (2) the relatedness of the goods or services, and (3) the parties’ simultaneous use of the Web as a marketing channel, the court found a likelihood of confusion due to initial interest confusion. Defendant's purchase of the trademark keywords "smart money clip" on Google AdSense leading to defendant's advertisement titled "Smart Money Clip" led to 1,374 clicks out of 36,164 displays. This diversion of potential customers was initial interest confusion under the Lanham Act.
• For a second defendant, summary judgment was denied in the absence of evidence that a search for the term "smart money clip" would lead to a page with that phrase advertising a competing product.
  
  

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Amounts Paid By Settling Copyright Defendants Reduces Judgment Against Non-Settling Defendants Under One-Satisfaction Rule

Case: Buc Int'l Corp. v. Int'l Yacht Council Ltd, 11th Cir. No. 05-16151 (2/25/08)

The One Sentence Summary: Defendants found liable for copyright infringement should have been allowed to reduce the judgment against them under Federal Rule of Civil Procedure 60(b)(5) by the amount paid by settling defendants because one satisfaction rule applies to copyright claims.

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