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.
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.
Last week, the Vermont AG’s Office filed a “conditional” Motion to amend its Complaint against MPHJ Technology Investments, LLC (“MPHJ”) relating to alleged violations of the State’s state consumer protection laws. This move does not mean that the Vermont AG has given up on its case. To the contrary, it is probably trying to tighten up its consumer protection case by removing overly broad requested relief.
The motion asks to possibly amend its Complaint to remove relief that would enjoin MPHJ from “threatening Vermont businesses with patent-infringement lawsuits.” Importantly, it retains the right to ask the Court to enjoin MPHJ “from engaging in any business activity in, into or from Vermont that violates Vermont Law.” The AG’s Office also continues to seek considerable civil penalties for violation of the State’s Consumer Protection Act.
While others might see this request as a weakness in the AG’s case, I disagree. The AG seems to be cutting the dead wood in order to bolster its argument that it is not trying to enjoin lawful activity.
On Wednesday, it was reported that the Virginia General Assembly passed legislation from the House and Senate designed to crack down on misleading patent troll demand letters. Virginia’s efforts come on the heels of a letter from over 40 state and territorial attorneys general to the U.S. Senate’s Commerce and Judiciary Committees urging federal patent litigation reform.
Virginia, like other states (e.g., Kentucky and Oregon), has expressed concern over its small businesses being targeted with baseless letters threatening patent infringement. In an effort to provide some protection from frivolous claims, Virginia established criteria for when a claim has been made in “bad faith” (e.g., failing to specify how the target is infringing, etc.). More importantly, the legislation grants the Virginia Attorney General’s Office enforcement power to curb unwanted troll behavior.
While I have been critical of recent federal patent reform efforts to date for having any meaningful impact, it does appear that granting enforcement power to state attorneys general could have an effect on baseless patent infringement claims. Not only will it curb mass letters from being sent, it should also cause patent owners concern about asserting thinly-based claims of infringement. Companies might think twice before sending knee-jerk infringement letters to their competitors if they could face being investigated by the state.
For the last 1 ½ years, we have heard about proposed U.S. legislation that is aimed at discouraging baseless patent troll lawsuits. Yet, nothing has been signed into law. We’ve also seen various state Attorney Generals’ offices take action, panels of federal judges urging steps to heighten the pleading requirements for such suits and even FTC commissioners weighing in on the issue.
Yesterday, the Obama Administration announced various initiatives designed to improve patent quality and “combat patent trolls.” They have been touted as a renewal of President Obama’s call for patent reform from his State of the Union address. The White House highlighted five current initiatives ranging from “promoting transparency” (e.g., updating ownership information during USPTO proceedings) to “making patents clear” (e.g., helping USPTO examiners more effectively examine so-called “functional claims” to ensure that patent claims are clear). The White House further announced three new initiatives that are allegedly designed to “strengthen the quality and accessibility of the patent system.”
While providing more resources to USPTO examiners is always welcomed, it is doubtful that any of these initiatives will have any impact on curbing troll activity. The real power in troll cases comes from the fact that cases can be brought on very thin allegations of infringement and it is not commonplace for defendants to recoup their attorneys’ fees for defending against such actions. There is not a uniform set of rules that apply to all patent infringement cases in federal court and as such, plaintiffs can try to game the system by bringing cases in jurisdictions that are either unfamiliar with complex patent litigation or have no rules governing such cases or both. The end result is that defendants can be faced with having to pay hundreds of thousands of dollars in needless discovery (primarily related to electronic information, such as e-mail, and archived data, etc.) right out of the starting gate in those jurisdictions that do not have a phased approach to patent litigation. Even if the Federal Rules of Civil Procedure are amended to required more detailed patent litigation claims, patent troll activity may not necessarily decrease as crafty counsel will figure out language to meet the bare minimum that is required. What would have an impact is legislation that awards attorneys’ fees to the prevailing party (much like in the copyright context- 17 U.S.C. § 505). This would provide the ultimate disincentive to bring frivolous cases. It will be interesting to see if any meaningful measures are actually implemented in the near future as many people seem to think that there is a problem with the current system.
We continue to get guidance as to when a party can file a request for an inter partes review of a patent. As I mentioned last Fall, under 35 U.S.C. § 315(b), a petitioner has 1 year from the date that it is “served with a complaint alleging infringement” to file a request for inter partes review. Last week, the U.S. Patent and Trademark Office (“Board”) clarified that the filing of an arbitration claim does not start this 1 year clock.
Based on a 2009 arbitration, Tessera, Inc. moved to terminate an inter partes review initiated by Amkor Technology, Inc. for being outside the 1 year window. Thus, the question became whether “served with a complaint alleging infringement” included being served with an arbitration counterclaim of infringement. The Board noted that arbitration is not “litigation,” but rather an alternative dispute resolution procedure. Simply stated, “served with a complaint alleging infringement” only refers to disputes in District Court versus any forum for adjudicating infringement as Tessera had argued. We now know that complaints and counterclaims alleging infringement (even if dismissed with prejudice) are the two clear-cut ways to start the clock running with regard to the filing of requests for inter partes reviews.
Most people are now aware of the changes by the American Invents Act to the inter partes process for reviewing patents. There are no longer inter partes reexaminations. Instead, parties can petition for inter parties reviews. Generally speaking, a petitioner has 1 year from the date that it is served with “a complaint alleging infringement” to file a request for inter partes review. 35 U.S.C. § 315(b). Until the recent decision in St. Jude Medical, Cardiology Division, Inc. v. Volcano Corporation, it was unclear as to whether “a complaint” also included a counterclaim of infringement by the patent owner. Earlier this month, the Patent Trial and Appeal Board (“Board”) confirmed that it does.
St. Jude Medical sued Volcano for infringement of its own patents. Volcano, in turn, counterclaimed with a charge of infringement of U.S. Patent No. 7,134,994 (“the ‘994 Patent”) in September of 2010. Two years later, the parties dismissed all claims relating to the ‘994 Patent with prejudice. Nonetheless, in April of 2013, St. Jude Medical petitioned for an inter partes review of the ‘994 Patent. The Board denied the petition for falling outside the 1 year time limit imposed by 35 U.S.C. § 315(b).
The Board recognized Congress’ intent behind inter partes reviews, which is to “‘provid[e] quick and cost effective alternatives to litigation.’” It found that a counterclaim was tantamount to a complaint. More importantly, it held that that Section 315(b) applies even when a complaint is later dismissed with prejudice.
Now, it is clear. If you want to petition for inter partes review, you need to stay on top of the 1 year deadline. It doesn’t matter if the counterclaim is ultimately dismissed with prejudice. The clock continues. Companies should make sure to docket such deadlines.
Here is the latest in Activision’s quest to use Farney Daniels as its patent litigation counsel. (For those unfamiliar with the issue, see my prior postings, which discuss various states’ reactions to this firm’s efforts to enforce patent rights for a particular patent troll across the country.) This past Monday, the Nebraska U.S. District Court Judge granted Activision’s request for a preliminary injunction against the Nebraska AG’s Office. Specifically, the Court prohibited the AG from:
[T]aking any steps to enforce the cease and desist order issued to Farney Daniels on July 18, 2013, in any manner that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska.
However, this injunctive relief has no bearing on the AG’s ability to continue to investigate Farney Daniels for violations of the State’s Consumer Protection Act and the Court reserved the AG’s right to revisit the injunction should its investigation uncover a claim of bad faith by Farney Daniels.
Some may tout this as a great victory for Farney Daniels, but it wasn’t a great surprise. The Nebraska AG’s Office conceded that it wouldn’t oppose Farney Daniels attorneys’ requests to appear in the Activision matter because that matter pre-dated its cease and desist order, which only applied to future actions. Although Farney Daniels can now file new actions on behalf of Activision against Nebraska-based entities, it’s unclear that there is any desire to do so. Further, the Nebraska AG is still free to investigate any new claim asserted by Farney Daniels. As such, this firm will continue to operate under the watchful eye of the State and is not out of the woods yet.
As most of you have now realized, there has been a government shutdown. However, the USPTO reports the following about its continued operations:
USPTO Operation Status
During the general government shutdown that began October 1, 2013, the United States Patent and Trademark Office will remain open, using prior year reserve fee collections to operate as usual for approximately four weeks. We continue to assess our fee collections compared to our operating requirements to determine how long we will be able to operate in this capacity during a general government shutdown. We will provide an update as more definitive information becomes available.
Should we exhaust these reserve funds before the general government shutdown comes to an end, USPTO would shut down at that time, although a very small staff would continue to work to accept new applications and maintain IT infrastructure, among other functions. (Should it become necessary for USPTO to shut down, details of the agency’s plan for an orderly shutdown is [sic] available on page 78 of the United States Department of Commerce’s shutdown plan.) Any new or updated public information related to USPTO operations during the government shutdown will be placed on this page.
As you can see, the USPTO is expending its prior year’s reserves to continue to operate for the next month. Applications are still being accepted and according to the USPTO, it will maintain a skeleton crew to accept new applications even in the event of an actual shutdown. I wouldn’t want to take the chance and would file any contemplated patent applications as soon as possible. Also, I would try to schedule any desired patent examiner interviews sooner than later.
As I previously posted, Activision filed a Complaint in U.S. District Court challenging the Nebraska Attorney General’s Office’s prior cease and desist letter to a law firm called Farney Daniels. Last week, the Nebraska Attorney General’s Office fought back in its quest to curb troll activity when it filed its Brief in opposition to Activision’s Complaint and Motion for Preliminary Injunction. The AG’s Office asked the Court to dismiss the Complaint for, among other things, failure to state a claim and/or to deny Activision’s preliminary injunction request.
One of its stronger arguments appears to be the Court’s lack of subject matter jurisdiction. The AG’s Office points out that its cease and desist letter was to Farney Daniels and not to Activision. It also noted that its prior prohibition pertained to “new” matters and Activision’s matter was filed 6 days before the AG’s Office even issued its letter to Farney Daniels. Thus, there is no “case or controversy” between the parties.
The AG’s Office also argued that Activision couldn’t meet its preliminary injunction burden of showing that it would likely succeed on the merits. It creatively argued that Activision cannot show that Farney Daniels’ actions didn’t constitute unfair or deceptive trade practices under Nebraska state law. If this case doesn’t get dismissed for lack of subject matter jurisdiction, it will be interesting to see how the Court analyzes Farney Daniels’ patent enforcement efforts under the Nebraska Consumer Protection Act.