Venue Transfer Games Continue: Rafqa Star v. Google

by Dennis Crouch

Rafqa Star LLC v. Google LLC, No. 6:22-cv-01207-ADA, 2022 WL 3747666 (W.D. Tex. Aug. 17, 2022).

Google is one of the largest companies in the US with extensive ties not just to every state, but virtually every household in the entire country.  Still, the company regularly argues that it would be too unfair and inconvenient to litigate patent cases in states such as Texas. In a recent decision, Judge Alan Albright (W.D.Tex.) denied Google's motion to transfer venue. In his 40-page order, Judge Albright provided an in-depth analysis of the private and public interest factors that, based upon prior precedent, govern transfer under 28 U.S.C. § 1404(a).  The relevant statute reads as follows:

For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.

Id.  Before analyzing this case, I want to step back and recognize that the current legal test for patent venue transfer has departed significantly from the statutory language declaring the goals of convenience and justice. The public and private factor analysis mandated by current precedent does not actually focus on real inconvenience to parties or witnesses. For instance, the location of documents and witnesses gets weight when almost everything is cloud based. And the 100-mile rule makes little sense in an age of national air travel and remote work.  This is especially true for patent cases that will have nationwide impact.


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Third Circuit Allows Deduction of Generic Hatch-Waxman Defense Costs

by Dennis Crouch

Mylan v. IRS, No. 22-1193, --- F.4th --- (3d Cir. July 27, 2023)

In a recent tax appeal, the Third Circuit court of appeals afformed that legal expenses incurred by generic drug makers to defend against patent infringement suits brought under the Hatch-Waxman Act are deductible as ordinary and necessary business expenses. This aligns with longstanding precedent treating patent litigation defense costs as deductible for the alleged infringer.


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Importance of Due Diligence for Patent Practitioners and the US/China Economic War

by Dennis Crouch

37 C.F.R. § 11.18(b) imposes crucial responsibilities on patent applicants, attorneys, and agents. Documents submitted to the USPTO implicitly certify that:

  1. Statements made are true or are are believed to be true (based upon information and belief) and do not include any attempt to conceal a material fact; and
  2. That a reasonable inquiry was conducted to confirm that: (i) statements have no improper purposes, (ii) legal contentions are supported by existing law or valid arguments for change, (iii) allegations and factual contentions have or are likely to have evidentiary support, and (iv) denials of factual contentions are based on evidence or a reasonable lack of information or belief.

Recent USPTO disciplinary cases underscore the seriousness of these obligations. Examples include filing a micro entity status request without proper investigation and submitting an information disclosure statement (IDS) by a non-practitioner without practitioner review. Rubber stamping is not permitted.


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Federal Circuit Narrows Scope for Copyrighting Software Function

by Dennis Crouch

The copyright lawsuit between the data-software company SAS Institute and its scrappy copycat World Programming has been interesting to follow over the past several years, and the Federal Circuit has now issued a controversial opinion in the case.  SAS Inst. v. World Programming Ltd., --- F.4th --- (Fed. Cir. 2023).  The majority opinion authored by Judge Reyna and joined by Judge Wallach affirmed the lower court ruling that SAS failed to establish copyrightability of its claimed program elements.  Writing in dissent, Judge Newman argued that the majority's rejection of copyrightability represents a "far-reaching change" not supported by either precedent or good policy.  I called this outcome controversial. The outcome would also be controversial had Judge Newman's position prevailed.

The case is properly seen as an extension of the Supreme Court's decision in Google
LLC v. Oracle America, Inc., 141 S. Ct. 1183 (2021).  In that case, the Court found that Google's use of Java API naming conventions in its Android operating system was fair use under copyright law.  Because its fair use decision decided the case, the court did not rule separately on whether the API was even copyrightable in the first place.  In SAS v. WPL, the Federal Circuit squarely addressed the copyrightability question.

To be clear, computer software can still be copyrightable.  But, parties asserting protection will need to do a much better job of showing how their creative authorial input survives the "abstraction-filtration-comparison test," which the Federal Circuit  applied in its decision.

Copyright law's abstraction-filtration-comparison (AFC) test is used to determine whether a particular work is entitled to copyright protection. The AFC test involves breaking down a work into its constituent parts, abstracting the unprotectable elements, filtering out any remaining unoriginal or unprotectable elements, and then comparing the remaining protectable elements to the allegedly infringing work. The AFC test has been previously adopted by the Second, Fifth, and 10th Circuits.

Here, the court did not delve into the comparison step -- and instead simply held that there was nothing left to infringe after abstraction & filtration.

The decision is also substantially procedural.  The district court held a copyrightability hearing and followed a burden shifting procedure created by the 11th Circuit in Compulife Software Inc. v. Newman, 959 F.3d 1288 (11th Cir. 2020).  In particular, the court first assumed that the work was copyrightable based upon the registration documents.  It then allowed the defense to present its filtration argument to show a lack of copyrightability.  If that evidence is sufficient (as it was here), the burden then shifts back to the copyright holder to rebut -- and "to establish precisely which parts of its asserted work are, in fact, protectable."   The difficulty for SAS is that it offered no rebuttal and instead "refused to engage in the filtration step and chose instead to simply argue that the SAS System was 'creative.'" Slip Op. SAS presented an expert witness on copyrightability, but the district court found it extremely unreliable and thus excluded the testimony.  (The expert had not seen anything to filter out -- even clearly unprotectable elements).

The majority walked through each of these issues and ultimately affirmed on all grounds.

= = = =

Some background: SAS makes data analysis software. A key feature of the SAS product is that folks can write programs using SAS syntax in order to get certain results. Thus there are a number of data jockeys who are experts in SAS code.  WPL is a UK based software company who obtained several copies of SAS statistical software and made their own clone version by rewriting the code and by relying upon an early version of SAS that is not protected by copyright.  The WPL version allows folks to use SAS language to get the same results -- but at a much lower price.   When I sa "same results" -- the clone pretty much identically copied output styles so that a chart made with WPL looks basically identical to a chart made in SAS using the same code.

SAS sued in E.D.Tex for copyright infringement.  Judge Gilstrap dismissed the copyright claims — holding that the software was unprotectable.  Copyright infringement appeals are ordinarily not heard by the Federal Circuit, but in a case of what appears to be appellate-forum shopping, SAS had also included patent infringement allegations that they eventually stopped pursuing.  Under the rules of procedure, if patent claims were raised in the case at some point, then the appeal heads to the Federal Circuit.

The copyright case is not about copying code.  It appears rather to be about copying the input syntax format used by individuals to input their programs and the output design styles for outputting data in some particular style. In the filtration analysis, WPL provided a host of evidence to show that these features should be "filtered out" of the SAS copyrights.

  • WPL established that an earlier version of the SAS System, "SAS 76," was in the public domain.
  • WPL showed that many Input Formats and Output Designs in the current SAS System are identical or nearly identical to those in SAS 76 and should be filtered.
  • WPL demonstrated that the SAS Language should be filtered because it is open and free for public use.
  • WPL's expert identified various allegedly copied materials that contained unprotectable elements such as open-source, factual, data, mathematical, statistical, process, system, method, and well-known and conventional display elements.

Bringing these together the Federal Circuit concluded that the defense had presented sufficient evidence to show uncopyrightability and that the district court was justified in requiring SAS to directly and particularly rebut the evidence rather than simply allowing a trial on the copyright as a whole.

The district court was correct to exercise its authority and require SAS to articulate a legally viable theory on which it expected to base its copyright infringement claims. Conversely, it would be improper for a district court to permit a matter to proceed to trial on the basis of vague and unidentified theories.

Slip Op.

Writing in dissent, Judge Newman argued that Fifth Circuit law protects this sort of computer software architecture even from non-literal copying.  The key citation is likely to a the Fifth Circuit's 1994 Engineering Dynamics case:

Most courts confronted with the issue have determined that copyright protection extends not only to the literal elements of a program, i.e., its source code and object code, but also to its “nonliteral” elements, such as the program architecture, “structure, sequence and organization,” operational modules, and computer-user interface.

Eng’g Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335 (5th Cir. 1994).   Judge Newman noted that "computer programs" are expressly protected within the Copyright Act

Copyright protection subsists . . . in original works of authorship . . . including . . . (5) computer programs.

17 U.S.C. 102. As the Nimmer treatise explains, this 1980 amendment to the laws "dispels any lingering doubts as to the copyrightability of computer programs. It is
therefore now firmly established that computer programs qualify as work of authorship in the form of literary works, subject to full copyright protection."
1 NIMMER ON COPYRIGHT § 2A.10(B) (2022 ed.).

Here, Judge Newman particularly noted that the collection of the various input functions and output designs is easily copyrightable. And, this is the same analysis done by the Federal Circuit in its original Oracle v. Google decision.

Judge Newman also concluded that the district court improperly shifted the burden of proof to the copyright holder.

= = =


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Guest Post: Third-Party Litigation Funding: Disclosure to Courts, Congress, and the Executive

Guest post by Jonathan Stroud.  Stroud is General Counsel at Unified Patents – an organization often adverse to litigation-funded entities.[1] He is also an adjunct professor at American University Washington College of Law. 

Patent assertion finance today is a multibillion-dollar business.[2]  Virtually nonexistent in the patent space in the U.S. ten years ago—at least in part due to longstanding common law rules on champerty, maintenance,[3] and patent law’s relative high risk—today third-party litigation funding (TPLF)[4] undergirds about 30% of all patent litigation, by conservative estimates.[5] Insurance options are suddenly plentiful,[6] funders are expanding and multiplying,[7] and new deal commitments are on the rise.[8] This general trend is seen in the first chart below, adapted from a recent white paper by Korok Ray.[9]

That is in no small part due to it being the fastest-growing piece of the wider U.S. litigation finance boom of the past 20 years—as has been widely reported, private equity now undergirds huge swaths of U.S. bankruptcy, class action, trademark, securities, and tort litigation, to the tune of $50 to $100 billion in investments annually.[10]  According to one of the biggest litigation funders, publicly traded Burford Capital—recently featured on 60 Minutes[11]—there was a 237% increase in overall litigation funding in the US between 2012 and 2018, a trend that, by all accounts, continues unabated.[12]  Industry reports show new investments pouring fastest into patent infringement litigation; new deal commitments for TPLF saw an increase of 61%; and patent litigation accounted for 29% of all new commitments by TPLFs in 2021.[13]  Recent trends are shown in the chart below, adapted from a Westfleet Advisors report. [14]

In terms of how TPLF is structured, deals are variegated, complex private agreements.  But generally the funder will offer non-recourse funding (or funding that is “at risk”) upfront to cover expenses in exchange for being first in line to recoup all of that funding first (i.e., to be “paid back”) out of any recovery, and then to take some hefty percentage—often 60% or more of whatever is remaining, particularly in litigations deemed high-risk (like patent litigation), though there are no rules governing how much funders can ask for.  (It generally amounts to more than 50% of the total settlement recovery, acknowledging, at least by basic math, that they are the primary beneficiary of the litigation.). Sometimes all fees are paid upfront by the funder (Fortress is known for this); some pay some continuing level of a fee/contingency split with firms to split risk; some pay the original patentholder upfront, though others think that disincentivizes them from robust ongoing participation; others make all recovery, for all parties in a waterfall, contingent upon settlement.  Many start with and later add investors to ongoing funds and matters.  Nearly all require oversight and consultation at all key decision points.

Patent TPLF funds generally promise roughly 20% internal rates of return to funders (IRR) year-over-year, or about a 2x to 2.5x return on investment over generally four- or five-year investment cycles, suggesting, at least at the pitch level, that these investments are lucrative for the funders.[15]  The biggest (or at least most well-known) players—Magnetar Capital, Burford Capital, Fortress Investment Group, Omni Bridgeway, and Curiam Capital, to name just a few[16]—have funded patent cases for years, reporting in some cases that their existing funds were on pace to return 20% or more—less than some other investments tout, but still beating the market by a fair margin.[17]

At least, that’s as far as can be pieced together.  What we do know comes mostly from self-reporting, industry reports, and journalists.  That’s because current disclosure of litigation funding relies on a patchwork of state law, court rules, self-reporting, FOIA requests, leaks to journalists, and funding pitches.  It’s true today that no one in the government (Federal or state, judicial, legislative, or executive) knows who is funding which litigations, whether they are as profitable as they claim to be, if they are being properly taxed, or even how they are generally structured.  Disclosure is limited even for the two well-known, publicly traded litigation fund managers, Burford Capital and Omni Bridgeway; it is sparser still—and highly self-selective—for all the private funds involved.  According to a recent Government Accountability Office (GAO) report on litigation funding (written at Congress’ behest), “[e]xperts GAO spoke with identified gaps in the availability of market data on third-party litigation financing, such as funders’ rates of return and the total amount of funding provided,” and noted that no government body is aware of who is funding these cases, who is influencing or controlling them, or what promises they are making to investors.[18]  (It also notes litigation finance industry lobbying groups active today, and their membership.)

Disclosure remains sparse at least in part because the very wealthy private investors who fund litigation claims and then reap, they claim, windfall profits—some of them concededly foreign sovereign nation funds[19]—have fought hard to keep those agreements secret, even from judges asking for disclosure, much less from government officials, researchers, reporters, opposing parties, or the public.  As such, the Federal District Court of Delaware has recently found itself at the center of this high-stakes debate about transparency and the purpose of the courts.

In April of 2021, the District of Delaware’s Chief Judge, Colm Connolly, issued two standing orders requiring litigants to, inter alia, disclose third-party litigation funding.[20]  (The orders apply to all parties and litigation before his Court, not just parties to patent disputes, but do not extend, as yet, to the other sitting judges there.) The orders were neither ultra vires nor exceptional—The Federal Rules of Civil Procedure have been moving toward greater ownership transparency for years, the advisory committees have recommended that judges have the right to such disclosure and are considering further requirements,[21] and similar requirements in Federal District courts across the nation have been in place for years, in districts in, for example, California, Georgia, Iowa, Maryland, Michigan, Nevada, New Jersey, Ohio, and Texas (in the Western district).[22]  But that trend toward disclosure had thus far largely avoided being raised and enforced in the few Federal districts where patent litigation primarily resides (though the California and Texas districts have long had rules requiring disclosures—ones that are often ignored by LLC PAEs).


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