Decisions in Brief

Decisions in Brief

By John C. Gatz

©2019. Published in Landslide, Vol. 11, No. 5, May/June 2019, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

COPYRIGHTS

Artists Falter in Preemption Battle over Resale Royalties

Close v. Sotheby’s, Inc., 909 F.3d 1204, 128 U.S.P.Q.2d 1769 (9th Cir. 2018). The plaintiffs, a collection of individual artists, previously sued multiple defendants who sold their art, including Sotheby’s and eBay (dealers), under the California Resale Royalties Act of 1976 (CRRA). The CRRA requires the seller of a work of fine art to withhold 5 percent of the sale price and pay it to the artist. On appeal, the Ninth Circuit ruled that claims under the CRRA were expressly preempted by the Copyright Act’s preemption provision, 17 U.S.C. § 301(a). However, the Ninth Circuit also found that claims prior to the 1976 Act’s effective date (January 1, 1978) were not preempted because the prior version of the Copyright Act at that time did not contain an express preemption provision.

The CRRA also provides for attorney fee-shifting, namely the prevailing party is entitled to reasonable attorney fees. The parties were again before the Ninth Circuit after the dealers sought attorney fees from the artists. The artists argued that the CRRA fee-shifting provision was preempted by the Copyright Act, and that at least some of the dealers were not prevailing parties. The Ninth Circuit ruled that the fee-shifting provision was not preempted because: (1) the ruling did not render the state law null and void, but rather the CRRA became unenforceable; and (2) the Copyright Act does not expressly preempt fee-shifting, and the right to seek fee-shifting does not conflict with similar provision in the Copyright Act because both the federal and state fee-shifting provisions were limited to their own acts. The Ninth Circuit also ruled that, despite the case under the CRRA continuing for a few sales that occurred prior to 1978, the dealers were still the prevailing party for all claims on sales after 1978 since they won a determination on the merits, and hence were entitled to a fee award under the CRRA fee-shifting provision.

Fair Use Can’t Trump Photographer’s Copyright

Otto v. Hearst Communications, Inc., 345 F. Supp. 3d 412, 129 U.S.P.Q.2d 1056 (S.D.N.Y. 2018). Otto attended a wedding at the Trump National Golf Club in June 2017. President Trump made an unscheduled appearance at the wedding. Otto took a photo of President Trump at the wedding and texted the photo to a friend. The next morning, the photo appeared on several websites, including the Esquire website owned by Hearst. Otto sued Hearst for copyright infringement and moved for summary judgment. The district court granted Otto’s motion for summary judgment of copyright infringement. To obtain summary judgment of copyright infringement, Otto needed to show that he owned a valid copyright and that copying occurred. The district court found that Otto had registered the photo with the Copyright Office, and that Hearst copied the photo for use on the Esquire website. Next, the district court analyzed Hearst’s fair use defense. The district court determined that Otto was entitled to summary judgment that Hearst’s use of the photo did not qualify as a fair use.

Platform Allowing Resale of Digital Music Files Found to Involve Unlawful Reproduction

Capitol Records, LLC v. ReDigi, Inc., 910 F.3d 649, 128 U.S.P.Q.2d 1793 (2d Cir. 2018). ReDigi created a platform that allowed users to sell lawfully purchased music files to others, with the goal of enabling lawful sales under the resale doctrine. The plaintiffs, record companies, sued ReDigi for copyright infringement, arguing that the ReDigi system resulted in unlawful reproduction and distribution of the companies’ copyrighted works. The plaintiffs prevailed and were awarded $3,500,000. ReDigi appealed, seeking a judgment that its system falls under the resale doctrine and does not result in unlawful reproduction or distribution.

The Second Circuit sided with the plaintiffs, finding that “ReDigi’s process itself involves the making of unauthorized reproductions that infringe the exclusive reproduction right unless justified under fair use.” No fair use was found, as the Second Circuit remarked on the substantial harm ReDigi inflicts on the value of the plaintiffs’ copyrights by its direct competition in the market.

PATENTS

Attorney Fees

Spineology, Inc. v. Wright Medical Technology, Inc., 910 F.3d 1227, 128 U.S.P.Q.2d 1822 (Fed. Cir. 2018). The Federal Circuit upheld the district court’s denial of the alleged infringer’s motion for attorney fees. The alleged infringer moved for attorney fees based on the patentee’s claim construction, damages theory, and litigation conduct. The Federal Circuit disagreed, finding that although the district court did not adopt the patentee’s claim construction, the attempt was not meritless.

Collateral Estoppel

VirnetX Inc. v. Apple, Inc., 909 F.3d 1375, 128 U.S.P.Q.2d 1803 (Fed. Cir. 2018). The Federal Circuit affirmed the Patent Trial and Appeal Board’s (PTAB’s) decision that certain claims were unpatentable as obvious. The Federal Circuit found that the patentee was collaterally estopped from appealing whether a certain piece of prior art was a printed publication because it was a threshold issue in a prior litigation.

Damages

WesternGeco LLC v. ION Geophysical Corp., 913 F.3d 1067, 129 U.S.P.Q.2d 1206 (Fed. Cir. 2019). The Federal Circuit affirmed in part, vacated in part, and remanded to the district court. The case returned to the Federal Circuit from the U.S. Supreme Court, which remanded the sole claim of the lost profits award. In the intervening appeal period, four of the five asserted patent claims were invalidated. ION argued that the reasonable royalty award it fully paid and satisfied required a new trial, based on the subsequent invalidation of a number of claims. The Federal Circuit disagreed, finding that the final judgment was both agreed to by ION and fully paid. The Federal Circuit found that the lost profits issue was inadequately briefed, and that the district court was in a better position to consider the issue in the first instance, and therefore remanded the issue.

Double Patenting

Novartis Pharmaceuticals Corp. v. Breckenridge Pharmaceutical Inc., 909 F.3d 1355, 128 U.S.P.Q.2d 1745 (Fed. Cir. 2018). The Federal Circuit addressed double patenting where a later-filed of two related patents expired before the term of the earlier-filed patent due to an intervening change in the law. The two patents shared a common specification and effective filing date. The first patent, however, had a 17-year term and the second patent had a 20-year term. Novartis conceded that the claims in the two patents were obvious variations of one another, while Breckenridge conceded infringement. The sole issue was whether the later-filed, but earlier-expired patent was an invalidating reference against the earlier-filed, but later-expiring patent. The Federal Circuit stated that the later-filed patent was not an invalidating reference.

Invalidity/Infringement/Damages

Enplas Display Device Corp. v. Seoul Semiconductor Co., 909 F.3d 398, 128 U.S.P.Q.2d 1621 (Fed. Cir. 2018). The Federal Circuit affirmed the district court’s JMOL ruling that the asserted patents were not anticipated, affirmed the jury’s finding of induced infringement, but reversed the damage award. While noting that this was a close case with respect to infringement, the Federal Circuit found that substantial evidence supported the jury’s verdict that Enplas induced infringement. With respect to damages, the Federal Circuit found that the jury’s damage award was not supported by substantial evidence because the plaintiff’s experts improperly included noninfringing devices in their royalty calculations that the jury relied on.

Obviousness

Amerigen Pharmaceuticals Ltd. v. UCB Pharma GmbH, 913 F.3d 1076, 129 U.S.P.Q.2d 1178 (Fed. Cir. 2019). The Federal Circuit affirmed the PTAB’s conclusion that the claims were not obvious.

Realtime Data, LLC v. Iancu, 912 F.3d 1368, 129 U.S.P.Q.2d 1172 (Fed. Cir. 2019). The Federal Circuit affirmed the PTAB’s obviousness determination in view of a single prior art reference to O’Brien’s patent. The patent discloses systems and methods for providing lossless data compression and decompression that exploit various characteristics of run-length encoding, parametric dictionary encoding, and bit packing. The petitioner argued that O’Brien alone discloses each element of the challenged claims. However, the petitioner also relied on a second prior art reference to demonstrate that a person of ordinary skill in the art would have understood O’Brien’s disclosed string compression to be a type of “dictionary encode,” which was recited in the challenged claims. Because the PTAB found obviousness based on a single reference that discloses each limitation, the Federal Circuit determined that it was unnecessary for the PTAB to make any finding regarding a motivation to combine.

On-Sale Bar

Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., 139 S. Ct. 628, 129 U.S.P.Q.2d 1189 (2019). The Supreme Court affirmed the Federal Circuit’s finding that the on-sale bar applied to the patent under the America Invents Act (AIA). The Supreme Court determined that Congress did not alter the meaning of “on sale” when it enacted the AIA. Therefore, the inventor’s sale of an invention to a third party who is obligated to keep the invention confidential can still qualify as prior art under § 102(a).

Patent Term Extension

Novartis AG v. Ezra Ventures LLC, 909 F.3d 1367, 128 U.S.P.Q.2d 1752 (Fed. Cir. 2018). The Federal Circuit affirmed the district court’s findings that obviousness-type double patenting does not invalidate an otherwise validly obtained patent term extension (PTE). The alleged infringers argued that the patent was invalid because the PTE impermissibly extended the life of the patent beyond the life of a prior patent. The patentees filed for a PTE under the Hatch-Waxman Act due to regulatory approvals. The alleged infringers argued that the extension was impermissible because it effectively lengthened the term of a related method patent. The Federal Circuit found that this was a natural byproduct of the patentees’ patent strategy and was allowed.

Patentable Subject Matter

In re Marco Guldenaar Holding B.V., 911 F.3d 1157, 129 U.S.P.Q.2d 1008 (Fed. Cir. 2018). The Federal Circuit affirmed the PTAB’s affirmance of the examiner’s rejection of various claims under § 101. The application is directed to dice games in gambling casinos, in which a participant attempts to win with a certain combination of subsets of the dice. A representative claim is directed to a method of playing a dice game that involves placing a wager based on a given potential combination resulting from rolling three dice having certain specialized markings and then paying an amount if the wager occurs. The Federal Circuit found that the claims were directed to the abstract idea of rules for playing a dice game and that the only arguable inventive concept related to the dice markings, which constitute printed matter outside the scope of § 101. Thus, the claims were ineligible under § 101.

Personal Jurisdiction

Maxchief Investments Ltd. v. Wok & Pan, Ind., Inc., 909 F.3d 1134, 128 U.S.P.Q.2d 1697 (Fed. Cir. 2018). The Federal Circuit affirmed the district court’s dismissal of Maxchief’s declaratory judgment action and tortious interference claim because Wok lacked sufficient contacts with the district to exercise personal jurisdiction. While the defendant sent a letter alleging infringement to a lawyer located in the district, the Federal Circuit found that this was insufficient because the letter alleged infringement by a company that did not operate within the district.

Post-Grant Review

Hamilton Beach Brands, Inc. v. F’real Foods, LLC, 908 F.3d 1328, 128 U.S.P.Q.2d 1637 (Fed. Cir. 2018). The Federal Circuit upheld the PTAB’s final written decision in an inter partes review (IPR), finding that substantial evidence supported the PTAB’s decision that the sole challenged claim was not obvious. While each of the claimed steps were disclosed in two prior art references, the petitioner failed to show a motivation to combine those references.

Review of Noninstituted Grounds on Reconsideration

AC Technologies S.A. v. Amazon.com, Inc., 912 F.3d 1358, 129 U.S.P.Q.2d 1164 (Fed. Cir. 2019). The Federal Circuit affirmed the PTAB’s conclusion that all the challenged claims were invalid even after the PTAB, on reconsideration, invalidated several of the claims based on a ground that was not considered in its final written decision. Petitioner Amazon presented three grounds of invalidity in its petition for IPR based on a single prior art reference. The PTAB instituted on the first two grounds but determined that the third ground was moot because the petitioner had established a reasonable likelihood of showing that the challenged claims were obvious in light of the first ground. In its final written decision, the PTAB found all but three claims invalid for obviousness based on the instituted grounds. The petitioner timely filed for reconsideration and requested that the PTAB review the claims in light of the previously noninstituted third ground. The PTAB allowed for additional briefing, discovery, and expert declaration submissions in the reconsideration proceeding. Ultimately, the PTAB sided with the petitioner and invalidated the remaining claims based on the third ground. On appeal, the Federal Circuit held that the PTAB had followed precedential case law when it agreed to review the previously noninstituted ground and that the PTAB properly complied with due process by allowing additional briefing, discovery, and expert declarations regarding the third ground. The Federal Circuit also affirmed the PTAB’s claim constructions and ultimate findings of anticipation and conclusions of obviousness.

Venue

Jack Henry & Associates, Inc. v. Plano Encryption Technologies LLC, 910 F.3d 1199, 128 U.S.P.Q.2d 1758 (Fed. Cir. 2018). The Federal Circuit dismissed the district court’s holding that venue was improper. The Northern District of Texas was the proper venue given that the patentee undertook a licensing program with threats of litigation aimed at alleged infringers operating in the Northern District of Texas. Therefore, the alleged infringers could bring a declaratory judgment action in the venue.

TRADE SECRETS

Archer Daniels Midland Co. v. Sinele, No. 4-18-0714, 2019 Ill. App. LEXIS 49 (Feb. 1, 2019). The plaintiff moved for a preliminary injunction on the theory that the defendant’s new consulting business would inevitably lead to using Archer Daniels Midland’s (ADM’s) trade secrets. The Illinois Appellate Court noted that ADM did not allege that Sinele took with him anything but his unaided memory. Further, the defendant did not go to work for a direct competitor. ADM’s concerns that the defendant might remember its profit margins for each customer that had been assigned to him at ADM was insufficient to invoke the inevitable disclosure doctrine. If ADM had such concerns, ADM should have entered into a contract with postemployment restrictions. The motion for a preliminary injunction was denied.

Irth Solutions, LLC v. Apex Data Solutions & Services, No. 18-CV-6884-FPG, 2019 WL 283831, 2019 U.S. Dist. LEXIS 10290 (W.D.N.Y. Jan. 22, 2019). The plaintiff sued Apex Data alleging misappropriation of the plaintiff’s “DigTrack” software management program. Unlike DigTrack’s features and modules, the entire DigTrack software program as a whole is not available to the public and is protected by confidentiality and nondisclosure agreements. The issue before the district court was whether the plaintiff had sufficiently pleaded a “unique combination” qualifying its software program as a trade secret. The district court recognized that the unique combination of a software’s program, architecture, and user interface can be protectable as a trade secret. However, the plaintiff has not described a unique combination in sufficient detail to enable the district court to determine whether to grant injunctive relief. Thus, the motion for a temporary restraining order was denied.

Mastercraft Decorators, Inc. v. Orlando, No. 18-CV-6037-FPG, 2018 WL 6448829, 2018 U.S. Dist. LEXIS 207951 (W.D.N.Y. Dec. 10, 2018). Plaintiff Mastercraft alleged that customer information, pricing information, marketing sources, plans and strategies, order cycles, and order histories constitute trade secrets. The defendant argued that Mastercraft’s trade secret allegations are vague, conclusory, and insufficient to support an inference that this information qualifies as trade secrets. The district court agreed. Although the plaintiff need not disclose its secrets to state a claim, it must allege facts sufficient to show that the information is secret. The plaintiff alleged generally that the information was not generally known to the public. But, this alone cannot prove a trade secret. Here, Mastercraft alleged no steps it took to keep the information confidential other than by referencing the single-paragraph confidentiality provision in the employee handbook. The motion to dismiss was granted.

Premier Dealer Services, Inc. v. Allegiance Administrators, LLC, No. 2:18-cv-735, 2019 WL 79038, 2019 U.S. Dist. LEXIS 473 (S.D. Ohio Jan. 2, 2019). Determining whether information constitutes a trade secret is a highly fact-specific inquiry. The plaintiff must show the existence of a trade secret with supporting factual evidence. Conclusory statements without supporting factual evidence cannot meet the burden of establishing trade secret status. The district court found that the plaintiff’s rating process was the only alleged trade secret accurately pleaded based on its use, development, secrecy, and security precautions. The motion to dismiss as to the plaintiff’s rating process was denied.

TRADEMARKS

Likelihood of Confusion

Omaha Steaks International, Inc. v. Greater Omaha Packing Co., 908 F.3d 1315, 128 U.S.P.Q.2d 1686 (Fed. Cir. 2018). Omaha Steaks appealed the Trademark Trial and Appeal Board’s (TTAB’s) decision dismissing its opposition to Greater Omaha Packing’s application to register the mark GREATER OMAHA PROVIDING THE HIGHEST QUALITY BEEF (opposed mark) for meat, including boxed beef primal cuts. The TTAB concluded that there was no likelihood of confusion between the opposed mark and Omaha Steaks’ previously registered trademarks including the words OMAHA STEAKS. The Federal Circuit found that the TTAB erred while analyzing the fame of the registered mark, third-party usage, and similarity of the marks, thereby vacating and remanding the TTAB’s decision.

Specifically, the Federal Circuit found that the TTAB’s conclusion that Omaha Steaks did not provide any context for its raw sales figures and ad expenditures lacked substantial evidence and that, in fact, the consuming public had been regularly exposed to Omaha Steaks’ marks on a nationwide scale due to its sales and marketing efforts. The Federal Circuit also found that the TTAB’s decision to discount evidence of fame because the record did not include copies of the underlying advertisements was legally flawed and overly restrictive because the OMAHA STEAKS mark appeared in a broad spectrum of national media, backed by millions of dollars of advertising, which correlated with millions of dollars of sales. The Federal Circuit vacated and remanded on these issues.

The Federal Circuit also found that the TTAB did not abuse its discretion in disregarding an expert survey that excluded the large segment of participants who purchased their meat from a grocery store, supermarket, or smaller market. The Federal Circuit vacated the TTAB’s finding that considered a variety of goods and services that included the word OMAHA, regardless of whether they involved meat, in concluding that OMAHA was a weak commercial indicator of source and was thereby only entitled to narrow protection. The TTAB was instructed to reweigh the limited, relevant evidence of third-party use. The Federal Circuit therefore vacated the TTAB’s decision that there was no likelihood of confusion and remanded for further proceedings.

Likelihood of Confusion/Concurrent Use

In re Guild Mortgage Co., 912 F.3d 1376, 129 U.S.P.Q.2d 1160 (Fed. Cir. 2019). Guild Mortgage filed an application for GUILD MORTGAGE COMPANY for “mortgage banking services, namely, origination, acquisition, servicing, securitization and brokerage of mortgage loans.” The TTAB refused registration based on a likelihood of confusion with GUILD INVESTMENT MANAGEMENT for investment advisory services. The Federal Circuit determined that the marks, the nature of the services, and the channels of trade were similar, and that these factors outweighed the TTAB’s findings that consumers would exercise a certain degree of care when investing and seeking a mortgage. The Federal Circuit found that the TTAB failed to consider arguments and evidence relating to the length of time and conditions under which there has been concurrent use by the parties without evidence of actual confusion. Because the TTAB failed to consider Guild Mortgage’s arguments and evidence that the parties coexisted for over 40 years in the same geographic market without evidence of confusion, the Federal Circuit found that the TTAB erred in its analysis. Because this evidence weighed in favor of Guild Mortgage, the TTAB’s error was not harmless, and the Federal Circuit remanded the likelihood of confusion determination for further consideration.

Merely a Surname

Schlafly v. St. Louis Brewery, LLC, 909 F.3d 420, 128 U.S.P.Q.2d 1739 (Fed. Cir. 2018). The Saint Louis Brewery (SLB), a craft brewery, was founded in 1989 by Thomas Schlafly and others in St. Louis, Missouri. SLB asserted that it continuously sold beer under its SCHLAFLY trademark since 1991. In 2011, SLB applied for trademark registration for the word mark SCHLAFLY for use with various types of beer. The application was opposed by two relatives of Thomas Schlafly. The TTAB denied the opposition, and the opposers appealed. The Federal Circuit affirmed.

The Federal Circuit rejected the opposers’ argument that SCHLAFLY is significant to the public as primarily the surname of the opposers (who were, respectively, a public figure/activist and a physician), noting that the TTAB found that the mark has acquired secondary meaning for use with beer products. The Federal Circuit also rejected the opposers’ argument that § 1052(e)(4) prohibits the registration of marks that are primarily merely a surname, reiterating that such marks can be registered by acquiring secondary meaning. Thus, the Federal Circuit affirmed the TTAB’s decision denying the opposition.

Sufficiency of Complaint against Defaulting Respondents/USITC

Laerdal Medical Corp. v. International Trade Commission, 910 F.3d 1207, 128 U.S.P.Q.2d 1805 (Fed. Cir. 2018). Laerdal filed a complaint with the U.S. International Trade Commission (USITC) asserting claims of patent, trademark, trade dress, and copyright infringement by 11 respondents for importing or selling certain spine boards, cervical collars, CPR masks, and training manikins. The USITC investigated some of Laerdal’s claims. After being served with the complaint and notice of investigation, none of the respondents submitted any response or participated in any way in the proceedings. A final determination was issued by the USITC, granting Laerdal limited exclusion orders against three respondents and a cease and desist order against one respondent, based on Laerdal’s patent and trademark claims. However, the USITC concluded that even if the pleaded facts were presumed to be true, Laerdal failed to show that any respondent violated 19 U.S.C. § 1337 with respect to the trade dress and copyright claims, even after finding all respondents in default.

Laerdal argued that once the USITC found all respondents in default, it was required to accept all facts pleaded in the complaint as true and issue a remedy, subject only to public interest concerns. The Federal Circuit agreed and concluded that on its face, the statute required the USITC to grant relief against the defaulting respondents, and that the USITC’s own prior decisions supported this conclusion. The Federal Circuit explained that if a violation is not pleaded adequately in a complaint, the USITC can decline institution and dismiss the complaint, thus never instituting an investigation. However, the USITC may not institute an investigation and then decide it is dissatisfied with the complaint on which the investigation was predicated. Here, if the USITC found Laerdal’s trade dress claims insufficient, it should have requested additional information or denied institution. Thus, the USITC was required to issue relief to Laerdal unless precluded by public interest concerns. The Federal Circuit remanded the case for further consideration.

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John C. Gatz

John C. Gatz is a member of the firm Nixon Peabody in Chicago, Illinois.

 

Column contributors include the following writers:

Copyrights: Zachary J. Smolinski, Smolinski Rosario Law P.C.; Michael N. Spink, Brinks, Hofer, Gilson & Lione; and Mark R. Anderson, Akerman LLP. Patents: Cynthia K. Barnett, Johnson & Johnson; R. Trevor Carter, Daniel M. Lechleiter, and Andrew M. McCoy, Faegre Baker Daniels LLP; Robert W. (Bill) Mason, Harness, Dickey & Pierce; and Angelo Christopher, Nixon Peabody LLP. Trade Secrets: R. Mark Halligan, FisherBroyles LLP. Trademarks: Elizabeth W. Baio, Jenni Wiser, and Alexis Grilli, Nixon Peabody LLP; and Amy L. Sierocki, Blumenfield & Shereff LLP.