Why it matters: The courts, from the U.S. Supreme Court on down, have been busy with respect to IP matters in recent months, handing down decisions covering induced and direct infringement under the Patent Act (and, in one case, the Tariff Act of 1930); the likelihood of confusion under the Lanham (Trademark) Act; standing to sue under the Copyright Act; and change in ownership of a patent/trademark licensee under Contract Law 101. Read on for a survey of cases that struck our eye.
Detailed description: Following is a survey of recent U.S. Supreme Court, circuit court and district court decisions covering a range of IP matters that we found worthy of note:
Commil USA, LLC v. Cisco Systems, Inc.: On May 26, 2015, the U.S. Supreme Court held that a defendant's good faith belief regarding a patent's invalidity is not a defense to an induced infringement claim.Relevant facts/procedural history: Commil USA, LLC (Commil), the holder of a patent for a method of implementing short-range wireless networks, filed suit against Cisco Systems, Inc. (Cisco), a maker and seller of wireless networking equipment, alleging direct infringement and induced infringement on Commil's patent. Two district court jury trials ensued, after which Cisco was found liable for direct infringement (first trial) and induced infringement (second trial). In between the two trials, Cisco petitioned the Patent and Trademark Office (PTO) for ex partereexamination of Commil's patent, which returned a decision confirming the patent's validity. Relevant to the case on appeal, in the second trial for induced infringement, Cisco had attempted to introduce the defense of good faith belief that Commil's patent was invalid, but the district court ruled Cisco's supporting evidence inadmissible. On appeal, the Federal Circuit affirmed in part, vacated in part, and remanded, holding in relevant part that the district court had erred in excluding Cisco's evidence of its good faith belief that Commil's patent was invalid. The Supreme Court granted certiorari to consider "a question of first impression: whether knowledge of, or belief in, a patent's validity is required for induced infringement under §271(b) [of the Patent Act]." The Court vacated the Federal Circuit's judgment and remanded the case to the district court for further proceedings consistent with its opinion. Justice Anthony Kennedy wrote the majority opinion with Justice Antonin Scalia dissenting.Analysis and holding: The Court framed the question before it as "whether a defendant's belief regarding patent validity is a defense to a claim of induced infringement," and concluded "[i]t is not. The scienter element for induced infringement concerns infringement; that is a different issue than validity." The Court pointed out that, if an accused infringer believes a patent to be invalid, it has numerous avenues to pursue, including seeking inter partes review or reexamination of the patent through the PTO (as Cisco did in the latter case). Moreover, the Court stated that creating a "new" defense to induced infringement revolving around belief in invalidity would "render litigation more burdensome for everyone involved. Every accused inducer would have an incentive to put forth a theory of invalidity and could likely come up with myriad arguments." The Court noted the argument that such a new defense could prove useful to combat "frivolous" cases brought by so-called "patent trolls"; however, the Court stated that the district courts have within their arsenal tools to combat such suits, including the imposition of attorney sanctions and fee awards, and concluded that "[t]hese safeguards, combined with the avenues that accused inducers have to obtain rulings on the validity of patents, militate in favor of maintaining the separation expressed throughout the Patent Act between infringement and validity. This dichotomy means that belief in invalidity is no defense to a claim of induced infringement." (Emphasis added.)
See here to read the 5/26/15 U.S. Supreme Court decision in Commil USA, LLC v. Cisco Systems, Inc.
Akamai Technologies, Inc. v. Limelight Networks, Inc.: On August 13, 2015, the Federal Circuit, sitting en banc, unanimously expanded the scope of direct infringement under § 271(a) of the Patent Act in situations where all the steps of a claimed method are not actually being performed by the accused infringer, holding that an entity will be held liable for the performance of method steps by others if (1) the entity directed or controlled the others' performance, or (2) the entity and the others are part of a joint enterprise. Relevant facts/procedural history: Akamai Technologies, Inc. (Akamai) sued Limelight Networks, Inc. (Limelight) in district court in 2006 alleging infringement of its patents that claim methods for delivering content over the Internet. At trial, it was established as a matter of fact that Limelight's customers, and not Limelight, perform the "tagging" and "serving" steps in the claimed methods. The jury found Limelight liable for direct infringement of Akamai's patent. Post-trial motions and legal posturing ensued, resulting in the judge granting Limelight's motion for reconsideration and ruling as a matter of law that Limelight could not be found liable for direct infringement as it did not perform all of the steps in the claimed methods. On rehearing, an en bancpanel of the Federal Circuit reversed and remanded. Analysis and holding: The Court began by pointing out that the case was before the en banc panel on remand from the Supreme Court, which in 2014 had asked the Federal Circuit to "revisit the Section 271(a) question" due to the "possibility [we] had erred by too narrowly circumscribing the scope of Section 271(a)." The Court went on to state that "we hereby avail ourselves of that opportunity" and "unanimously set forth the law of divided infringement under 35 U.S.C. § 271(a)." The Court held that "[d]irect infringement under § 271(a) occurs where all steps of a claimed method are performed by or attributable to a single entity….Where more than one actor is involved in practicing the steps, a court must determine whether the acts of one are attributable to the other such that a single entity is responsible for the infringement. We will hold an entity responsible for others' performance of method steps in two sets of circumstances: (1) where that entity directs or controls others' performance, and (2) where the actors form a joint enterprise." (Emphasis added.) Applying these principles to the facts of the case, the Court held that "the facts Akamai presented at trial constitute substantial evidence from which a jury could find that Limelight directed or controlled its customers' performance of each remaining method step. As such, substantial evidence supports the jury's verdict that all steps of the claimed methods were performed by or attributable to Limelight. Therefore, Limelight is liable for direct infringement."
See here to read the 8/13/15 Federal Circuit decision in Akamai Technologies, Inc. v. Limelight Networks, Inc.
Suprema, Inc. v. International Trade Commission: On August 10, 2015, the Federal Circuit, sitting en banc, overturned a decision by its own panel and held that the International Trade Commission (ITC) has the power to exclude goods whose mere importation does not infringe a patent, but whose use by the importer afterwards directly infringes the patent at the inducement of the seller of the goods. Relevant facts/procedural history: In 2010, Cross Match Technologies, Inc. (Cross Match) filed a complaint with the ITC, alleging infringement of four of its patents involving fingerprint scanning devices. Upon investigation, the ITC administrative law judge (ALJ) found that the allegedly infringing machines were manufactured abroad by Suprema, Inc. (Suprema), a Korean company that makes hardware for scanning machines. Suprema's machines, however, needed software to function and Suprema included instructions for software installation with its machines. The machines were then imported into the United States by Suprema and Mentalix Inc. (Mentalix), a U.S.-based company that writes the custom software needed to operate Suprema's machines. After importation, Mentalix added its software to Suprema's machines and sold the "combined" scanners to U.S. customers, and it is at that point that the ALJ found the direct infringement of Cross Match's patents to have occurred. The ALJ found Suprema and Mentalix to be in violation of Section 337 of the Tariff Act of 1930, which declares it unlawful to import "articles that . . . infringe a valid and enforceable United States patent," interpreting Section 337 to apply in situations where, as here, the actual direct infringement was not committed until after the goods were imported. The ALJ issued a limited exclusion order barring the importation of Suprema's machines as well as a cease and desist order preventing Mentalix from selling the combined scanners in the United States. In 2011, the ITC affirmed the ALJ's decision regarding direct infringement and further found Suprema to be liable for induced infringement for encouraging Mentalix to add its software to the machines and sell them in the United States. On appeal to the Federal Circuit, the majority panel vacated the ITC's decision and orders, holding that Section 337 is "temporal" and requires direct infringement to be measured at the time of importation, i.e., if there is no direct infringement at the time of importation, then there are no "articles that infringe" under Section 337 and thus no violation of that statute. Crosshatch and the ITC petitioned the Federal Circuit for rehearing en banc. The en banc panel vacated and remanded, finding that the ruling of its panel overturning the ITC's interpretation of Section 337 "effectively eliminated trade relief under Section 337 for induced infringement and potentially for all types of infringement of method claims." Analysis and holding: The question before the en banc panel was whether "the [ITC] correctly concluded that unfair trade acts covered by Section 337 include the importation of articles used to infringe by the importer at the inducement of the articles' seller." The Court stated that "because Section 337 does not answer the question before us, the Commission's interpretation of Section 337 is entitled toChevron deference," i.e., the principle of administrative law established by the U.S. Supreme Court in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., that requires courts to defer to "reasonable" interpretations of statutes made by the governmental agencies charged with enforcing them. Applying Chevron deference to the situation at hand, the Court held that "the Commission's interpretation that the phrase 'articles that infringe' covers goods that were used by an importer to directly infringe post-importation as a result of the seller's inducement is reasonable. Accordingly, we return the case to the panel for further proceedings consistent with this opinion." (Emphasis added.)
See here to read the 8/10/15 Federal Circuit decision in Suprema, Inc. v. International Trade Commission.
Multi Time Machine, Inc. v. Amazon.com, Inc.: On October 21, 2015, the Ninth Circuit reversed itself and withdrew its earlier July 6, 2015, opinion in which it had held that it is a question of material fact for a jury to decide as to whether online retailer Amazon.Com, Inc. (Amazon) created a likelihood of consumer confusion through the format of its product search returns. This time around, the Court held that, because the search results returned by Amazon "clearly labeled the name and manufacturer of each product offered for sale and even included photographs of the items, no reasonably prudent shopper accustomed to shopping online would likely be confused as to the source of the products." Relevant facts/procedural history: Multi Time Machine, Inc. (MTM), the manufacturer of high-end, military-style watches trademarked as "MTM Special Ops," sued Amazon in federal district court seeking injunctive relief and alleging that Amazon had infringed MTM's trademark in violation of the Lanham Act by formatting its search results so as to create a likelihood of consumer confusion. The facts that drove MTM to file suit show that, even though MTM Special Ops watches were not sold by Amazon, a search of "MTM Special Ops" on the Amazon website would return a page showing the trademarked name "MTM Special Ops" three separate times in and below the search field as well as the phrase "Showing 10 Results," after which were displayed similar multi-function watches manufactured by MTM competitors, including Luminox and Chase-Durer. At no time in the search process did Amazon admit that it didn't carry MTM's watches. The district court judge granted Amazon's motion for summary judgment, finding as a matter of law that Amazon's use of MTM's trademark in this manner did not create a likelihood of confusion. On July 6, 2015, the Ninth Circuit, in an opinion written by Judge Carlos T. Bea, reversed and remanded, holding that likelihood of confusion is a matter of material fact for a jury to decide. In that opinion, Judge Barry G. Silverman invoked the 1978 "Coke/Pepsi" skit from Saturday Night Live, among other things, to provide a lively dissent. On October 21, 2015, the Court withdrew its prior opinion and issued a new one that superseded and effectively reversed its July 6 holding and affirmed the district court's grant of summary judgment. This time, the majority opinion was written by Judge Silverman with Judge Bea dissenting. Analysis and holding: The question before the Ninth Circuit (both times) was whether the factual scenario set forth above regarding Amazon's search results methods constituted trademark infringement. In the October 21 opinion, the Ninth Circuit concluded that it did not. The Court acknowledged but differentiated its 1979 decision in AMF, Inc. v. Sleekcraft Boats, which established an eight-factor test for determining likelihood of confusion, stating that the Sleekcraft test is not "particularly apt" in this situation and that "the ultimate test for determining likelihood of confusion is whether a 'reasonably prudent consumer' in the marketplace is likely to be confused as to the origin of the goods." Thus, the Court stated, the case turned on "the answers to the following two questions: (1) Who is the relevant reasonable consumer?; and (2) What would he reasonably believe based on what he saw on the screen?" The Court analyzed those two questions as related to the facts of the case and the applicable law, and held "[i]n light of Amazon's clear labeling of the products it carries, by brand name and model, accompanied by a photograph of the item, no rational trier of fact could find that a reasonably prudent consumer accustomed to shopping online would likely be confused by the Amazon search results. Accordingly, we affirm the district court's grant of summary judgment in favor of Amazon." (Emphasis added.)
See here to read the 10/21/15 Ninth Circuit decision in Multi Time Machine, Inc. v. Amazon.com, Inc.
Tiffany & Co. v. Costco Wholesale Corp.: On September 9, 2015, a district court judge in the Southern District of New York granted summary judgment to Tiffany & Co. (Tiffany) on its trademark infringement claim against Costco Wholesale Corp. (Costco), finding as a matter of law that Costco's sale of rings advertised as "Tiffany" settings gave rise to a likelihood of confusion and that "Tiffany" is not a generic term so as to enable Costco to claim fair use. Relevant facts/procedural history:Tiffany sued Costco in 2013 for trademark infringement under the Lanham Act based on the unauthorized use by Costco of various "Tiffany" trademarks in connection with the sale of rings in Costco's wholesale retail stores, alleging that Costco's use of the Tiffany trademarks to sell non-Tiffany rings gave rise to a likelihood of consumer confusion. Costco countersued, seeking a declaratory judgment that the name "Tiffany" is a generic term for a distinctive type of ring setting and, as such, Costco's exploitation in this context constituted fair use. The parties filed cross-motions for summary judgment. The Court granted Tiffany's motion for summary judgment in its entirety. Analysis and holding: The Court held that "[b]ecause Tiffany has proffered credible evidence establishing both: (1) that it owns a validly registered mark; and (2) that Costco's use of that mark is likely to cause confusion, and because Costco has failed to proffer contrary evidence that raises a disputed issue of fact with respect to either prong of the Lanham Act infringement analysis, the Court grants Tiffany's motion for summary judgment insofar as it seeks a finding of Costco's liability for trademark infringement." (Emphasis added.) The Court further granted Tiffany's motion with respect to Costco's liability for "trademark counterfeiting" under the Lanham Act, and rejected Costco's counterclaims alleging "genericism" and fair use.
See here to read the 9/9/15 S.D.N.Y. decision in Tiffany & Co. v. Costco Wholesale Corp.
Minden Pictures, Inc. v. John Wiley & Sons, Inc.: On July 29, 2015, the Ninth Circuit held that, under the "divisibility principle" embodied in the Copyright Act, a licensing agent for individual photographs had standing to sue a textbook publisher for unauthorized use of the photographs, even though the individual photographers retained the right to personal and limited commercial use thereof. Relevant facts/procedural history:Minden Pictures, Inc. (Minden), a stock photography company that serves as the licensing agent for dozens of wildlife and nature photographers, sued textbook publisher John Wiley & Sons, Inc. (Wiley) in federal district court in 2012 for copyright infringement, alleging that Wiley had exceeded the scope of the licenses granted to it by Minden for certain photographs by publishing far more copies of books (over 100,000) containing those photographs than permitted under the licenses (20,000). The facts show that Minden had entered into agency agreements (Agency Agreements) with each of the affected photographers that, in relevant part, contained an "authorization" clause in which the photographers agreed to appoint Minden as the "sole and exclusive agent and representative with respect to the Licensing of any and all uses of Images" in the relevant territory; "Licensing" was defined as "the marketing, grant, lease, sale, use or other exploitation of reproduction rights to an Image." The Agency Agreements also granted Minden "the unrestricted, exclusive right to distribute, License, and/or exploit the Images . . . without seeking special permission to do so." The district court granted Wiley's motion for summary judgment, holding in relevant part that the Agency Agreements did not confer sufficient property interest in the photographs to Minden and thus Minden did not have standing to sue under the Copyright Act. The Ninth Circuit reversed and remanded. Analysis and holding: The question before the Ninth Circuit was "whether Minden, as a licensing agent, has statutory standing under the Copyright Act to bring an infringement suit based on alleged violations of the terms of its licenses to Wiley." The Court concluded that it does. The Court began its analysis of the applicable provisions of the Copyright Act, noting in relevant part that the Act "permits the copyright owner to subdivide his or her interest in what otherwise would be a wholly owned 'exclusive right' by authorizing the owner to transfer his or her share, 'in whole or in part,' to someone else." The Court went on to note that "[i]t is established law under the [Copyright Act] that any party to whom such a right has been transferred—whether via an assignment or an exclusive license—has standing to bring an infringement action based on that right." The Court stated that it was not in dispute that "the Agency Agreements transferred an interest in a legally cognizable right in the photographers' copyrights," but it fell to the Court to determine the type of interest that was conferred. The Court agreed with Wiley that the photographers did not assign their copyrights to Minden under the Agency Agreements; in fact, the Agency Agreements contained a provision whereby the photographers retained the "sole and exclusive" owners of the copyrights. The Court disagreed with Wiley, however, that because the photographers had retained certain personal and commercial licensing rights in the photographs, the licenses granted to Minden under the Agency Agreements were rendered nonexclusive. The Court pointed out that, under the Copyright Act, "a single copyright, or right thereunder, may be divided between parties, with each co-owner entitled to sue to protect his or her interest in the right" and "[w]e see no reason why the divisibility principle should not apply with equal force when the interest granted is an exclusive license to grant licenses to others." The Court thus concluded that "[b]ecause we conclude that the Agency Agreements convey the rights to reproduce, distribute, and display the photographs to Minden via an 'exclusive license' to grant licenses to third parties, we hold that Minden may bring an infringement action to remedy the unauthorized reproduction, distribution, and display of the photographs by those to whom it has granted licenses." (Emphasis added.)
See here to read the 7/29/15 Ninth Circuit decision in Minden Pictures, Inc. v. John Wiley & Sons, Inc.
Contract Law 101:
VDF FutureCeuticals, Inc. v. Stiefel Labs., Inc., et al.: On July 10, 2015, the Seventh Circuit held that a sublicensee of patent and trademark rights that purchased its sublicensor in order to reduce the royalties it owed to the original licensor was not prohibited from buying the sublicensor company in the absence of a specific written prohibition in the original license agreement. Relevant facts/procedural history: Plaintiff VDF FutureCeuticals, Inc. (VDF) is the owner of patent and trademark rights in "CoffeeBerry," an extract from the whole fruit of the coffee plant. In 2004, VDF entered into a license agreement with defendant J&J Technologies, LC (J&J) that licensed it to manufacture and sell CoffeeBerry-based skin care products for which it paid VDF either a "running royalty" ranging from 15%-33% of revenues from the sale of the products by J&J or any sublicensee or a specified quarterly royalty in the event the running royalties did not meet stated targets. The facts show that the license agreement contained an anti-assignment provision requiring VDF's written consent for any assignment, but there was no provision addressing a change of control of J&J, an omission the Seventh Circuit found to be "critical." In 2006, as was permitted under the agreement, J&J granted a sublicense to Stiefel Laboratories, Inc. (Stiefel), a subsidiary of GlaxoSmithKline. In 2010, J&J's three owners sold their stock in J&J to Stiefel for $8.5 million, whereupon J&J became a wholly owned subsidiary of Stiefel. Stiefel then caused J&J, its sublicensor, to reduce Stiefel's royalty obligations to VDF under the sublicense. A review of Stiefel's internal documents showed that Stiefel purchased J&J instead of taking an assignment of the VDF-J&J direct license agreement expressly because it wanted to lower the royalties it had to pay VDF without having to seek VDF's written approval. In 2012, VDF sued Stiefel alleging, among other things, breach of contract due to the "de facto assignment" of the J&J license agreement without VDF's consent as required by the anti-assignment clause in the contract. The district court judge granted Stiefel's motion for summary judgment with respect to the "de facto assignment" claim (and one other claim not discussed here), leaving VDF's other claims pending, and certified it for interlocutory appeal to the Seventh Circuit. Analysis and holding: The Seventh Circuit affirmed the district court's ruling, finding VDF's "de facto assignment" claim to be "without merit." The Court cited to established corporate law regarding change of control provisions and found VDF's failure to put such a provision in the written contract, in addition to the anti-assignment clause, to be "fatal": "A change in ownership is likely to result in a change in operations. That the change in how J&J was operated was adverse to the licensor's interests is why with clearer foresight VDF would have included restrictions in the license on changes in the ownership of its licensee, J&J." (Emphasis added.) The Court went on to explain that "[w]ere this not the rule, routine anti-assignment clauses would impede liquidity in the market for corporate control. Sizeable corporations are likely to be party to many contracts, often containing anti-assignment clauses similar to the one in VDF's license to J&J. Were such clauses interpreted to prohibit changes in the control of an acquired corporation, acquirers (such as Stiefel in this case) would have to negotiate (and therefore pay something) for the consent of the licensors of the acquired corporation to any changes in the control of the licensee that the acquirer wanted to make."
See here to read the 7/10/15 Seventh Circuit decision in VDF FutureCeuticals, Inc. v. Stiefel Labs., Inc., et al.