U.S.A. - Recent Intellectual Property Cases of Interest

Mario Aieta, Satterlee Stephens Burke & Burke

A. Patents

 Patentability

 In Bilski v Kappos, 130 S. Ct. 3218 (2010), the United States Supreme Court addressed the patentability of a business method.  The inventor sought patent protection for “a claimed invention that explains how buyers and sellers of commodities in the energy market can protect, or hedge, against the risk of price changes.”[1]  The Federal Circuit Court of Appeals had rejected the claimed invention as an abstract idea not subject to patent protection and held that the only test for the patentability of a process is the “machine-or-transformation test,” which states that a claimed process is only patentable if “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”  This holding was seen as a very significant limitation on patent protection that could invalidate a large number of business method patents[2] relating to the Internet and upon which a number of very significant licensing business were based.  The Supreme Court held that the “machine-or-transformation test,” while a useful tool for analyzing the patentability of certain inventions, is not the only test for patentability and again recognized the patentability of business methods. Although it rejected the Federal Circuit’s approach to analyzing the patentability of the business method at issue, it nonetheless agreed with the Federal Circuit that that business method is not patentable because it is nothing more than an abstract idea, i.e., a description of the basic concept of risk hedging (in Claim 1) applied to specific areas of economic activity (in the other claims of the patent).

Patent Marking

 Last year we reported that in In Forest Group, Inc. v Bon Tool Company (Fed. Cir., December 28, 2009), the Federal Circuit (which hears all appeals on patent issues decided by the federal trial courts), interpreted the false marking provision of the U.S. patent law to require a fine “per article” that is falsely marked, rather than one fine for each “decision” to mark articles that are not covered by the referenced patent.  The Forest Group decision has led to a significant increase in the number qui tam patent marking cases.  In Pequignot v. Solo Cup Co., a patent attorney brought a qui tam action against Solo Cup, a manufacturer of paper cups.  Solo Cup makes plastic lids for paper cups using lid designs that were subject to certain US patents.  The machinery used to make the lids – at the rate of one lid every six seconds – stamped a patent notice onto each lid.  The molds used in the lid-making machines have a long life cycle, lasting 15 to 20 years, and continued in use after the patent at issue had expired, thereby imprinting the lids with patent notices when the lid design was no longer subject to patent protection.  Relying on Forest Group, the qui tam plaintiff sought damages for false marking of $500 per lid stamped with the expired patent number. Given the large number of lids produced by Solo Cup, the damages sought by plaintiff amounted to almost $10 trillion.  (The US Government is entitled to 50% of any damages recovered by a qui tam plaintiff.  In this case, the government’s share of the damages sought by plaintiff would have been sufficient to pay back 42% of the national debt of the United States.)  While agreeing with the plaintiff that “articles marked with expired patent numbers are falsely marked,” the court held that Solo Cup did not falsely mark its lids “for the purpose of deceiving the public” and, therefore, plaintiff was not entitled to recover on his false marking claim.

Damages

 In Uniloc USA v Microsoft (Fed. Cir. Jan. 4, 2011), the Federal Circuit rejected an often used “rule of thumb” for the calculation of patent damages.  The “25% rule” had been used in patent litigation in the U.S. to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation. The “25% rule” proposed that the a willing licensee would pay to the patent owner a royalty rate equivalent to 25 per cent of its expected profits for the product that incorporates the patent at issue.  The Federal Circuit rejected the “25% rule”  “because it fails to tie a reasonable royalty base to the facts of the case at issue” because it does not “account for the unique relationship between the patent and the accused product. . . it fails to account for the unique relationship between the parties. . . [and it] is essentially arbitrary and does not fit within the model of the hypothetical negotiation within which it is based.”

B. Trademarks

In American Needle Inc. v National Football League, No. 08–661 (May 24, 2010), the United States Supreme Court held the thirty-two American professional football teams did not violate anti-trust laws when they cooperated together to license their trademarks through a single unincorporated association.  Plaintiff, a former licensee of the NFL, sued when the NFL refused to renew it license to make and sell apparel incorporating NFL team insignias.  Plaintiff accused the NFL of violating the Sherman Act (the federal antitrust law) which prohibits “Every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade.”  This broad probation is tempered by the judge-made “Rule of Reason,” which requires the court to determine “whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.”  The court noted that the NFL teams must “cooperate in the production and scheduling of games,” else there would be no “product” at all, i.e., there would be no professional football league.  That reality “provides a perfectly sensible justification for making a host of collective decisions,” including decisions about trademark licensing.

C. Copyright

In Arista Records, LLC, et al. v. Lime Group LLC, et al. 06 CV 5936 (S.D.N.Y. March 10, 2011), plaintiffs, a group of thirteen recording companies, sued the owners and operators of the LimeWire file sharing sytem, claiming that approximately 11,000 copyrighted sound recordings had been infringed by individuals using the LimeWire system.  The court granted summary judgment to plaintiffs, holing that LiweWire was liable for inducing copyright infringement.  The plaintiffs elected to receive statutory damages for the infringement of 9500 sound recordings under Section 502(c)(1) of the Copyright Act (recordings made before 1972 are governed by an earlier version of the copyright law under which statutory damages are not available).  The copyright statute authorizes separate statutory damage awards for infringement of the same work against individually liable direct infringers.  The LimeWire defendants, however, were not direct infringers; they merely induced others to infringe.  Therefore, the trial court had to determine if Plaintiffs were entitled to recover from Defendants a separate statutory award for each infringement they induced, e.g., for each time that a song was downloaded via LiveWire by a separate individual, or only one statutory damage award for each song infringed, no matter how many times the song was illegally downloaded and no matter how many separate individuals downloaded it.  The plaintiffs, predictably, argued that they are entitled to a separate award of statutory damages for each time individual who downloaded a copyright-protected song.  The trial court disagreed, noting that Plaintiffs’ position on damages would yield an “absurd result.”  At the maximum statutory damage level of $150,000 per work, and in light of the fact that many thousands of people had downloaded songs via LimeWire’s system, plaintiffs’ position would have resulted in an award of damages that is “more money than the entire music recording industry has made since Edison’s invention of the phonograph in 1877.”  Instead, the court determined that the most plausible interpretation of the statutory damage provisions of the Copyright Act “is one that authorizes only a single statutory damage award per work against a secondarily liable defendant, particularly in the context of the mass infringement found in the context of online peer-to-peer file sharing.”

D. Constitutional Law

i. Health Care and the Commerce Clause

Last year we reported on the Patient Protection and Affordable Care Act, which provides for many substantial changes to the business of health care in the United States, compelling most individuals and business to obtain health insurance and prohibiting insurance companies from denying coverage to anyone with preexisting conditions.  Numerous law suits were filed seeking to overturn the law as unconstitutional for a variety of reasons.  To date, five United States District Court judges have made substantive rulings on the constitutionality of the Patient Protection and Affordable Care Act.  Three judges (all appointed by a Democratic president) have held that the Act is constitutional.  Two judges (each appointed by a Republican president) have held that the act is unconstitutional. 

 For example, in a decision issued on January 31, 2011, Judge Roger Vinson of the Northern District of Florida held that the Act was unconstitutional because it violated the Commerce Clause of the United States Constitution. The Commerce Clause states that Congress has the authority “To regulate Commerce with Foreign Nations, and among the several States, and with the Indian Tribes.”    The Commerce Clause has, over the past three centuries, been identified and relied upon as the source of much of the federal government’s power to regulate the activities of individuals, whose conduct might not appear to have any impact on or relationship to any issues of national concern (being, instead, of purely local interest and effect).  The phrase “to regulate Commerce among the several States” has been interpreted to mean that Congress has the power to regulate even the local activities of an individual if those activities are the type that, if undertaken by very many individuals throughout the nation, would, taken together, have an impact on national commerce.  (The “aggregation” theory was used to justify the federal government’s power to regulate the amount of wheat grown by a local farmer “wholly for consumption on [his own] farm.”  If, like the farmer in the case, hundreds of thousands of farmers grew more than there allotted amount of wheat, all for consumption on their own farms, they would not buy wheat at their local markets and, in the aggregate, would diminish the demand for wheat on a national basis, thereby having an impact on commerce between the states.)  Finding that the Patient Protection and Affordable Care Act compelled individuals to purchase health care insurance or suffer a penalty, thereby regulating and penalizing inactivity (not purchasing insurance) rather than activity (growing too much wheat), Judge Vinson held that the Act is unconstitutional:

the mere status of being without health insurance, in and of itself, has absolutely no impact whatsoever on interstate commerce (not “slight,” “trivial,” or “indirect,” but no impact whatsoever) --- at least not any more so than the status of being without any particular good or service. If impact on interstate commerce were to be expressed and calculated mathematically, the status of being uninsured would necessarily be represented by zero. Of course, any other figure multiplied by zero is also zero. Consequently, the impact must be zero, and of no effect on interstate commerce. The uninsured can only be said to have a substantial effect on interstate commerce in the manner as described by the defendants: (i) if they get sick or injured; (ii) if they are still uninsured at that specific point in time; (iii) if they seek medical care for that sickness or injury; (iv) if they are unable to pay for the medical care received; and (v) if they are unable or unwilling to make payment arrangements directly with the health care provider, or with assistance of family, friends, and charitable groups, and the costs are thereafter shifted to others.

Most of the district decisions have been appealed.  Judge Vinson’s decision has been appealed to the 11th Circuit Court of Appeals.  (There are 16 active judges on that appellate court, six appointed by Democrats and ten appointed by Republicans.)  Three judges will decide the appeal.

ii. Immigration and the Commerce Clause

Last year we reported on the “Support Our Law Enforcement and Safe Neighborhoods Act,” Arizona law SB1070, the “toughest anti-immigration state law in the United States,” which, among other things, requires state officials to inquire into the immigration status of any person “where reasonable suspicion exists that the person is an alien who is unlawfully present in the United States” whenever a law enforcement official or agency of the State of Arizona or any political subdivision of the State (county, city, town etc.) makes “any lawful contact” with that person.  Before the law became effective the United States sued the State of Arizona to have the law declared invalid and unenforceable on various grounds, including that it violated the Commerce Clause by interfering with the ability of the United States to regulate commerce among the States.  The District Court in Arizona granted a preliminary injunction prohibiting the State of Arizona from enforcing the law on the grounds that it interfered with the exclusive immigration enforcement authority of the United States.  On April 11, 2011, the Ninth Circuit Court of Appeals agreed with the District Court.  By compelling state and local officials to determine the immigration status (a status solely determined by the United States, not by any state) of every person arrested or detained in the State of Arizona, the law compels Arizona officers under the sole supervision and direction of the State of Arizona to enforce federal immigration laws, thereby interfering with the United States’ sole authority to enforce those laws.  The Ninth Circuit also held that that part of the Arizona law that made it a crime under Arizona law for an immigrant to “willfully” fail to carry his alien registration documents (issued exclusively by the U.S., not by Arizona) with him at all times was preempted by federal immigration laws.  This was a preliminary decision continuing the District Court’s ban on enforcement of the law until a full trial is held by the District Court.

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