The Senate Judiciary Committee has announced its confirmation hearing for PTO Director Nominee Andrei Iancu – Wednesday, 29 November, at 10:00 a.m. [Webcast]
I invited Prof. Dmitry Karshtedt to provide this discussion of today’s oral arguments in Oil States. Note, Prof. Karshtedt filed an amicus brief in the case supporting the petitioner. Read the transcript here. – DC
By Prof. Dmitry Karshtedt
This morning’s argument in Oil States v. Greene’s Energy saw a highly engaged bench. The wide-ranging argument covered everything from the expected topics of the public-private right divide and the significance of the Privy Council’s adjudications of patent rights to perhaps more surprising angles involving government takings and even disputes between travelers and airlines over lost bags.
Some of the main themes of the argument:
Allyson Ho, Oil States’ counsel, lead with the argument that Inter Partes Reviews (IPRs) embody an unconstitutional transfer of judicial power to decide claims of private right between private parties without party consent or adequate Article III supervision. Justice Ginsburg asked almost immediately whether IPRs merely allow for correction of the PTO’s own errors. Ms. Ho then made an important strategic decision in conceding that, while ex parte and inter partes reexams (though a closer case) present permissible, examination-like error-correcting proceedings, IPRs differ from those earlier mechanisms because they more closely resemble an adjudication of a private-party dispute in which the PTO acts as an arbiter. Justice Kagan and Chief Justice Roberts questioned whether there is really a salient difference between IPRs and reexaminations, as the latter too allow for a process by which a third party informs the PTO that particular prior art may render an issued patent unpatentable after all. Ms. Ho, in response, stressed the high degree of third party involvement and the trial-like nature of the proceedings. In addition, she argued that in case of settlement, the PTAB generally does not complete the IPR.
The argument then moved toward the role of Congress in creating the patent right. Surely, suggested Justice Kennedy, Congress can validly limit the patent term and perhaps even shorten the patent term after issuance, so why not IPR? The response appeared to be that a grant of a patent cannot be conditioned on giving up structural rights, harkening to the discussion of the unconstitutional conditions doctrine in the petitioner’s reply brief. Even though Congress can create rights, there is a constitutional limits on how those rights can be restricted. The Chief Justice then mentioned the law of takings, suggesting that the government can take actions that devalue the right, with the Fifth Amendment sometimes entitling the aggrieved rights-holder to compensation.
The discussion then moved on to topics that have been particularly well-aired in party and amicus briefs. First, Justice Ginsburg continued to press the error correction point, pointing out that IPRs are relatively narrow in scope in that only issues of novelty and non-obviousness with specific types of prior art can be resolved in those proceedings. Ms. Ho responded that, be that as it may, 80% of IPRs also involve concurrent district court litigation, with infringement actions getting dismissed when PTAB invalidates the patent at issue. Second, Justice Gorsuch brought up the McCormick Harvesting case and its possible constitutional basis, a point which Ms. Ho embraced, but Justice Kagan then suggested that McCormick, rather, was resolved on statutory grounds. There was no further discussion of McCormick.
Ms. Ho then returned to the line between IPRs and reexams, and the earlier point that the former are really about deciding a cause between parties in a trial-like proceeding. Justice Breyer, at this point, suggested that, even if this were so, non-Article III tribunals do this all the time anyhow, as when resolving disputes between travelers and airlines over lost luggage. In addition, Justice Breyer suggested, doesn’t the Patent Act’s phrase “subject to the provisions of this title” puts patentees on notice that post-issuance non-Article III patentability determinations are possible? A point was repeated that IPRs are about an agency figuring out whether it made a mistake, with third party-input, as frequently happens in many administrative proceeding. Moreover, Ms. Ho was questioned as to how much third-party participation is needed to make a process unconstitutional. She returned to the idea of significant third party-control.
Justice Gorsuch then brought up the point that, if patents are private rights, no non-Article III adjudication of any sort is permissible. A question then arose whether analysis would change if the IPRs existed since 1790, the year that the first Patent Act was passed, and the discussion then moved to the Privy Council. Justice Kagan observed that the role of the Privy Council in adjudging patentability over time waned but was not eliminated. Before reserving time for rebuttal, Ms. Ho made the point that the patent laws were closely intertwined with the common law from the time of the Statute of Monopolies.
Mr. Christopher Kise, arguing for Greene’s Energy, argued that IPRs simply reexamine the propriety of the original patent grant, which is not a judicial function. The action is not to extinguish the patent but simply to decide that it should not issue. In addition, argued Mr. Kise, even if the Court had to get to the public-private right distinction, it should readily conclude that patents are public rights that can be adjudicated outside Article III tribunals. At this point, an interesting question came from Justice Breyer – what about settled expectations of the patentee after some time from issuance goes by? What about investments and reliance interests? The implication seemed to be that, while of course patents can always be invalidated by courts, perhaps heightened judicial review is needed to take patents away after some time in their existence.
The Chief Justice then raised the point of Due Process and PTAB panel-stacking, and whether Congress’ power to take away patents can allow patent validity to become a pure policy tool of the executive branch. Mr. Kise contended that Due Process problems, if any, should be considered on a case-by-case basis. Justice Sotomayor brought up the point of judicial review of PTAB determinations at the Federal Circuit, to which Justice Gorsuch responded that the PTAB is not an adjunct of the district courts and can issue self-executing judgments. He also brought up the issue of vested rights in land grands. To that, Mr. Kise responded that land is core property interest in the way that patents are not, because the latter depend on the federal statute and exist for an instrumental purpose of promoting the progress of useful arts. He also contended that process issues should be separated from power issues.
As Malcolm Stewart began arguing for the government, the Chief Justice framed the point of “bitter versus the sweet” – whether the government can condition the grant of a patent on anything it likes, including stacking of the deck in PTAB proceedings. Mr. Stewart responded that, even if there were a Due Process problem, Due Process does not require Article III, as public employee tenure protection cases show. He also mentioned that expanded panels are not unlike en banc panels in the federal circuit courts, and exist principally to correct panels that diverged from precedents. Justice Breyer then brought up the issue that the IPR statute is applied retroactively to the patent at issue in this case. Mr. Stewart’s response was that patents could be reexamined since 1980 and could be invalidated in certain proceedings before then, and they could always be invalidated by courts.
Returning to the public-private rights debate, Chief Justice Roberts discussed the Schor test and whether the multi-factor analysis of Schor is conducive to investment backed-expectations. Mr. Stewart contended that, whatever the test, PTAB adjudicates private rights because liability for past money damages are not involved. The question then came up whether the PTAB can adjudicate infringement, to which Mr. Stewart responded that probably not because money damages are involved. Justice Gorsuch then asked whether the PTAB can perhaps declare non-infringement, to which Mr. Stewart responded that there is no tradition of the PTO’s making that determination. Justice Gorsuch asked about the PTO’s tradition of cancelling patents, and Mr. Stewart’s response was that the issue is really about deciding patentability, which the PTO has been doing since 1836.
In rebuttal, Ms. Ho reiterated her point that Congress cannot condition a grant of a patent on taking away litigants’ structural rights and reinforced the point that appeals are not a sufficient form of Article III supervision. She ended with the point that, again, IPRs resolve disputes between two private parties.
Oil States Transcript. Commentary to follow.
Justice Sotomayor: If I own something, which is what your basic position, I understand, is, that this is a personal right, how can a government agency take that right away without due process of law at all? Isn’t that the whole idea of Article III, that only a court can adjudicate that issue?
JUSTICE GORSUCH: [W]e have a number of cases that have arguably addressed this issue already, like McCormick, for example, in which this Court said the only authority competent to set a patent aside or to annul it or to correct it for any reason whatever is vested in the courts of the United States.
The Supreme Court has denied Openet’s petition for writ of certiorari in Openet v. Amdocs. The petition asked “whether the Federal Circuit erred by looking beyond the claims to the patent specification to assess patent eligibility?” The court also denied certiorari in the pro se case of Poniatowski v. Matal.
Nidec Motor Corp. v. Zhongshan Broad Ocean Motor Co., Ltd., Supreme Court Docket No. No. 17-751.
The Supreme Court will hear oral arguments on Cyber-Monday 11/27 in two important patent cases:
Since Justice Scalia will not be there, I’ll include a punch-line quote that comes from Oil State’s Reply Brief:
But it is odd to argue that the agency makes so many mistakes in issuing patents that its special expertise is needed to resolve disputes over those errors.
My expectation is that the AIA and PTO’s approach will be upheld in both cases. At oral arguments look for any signals that conservatives will break away from Justice Thomas notion that patent rights are not “core private property” but instead are properly considered lesser franchise rights. In addition, look for consideration of whether the justices are thinking outside-of-patent-law at a bigger picture review of public rights doctrine.
For last minute reading, consider the Oil States Reply Brief [OilStatesReply]. The following is an important portion:
This Court has recognized only narrow exceptions to the rule that Congress may not authorize non-Article III tribunals to exercise the Judicial power by adjudicating disputes between individuals. One of those narrow exceptions involves disputes over public rights. But “ ‘even with respect to matters that arguably fall within the scope of the “public rights” doctrine, the presumption is in favor of Art. III courts.’ ” Stern. Respondents cannot overcome the presumption in favor of Article III, and their attempts to wedge IPR into the narrow public-rights exception only confirms that it does not fit.
a. Claims By Or Against The Government. Respondents liberally cite these paradigmatic public rights cases, e.g., Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 274-75 (1855), but in every case – like most modern-day agency enforcement adjudications – the government was a party. IPR adjudicates disputes between private parties and does not at all implicate the government’s sovereign immunity – the origin of the exception. Id. at 274-75. Indeed, the AIA does not authorize the PTO to bring an IPR. 35 U.S.C. § 311(a).
b. Claims Historically Resolved Exclusively By Another Branch. The government concedes, as it must, that “challenges to the validity of issued patents were often brought injudicial forums.” Gov’t Br. 46; see also 3 William Blackstone, Commentaries 260-61; Br. of Legal Historians 5-37; Addendum 23-31. That concession is fatal because the exception applies only to claims “historically *** determined exclusively by” another branch. Stern, 564 U.S. at 485 (emphasis added).
The government nonetheless argues (at 46) that the “authority of the Crown and Privy Council to cancel patents” renders them public rights. Not so. First, this Court has repudiated that theory’s most significant implication, instead holding that an Executive patent revocation “would be in fact an invasion of the judicial branch of the government by the executive.” McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606, 612 (1898). Second, the Privy Council ceased revoking invention patents in ordinary cases – such as those involving a patent’s novelty – in 1746. . . .
c. Claims Whose Adjudication Is Essential To An Expert Agency’s Resolution Of A Limited Regulatory Objective, Tied To A “Particular Government Action.”… [R]espondents misapprehend this narrow exception at each step. … [A]dministering the patent laws is not [a limited regulatory objective]…. IPR is not “essential” to that objective…
It will be interesting.
In SAS, the court’s response may depend upon how far the Justices have gone down the road of releasing judicial intuition in favor of a strict-grammar approach to statutory interpretation. The statutory question at issue is found within 35 U.S.C. 318, which focuses on the “decision of the board” in cases where the director has already instituted the IPR:
If an inter partes review is instituted … [the PTAB] shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner ….
The suggestion by petitioners is that the “any patent claim challenged” requires a written decision even as to claims that were challenged in the petition but not instituted for PTAB review. Here, though I see a credible grammar argument that the claims challenged claims referred to in Section 318(a) are limited only to those instituted.
The SAS challenge can also be seen as pushing against the Director’s authority under Section 314 to partially-institute an IPR (institute as to only some of the challenged claims or for only some of the reasons challenged). Of course, that issue is not appealable directly (institution decision is not ordinarily appealable) although the implementing rules could be challenged. And, SAS did not push this button.
Nominations time for IAM’s Top-300 – annual listing of the World’s leading IP Strategists: http://research.globebmg.com/Nomination/Strategy300-2018
RPost v. GoDaddy (Supreme Court 2017)
A new amicus brief supports RPost petition for writ of certiorari – arguing that lack-of-eligibility is not a proper defense to patentability. The brief has an interesting quote from P.J. Federico (co-author of the 1952 Patent Act) suggesting (by omission) that eligibility is not a litigation defense.
I’ll add a different quote from the same work where Federico explains that the old statutory provision was split into two sections: 101 (subject matter) and 102 (conditions of patentability):
One of the basic and most important sections of the old statute was R.S. 4886, which specified the subject matter for which a patent could be obtained and recited conditions for patentability. In the new code, this section has been divided into two sections, section 101 relating to the subject matter for which a patent may be obtained, and section 102 which defines statutory novelty and states other conditions for patentability.
The distinction here is important because Section 282 makes “conditions of patentability” defenses.
I will note that Federico’s commentary might not be the best source of evidence. The same passage as that quoted indicates that “lack of invention” remains a defense under the new law. Elsewhere, Federico indicates that “the requirements for patentability of an invention are stated in sections 101, 102 and 103” and that utility, under 101 is a “condition.”
USPTO’s chief information officer – John B. Owens – has left the agency to join the government contractor CGI Federal. Owens departure coincides with the governmental shift where the Department of Commerce is increasingly taking-over the “enterprise services” within the USPTO as part of the “shared services initiative.” As part of this plan, USPTO user fees are being directed to the commerce department to handle IT and information services activities. Several members of congress have questioned this approach. And, an interesting feature of the 2018 Republican House Proposed Budget is shrink the Department of Commerce – currently “rife with waste, abuse, and duplication,” and “Establish the U.S. Patent and Trademark Office as an independent agency.”
SNF Holding Co. v. BASF Corp. (Federal Circuit 2017)
Important petition for en banc rehearing filed by the Duffy-Dabney team (Hughes Hubbard) with three questions presented:
Read the petition: 2017-11-16 Petition. The case revolves around BASF’s US Patent No. 5,633,329. The PTAB instituted review, but ultimately affirmed patentability of the claims – although with a changed claim construction in the final decision.
by Dennis Crouch
BASF v. Johnson Matthey (Fed. Cir. 2017)
BASF’s catalytic conversion system patent claims includes the functional limitations that the system is “effective for catalyzing”/”effective to catalyze” NH3 oxidation.
In the infringement litigation, the district court sided with the accused infringer – holding that the functional language was unduly indefinite – rendering the claim invalid under 35 U.S.C. 112 as interpreted by Nautilus. On appeal, the Federal Circuit has reversed — finding that the record lacks “evidence that would support” the indefiniteness finding.
The Patent Act (section 112) requires “one or more claims particularly pointing out and distinctly claiming” the invention. This provision serves as the basis for doctrine of (in)definiteness. In Nautilus (2014), the Supreme Court held that the claims as drafted must define the scope of the invention (from the perspective of PHOSITA) with “reasonable certainty.” Reasonable certainty is a traditional high evidentiary burden used in several areas of practice — including lost-profit calculations — and is thought to be parallel with the “clear and convincing” evidence standard (i.e., just below “beyond a reasonable doubt.”). Despite the seeming high standard placed on patentees by Nautilus, the Federal Circuit has continued to give patentees the benefit of the doubt in indefiniteness cases (with the one exception being 112(f) cases). This case is no exception.
Effective To: The claims here are not limited to particular materials or level of effectiveness, but rather only those that fit within the broad “effective to catalyze” language. The district court identified this as problematic:
Each claim fails to limit the “material composition A” … to any specific materials. Rather than explicitly defining the material compositions, the claims utilize functional language, specifically “effective,” to purportedly define them. In other words, the claims recite a performance property the composition must display, rather than its actual composition. Moreover, none of the claims recite a minimum level of function needed to meet this “effective” limitation nor a particular measurement method to determine whether a composition is “effective” enough to fall within the claims.
[FN: The court additionally notes that “a practically limitless number of materials” exist that would “catalyze SCR of NOx, even within the normal operating conditions of an exhaust after treatment system,” indicating that the claims, as written, fail to sufficiently identify the material compositions.]
Without such information, a person of ordinary skill in the art could not determine which materials are within the “material composition A” or “material composition B” limitation, and which are not.
On appeal, the Federal Circuit rejected the lower court’s analysis – first repeating again that functional claim limitations are perfectly legitimate. According to the appellate court, the basic problem with the district court’s analysis was that it identified the broad claims but then failed to actually consider whether the claims provide “reasonable certainty” to PHOSITA as to the claim scope.
What is needed is a context-specific inquiry into whether particular functional language actually provides the required reasonable certainty. . . . [T]he inference of indefiniteness simply from the scope finding is legally incorrect: “breadth is not indefiniteness.” (Quoting SKB v. Apotex (Fed. Cir. 2005)).
After rejecting the district court’s analysis, the appellate panel went-on to hold that – as a matter of law – the claim is definite. Drawing its own conclusions as to what PHOSITA would think of these claims.
At the point of Novelty: An interesting bit of the opinion harkens back to the Supreme Court’s 1946 Halliburton decision – holding that functional claim language is particularly problematic when done at the point of novelty. Here, the court does not cite Halliburton but does note that the “asserted advance over the prior art” is the particular layered arrangement of the device, not “the choices of materials to perform each of the required catalytic processes.” Rather, those materials were expected to be ones already well known in the industry.
Here, of course, the Federal Circuit is not suggesting that Halliburton is good law, but the court does implicitly conclude that there are important distinctions in the indefiniteness analysis when considering terms directed to well-known versus novel features.
by Dennis Crouch
Presidio Components v. American Technical Ceramics (Fed. Cir. 2017)
Intervening Rights: When issued claims are substantially amended — whether during reissue, reexamination, or AIA-Trial — an accused defendant will have “intervening rights.” In particular, the defendant will not pay back-damages for any infringement prior to completion of the post-issuance action. Section 252 explains that the question is whether the amended claim is “substantially identical” to the original.
Here, the patentee added limitations to its capacitor claims in a way that changed the claim scope — and thus entitled the defendant to “absolute intervening rights.”
The patentee argued that it had no intent to change the claim patent scope. On appeal, however, the patentee ruled that intent is not relevant. Rather, the inquiry is simply whether the scope of original claims is identical to the scope of the amended claims (based upon a “normal” Phillips claim construction analysis.) Under that approach, the court found a difference in scope and thus intervening rights kicked-in.
Presidio argues that the scope of its claims did not change during reexamination because its stated goal in amending the claims was to adopt the district court’s construction in Presidio I.
Equitable Interlude: Note here that the focus is on the statutory intervening rights. The Federal Circuit has also adopted a second-level equitable intervening rights. Following SCA Hygiene, I expect that there is a good chance that this doctrine may be eliminated.
Lost Profits: Like definiteness, lost profit award also requires “reasonable certainty.” In the lost profit context, the rule is applied in a more-standard approach. Namely, reasonable certainty is traditionally thought of as a standard of evidentiary proof needed for factual conclusions. This makes sense in the fact-heavy damages context but not so much in the indefiniteness arena that is very often seen as wholly a question of law.
Here, the appellate court held that lost profits due to the infringement were not proven because the district court did not consider whether a non-infringing alternative would have been an acceptable/available substitute to the patentee’s product. A new trial is necessary now to calculate the reasonable royalty damages that will presumably be less than the $2 million lost profit verdict overturned on appeal.
Cochrane v. Deener, 94 U.S. 780 (1877)
It would, perhaps, be desirable if all cases of this sort [i.e., patent cases] could be referred to a commission of intelligent experts and practical men to report their opinion thereon, with their reasons, for the final action of the court. … Neither courts nor ordinary juries are perfectly adapted to the investigation of mechanical and scientific questions. .
by Dennis Crouch
Columbia Sportswear v. Serius Innovative (S.D.Cal. 2017)
I previously wrote about Columbia Sportswear design patent verdict and damages award against Serius. The patent – D657,093 – covers a wavy-pattern as part of a heat reflective material. Post trial, the court has now issued an emergency Temporary Restraining Order (TRO) enjoining Serious from initiating a reexamination of the design patent — finding that the reexamination could improperly “avoid the jury’s verdict in this case.”
The key fact: We already have a jury verdict of infringement and, according to the court (and patentee’s motion for TRO), during the lawsuit, the defendant stipulated to the patent’s validity.
On irreparable harm (and element of TRO), the court writes:
Allowing Seirus to collaterally attack the Design Patent at this very late juncture in litigation would undoubtedly cause Columbia undue hardship. A reexamination of the Design Patent could potentially result in its invalidation, which would moot Columbia’s fully-litigated infringement claims.
Finally, the court finds, that the public interest is served by restraining order – since “The public interest is served by enforcing the parties’ stipulation and protecting the validity of the Court’s judgment.”
The TRO was issued the same-day as requested and, although Seirus was apparently same-day notice notice, it did not have the opportunity to respond.
A few notes here: First, I expect that most TRO’s include legal and factual errors that stem from the fact that they are issued in an emergency, usually in an ex parte fashion. The court typically relies upon the statements of counsel requesting TRO — perhaps in a way that should raise additional duties to the court.
Stipulation of Validity?: Normally judges rule that patents are “not proven invalid” rather than actually holding them “valid.” Here, however, the TRO motion refers the judge to the prior “stipulated judgment of validity” and the judge consequently held that Seirus will not be harmed by “complying with its own stipulation of validity.”
Looking back at the docket appears to tell a different story. As I suspected, the prior judgment states that the patent “has not been proved invalid.” However, the jointly-agreed-upon document is titled “JUDGMENT OF VALIDITY OF U.S. PATENT NO. D657,093.” So, the document has some ambiguity, but the distinction here is potentially critical: A not-able-to-prove-invalidity would seemingly not prohibit a reexamination filing since the varying standards of proof logically allow for a patent to be cancelled during reexamination even if it could not have been invalidated in court. Of course, under a slight extension of MedImmune and Lear, it might not even make a difference. (Note here, that MedImmune and Lear both permitted a licensee to challenge).
Here, the patentee argued to the court that the “consent judgment … precludes [Seirus] from initiating a reexamination proceeding on the D’093 Patent.” Unfortunately, the patentee does not cite any authority toward its conclusion other than Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001), but that decision does not reach the reexamination question here and was pre-MedImmune.
The key case I would cite here is In re Baxter Intern., Inc., 678 F.3d 1357 (Fed. Cir. 2012). In that split decision, the Federal Circuit found no problem with an adjudged infringer taking same prior from the district court case (that lost there) and re-using it in a reexamination (and cancelling the claims).
Finally (for this post), the court appears to have inadequately considered the equities and the public interest associated with cancelling an improperly issued patent. As the Supreme Court wrote in MedImmune: “the equities of the licensor do not weigh very heavily when they are balanced against the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain.”
I’m confident that Seirus will challenge the TRO, which (I believe) is subject to immediate appeal to the Federal Circuit under 28 U.S.C. § 1292(a)(1).
Update: I noted above my belief that the TRO decision (enjoining the defendant from filing a reexam petition) was immediately appealable based upon 28 U.S.C. § 1292(a)(1)’s statement that orders “granting, continuing, modifying, refusing or dissolving injunctions” create direct appellate jurisdiction. A friend emailed me the non-precedential decision in Hallmark Cards, Inc. v. Grp. One Ltd., 110 F. App’x 99, 100 (Fed. Cir. 2004), holding otherwise. One way to read Hallmark is that a TRO is not appealable if the district court is planning to quickly hold a preliminary injunction hearing – as is the case here.
The following guest post comes from Business Prof. Ian McCarthy and is based upon his is based on the research article: CGIP: Managing consumer-generated intellectual property. Although I don’t like the label of “Emotional Property” the concepts presented here make sense. – DC
by Ian McCarthy
Traditionally, firms have produced goods and services, and consumers have consumed or used them. However, consumers are not only using and consuming, but also increasingly creating products, services and related intellectual property when they adapt and modify the proprietary offerings of companies. Consider for example the legendary hacker George Hotz, who unlocked the original iPhone and hacked Sony’s PlayStation 3. He gave these innovations away free to the public. Consumers also create and publish a vast amount of informational content. Consider all the images uploaded to Facebook, the book reviews posted on Amazon and the videos on YouTube: all of this is consumer generated content ends up belonging to the companies. Regardless of whether consumers are changing physical products or generating information content, these creative acts produce “consumer-generated intellectual property” (CGIP)—intellectual property produced by consumers rather than only by companies.
CGIP has components that appeal to companies and consumers, but are also a source of potential conflict. From the perspective of the company, the focus is on controlling the CGIP and appropriating value from it. While on the consumer’s side it is about the credit and emotion associated with creativity.
These differences highlight that CGIP involves not just intellectual property, but also emotional property.
As intellectual property is the legal rights to creations of the mind, emotional property is the emotional investment in or attachment to creations of the heart and mind. More specifically emotional property is defined as the product of the affection, fervor and energy that consumers devote to the creative act, and the attachment and pride they have with their creation.
Emotional property is an important but overlooked feature of innovation management. As it governs how consumers react to companies seeking to exploit their creations and CGIP, here is a framework of eight strategies, the 8 Cs (cultivate, coordinate, cooperate, capture, code condemn, crush and copy Cs) to help managers deal with CGIP. The 8 Cs are based on whether companies are positively or negatively disposed to CGIP, and whether the strategic action is directed primarily at the consumer or at the company. Figure 1 shows how the eight strategies (or 8 Cs) for CGIP vary in terms of these two dimensions.
The Emotional Property-Intellectual Property (EPIP) matrix (Figure 2) plots the 8 Cs and shows why companies would adopt a certain strategy. This on the extent to which the company perceives the consumer to have either high or low emotional property vested in the innovation, and the extent to which the firm has the potential to control the intellectual property.
The 8 Cs available to companies all fit neatly into the EPIP matrix, but here I illustrate just two of the Cs here. Where the firm’s potential control of- and the consumer’s emotional attachment to the IP are both low, the firm can either “condone” or “condemn” an infringement. A nice example of the condone strategy is Sony’s decision to ignore a breach of its copyright in the case of the now famous JK Wedding Dance video. Jill and Kevin used a song by Sony artist Chris Brown as background music to the entrance of the bridal party and put the video on YouTube where it got millions of hits. Sony’s decision was driven not only by the fact that the video was just good harmless fun, but also because the artist had recently gotten really bad press and was in bad need of an image resuscitation. Where both the firm’s potential control of- and the consumer’s emotional attachment to the IP are high, a firm can implement a cooperate strategy. The website Quirky invites consumers to submit new product ideas to its site for consideration. If an idea is favorably received it is then developed into a prototype and in many cases eventually turned into a commercial product. In exchange for Quirky funding this development process, the inventor assigns all IP to Quirky. Quirky gains and controls the IP, but the consumer also gets credit and remuneration, which compensates their high emotional stake.
by Dennis Crouch
A new decision from the 5th Circuit includes an interesting analysis of federal preemption. Namely, the appellate panel found that Texas law of unfair competition by misappropriation improperly extends to offer patent and copyright protections.
The Texas common law tort of “unfair competition by misappropriation” is essentially an anti-free-riding law with three elements:
(i) the creation of plaintiff’s product through extensive time, labor, skill and money,
(ii) the defendant’s use of that product in competition with the plaintiff, thereby gaining a special advantage in that competition (i.e., a “free ride”) because defendant is burdened with little or none of the expense incurred by the plaintiff, and
(iii) commercial damage to the plaintiff.
My colleague Prof. Gary Myers wrote back in 1996 that it was time for the “demise of this outdated cause of action . . . [that arose] before comprehensive copyright, patent, and trademark laws were fully developed.” Despite Myers suggestion, the law has continued in some states, including Texas.
Here, the plaintiff’s claim is that Orthoflex improperly made use of ThermoTek’s manuals and billing information as well as the design of its physical products. However, rather than suing on copyright and patent respectively, ThermoTek sued on state-law misappropriation. The jury awarded more than a million dollars to the plaintiff. However, the district court judge nullified the jury verdict and instead held that the entire claim was preempted by federal IP laws. On appeal, the 5th Circuit has affirmed.
Both Copyright and Patent laws have been interpreted to preempting substantially overlapping state protection regimes. Here, copyright is more straightforward because the Copyright Act of 1978 expressly preempts state copyright-like laws, including common law, and including state provisions that protect works that are otherwise excluded under Section 102(b). Note here, that this is the third time that the court has held that Texas’s unfair-competition-by-misappropriation is improperly equivalent to copyright law. See Ultraflo and Alcatel.
The court notes that inclusion of an “improper means” requirement into the misappropriation law would likely rescue it from preclusion on the copyright side.
On the patent side, the court cited to Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989) statements that state laws that offer “substantially similar” protections are preempted by federal patent law and thus not enforceable.
As with copyright law, the appellate panel here suggested that torts that require “deceit” or “improper means” will be acceptable, but laws that focus simply on protecting the investment in product development and marketing will be preempted.
The latter laws, however, would likely obstruct Congress’s goals by “offer[ing] patent-like protection to intellectual creations which would otherwise remain unprotected as a matter of federal law.” Quoting Bonito Boats.
Here, the court noted that the Texas law is particularly problematic because it offers protection in perpetuity without the safeguards of the patent system. The court also particularly rejected the notion that instructing the jury that “reverse engineering is not actionable” does not save the law. Rather, to avoid preemption a proper jury instruction must expressly include an additional element such as fraud or dishonesty.
I believe that this is the correct decision. My one major caveat begins with the difference between copyright law’s express statutory preemption of state law and the mere implicit preemption offered by the patent laws. Couple that with the major historical difference from Bonito Boats — that this type of misappropriation claim likely predates patent law doctrine whereas Bonito Boats involved a newly developed Florida statute. Seems to me that we need to add an additional analysis to consider the extent that patent law is designed to snuff-out these preexisting common law claims 150 years after the fact.
Get a Job doing Patent Law
by Dennis Crouch
On writ of mandamus, the Federal Circuit has sided with accused-infringer Micron – holding that TC Heartland was a sufficient change in the controlling law of venue to overcome the fact venue-challenge had been previously waived in the case. My sense is that this is quite poor analysis opinion, but the outcome will likely stick — allowing venue transfer many more cases.
Over the past three decades, the Federal Circuit had repeatedly interpreted the Federal venue statutes to allow infringement lawsuits to be filed in any court with personal jurisdiction over the accused infringer. In its 2017 TC Heartland decision, the Supreme Court changed course — holding that for business-defendants in patent cases venue is only proper in districts where (1) the defendant is incorporated or (2) the defendant infringes the patent and has a regular and established place of business. Except for nationwide retailers, this significantly limits the locations where venue is proper. And, remember, the focus here is “proper venue” – if venue is not proper then the case must be dismissed or transferred.
Waiver: The immediate focus following TC Heartland has been the several hundred already pending infringement lawsuits where venue is likely improper. The difficulty for those defendants is improper venue is subject to waiver — and the rules particularly indicate that a motion for improper venue is waived unless presented during the pleadings. FRCP 12(h)(1). Here, Micron is facing an infringement lawsuit in Massachusetts (Harvard v. Micron) but did not move for dismissal for improper venue as required by the rules. Once TC Heartland was decided, the defendant then asked the court to consider the issue.
No Waiver: However, R. 12(g) indicates that waiver occurs when the defense is “available to the party but omitted.” In the mandamus action here, the court ruled that the change in law is so significant that the defense was not truly available until after the Supreme Court’s decision.
The Rule 12 waiver question presented here is whether the venue defense was “available” to Micron in August 2016. We conclude as a matter of law that it was not. The venue objection was not available until the Supreme Court decided TC Heartland because, before then, it would have been improper, given controlling precedent, for the district court to dismiss or to transfer for lack of venue. . . .
This is a common-sense interpretation of Rule 12(g)(2). Where controlling law precluded the district court, at the time of the motion, from adopting a defense or objection and on that basis granting the motion, it is natural to say, in this context, that the defense or objection was not “available” to the movant.
Although the court is absolutely correct that its approach is the common-sense approach since we have been operating under the old rule for decades. However, the major analytical problem with the court’s decision here is its notion that its misinterpretation of Supreme Court law is somehow “controlling” law. Rather the Supreme Court decided the identical issue in Fourco (1957) and then in TC Heartland (2017) held the minor amendments made to the guiding statutes did not alter the holding of Fourco. In other words, the “controlling law” this entire time has been the Supreme Court precedent. Supreme Court writes:
The issue in this case is whether [the amendment to the statutes] supplants the definition announced in Fourco and allows a plaintiff to bring a patent infringement lawsuit against a corporation in any district in which the corporation is subject to personal jurisdiction. We conclude that the amendments to §1391 did not modify the meaning of §1400(b) as interpreted by Fourco.
Regardless of this technicality, the rule appears now that district courts should be considering and granting improper venue decisions moving forward.
In what appears to be dicta, the court did place important limitations on the improper venue challenges – noting that a motion that is not sufficiently timely (i.e., too close to trial) might be denied on that grounds.