Over the past few years, the U.S. Supreme Court has issued several decisions that have had a major impact on IP law, including Bilski v. Kappos in 2010 and Mayo v. Prometheus Labs in 2012, both of which significantly affected the scope of patentable subject matter.

The current term of the Supreme Court is shaping up to have its greatest impact on IP law in recent years, with one major decision already issued this month and several others expected to be issued this year. This article briefly explores how these decisions are expected to affect the IP landscape in 2013.

Already, LLC v. Nike, Inc. – Covenant not to sue precludes defendant’s counterclaim

On January 9, 2013, the Supreme Court issued its first major IP decision of the year holding that a plaintiff’s dismissal of its trademark infringement suit, together with a covenant not to sue, removed the district court's jurisdiction and barred the defendant's counterclaim of trademark invalidity.

The case started in July 2009 when Nike filed a trademark infringement action against Already and its Yums footwear brand over shoes alleged to be a “confusingly similar imitation” to Nike’s Air Force 1 design, which Nike trademarked in 2008.

Yums filed a counterclaim seeking to cancel Nike's trademark on its Air Force 1 design. Nike then dismissed its complaint against Yums and issued a covenant not to sue. Despite these actions by Nike, Yums continued to pursue its counterclaim to invalidate Nike's trademark, arguing that even without the threat of legal action, the trademark’s existence left the impression that Yums continues to infringe the trademark.

The district court dismissed Yums’ counterclaim, concluding that there was no longer a justiciable controversy. The Second Circuit Court of Appeals affirmed. It explained that the covenant was broadly drafted, that the court could not conceive of a shoe that would infringe Nike’s trademark yet not fall within the covenant, and that Yums had not asserted any intent to market such a shoe.

The Supreme Court unanimously affirmed the Second Circuit’s decision, holding that application of the “voluntary cessation” doctrine demonstrated this case was moot: the covenant was unconditional and irrevocable, it prohibited Nike from filing suit or making any claim or demand, it protected both Yums and its distributors and customers, and covered not just current or previous designs, but also colorable imitations. Given the breadth of the covenant, Yums had the burden of showing that it engaged in or planned to engage in activities not covered by the covenant, which it failed to do on the record. According to the Supreme Court, “the fact that some individuals may base decisions on conjectural or hypothetical speculation does not give rise to the sort of concrete and actual injury necessary to establish Article III standing.”

The Supreme Court’s decision is important to all IP owners, particularly with respect to enforcement. One of the risks associated with IP enforcement is that the defendant might file a counterclaim for a declaratory judgment that the plaintiff's trademark or patent is invalid. The Supreme Court’s decision reinforces that a plaintiff can affirmatively dismiss a counterclaim by issuing a broad covenant not to sue. Of course, whether a covenant not to sue will divest a district court of jurisdiction over an invalidity counterclaim depends on whether the breadth of the covenant renders the threat of future litigation between the same parties based on the same trademark or patent nonexistent.

The Association for Molecular Pathology v. Myriad Genetics Inc. – Are isolated human genes patentable?

The Myriad case is one of the most significant IP biotechnology cases in decades. The case involves Myriad’s patents on isolated DNA known as BRCA1 and BRCA 2. These genes are associated with a predisposition to breast and ovarian cancer, and the patents have allowed Myriad to become the only provider of BRCA testing in the United States.

In 2012, Myriad’s patents on the isolated BRCA1 and BRCA2 genes were ruled invalid by a district court in New York. Myriad then appealed to the Federal Circuit, which held that isolated DNA was patent eligible. The case was then petitioned to the Supreme Court, which vacated the ruling and remanded the case back to the Federal Circuit in light of its decision in Mayo v. Prometheus (2012).

In August 2012, the Federal Circuit again ruled in favor of Myriad and held that isolated DNA was patentable. In reaching decision, the Federal Circuit reasoned that isolated DNA was not just a purified version of DNA. Instead, the court determined that the isolation and removal of DNA from its native environment resulted in a molecule that was “markedly different from that which exists in the body.” The court noted that isolated DNA does not exist in nature in a way than can be purified, and must instead be chemically cleaved to form a distinct molecule or synthesized from its building blocks. The key question for the Supreme Court to decide in Myriad is whether isolated DNA is a new chemical matter with important utilities that can only exist as the product of human invention. Because the U.S. Patent Office has long issued patents for isolated DNA sequences, the Myriad decision is expected to have significant commercial implications for the medical and biotechnology industries.

Bowman v. Monsanto – Are self-replicating seeds exempt from patent exhaustion?

This case stems from Monsanto’s patent lawsuit against an Indiana farmer, Vernon Bowman, who purchased bulk soybean seeds from a local grain elevator. The seeds brought to the grain elevator had been harvested by other farmers. Some of these seeds were genetically modified seeds developed and patented by Monsanto which are resistant to its popular RoundUp brand herbicide.

Bowman planted the seeds and sprayed the plants with RoundUp. Because the genetically modified traits of the seeds are replicated in each generation, the plants survived the spraying. Bowman then harvested seeds from the surviving plants. Although Monsanto’s license prohibits farmers that use its patented seeds from collecting seeds from their harvest and using them for future crops, Bowman had not purchased the seeds from Monsanto.

At the district court, Bowman argued that Monsanto’s patent rights in seeds obtained from a grain elevator that were harvested by other farmers had been exhausted. The district court rejected this argument and awarded damages to Monsanto. The Federal Circuit affirmed, holding that patent rights are not exhausted when harvested seed containing the patented technology is sold as a commodity.

The question to be decided by the Supreme Court is “whether the Federal Circuit erred by (1) refusing to find patent exhaustion – a doctrine which eliminates the right to control or prohibit the use of an invention after an authorized sale – in patented seeds that were sold for planting; and (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies.” The Monsanto case could set an important precedent for patent rights in the agricultural and biotechnology industries.

Kirtsaeng v. John Wiley & Sons, Inc. – Does copyright exhaustion apply to importation?

The case concerns the “first sale” doctrine in copyright law which allows owners to sell or otherwise tranfer copyrighted items without permission from the copyright holder. The doctrine has long been interpreted as one that applies to all goods, regardless of where they originated.

The case stems from a copyright infringement suit brought by John Wiley & Sons, a well-known publisher of academic, scientific, and educational journals and books for sale in domestic and international markets. John Wiley & Sons sued Supap Kirtsaeng, a foreign student attending graduate school in the United States, who had his family and friends send him textbooks produced by Wiley Asia (at prices lower than books sold in the United States by John Wiley & Sons) and that he subsequently re-sold on eBay for a profit.

In response to John Wiley & Sons suit, Kirtsaeng raised the first sale doctrine as a defense. The district dourt, however, found that the first sale doctrine was inapplicable to goods manufactured outside the United States, and thus found Kirtsaeng liable for copyright infringement.

The Second Circuit affirmed the district court’s decision, holding that the first sale doctrine was inapplicable to foreign-manufactured books. The Second Circuit examined the relationship between the first sale doctrine, which applies to copies “lawfully made under this Title” (e.g. lawfully made under the Copyright Act) and a corollary provision of the Copyright Act, Section 602(a)(1), which prohibits importation of a work acquired outside the United States without the authority of the copyright owner. Noting the tension between § 602(a)(1), which grants copyright holders “broad control over the circumstances in which their copyrighted material may be imported into the United States,” and § 109(a), which limits a copyright holder’s right to control subsequent sales in the secondary market, the Second Circuit concluded that applying the first sale doctrine to goods produced internationally would render § 602(a)(1) meaningless.

The issue that the Supreme Court must decide is whether the first sale doctrine applies to copies of copyrighted works made and legally acquired outside the United States and then imported into the United States. This decision is being closely watched by publishing industries.