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IP & Regulatory Law Blog

Reflections of a former regulator on FTC and IP issues

AAA TRAP: WHAT RULES APPLY?

Posted in Litigation

It’s not uncommon for companies to use an arbitration provision in their contracts to resolve disputes as an attempt to control costs. Many cite to the pending rules of the American Arbitration Association or AAA. Depending on whether your case is a “Large, Complex” case (i.e., your claims are at least $500,000), you might not have as much structure as you may desire to govern the handling of your dispute, thereby causing uncertainty and potentially driving up the cost.

In the case of Large, Complex matters, the arbiter is granted more deference in establishing the discovery to be exchanged and depositions to be conducted.  In smaller matters, however, there is an argument that the arbiter does not have as much discretion.  More importantly, nowhere does it mention what procedural rules and limitations apply.

For example, how many interrogatories or depositions will be permitted? What is reasonable notice for a deposition to occur? Normally, applicable state or federal rules of civil procedure  would provide a framework to answer these questions.  However, they don’t necessarily apply in arbitration unless specifically called out in the arbitration provision.

This uncertainty can cause disputes between the parties, thereby driving up the cost.  Depending on which side of the dispute your company is on, you may or may not want to have extensive discovery to assist you with your case.  So, if you want more certainty, make sure to spell out what rules of civil procedure should apply in the event of arbitration.

WHAT WILL BE THE STANDARD FOR DIRECT INFRINGEMENT FOR METHOD CLAIMS?

Posted in Patents

Much has been written about the Supreme Court’s recent Akamai decision.  However, a more interesting topic is whether the Federal Circuit will revisit its standard for direct infringement of a method claim.

In Muniauction, the Federal Circuit held that for direct infringement of a method claim to occur, all of the claimed steps have to be attributable to a single actor, either by performing them itself or by directing or controlling others to perform them. In Akamai, the Supreme Court appeared to question this standard, stating that “[a]ssuming without deciding that the Federal Circuit’s holding in Muniauction is correct…” and allowing the Federal Circuit the opportunity “to revisit the § 271(a) question if it so chooses.”  Even though it acknowledged that under the Federal Circuit’s standard, a party could evade liability by dividing up performance of the steps of a method claim with another which the party did not direct or control, the Supreme Court was unwilling to create a new standard for indirect infringement that did not have a statutory basis.

Until the Federal Circuit changes the law, the Muniauction standard stands- i.e., there can be no direct infringement of a method claim if all the steps are not attributable to one actor.  More importantly, if there is no direct infringement, there can be no indirect infringement.

Patent prosecutors should keep this in mind when crafting claims and clients should consider this when they participate in a multi-step process.  Claims should be drafted to ensnare a single actor and clients should evaluate whether one entity directs or controls an entire process when a method patent claim is at issue.

THE GOOD, THE BAD AND/OR THE UGLY

Posted in Patents, Trademarks

In case you have been on vacation for the past two weeks, here is a quick update of some major developments in the intellectual property arena. Depending on your position, they may represent the “good,” the “bad” or the “ugly.”

Alice Corporation Supreme Court Decision

Yesterday, in the Alice Corporation case, the Supreme Court provided further comment on patent-eligible subject matter under 35 U.S.C. § 101 in the computer software context.  The patent claims-at-issue were directed to “a computerized scheme for mitigating ‘settlement risk.’”  The Court held, in part, that “the claims at issue [were] drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.”  The takeaway is that merely reciting a computer system configured to implement an abstract concept will not be patent-eligible subject matter.

Rader Resigns

As previously reported, Federal Circuit Judge Randall Rader stepped down as chief judge last month in the midst of criticism over his controversial e-mail.  Last week, Judge Radar announced that he will be retiring from the bench at the end of the month.  He intends to teach.

Washington Redskins Trademarks Cancelled

On June 18, 2014, the Trademark Trail and Appeal Board (“TTAB”) in the Amanda Blackhorse matter cancelled Pro-Football, Inc.’s trademark registrations consisting in whole or in part for the term REDSKINS for professional football-related services.  The marks were cancelled because they were found to be disparaging to Native Americans and as such, were obtained in violation of 15 U.S.C. §1052(a), which prohibits “registration of marks that may disparage persons or bring them into contempt or disrepute.”  The TTAB was quick to point out that its decision solely related to the right to register these marks and does not deal with the right to use such marks. This is an important distinction as this case will surely be appealed and does not extinguish any common law enforcement rights that may exist. Thus, if you are thinking about starting your own REDSKINS clothing line, you might want to rethink that decision.

TESLA SPARKS ELECTRIC VEHICLE MARKET

Posted in Patents

Yesterday, it was reported that Tesla Motors has made the decision to allow anyone to use its patented technology.  Expressing frustration with the evolution of long range electric cars, it hopes that this move will spark innovation.  Tesla allegedly owns about 200 patents in this area, all of which are available for use.

Interestingly, this move also coincides with Tesla’s opening of the country’s largest lithium-ion battery plant. There’s speculation that Tesla may be trying to create other customers for its batteries with this bold move.

So, what happens if Tesla’s strategy backfires? Will it ever be able to enforce these patents once Pandora’s Box has been opened to allow free, good faith use by all? It seems like a risky decision.

RADER’S REIGN COMES TO AN END

Posted in Patents

The Federal Circuit Court of Appeals announced that Chief Judge Randall R. Rader will be stepping down as Chief Judge on May 30, 2014.  Judge Sharon Prost will succeed Judge Rader, who will remain active on the bench.

The Federal Circuit is a unique court of appeals because its jurisdiction is not based on its geographic location, but rather on particular subject matter.  It is most well known for having exclusive jurisdiction over patent appeals from all U.S. District Courts.

Nominated in 1990 by President Bush, Judge Rader has been one of the more outspoken and influential judges in the area of patent law.  Although there are rumors being circulated as to why Judge Rader has stepped down, we should remember that there are always two sides to every story.  Judge Rader could have remained within the Beltway all of these years, but, instead, he made an effort to assist practitioners across the country. We should keep this in mind in the coming weeks.

OLD ATTORNEYS’ FEES PROVISION DEEMED “UNDULY RIGID”

Posted in Patent Litigation

Today, in the Octane Fitness case, the Supreme Court lowered the bar for establishing an award of attorneys’ fees in “exceptional” patent infringement cases. In the past, such fees had been very difficult to obtain because of the onerous standard imposed by the Federal Circuit. Even when accused companies prevailed against unfounded allegations of patent infringement, they failed to recoup the millions of dollars expended on their defense.

Section 285 of the Patent Act states: [t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” In order to be deemed an “exceptional” case, the Federal Circuit had previously required that it be shown that the litigation was brought in “bad faith” and was “objectively baseless.” A litigation was deemed to be “objectively baseless” when “no reasonable litigant could believe it would succeed.” Further, all of this had to be established by “clear and convincing” evidence.

The Supreme Court did several notable things in its decision. First, it shunned the prior “clear and convincing” evidentiary burden in favor of a “preponderance of the evidence” (i.e., more likely than not or 51%) standard, which mirrors the burden for patent infringement. Second, it attempted to loosen what it deemed to be a “too rigid” standard by defining an “exceptional case” as “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Court left this determination to the U.S. District Courts’ discretion, considering the “totality of the circumstances.”

It will be interesting to see how much clarity this new standard brings to future requests for attorneys’ fees. Showing how a case “stands out from others” should be quite an interesting exercise. Removing the “bad faith” requirement and lowering the evidentiary bar should increase companies’ chances of being awarded their fees. Now, companies should be even more concerned about pursuing specious claims of infringement.

WHAT IS YOUR “DATA SOUL” WORTH?

Posted in Privacy

Last week, it was reported that a Dutch student (Shawn Buckles) held an online auction to sell a bundle of his personal information because he felt that most of his “personal” information was no longer owned by him due to his past online activities. He pointed to many online user agreements that he felt transferred his rights to various companies that collected and stored his data.

Although there were more than 40 bidders, the student reportedly sold his “data soul” for about € 350 (about $485 (US)) to The Next Web, a technology news company that plans to use it at an upcoming conference on privacy.  So what did The Next Web acquire?  According to Mr. Buckles’ website, he sold his “personal profile; location track records; train track records; personal calendar; e-mails; online conversations; consumer preferences; thoughts; and browsing history.”

This stunt does not appear to be the efforts of a starving student grasping for spending money. Rather, he appears to have an agenda as he also posted what he describes as a “Privacy Pamphlet” on his auction site in which he proclaims, among other things, that “[o]ur privacy is at stake.”

While it is certainly not earthshattering that online companies routinely collect our data for various reasons, Mr. Buckles has touched on a sensitive issue.   More and more generations are accessing the Internet and as such, people need to be properly informed about the amount of information that is being collected about their online activities.  Privacy remains an important priority for the FTC, but the Internet is the wild west and the agency has limited resources to monitor it. While I can appreciate Mr. Buckles’ point, I don’t necessarily agree with the method in which he conveyed his message.  For example, I wonder if he redacted the recipients’ contact information from his e-mails or online conversations.  If not, then didn’t he commit the same sin that he complains of in his online missive- he used someone’s online information for his personal use? Hopefully, he took steps to address this concern and obtained their consent and/or redacted their identifying information.

Cheeseheads Enter the Fray: Wisconsin Latest to Pass Anti-Troll Legislation

Posted in Patent Litigation

Wisconsin is the latest state to entertain legislation aimed at curbing patent troll activity within its state.  Last week, the State Assembly passed Senate Bill 498, as amended, which requires certain disclosures to be made in an initial demand letter alleging patent infringement. In addition to the information routinely supplied, patent owners will now have to identify not one claim, but all claims that they assert are being infringed. More telling, patent owners will have to detail how each claim is met by the accused technology.  As an added bonus, they will also have to include all court proceedings (past and present) involving the patent. This could provide useful information as to how other similarly situated parties defended against similar infringement claims.

Wisconsin is essentially mandating a patent claim chart showing infringement for any accused technology. Many trolls, who are serious about enforcement, already provide such information to accused infringers. So, while it may cut down on the issuance of shotgun cease and desist letters, it should not have a real impact on the more sophisticated trolls.

Both the state attorney general’s office and aggrieved parties may bring claims for violations of the law.  The state can seek penalties of up to $50,000 per violation. Private claimants can seek reasonable attorneys’ fees and costs and an award of punitive damages not to exceed $50,000 for each violation or three times the aggregate amount of actual damages and costs and attorneys’ fees awarded by a Court, whichever is greater

Violations are based on “false, misleading or deceptive information” in the demand letter or if the required disclosures are not made within 30 days after the recipient notifies the enforcing party that the disclosures were incomplete.  Importantly, no enforcement actions or private remedies may be sought solely based on an initially incomplete demand letter.

Certain types of demand letters are exempt from the law- those sent by an institution of higher education and those involving patents subject to approval by the U.S. Food and Drug Administration.

Determining what is “false, misleading or deceptive information” in this context seems to be a formidable task for state courts to entertain, especially since many of them do not routinely handle patent matters. Such cases are usually litigated in federal court.  The stiff $50,000 per violation price tag and/or the threat of having a state investigation, however, may deter those from sending completely baseless demand letters.

You Be The Judge: Late Night King Trudeau Sentenced to 10 Years

Posted in FTC, Uncategorized

As a former FTC staffer, I am asked about what’s the worst that can happen if a company doesn’t have substantiation for its weight loss or other health-related claims. Well, that depends. Taken to its extreme, there can be serious consequences.

It’s been reported that late night TV infomercial pitchman, Kevin Trudeau, was sentenced yesterday to 10 years in prison for criminal contempt of a federal court order.  Trudeau’s latest problems can be traced back to a 2004 FTC Stipulated Final Order barring him from misrepresenting the contents of his books in advertising.  As you may recall, Trudeau had also agreed to be banned from advertising products in infomercials.

In 2010, Trudeau was ordered to pay consumers nearly $38 million based on the books that he sold.  His books focused on all-natural cures for serious illnesses, such as cancer, arthritis, etc. that he felt were being suppressed by the FDA,  FTC and pharmaceutical industry.  Trudeau tried to escape paying the nearly $38 million, but was found guilty of contempt last year.  Trudeau was finally sentenced and received 10 years for his acts.

So, what’s the worst that can happen? Taken to the extreme, you may go to jail. One thing is for certain. If you make unsupported claims about curing serious illnesses- claims that discourage consumers from following traditional medical treatments for such ailments-  you are sure to go to the top of the federal government’s list in terms of its enforcement efforts as public health remains a top priority.

When You May Stand Out In A Crowd: The Perils of Crowdfunding Inter Partes Reexaminations

Posted in Patent Litigation

Crowdfunding is becoming commonplace these days.  Inventors are using it to bring their products to market and artists are using it as a means to fund movies and even new music platforms.

Now, parties are using crowdfunding to combat patent trolls and Adam Carolla is leading the charge.  Although it sounds like an interesting concept, there can be consequences for participating.  Indeed, Personal Audio, the troll that sued Carolla, recently pressed this issue and, for the moment, lost. Last Fall, the Electronic Frontier Foundation (“EFF”) used crowdfunding to initiate an inter partes reexamination request with the USPTO of the patent that Personal Audio claims Carolla and others are infringing over podcasts. Personal Audio subpoenaed the EFF to learn the identities of the 1,000+ donors, arguing that it needed to verify whether any of the defendants, including Carolla, had contributed to the campaign as parties are estopped from making the same prior art arguments in court once pursued in an inter partes reexamination.  Arguing that the Personal Audio’s request was overbroad and that its donors had a first amendment right of privacy, the EFF opposed the subpoena.  It was reported that the assigned magistrate judge deferred on the first amendment issue, but felt that it was premature to seek this information at this point as the “estoppel” issue only arises once a final determination is made during a reexamination proceeding.  For now, the donors’ identities may remain anonymous unless Personal Audio asks the U.S. District Court judge to override the magistrate’s decision and consider the issue.

While crowdfunding can be an effective way of pooling resources, there can be consequences.  Interestingly, had the EFF filed an “ex parte” reexamination request, there would have been a different result as “ex parte” reexaminations do not create the same “estoppel” effects as their “inter partes” cousins.