Intellectual Property Law Blog

Federal Circuit Holds that "Isolated DNA Molecules" Are Patentable Subject Matter and Method Claims Merely "Comparing" or "Analyzing" Are Not

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 04 Aug 2011 09:47:32 -0800

The Federal Circuit issued its much-anticipated decision in The Association for Molecular Pathology v. United States Patent and Trademark Office on July 29, 2011. The case concerns Myriad Genetics, Inc. and its patents covering two “isolated” human genes, BRCA1 and BRCA2.

]]> In the 55-page opinion, written by Judge Lourie, the Federal Circuit held that composition claims covering two isolated human genes are patentable subject matter but method claims devoted to methods of "analyzing" or "comparing" a patient's isolated DNA sequence with the "normal" sequence are not patentable subject matter. The challenged composition claims cover isolated genes BRCA1 and BRCA2 (collectively, "BRCA1/2" or "BRCA") and certain alterations, or mutations, in these genes associated with a predisposition to breast and ovarian cancers. Representative composition claims include Claims 1, 2 and 5 of U.S. Patent No. 5,747,282 (the "'282 patent") and representative method claims include claim 1 of United States Patent No. 5,709,999 (the "'999 patent"). All but one of the challenged method claims cover methods of "analyzing" or "comparing" a patient's BRCA sequence with the normal sequence to identify the presence of cancer-predisposing mutations. The one exception is Claim 20 of the '282 patent.

The crux of the Court's finding of patent eligibility was based on its reading of the Supreme Court's holding in Diamond v. Chakrabarty, 447 U.S. 303 (1980). In particular, relying on Chakrabarty, the Court held that "the distinction between a product of nature and a human-made invention for purposes of § 101 turns on a change in the claim composition's identity compared with what exists in nature." Based on that distinction, the Court held that the challenged composition claims are "drawn to patentable subject matter because the claims cover molecules that are markedly different-have a distinctive chemical identity and nature-from molecules that exist in nature." The Court focused on the fact that the claimed isolated DNAs exist in a distinctive chemical form-as distinctive chemical molecules-from DNAs in the human body, i.e., native DNA. "BRCA1 and BRCA2 in their isolated state are not the same molecules as DNA as it exists in the body; human intervention in cleaving or synthesizing a portion of a native chromosomal DNA imparts on that isolated DNA a distinctive chemical identity from that possessed by native DNA."[1] The Court noted that "it is the difference between knowledge of nature and reducing a portion of nature to concrete form, the latter activity being what the patent laws seek to encourage and protect."

In focusing on the structural chemical differences, the Court ignored the structural chemical similarities (i.e., the information content contained in isolated and native DNA's nucleotide sequence) and the importance of those similarities to the invention as a whole and its utility. Instead, in criticizing the lower court's focus on the similarities between native DNA and isolated DNA, the Court held that "it is the distinctive nature of DNA molecules as isolated compositions of matter that determines their patent eligibility rather than their physiological use or benefit…. [T]heir informational content is irrelevant to that fact." The Court was also troubled by what it viewed as the lower court's "categorical exclusion of isolated DNA molecules" from patent eligibility, concluding that categorical exclusions are to be left to the legislature and not the courts. The Court also deferred to the PTO's long standing practice of granting patents to isolated DNA molecules and was concerned with a disruption that may be caused to the expectations of the "inventing community" if the Court abruptly held that isolated DNA molecules were no longer patentable subject matter.

In contrast, with respect to the method claims, the Court held that the method claims devoted to "analyzing" or "comparing" two gene sequences fall outside the scope of § 101 because they "recite nothing more than the abstract mental steps necessary to compare two different nucleotide sequences." The Court, relying on the Supreme Court's Bilski decision, held that limiting the comparison to particular genes (i.e., BRCA genes) or particular alterations "fails to render the claimed process patent eligible." ("limiting an abstract idea to one field of use…did not make the concept patentable.") Finding no support in the claim language or the specification, the Court rejected Myriad's attempt to read into the terms "comparing" and "analyzing" the additional, transformative steps of (1) extracting DNA from a human sample and (2) sequencing the BRCA DNA molecule. The Court distinguished the method claims at issue in Prometheus Labs., Inc. v. Mayo Collaborative Servs., 628 F.3d 1347 (Fed. Cir. 2010), on the grounds that the Prometheus "administrating" step was not only transformative but the "determining" step "was both transformative and central to the purpose of the claims." ("the metabolite levels could not be determined by mere inspection, the determining step necessarily required a transformation….") In contrast, the Court held, comparison between two sequences in the Myriad claims "can be accomplished by mere inspection alone."

It is doubtful that this is the last word on whether isolated DNA molecules are patent eligible since it is likely that at least Appellees will request rehearing en banc at the Federal Circuit and/or petition for certiorari to the Supreme Court.

Authored by:

Jennifer A. Trusso
(714) 424-8294
JTrusso@sheppardmullin.com

[1] "Native DNA exists in the body as one of forty-six large, contiguous DNA molecules. Each DNA molecule is itself an integral part of a larger structural complex, a chromosome. In each chromosome, the DNA molecule is packaged around histone proteins in a structure called chromatin, which in turn is packaged into the chromosomal structure."

Supreme Court Rules That Knowledge Of Patent Is Required For Liability For Inducing Patent Infringement, But Willful Blindness Is Enough

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 06 Jun 2011 08:24:41 -0800

Under section 271(b) of the Patent Act, a defendant in a patent infringement lawsuit may be held liable for inducing the infringement of a patent, i.e., causing another person to directly infringe a patent. However the language of the statute is not clear as to what conduct or intent is required for one to be liable for inducing infringement. Section 271(b) simply provides: "Whoever actively induces infringement of a patent shall be liable as an infringer."

]]> The U.S. Supreme Court recently grappled with the meaning of Section 271(b) in Global Tech Appliances, Inc. v. SEB S.A., U.S., No. 10-6, 5-31-2011, acknowledging that the statutory language regarding induced infringement is ambiguous, and attempting to clarify the requirements for liability under this section.

In Global Tech, defendant was accused of inducing infringement of a patent for an innovative deep fryer owned by SEB S.A. Defendant had purchased an SEB fryer in Hong Kong (thus it lacked U.S. patent markings), copied all of the fryer's features except for cosmetics, retained an attorney to conduct a right-to-use study without telling the attorney that it had copied SEB's design, and ultimately sold its fryers to companies that then resold them in the United States. A jury found defendant liable for inducing infringement and the Federal Circuit affirmed, stating that one may be liable for induced infringement where he "knew or should have known that his actions would induce actual infringements." At issue before the Supreme Court was whether the standard applied for finding induced infringement (i.e., that defendant knew or should have known) was appropriate.

In considering Section 271(b), the Court explained that the phrase "induces infringement" could merely require that "the inducer lead another to engage in conduct that happens to amount to infringement," (i.e., no knowledge that the induced act constitutes infringement) or "the inducer must persuade another to engage in conduct that the inducer knows is an infringement." (Emphasis added.) In other words, as the Court pointed out, the statute fails to give any indication as to what, if any, intent is required for a defendant to be liable for inducing patent infringement.

After considering case law pre-dating enactment of the law on contributory patent infringement (including induced infringement) and finding it conflicting, the Court turned its attention to its decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964) ("Aro II"). In Aro II, the Court determined the intent required for contributory infringement under Section 271(c). Under Section 271(c), a party is liable for patent infringement where it "offers to sell or sells . . . a component of a patented [invention] . . ., constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent . . . ." In Aro II, the Court concluded that for contributory liability to attach under Section 271(c), knowledge of the existence of the patent that is infringed is necessary.

Based on the Aro II decision and the fact that Section 271(b) and 271(c) incorporate a similar ambiguity as to intent, the Court concluded in Global Tech that the same knowledge standard for contributory infringement under Section 271(c) is necessary for induced infringement under Section 271(b). Thus, the Court held that "induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement." A "deliberate indifference to a known risk that a patent exists is not the appropriate standard under § 271(b)."

The analysis does not end there, however. The next step is the determination of what constitutes "knowledge" for liability for inducing infringement. Despite finding a "deliberate indifference" insufficient to meet this knowledge requirement, Global Tech Court went on to affirm the lower court rulings against the defendant in this case finding that the evidence was sufficient to support a finding of knowledge based on the defendant's "willful blindness." The Court reviewed the history of the doctrine of willful blindness and concluded that for the doctrine to apply, two requirements must be met: "(1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact." In justifying the imposition of liability based on a defendant's willful blindness, the Court distinguished willful blindness from recklessness and negligence explaining: "a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known of the critical facts."

In Global Tech, the facts that sufficed to amount to willful blindness for liability for inducing infringement included defendant's decision to copy an overseas model of SEB's fryer (lacking patent markings) and its failure to inform its attorney from whom it sought a right-to-use opinion of that fact. Based on these facts, the Court concluded that defendant "subjectively believed there was a high probability that SEB's fryer was patented, that [defendant] took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of [purchasers'] sales."

In summary, under the Court's Global Tech decision, one may be liable for inducing infringement if he knew that the acts induced constitute an infringement. While a deliberate indifference to a known risk that a patent exists is insufficient to demonstrate induced infringement, willful blindness is enough.

Authored By:

Ashley Merlo
(714) 424-8218
AMerlo@sheppardmullin.com

Tweet Me! - The Southern District of New York Answers Copyright Questions Raised By Twitter and Twitpic Use

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 26 Apr 2011 10:49:12 -0800

Social media has become a part of everyday life. As Shakespeare has written: "This news is not old enough, yet it is every day news." The minutiae of every moment is narrated through status updates. Digital photographs are taken and instantaneously posted minute-by-minute on the Internet for the world to see. This lightning fast use of social media raises new and different intellectual property challenges which have not been previously addressed by courts. On January 14, 2011, the Southern District of New York addressed a particularly interesting copyright question raised by the use of Twitpic – a service that allows users to post pictures to the Twitter microblogging and social networking website. Agence France Presse v. Morel, 2011 WL 147718 (S.D.N.Y. Jan. 14, 2011).

]]> On January 12, 2010, Morel, a photographer who has worked in Haiti for over twenty-five years, took photographs in Port au Prince of the earthquake hit and its immediate aftermath. Although communication throughout Haiti was disrupted, Morel was able to access the internet, upload his photos on Twitpic, post on Twitter that he had “exclusive earthquake photos,” and link his Twitter page with his Twitpic page. Morel, 2011 WL 147718 at *1. Moments after posting Morel's photographs went viral. Lisandro Suero copied the photographs, posted them on his Twitpic page and tweeted that he had “exclusive photographs of the catastrophe for credit and copyright.” Id. at *2. Later that day, a photo editor from Agence France Presse, a French news agency that offers an international photo service to media worldwide, downloaded thirteen of Morel’s photographs from Suero’s Twitpic page, placed the photographs on Image Forum, attributed them to Suero and transmitted them to Getty Images, an image licensing company. After fencing through cease and desist letters, the dispute was brought before a federal court. In December 2010, Agence France Presse brought a declaratory judgment action, alleging that it did not infringe Morel’s copyrights in his photographs based upon an express license. Morel counterclaimed, alleging, among other things, violations of the Copyright Act.[1] Agence FrancePresse moved to dismiss Morel's counterclaims. Agence France Presse's motion was denied with respect to Morel's copyright infringement claims.

In arguing against copyright infringement, Agence France Presse stated that it had an express license to use Morel’s images based upon the Twitter and Twitpic Terms of Service. In arguing for dismissal of the copyright infringement claims, Agence France Presse alleged that it had an express license to use Morel's images. District Judge William H. Pauley acknowledged that the existence of a license is a valid defense to a copyright infringement claim. After all, “it is a hallmark principal of copyright law that licensors may not sue their licensees for copyright infringement.” Morel, 2011 WL 147718 at *5 (quoting Jasper v. Sony Music Entertainment, Inc., 378 F.Supp.2d 334, 339 (S.D.N.Y. 2005). However, Judge Pauley ultimately concluded that Agence France Presse did not possess a valid license to use Morel’s photographs. Judge Pauley observed that the Terms of Service for Twitter and Twitpic "[b]y their express language . . . grant a license to use content only to Twitter and its partners. Similarly, Twitpic’s terms grant a license to use photographs only to Twitpic.com or affiliated sites.” Morel, 2011 WL 147718 at *6 (Emphasis added). Because Agence France Presse did not claim that it was a partner of Twitter or an affiliate of Twitpic, Judge Pauley held that it had not met its burden to establish that it had a license to use Morel’s photographs.

Agence France Presse alternatively argued that it was a third party beneficiary of the license agreement between Morel and Twitter and Twitpic. Judge Pauley noted that, to qualify as a beneficiary, the contracting parties must have intended to benefit that individual, an intent which must appear in the terms of the agreement. Morel, 2011 WL 147718 at *6. Agence France Presse argued that Twitter’s Terms of Service encouraged and permitted broad re-use of content by third parties and that this demonstrated an intent to confer a license upon third parties. Judge Pauley reasoned that such language, while encouraging and promoting re-use of content, did not necessarily demonstrate such an intention. He held: “That language is ambiguous and insufficient to establish on the pleadings that Morel ‘understood that the promisee [Twitter] had [the] intent’ to confer a license on other users.” Id. As a result, Judge Pauley found that Agence France Presse failed to establish that it was an intended third party beneficiary.

Although this is a district court ruling on a motion to dismiss and not a final decision on the merits, Agence France Presse v. Morel is instructive in that it underscores the importance of paying careful attention to the provisions of the Terms of Service when analyzing the rights and risks associated with the use of User Generated Content in the context of social media. As world communications become more and more viral, courts will be asked with increasing frequency to determine which uses of content infringe the laws of copyright and trademark and which do not. Prudent and careful users will review the applicable Terms of Service Agreements on sites like Twitter, MySpace and Facebook and scrutinize how these agreements impact intellectual property rights when those users share content with the world.

This article was originally posted on Sheppard Mullin's Fashion Apparel Law blog, which can be found at www.fashionapparellawblog.com.

Authored By:

Kathryn Hines
(212) 634-3054
KHines@sheppardmullin.com

Theodore C. Max
(212) 653-8702
TMax@sheppardmullin.com

[1] Morel also counterclaimed for violations of the Digital Millennium Copyright Act ("DMCA") and violations of the Lanham Act. The motion to dismiss was denied with respect to the DMCA allegations, but granted with respect to Lanham Act violations. This holding is noteworthy in that it echoes Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 32 (2003), in finding that an author may not use the Lanham Act to protect originality and creativity. In Dastar, the Supreme Court found that Section 43(a) of the Lanham Act, which governs trademarks cannot be invoked as an end run around the copyright laws or to add another layer of protection for copyright holders. Morel, 2011 WL 147718 at *10. Consequently, Judge Pauley held that Dastar and its progeny foreclosed Morel's Lanham Act counterclaims for false representation and false advertising. These claims were consequently dismissed.

Patent Reform

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 19 Apr 2011 11:06:27 -0800

The Senate passed their version of a Patent Reform Bill (Senate Bill No. S. 23), on March 8, 2011 by a wide 95-5 margin. The bill makes significant changes, most notably including a first-inventor-to-file system, and an enhanced post-grant review procedures that will be conducted within the USPTO. There are 26 sections to the Senate bill.

]]> Some key features of the Senate Bill include:

A first-inventor-to-file system and limitation of the one year grace period (Sec. 2);
A Post-grant review proceeding (Sec. 5);
New inter partes review proceeding (Sec. 5a);
Preissuance submission by third parties (Sec. 7);
USPTO fee-setting authority and USPTO funding (Secs. 9 and 10);
A supplemental examination proceeding (Sec. 11);
Elimination of the best mode defense (Sec. 15.);
A transitional post-grant review of covered business method patents (Sec. 18); and
A change to the False Marking Statute (Sec. 2).

The House of Representatives introduced their own version of the Patent Reform Bill (House of Representatives Bill No. H.R. 1249) on March 30, 2011. The House bill is very similar to the Senate bill, but includes some notable differences. The first-inventor-to-file system and limitation of the one year grace period is the same in the passed Senate bill and recently introduced House bill. Regarding the post-grant review and inter partes review proceedings, however, the House bill changes some of the standards of review and time limits in the Senate bill.

Below is a summary of some of the key features of the Senate bill, followed by a short analysis describing some important differences in the House bill.

1) First-inventor-to-file-system

The Senate bill moves to a first-inventor-to-file system, which would become effective 18 months after its enactment. The Senate bill eliminates current 35 U.S.C. § 102(g) and interferences, and questions of conception, diligence, reduction to practice, abandonment, suppression, and concealment.

Moving to a first-to-file system fundamentally changes other aspects of 35 U.S.C. §§ 102 and 103 (new 35 U.S.C. §§ 102 and 103 language provided on page 7). The Senate bill significantly reduces the present one-year grace period, which applies to prior art or disclosures from any source, be it derived from the inventor or from another. Under the Senate bill, that one-year grace period is limited to scenarios where the disclosure was (1) derived from the inventor or (2) made public after the inventor publicized his invention. In practical terms to a patent practitioner, the Senate bill severely limits the ability to antedate or use § 1.131 declarations to swear behind prior-filed references (when the applicant was prior inventor). The Senate bill would remove any possibility to swear behind prior art references or disclosures in, for example, the following cases:

References (not derived from the inventor) that are published by another less than one year before the effective filing of the patent application.
Some Section 102(e) secret prior art references.

For example, there would be no possibility to swear behind patent applications filed more than one year before the effective date of the patent application at issue, but published less than one year before that effective date.

The Senate bill appears to limit public uses or sales of the invention before the effective filing date. Under the current law, sales and offers-to-sell do not constitute a loss of right of a patent if those sales or offers-to-sell occurred less than one year before the effective filing date of the application. Any such grace period appears to be removed. This, however, may depend on the definition of "disclosure" made by the inventor. The Senate bill allows for "disclosures" made by the inventor if "1 year or less before the effective filing date" of the patent application. If sales or offers-to-sell constitute "disclosure," then the rules regarding sales and offers-to-sell of the invention (at least in the United States) would remain the same.

The Senate bill also removes geographic limitations for public uses or sales of the invention. Under the current law, an invention is not patentable if it was in public use or on sale in the United States more than one year prior to the effective filing date of the application (§ 102(b); or it was known or used by others in the United States prior to the date of invention (§ 102(a)). The Senate bill removes these geographical limitations. 35 U.S.C. § 102 of the Senate bill states that an invention is not patentable if it was "patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention." No limit to the United States is stated. Thus, public use, sales, and knowledge by others, anywhere in the world could result in the loss of right to a patent.

House bill provides the exact same language regarding 35 U.S.C. §§ 102 and 103.

2) Post-grant review

The Senate bill provides another way for a third party to challenge a patent. The post-grant review has some interplay with the new inter partes review, which is summarized next. The post-grant review procedure includes the following features:

Allows third parties to file a petition within nine months from when the patent issues.
Third party may challenge any claim of the patent based on any provision of the statute (i.e., §§ 101, 102, 103 and 112). In other words, it is not limited to just prior art references as in present inter partes and ex parte Reexamination.
The standard for whether a post-grant review will be conducted by the "Director" is:

if "information presented in the petition, if not rebutted would demonstrate that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable." The determination for conducting a post-grant review "may also be satisfied by showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications." § 324.

The patent owner may file a statement to challenge the petition.
The determination to proceed with a post-grant review is not appealable.
Post-grant reviews will be handled by a Patent Judge (Patent Trial and Appeal Board).
Post-grant reviews may not be instituted if the petitioner has filed a civil action challenging the validity of the patent. § 325.
If an infringement claim is filed within three months of the issuance of a patent, the court cannot stay the consideration of the patent owner's motion for preliminary injunction against infringement due to the filing of petition of a Post-grant review or Post-grant review was granted. § 325.
The Director is given broad discretion on how to regulate the post-grant review process, including for example procedures for submitting supplemental information, procedures for discovery, and providing either party with the right to an oral hearing. § 326.
The proceeding can be terminated by settlement of the parties or by a final decision of the board. § 327.
Final decisions are appealable to the Federal Circuit.

3) New inter partes Reexamination (now called inter partes review)

As stated above, the timing for inter partes review interplays with the post-grant review system. A request for inter partes review can be filed only on the later of nine months after the issuance of a patent or after a post-grant review is terminated. (§ 311(c)). Other features include:

The standard for granting a request for inter partes review has changed in the Senate bill to "a reasonable likelihood that the petitioner will prevail with regard to at least one claim," thereby raising the standard from a "substantial new question of patentability" under current inter partes reexamination. § 314(a).
The scope of review is still patents and printed publications, i.e., only challenging the patentability of one or more claims under §§ 102 or 103. § 311(b).
Unlike the current inter partes reexamination, the Senate bill's inter partes review proceeding will be held before a Patent Judge (Patent Trial and Appeal Board).
The inter partes review may be terminated by settlement or by a final decision of the board. § 317.
The Director is given broad authority to establish regulations and how the proceedings will be carried out. For example, giving each party the right to an oral hearing, establishing procedures for submitting supplemental information, setting standards for discovery. § 316.
The decision to proceed with inter partes review is not appealable § 314(d).
Allows a preliminary response to be filed by the patent owner to explain why no inter partes review should be instituted. § 313.
The Senate bill prohibits an inter partes review from being initiated or maintained if the petitioner has filed a civil action challenging the validity of a claim of the patent or if more than six months have passed since the petitioner was served with a complaint alleging infringement. § 315(a and b).
The Senate bill includes estoppel provisions as provided in inter partes reexamination and does not allow for broadening of the claims. § 315(e).
The final decision by the board may be appealed to the Federal Circuit. § 319.

4) Preissuance submission by third parties

This provision of the Senate bill allows for third parties to file publications or patents for consideration to the USPTO if the submission is made in writing before the notice of allowance or the later of: 1) 6 months after the application for patent is first published; or 2) the date of the first rejection of any claim by the USPTO. The brief language is provided below.

GENERAL. Any third party may submit for consideration and inclusion in the record of a patent application, any patent, published patent application, or other printed publication of potential relevance to the examination of the application, if such submission is made in writing before the earlier of

A. the date a notice of allowance under section 151 is given or mailed in the application for patent; or

B. the later of

i. 6 months after the date on which the application for patent is first published under section 122 by the Office, or

ii. the date of the first rejection under section 132 of any claim by the examiner during the examination of the application for patent.

5) USPTO fee-setting authority and USPTO funding

Currently, Congress diverts some fees collected by the PTO for government operations. It has been estimated that about $800 million in collected patent fees have been diverted over the past two decades. The Senate bill eliminates fee diversion by amending 35 U.S.C. § 42(c).

6) Supplemental Examination Proceeding

The Senate bill provides an additional, streamlined supplemental examination similar to an ex parte reexamination. The proceeding permits a patent owner to request "supplemental examination" for the USPTO to "consider, reconsider or correct information believed [by the patent owner] to be relevant to the patent." The standard for granting such a request is that the information raises a "substantial new question of patentability," which is the same as the current ex parte reexamination standard. In this proceeding, the patent owner does not have the right to file a patent owners statement. The proceeding appears to also be a means to correct any "inequitable" conduct during the prior examination. "A patent will not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent. The making of a request under subsection (a), or the absence thereof, shall not be relevant to enforceability of the patent under section 282."

7) Elimination of the best mode defense

The best mode under section 112 is still a condition for patentability. Best mode, however, cannot be used as a defense for which a patent may be invalid or unenforceable. The Senate bill language is as follows:

(3) Invalidity of the patent or any claim in suit for failure to comply with:

A. any requirement of section 112, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable; or

B. any requirement of section 251.

8) Transitional post-grant review of covered business method patents

The Senate bill provides a post-granted review proceeding to determine the validity of business method patents. The proceeding is limited to petitioners who have been sued or charged with patent infringement of the particular business method patent.

9) False-Marking Statute

The Senate bill limits false-marking suits to the United States or any person who suffered a competitive injury as a result of a false-marking violation.

Key Differences in the House Bill

Again, the first-inventor-to-file system and limitation of the one year grace period is the same in the House bill. The big differences in the House bill relate to the post-grant review and inter partes review proceedings. The House bill changes some of the standards for determining whether to proceed and the House bill includes some important language regarding stay of other proceedings, such as patent infringement litigation. In general, the House bill's changes are not favorable to the patentee. The House bill makes it easier to proceed with an inter partes review by lowering the standard and the House bill appears to make it easier to stay patent infringement actions in civil courts until these proceedings are terminated.

1) Post-Grant Review

The House bill expands the window of the post-grant review to twelve months after the issuance of a patent (rather than nine month window in the Senate bill). The House bill also permits review on the standard of "a novel legal question that is important to other patents or patent applications."

The House bill also includes a new section providing guidance regarding requests for stays in other proceedings. The House bill includes considerations the courts should make regarding whether to grant a stay in a "civil action" (including patent infringement litigation as well as actions before the International Trade Commission); the court "shall decide" whether to grant the stay based on "whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial." (§ 330).

2) Inter partes review

The House bill differs from the Senate bill by keeping the old standard for proceeding with a reexamination -- a substantial new question of patentability (rather than showing a "reasonable likelihood that the petition would prevail with respect to at least one of the claims challenged in the petition" in the Senate Bill).

The inter partes review timing period is changed due to the expansion of the post-grant review window. A petition can be filed for an Inter partes review from the later of twelve months after the issuance of a patent or after a post-grant review is terminated.

The House bill also includes a new section not in the Senate version regarding requests for stays similar to the post-grant review. The House bill provides guidance when a party seeks a stay in a "civil action" (including patent infringement litigation as well as actions before the International Trade Commission); the court "shall decide" whether to grant the stay based on "whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial" (§ 320).

Senate Bill S23

§ 102. Conditions for patentability; novelty

(a) NOVELTY; PRIOR ART. A person shall be entitled to a patent unless:

the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or
the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.

(b) EXCEPTIONS.

1. DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION.

A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if:

A. the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

B. the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

2. DISCLOSURES APPEARING IN APPLICATIONS AND PATENTS.

A disclosure shall not be prior art to a claimed invention under subsection (a)(2) if:

A. the subject matter disclosed was obtained directly or indirectly from the inventor or a joint inventor;

B. the subject matter disclosed had, before such subject matter was effectively filed under subsection (a)(2), been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

C. the subject matter disclosed and the claimed invention, not later than the effective filing date of the claimed invention, were owned by the same person or subject to an obligation of assignment to the same person.

(c) COMMON OWNERSHIP UNDER JOINT RESEARCH AGREEMENTS Subject matter disclosed and a claimed invention shall be deemed to have been owned by the same person or subject to an obligation of assignment to the same person in applying the provisions of subsection(b)(2)(C) if:

the subject matter disclosed was developed and the claimed invention was made by, or on behalf of, 1 or more parties to a joint research agreement that was in effect on or before the effective filing date of the claimed invention;
the claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and
the application for patent for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.

(d) PATENTS AND PUBLISHED APPLICATIONS EFFECTIVE AS PRIOR ART. For purposes of determining whether a patent or application for patent is prior art to a claimed invention under subsection (a)(2), such patent or application shall be considered to have been effectively filed, with respect to any subject matter described in the patent or application

if paragraph (2) does not apply, as of the actual filing date of the patent or the application for patent; or
if the patent or application for patent is entitled to claim a right of priority under section 119, 365(a), or 365(b), or to claim the benefit of an earlier filing date under section 120, 121, or 365(c), based upon 1 or more prior filed applications for patent, as of the filing date of the earliest such application that describes the subject matter.

§103. Conditions for patentability; nonobvious subject matter

A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains. Patentability shall not be negated by the manner in which the invention was made.

This article was originally posted on Sheppard Mullin's Life Sciences Law blog, which can be found at www.lifescienceslawblog.com.

Authored by:

Don J. Pelto
(202) 772-5362
dpelto@sheppardmullin.com

and

Andrew Keith
(202) 772-5367
akeith@sheppardmullin.com

Trademarks In The Veldt: Do Virtual Lawyers Dream Of Electric Trademarks?

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 21 Mar 2011 08:19:17 -0800

In Neal Stephenson’s 1992 science fiction novel, Snow Crash, humans interact as avatars in the “Metaverse,” the collective product of online shared three-dimensional space.[1] As imagined by Stephenson, this “Metaverse” has been created by all virtual worlds[2] - it is an augmented and enhanced physical reality, a physically persistent virtual space.[3] The novel is set in Los Angeles during the early 21st Century. The federal government of the United States has relinquished its authority to private entrepreneurs and organizations. Franchising, individual sovereignty, and private automobiles reign supreme. Highway companies compete for traffic in the real world while the Metaverse is populated and travelled by user-controlled avatars and system daemons.

]]> Click here to read the full article.

Authored By:

Theodore C. Max
(212)653-8702
TMax@sheppardmullin.com

Copyright © 2011 the International Trademark Association. Reprinted with permission from The Trademark Reporter, 101 TMR 282 (2011).

[1] Neal Stephenson, Snow Crash (1992).

[2] One of the first references to virtual reality appeared in Ray Bradbury’s short story, “The Veldt.” R. Bradbury, The Veldt, a/k/a The World the Children Made, The Saturday Evening Post, Sept. 23, 1950.

[3] Stephenson, supra note 1, at 470. (“The words ‘avatar’ (in the sense used here) and ‘Metaverse’ are my invention, which I came up with when I decided that existing words (such as ‘virtual reality’) were simply too awkward to use. . . . [A]fter the first publication of Snow Crash I learned that the term ‘avatar’ has actually been in use for a number of years as part of a virtual reality system called Habitat. . . .”).

Patent Reform Is Again Before Congress - The Patent Reform Act of 2011

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 07 Feb 2011 09:23:22 -0800

Patent reform has been a topic of congressional debate since the introduction of the Patent Reform Act of 2005. Having failed to enact the 2005 legislation or any subsequently proposed reform, patent reform has again been introduced into the Senate, this time entitled The Patent Reform Act of 2011. (S. 23, 112th Cong. (2011).)

]]> In introducing the new bill, Senator Leahy noted the following: "China has been modernizing its patent laws and promoting innovation while the United States has failed to keep pace. It has now been nearly 60 years since Congress last acted to reform American patent law. We can no longer wait." (157 Cong. Rec. S131 (2011).)

As Leahy further explained, the proposed reforms aim to accomplish three goals: (1) "improve the application process by transitioning to a first-inventor-to-file system"; (2) "improve the quality of patents issued by the USPTO by introducing several quality-enhancement measures"; and (3) "provide more certainty in litigation." The most significant changes to implement these goals are described below.

The Application Process: Shift To First-To-File System

In an effort to harmonize the U.S. patent system with the systems of other countries, The Patent Reform Act of 2011 proposes to change the U.S. Patent System from a first-to-invent to a first-to-file system. This change means that patents will be awarded to the earliest-filed application for a claimed invention, regardless of the date of actual invention. In other words, under the proposed reform, if A invents a new, novel and non-obvious widget in April but fails to file its patent application (or disclose it) until August, and B invents the same widget in June and files its patent application at that time, B gets the patent under the new system, not A.

The change to the first-to-file system also impacts the prior art analysis. Under current law, for prior art that is publicly -- available less than one year before an application for a patent is filed, an inventor can still obtain a patent if she can prove that she invented the claimed invention prior to the date of the prior art. The new bill, however, appears to limit a patent applicant's ability to negate prior art. Namely, only disclosures by the inventor or someone who obtained the disclosure from the inventor are excluded as prior art.

However, inventors that get beat to the patent office are not entirely out of luck; the reforms provide for "derivation" proceedings to determine if the inventor of an earlier-filed patent "derived" the invention from the inventor of a later-filed application. In other words, returning to the example above, if A could show that B's widget invention was derived from his widget invention, A may nonetheless obtain a patent despite B's earlier filing date.

Patent Quality: Submission of Prior Art / Post-Grant Review Procedures

In an effort to improve patent quality, the proposed act establishes the opportunity for third parties to submit information (i.e., prior art) related to a pending application. This, in turn, should assist the examiner in determining whether an applied-for patent is indeed patentable.

In addition, the proposed act incorporates a post-grant 9-month window in which a person who is not the patent owner can institute a post-grant review proceeding to cancel as unpatentable one or more claims of the patent. However, post-grant review can only commence if, following petition, it is determined that it is more likely than not that at least one of the claims challenged is unpatentable.

To protect against abuse of the post-grant review procedure, the act also specifies that an accused infringer may not seek review (1) after it has already filed a lawsuit in district court challenging the patent, or (2) more than three months after the date the accused infringer must answer, or otherwise respond to, a complaint for patent infringement filed by the patentee. The post-grant review proceeding also has estoppel effect, i.e., the petitioner in a post-grant review proceeding cannot raise in a subsequent action any ground of invalidity that was raised or reasonably could have been raised in the post-grant proceeding.

Improve Certainty Surrounding Litigation: Damages

The proposed legislation aims to provide more certainty to litigants as to damage calculations and enhanced damages.

Specifically, the act empowers judges to serve as a gatekeeper on damages. The proposed legislation specifies that the court "shall identify the methodologies and factors that are relevant to the determination of damages, and the court or jury shall consider only those methodologies and factors relevant to making such determination." As Senator Leahy explained: "the gatekeeper compromise on damages . . . is what is needed to ensure an award of a reasonable royalty is not artificially inflated or based on irrelevant factors."

In addition, on a showing of good cause, litigants are entitled to have the trial sequenced such that the trier of fact decides the questions of validity and infringement prior to damages.

Finally, the proposed legislation would codify case law regarding willfulness, requiring a plaintiff to demonstrate by "clear and convincing evidence that the accused infringer's conduct with respect to the patent was objectively reckless." Objectively reckless conduct will be found where the infringer acted "despite an objectively high likelihood that his actions constituted infringement of a valid patent, and this objectively-defined risk was either known or so obvious that it should have been known." Mere knowledge of a patent is insufficient to show willfulness for an enhanced damage award.

Conclusion

As Senator Leahy explained in his remarks presenting the bill to the Senate, reform of the American patent law system is long overdue. Overall, the proposed legislation is similar to previously proposed legislation; indeed it was structured around the legislative proposal from 2005. The 2011 Patent Reform Act proposes significant changes to American patent law, surely to receive comment from those in favor and those against. Whether patent reform will actually make its way onto the books is a question yet to be determined.

Authored By:

Ashley Merlo
(714) 424-8218
AMerlo@sheppardmullin.com

China Revamps Its Outdated Copyright Pledges System

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 30 Dec 2010 11:10:10 -0800

The State Copyright Bureau recently released a new set of copyright pledges registration rules to replace its current system. The "Measures for Registration of Copyright Pledges" (the "Measures") will become effective on January 1, 2011. Copyrights, like other property rights, can be pledged as a financial security. China has not updated its current copyright pledges registration system since it went into effect on September 23, 1996. The key provisions of the Measures are highlighted below.

]]> Unification of the Issuing Agency

Under the old system, the State Copyright Bureau had the authority to designate a special agency with the sole responsibility of registering pledges and issuing certificates. The Measures simplified the process by eliminating the intermediary and directly declaring that the State Copyright Bureau is the agency responsible for registering copyright pledges.

Creation of a Register of Copyright Pledges

The Measures now require the parties to jointly apply to the State Copyright Bureau to record the pledge in the Register of Copyright Pledges (the “Register”). The registration becomes effective only if it appears in the Register, which is a public record. The Register contains comprehensive information regarding the pledge, including any changes to assignments of the pledge. If a dispute arose between the parties, the information in the Register will prevail as fact, unless either party presents evidence that the information in Register was inaccurately recorded.

Centralizing Copyright Pledge Registration

Under China’s current system of pledge registration and the relevant property law provisions, the parties’ pledge contract served as the sole document upon which the registration is effectuated. The Measures streamlined the process so that the contract relating to the pledge must be included as part of the application materials, but the Register plays the central role in determining the effective date of the registration. Having the registration become effective upon entry into the Registry facilitates uniformity and accuracy of information when members of the public search for copyright pledges.

This article was originally posted on Sheppard Mullin's China Law Update blog, which can be found at www.chinalawupdate.cn.

Authored by members of Sheppard Mullin's Shanghai office:

Cheng Xu
86.21.2321.6000
cxu@sheppardmullin.com

Josie Shi
86.21.2321.6000
jshi@sheppardmullin.com

Jun Hua
86.21.2321.6000
jhua@sheppardmullin.com

Adjusting the Inequitable Conduct Doctrine: Federal Circuit Hears Oral Arguments En Banc in Therasense

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 07 Dec 2010 11:12:54 -0800

By Gray M. Buccigross

On November 9, 2010, the Federal Circuit, sitting en banc, heard oral arguments in Therasense, Inc. v. Becton, Dickinson & Co., regarding the legal tests to be applied in determining whether a patent is unenforceable due to inequitable conduct. This has been a controversial issue over the last several years among practitioners, Federal Circuit judges, and industry groups, particularly Big Pharma. This article assumes some familiarity with the case and the issues. However, for background information on both, please click here.

]]> Plaintiff Abbott, Defendant Becton, Dickinson, Defendant Nova, and the PTO argued at the hearing. They addressed the following issues: (a) the standard for materiality; (b) intent; and (c) whether the facts of the case warranted a finding of inequitable conduct. The argument primarily focused on the materiality inquiry.

[Please note that while we have done our best to appropriately attribute comments to the specific Federal Circuit judges who made them, the associations may not be completely accurate. There is no official transcript available at this time.]

A. Materiality

Under the PTO’s current rules, information is “material” if it satisfies either Rule 56(b)(1) or 56(b)(2). Information is material under Rule 56(b)(1) if it “establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim.” Information is material under Rule 56(b)(2) if it: “refutes, or is inconsistent with, a position the applicant takes in: (i) Opposing an argument of unpatentability relied on by the Office, or (ii) Asserting an argument of patentability.”

Abbott argued that the standard for inequitable conduct case should be “but for” causation, where information is only material if the patent would not have otherwise issued, contending that:

(A) Supreme Court cases only found inequitable conduct where there had been “but for” causation.

(B) Rule 56(b)(2) would swallow Rule 56(b)(1).

(C) Equitable doctrines should not be used to punish; rather, the PTO can and should fill any void by policing misconduct.

(D) Anything less than “but for” causation will maintain the status quo, whereby applicants dump information while attempting to avoid characterizing or explaining that information.

The PTO argued that Rule 56(b) should be applied because:

(A) The “but for” standard allows too much mischief, while the “reasonable examiner” standard is too vague and causes “pathological overcompliance.”

(B) Adjustment of the intent inquiry and Exergen (requiring specific pleading) will mitigate flooding.

(C) The PTO should have the first crack at information, so the market is not disrupted years later, and then an ex post analysis done via litigation.

Defendants argued that the PTO standard at the time of prosecution should be applied because:

(A) Applicants should be judged by the standard to which the PTO held them.

(B) Rule 56 is narrower than the reasonable examiner standard, and therefore not overly broad or vague.

(C) Rule 56(b)(2) can be taken very literally. It is not about whether, for example, an invention is obvious at all, but whether it is obvious over the references relied on by the PTO. Further, disputes are not generally about Rule 56(b)(2).

(D) The real problem is with overpleading, and not with excessive findings of inequitable conduct. Exergen and tightening the intent requirement should help with this.

(E) The “but for” standard will permit misconduct, which the PTO cannot appropriately police.

The Court did not seem inclined to adopt a “but for” standard of causation. At least Judges Lourie, Dyk, and Moore expressed concern. Judge Lourie noted that the Supreme Court has struck down not just the patents that were procured by fraud, but additional patents as well. Judge Gajarsa raised some hypotheticals, seemingly pointing out that it would be hard to determine when a “but for” standard is met, and that it left much room for bad actors. Judges Linn and Dyk expressed concerned that the “but for” standard would require an accused infringer to prove that prior art would have resulted in at least a rejection.

At least Judges Dyk, Newman, Moore, and Bryson also expressed concern about Rule 56(b)(2). The PTO acknowledged that applicants are currently “flooding” the PTO with references. Judge Dyk pointed out that Rule 56(b)(2) is “exactly what the law pretty much is right now.” Judge Dyk posed a hypothetical, asking what if there is a “tiny sliver of scientific opinion that is contrary to the position you are giving.” The PTO responded that this would need to be disclosed, but could be done in context. Judge Prost also repeatedly asked the parties how many people in the last ten years have been disciplined by the PTO for lack of candor. No one could answer.

Judge Newman noted that inequitable conduct is being pled in a large number of cases, but sustained in a small number of cases. This creates a “profound” litigation burden, and many small entities cannot afford to defend such charges. She did not see a reason that this would change if 56(b) remained an applicable standard. Judge Moore expressed that she was “having trouble seeing daylight between current Rule 56 and the reasonable examiner standard,” and later followed up that it’s “(b)(2) that seems to be the real problem.”

Judge Linn’s questioning indicated he was concerned with defendants’ proposal to track PTO standards, because the PTO can change its standards at any time, including back to the “reasonable examiner” standard.

B. Intent

Aside from the facts of the case, the parties and the PTO seemed to agree that intent needed to be clarified. In particular, both the PTO and the Defendants argued that flooding of the PTO should be mitigated not by departing from Rule 56(b), but by: (1) following Kingsdown to require subjective intent and reject the standard requiring only that one “should have known” the materiality of the misrepresentation or undisclosed information; and (2) requiring that any inference of intent must be the single most reasonable inference.

C. Balancing of Materiality and Intent

Judge Gajarsa took issue with the “tie-up of materiality with intent before we find intent.” Defendants argued that materiality can support a finding of intent, but only if there is other evidence as well (e.g., motivation to deceive and knowledge). Defendants thus admitted that it is not proper to infer intent solely from materiality.

D. Specific Facts of the Case

Overall, the arguments regarding the specific facts of the underlying case repeated the briefing and the arguments in the underlying appeal and trial. Defendants contended that the facts fit squarely within the Rule 56(b)(2) “inconsistent” standard of materiality, that this was an egregious case, that there were adverse credibility findings, a finding of motivation to deceive, awareness, and an intentional decision not to disclose.

Abbott argued that if the Court finds the “should have known” standard is improper, then the decision must be reversed. Judge Moore noted the adverse credibility findings, however, and that Judge Alsup only recited the standard, rather than relied on it. Abbott responded that there was no evidence that Attorney Pope and Dr. Sanghera actually appreciated the materiality. Rather, Judge Alsup focused on the interpretation of the EPO briefs. Judge Dyk asked if the facts would satisfy the “but for” test. Abbott denied this, contending that the disclosures related to different substantive issues.

E. Implications for the Inequitable Conduct Doctrine

Although we cannot predict how the Federal Circuit will come out on these issues, it seems obvious that the Federal Circuit will adjust the standard for materiality for purposes of determining whether a patent was procured through inequitable conduct. The Court seems very unlikely to adopt a “but for” standard of materiality. On the other hand, the parties seem to agree that the “reasonable examiner” standard is vague, overly broad, and therefore promotes overdisclosure. Further, the fact that numerous judges expressed concern regarding Rule 56(b)(2) suggests that the Federal Circuit may either tighten up the (b)(2) inquiry in inequitable conduct litigation or do away with it altogether.

The Federal Circuit also appears likely to clarify the intent standard. The Court will likely make clear that “should have known” is not good enough (per Kingsdown), and reinforce that the inference of intent must be the single most reasonable inference (per Star Scientific and Scanner). It remains to be seen whether, and if so to what extent, the Court will allow materiality to serve as a basis for inferring intent. Historically, judges have often inferred intent at least partly from materiality.

Notably, retired Federal Circuit Chief Judge Paul Michel projected at a November 12, 2010 Intellectual Property Owners Association webinar that there will be multiple opinions, both dissents and concurrences. He further predicted that there will be some modest adjustments to the materiality and intent inquiries. Additionally, he thought the Federal Circuit will take care not to push the initial burden of explaining any failure to disclose onto those associated with the patent prosecution.

This article was originally posted on Sheppard Mullin's Life Sciences Law Blog, which can be found at www.lifescienceslawblog.com.

Authored By:

Gray M. Buccigross
(858) 720-7427
gbuccigross@sheppardmullin.com

United States Weighs in on Myriad Genetics Case

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 04 Nov 2010 12:44:44 -0800

On Friday, October 29, 2010, the United States submitted an amicus curiae brief in the Myriad Genetics, Inc. case. (The Association for Molecular Pathology, et al. v. Myriad Genetics, Inc., Federal Circuit Case No. 2010-1406.) Myriad Genetics holds several patents covering genomic materials relating to the human Breast Cancer Susceptibility Genes 1 and 2. A group of several health organizations and researchers brought suit seeking to have the patent claims declared invalid. The District Court held that 15 challenged claims from seven patents were invalid under 35 U.S.C. §101 because the challenged composition claims were allegedly directed to unpatentable products of nature and the challenged method claims were allegedly directed to unpatentable abstract ideas. That decision is on appeal.

]]> In its amicus brief the United States clarifies its position as to whether (1) human engineered DNA molecules, such as cDNAs, are patent-eligible subject matter under 35 U.S.C. §101; and (2) isolated but otherwise unmodified genomic DNA is patent-eligible subject matter under 35 U.S.C. §101. The United States has taken the position that human engineered DNA molecules are eligible for patent protection (assuming the other requirements of Title 35 are met), but that isolated but unmodified genomic DNA is not eligible for patent protection because it is an article of nature.

According to the United States, human engineered DNA is patent-eligible subject matter, because those "molecules generally do not occur in nature, but are instead the synthetic results of scientists' manipulation of the natural laws of genetics. … cDNAs, for example, are synthetic molecules engineered by scientists to incorporate, in a single contiguous DNA segment, only the exons (i.e., protein-coding sequences) of a naturally occurring gene, and exclude the intervening introns and other regulatory regions that normally separate the exons in genomic DNA." (Br. at 15.) In contrast, the United States contends that isolated DNA segments are unpatentable because "the isolated DNA segment itself remains, in structure and function, what it was in the human body." (Br. at 21 (emphasis in the original).)

If the Federal Circuit adopts the United States' position, or if the PTO applies this position to new and pending patent applications, precise wording of claim language will become imperative. Claims that cover both synthetic DNA and isolated but unaltered genomic DNA may be invalid under Section 101 and are likely to also face anticipation and obviousness challenges based upon the underlying genomic DNA segments. Moreover, claims that are directed to cDNA segments that are not greater than naturally occurring exons (i.e., do not exclude intervening introns or regulatory regions) are likely to be unpatentable without some disclaimer of scope in the specification or prosecution history. Indeed, many claims that identify specific isolated DNA or polypeptide sequences may need to be reviewed and carefully written (or re-written) to avoid claiming naturally occurring sequences.

Rather than wait until a ruling is reached, it is suggested that patentees review their pending applications and soon-to-be-filed applications with counsel. The United States' amicus brief may carry significant weight with the Federal Circuit. In its brief, the United States noted that the extent to which basic discoveries in genetics may be patented is a question of great importance to the national economy, to medical science, and to the public health. And that the issues involved in such patenting implicate the expertise and responsibilities of the Patent and Trademark Office (PTO), the National Institutes of Health (NIH), the Antitrust Division of the Department of Justice, the Centers for Disease Control and Prevention, the Office of Science and Technology Policy, and the National Economic Council, among others. Notably, the Federal Government's position will arguably cause the PTO some embarrassment because the PTO has granted all the patents at issue, and will arguably cost NIH monetarily because the NIH is a co-owner of four of the patents in suit. Under the circumstances, the Federal Circuit may view the United States as a neutral arbitrar of the public interest. Moreover, the PTO may adopt the United States' position regardless of a decision by the Federal Circuit.

Authored By:

Michael Murphy
(858) 720-7423
MMurphy@sheppardmullin.com

Information Sharing On The Internet May Mean Fewer Confidential Trade Secrets

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 20 Oct 2010 10:51:41 -0800

As a matter of course, we automatically Google someone, something, anything, in search of more information. In courtrooms, the attorneys choosing a jury are going beyond the information provided in the courtroom. One judge tried to stop the practice, and a court of appeal held that there was nothing wrong with it.

]]> Similarly, Linkedin has become the social media site used by most people to promote themselves professionally. A complete profile with education, experience, employment history and recommendations is readily available in a few key strokes. It is also very easy to find groups on Linkedin with professionals in a similar field, or possible clients for whatever business you are in.

This openness of information sharing and accessibility is being exploited in another way. And, businesses are encouraged to take note. It is now even more important to think about having enforceable non-compete and confidentiality agreements with your employees and consultants.

An executive search consulting firm learned the hard way that its customer list was not a confidential trade secret because Linkedin and other web sites are easy sources of information. In Sasqua Group, Inc. v. Courtney, 2010 WL 3613855 (E.D. N.Y. Aug. 2, 2010), Sasqua Group specialized in the recruitment of professionals for the financial services industry. Sasqua Group's founder, Christopher Tors, had worked for years as a precious metals and foreign currency trader for Goldman Sachs, and knew the industry well. Mr. Tors claimed that he hired and trained his niece Lori Courtney (also known as the defendant here). Sasqua Group and Mr. Tors alleged in their complaint that the business had a client database with highly confidential information. This database included client contact information, individual profiles, contact hiring preferences, employment backgrounds, descriptions of previous interactions with clients, resumes and other information.

Does any of this information sound familiar? Well, it did to the United States Magistrate Judge, after Courtney made mincemeat of the plaintiffs' claim for misappropriation of trade secrets. Courtney showed the court how the information in plaintiffs' database could be pieced together through Internet searches of FX Week, Google, Bloomberg.com, and Linkedin.

"Courtney also explained how such a search could be conducted on Linkedin, which she described as being 'like Facebook but for business' and as being more searchable than Bloomberg 'because people put their whole profile on Linkedin.'"

It did not matter that Courtney admitted she did not turn to the Internet to get the information contained in the Sasqua Group's database. The magistrate found that the information was not confidential information or a trade secret.

"The information in Sasqua's database concerning the needs of its clients.... may well have been a protectable trade secret in the early years of Sasqua's existence when greater time, energy and resources may have been necessary to acquire the level of detailed information to build and retain the business relationships at issue here. However, for good or bad, the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information in 2010 is a very different story."

Sasqua Group underscores the importance of having an enforceable non-compete agreement with employees and consultants. It also highlights a new argument that defendants may be making in misappropriation of trade secrets cases. Businesses should prepare themselves by consulting an attorney who is well versed in social media and business litigation.

This article was originally posted on Sheppard Mullin's Social Media Law Update blog, which can be found at www.socialmedialawupdate.com

For further information, please contact Michelle Sherman at (213) 617-5405. (Follow me on Twitter!)

Blog Hyperlinks to News Stories = Copyright Infringement or Not?

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 20 Oct 2010 10:44:33 -0800

The expression "bad facts make bad law" comes to mind when reading the news reports about Righthaven LLC and the Las Vegas Review-Journal ("Las Vegas Review"). Namely, the Las Vegas Review has partnered with Righthaven to sell their copyright interest in articles after the articles in whole or part are attached as hyperlinks to blogs. Righthaven registers the copyrights it purportedly acquires from the Las Vegas Review and then sues the blogs without sending the standard "cease and desist" letter beforehand.

]]> The facts sound pretty egregious, and this litigation business model is being criticized. Since March 2010, Righthaven has filed over one 140 actions. In these actions, Righthaven seeks damages, attorneys' fees, and demands forfeiture of the blog site's domain - relief that is appropriate perhaps in cybersquatting cases, but not actions for alleged copyright infringement. Most of the cases settle quickly with roughly 20% reportedly settling for several thousands of dollars.

And, Righthaven has indicated that it will add more newspapers to its list of clients. Stephens Media LLC, the publisher of the Las Vegas Review, runs over 70 other newspapers in nine other states. The CEO of Righthaven is reported as saying that he has an agreement with Stephens Media to sue bloggers who hyperlink to articles in these other newspapers as well.

Because of these "bad facts" (suing without the customary "cease and desist" letter, and filing so many actions in a relatively short period of time), originators of news stories may see an erosion of their copyright protections. Namely, courts may start finding that hyperlinks to news articles are a fair use under Section 107 of the Copyright Act, or are permissible pursuant to an express or implied license. News articles are widely distributed with the originator newspaper providing an online share feature. It is possible to imagine a situation where one person posting the article on her Facebook page that has 250 friends (the rough average number of a Facebook user) is the catalyst of the article going viral and being shared exponentially into a far greater circulation than the blogger who used a hyperlink to the article.

While many people do not appreciate how Righthaven is going about enforcing the Copyright Act, Righthaven is addressing a real problem for newspapers and other reporting media. Namely, the originators of news stories have put considerable money into having on staff reporters who investigate and write the stories, editors, copy writers and other infrastructure necessary to putting out a newspaper. These publications are facing reduced revenues due to a notable decrease in paid subscribers and advertising. The newspapers have tried different vehicles to remain profitable including online advertising, and allowing sharing of a news story with the hope that it will bring more traffic back to the newspaper for other articles as well. And, yet, through the use of hyperlinks, bloggers can essentially republish these news stories without investing any costs while generating considerable money through paid advertising on their blogs.

It is settled law that the originators of these news stories are entitled to copyright protection. However, the Copyright Act does allow for copyrighted material to be used in some instances without having to obtain permission from the copyright holder. And, Righthaven is now facing legal challenges in court based on these exceptions.

A blog site, Democratic Underground, is defending against a lawsuit filed by Righthaven with assistance from the Electronic Frontier Foundation ("EFF"). "Democratic Underground is the largest independent discussion forum for liberals on the Internet. Thousands of people discuss and debate political issues on our site every day, particularly now during election season. Online discussion often requires quoting from news sources -- a legal fair use of the material," said Democratic Underground founder David Allen. "By targeting short excerpts of news articles with their sham copyright claims, Righthaven is chilling free and open discussion on the Internet."

EFF was apparently looking for the right set of facts to challenge Righthaven's litigation business model. Righthaven sued Democratic Underground for a five sentence excerpt of a Las Vegas Review news story that a user posted on the forum with a link back to the Las Vegas Review website.

In its answer and counterclaim filed on September 27, 2010, Democratic Underground asks the court to affirm that the excerpt of the article does not infringe copyright and is a fair use of the material. The counterclaim also asserts that Las Vegas Review has granted a "License (Express and Implied), Consent, Waiver, and Acquiescence" through the numerous ways in which the Las Vegas Review allows its articles to be shared, including a "Share & Save" feature on its website: "Share & Save allows you to bookmark news articles for future reference and share news articles with friends and web-based communities like digg and MySpace."

Democratic Underground also states in its counterclaims that the Las Vegas Review website offers and invites its users to share all of its articles through social media third parties including "Newsvine, Digg, Technorati, Reddit, StumbleUpon, Del.ico.us, Slashdot, Propeller, Mixx, Furl, Twitter, Myspace, Facebook, Google bookmark, Yahoo! bookmark, Microsoft Live favorites, Ask bookmark, and myAOL favorites."

The fair use defense allows for citing from the original work, if the purpose for using the copyrighted work is for the purpose of fair and reasonable criticism. Some examples of fair use in the preamble to Section 107 include: "purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research." Federal courts usually decide fair use issues by considering the four listed (but not exclusive) factors in Section 107:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for profit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.

The fourth factor is generally considered to be the most important of the four factors. This is because copyright law is designed to provide an economic incentive for new creative works. A secondary use that threatens this incentive is less likely to be considered a fair use. Thus, in the context of blogs and hyperlinks to news stories, courts are likely to look at whether the blog supplants the market for the original, and the extent to which newspapers through reduced ad revenues and increased traffic to bloggers are being replaced by the blogs. In other words, decreasing the incentive for newspapers to invest money to gather and report the news of the day to the detriment of public discourse.

The Democratic Underground case will be closely followed, and is likely the precursor to more legal challenges.

In conclusion, whether or not a blogger decides to link to news stories from other sites, the blogger should factor into his decision the current wave of lawsuits coupled with the uncertainty of the legal outcome. And, if a blogger is sued for copyright infringement, the blogger should consult with knowledgeable legal counsel since there are a number of defenses worth arguing.

This article was originally posted on Sheppard Mullin's Social Media Law Update blog, which can be found at www.socialmedialawupdate.com

For further information, please contact Michelle Sherman at (213) 617-5405. (Follow me on Twitter!)

The Innovative Design Protection and Privacy Prevention Act: Will Design Protection Be In Vogue in Congress?

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 01 Sep 2010 09:39:11 -0800

On August 6, 2010 Senator Charles Schumer (D-NY), introduced a bill entitled the Innovative Design Protection and Piracy Prevention Act ("IDPPPA") (S. 3728), which represents a compromise between the American Apparel & Footwear Association ("AAFA") and the Council of Fashion Designers of America ("CFDA") in an effort to afford protection to American designers for new and original fashion designs.[1]

]]> The new bill, which protects apparel, accessory designs and eyeglass frames, does not require registration of each design, as was the case with the previously unsuccessful Design Piracy Protection Act ("DPPA").[2] The IDPPPA provides for a three-year term of protection to new and original fashion designs. Designs created prior to the enactment of the bill would be dedicated to the public domain. Designers have the burden of pleading the facts underlying the claim with particularity and must establish before trial that the design is wholly original and a "unique, distinguishable, non-trivial and non-utilitarian variation over prior designs." The designer also must establish that: (a) the accused design is "substantially identical;" (b) the defendant's accused design is so similar it is likely to be mistaken with the original protected design and "contains only those differences in construction or design which are merely trivial"; and (c) the defendant had the opportunity to have seen the design before it was released for public distribution. The presence or absence of color or colors or of a pictorial or graphic work imprinted on fabric shall not be considered by the finder of fact in determining whether a particular design is protectable or whether an infringement has occurred. The proposed law limits damages to a maximum fine of $50,000 in the aggregate and $1.00 per copy.

Neither consumers nor retailers may be held liable for inadvertently purchasing or selling unlawful copies. In addition, as with copyright law in general, the independent creation defense affords defendants a complete defense if the defendant can show the design was created independently. In addition, there is an exception for individuals who sew clothing or accessories for personal use or the use of a family member. These changes and modifications to the prior bills introduced were an attempt by Senator Schumer to forge a compromise and balance between advocates for the protection for American designers and retailers and manufacturers which voiced concerns that the previous DPPA would result in an outbreak of costly litigation and a multiplicity of design claims being asserted by competitors. Some argued that the DPPA ultimately would harm competition and make it more difficult for designers to create and protect their original fashion designs.

It remains to be seen how this proposed legislation will fare in Congress and whether the IDPPPA will become a new effective law that protects American fashion designers.

This article was originally posted on Sheppard Mullin's Fashion & Apparel Law Blog, which can be found at www.fashionapparellawblog.com.

Authored By:

Theodore C. Max
(212) 332-3602
TMax@sheppardmullin.com

[1] See Link for copy of S. 3728.

[2] See Link for August 10, 2007, "Senator Goes Forward With Latest Version of Design Privacy Prohibition Act."

Sublicenses By Exclusive Licensees Of Copyrights - Copyright "Clarification" May Change The Law

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 16 Aug 2010 13:31:36 -0800

A change in the rules on copyright licensing may be coming in the near future and from an unexpected and unanticipated source. The rules deal with whether the owner of an exclusive copyright license may sublicense such right without the approval of the licensor. The clear and unequivocal answer in the Ninth Circuit has long been, "No." See, Gardner v. Nike, Inc., 279 F.3d 774 (9th Cir. 2002). The answer in other circuits is somewhat less clear. Most licensors, however, have long sought contractual clarity by providing for "assignment" or "license" provisions in any contract for copyrights, trademarks or patents. Congress, however, may soon be changing the Ninth Circuit's answer at a time when few may even be aware of the pending change.

]]> On August 2, 2010, the Senate passed the Copyright Cleanup, Clarification, and Corrections Act of 2010, S. 3689. The bill, according to Senator Leahy who introduced it, is designed to improve the copyright laws by making changes in three categories: 1) to make the Copyright Office's operations more efficient, 2) to clarify issues of copyright law and 3) to make numerous technical corrections.

There are several somewhat intriguing features about the Bill. First, it was introduced without any fanfare or public notice and without any hearings or report from Congress or the Copyright Office. Second, it was introduced during the summer months when people are less likely to be observing Congressional activity. Third, it was passed by a voice vote on the same day introduced. Of course, it must now go to the House for further action which may give some time for further review and reflection and possibly even public input.

The Bill does live up to its title in most respects and many of these minor changes should be welcomed. For example, Section 2, dealing with "Copyright Office Procedures" would allow copies of copyright transfers to be recorded online if accompanied by an electronic certification of authenticity. At the present time, documents must bear either original ink signatures or be accompanied by a sworn certification, both of which may only be accomplished by filing a hard copy. This will bring Copyright Office online filings in line with longstanding PTO practices.

The Bill corrects numerous technical issues such as re-alphabetizing definitions of terms in "Definition," Section 101 of the Copyright Act. It also repeals an antiquated and expired Section 601 of the Copyright Act which had regulated the effect of failing to comply with the no longer applicable provisions of the Copyright Act, in effect since 1891, that had required the manufacturing of books and certain other works within the territorial boundaries of the United States. In fact, one "clarification" is a real clarification in expressly stating, what many had already believed was the case, that the distribution of phonorecords prior to January 1, 1978, the effective date of the Copyright Act of 1976, did not publish any of the recorded material, whether "musical, dramatic, or literary." Such was previously clearly understood only with respect to musical works.

The Bill, however, seems to depart from "clarification" and veers into the realm of "change" with its proposed amendment to Section 201(d)(2) which currently provides for the transfer of any of the exclusive rights under copyright and which further provides, "The owner of any particular exclusive right is entitled, to the extent of that right, to all of the protection and remedies accorded to the copyright owner by this title." The Bill would add, immediately following the quoted language, "..., including the right to transfer or license the exclusive right to another person in the absence of a written agreement to the contrary."

The currently worded provision, enacted as part of the Copyright Act of 1976, was designed to overturn the rule of indivisibility of copyright that was generally applied under the Copyright Act of 1909, effective before January 1, 1978. Under "indivisibility," the owner of a copyright could sell the entire copyright, but individual rights under copyright could only be licensed. This led to the common law rule that sublicenses of such copyright licenses, even exclusive copyright licenses, required the express permission of the licensor. Many believed that Section 201(d)(2) had, thus, already dispensed with the requirement for such sublicensing permission. See generally, Nimmer on Copyrights, Section 10.02, criticizing the outcome of Gardner v. Nike. The Ninth Circuit disagreed and reaffirmed, in Gardner v. Nike, the traditional rule that all sublicenses required the licensor's approval, even where the original license was of an exclusive right under copyright. In short, the Bill attempts to reverse this presumption about sublicenses. If enacted, then absent an expressly worded provision in the original exclusive copyright license, the licensee may, without encumbrance, "transfer or license the exclusive right."

Whether or not one agrees or disagrees with the proposed outcome, one may seriously question whether this is a mere "clarification." Since the Ninth Circuit is the only appellate circuit that appears to have taken a clear stand on this issue, the Bill would at least constitute a "change," not a clarification, of the law of a key judicial circuit. One may also question whether such change should be made during the summer months on a voice vote without public notice or input. Even more curiously, it is not clear whether the proposed change would achieve its desired result since the provision could potentially be interpreted to allow the "transfer or license (of) the exclusive right to another person" but not necessarily the transfer or license of a non-exclusive part of that exclusive right.

The eventual outcome of the Bill may, or perhaps should, be merely academic since most attorneys already include express sublicensing provisions in their contracts that allow or restrict sublicenses or further transfers and often impose substantially detailed conditions on how such sublicensing may be accomplished. The summer surprise, however, may more properly be viewed as a suggestion, if not a warning, that attorneys should continue to insist on clearly worded assignment and sublicensing provisions in any and all agreements they draft in order to avoid being surprised by potentially conflicting statutory presumptions.

Authored By:

Edwin Komen
(202) 772-5328
EKomen@sheppardmullin.com

Digital Media Law Forum - Fall 2010

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 12 Aug 2010 11:31:14 -0800

Building Brands In A Digital World

Building a better mousetrap, widget, or search engine isn't enough. Join leading branding professionals and trademark counsel for an in-depth discussion of how to build a compelling brand, including online brand development strategies as well as best practices regarding brand protection and enforcement in both the actual and virtual worlds, focusing on “real life” practical examples.

]]> Speakers:

Michael Kroll - Director of Brand Strategy, Microsoft Online Services
Stuart Tenzer - Founder, Coast Road Media LLC
Tim Chang - Principal, Norwest Venture Partners
Hal Milstein - Partner, Sheppard Mullin Richter & Hampton LLP
Ted Max - Partner, Sheppard Mullin Richter & Hampton LLP

Please RSVP by September 17. Space is limited.

To RSVP please click here

WHEN
Wednesday, September 22, 2010
6:00 p.m. - Registration
7:00 - 8:00 p.m. - Panel

WHERE
Kellogg Auditorium at Silicon Valley Bank
3005 Tasman Drive, Santa Clara, CA 95054

Questions? Contact Nena Castro, mailto:ncastro@sheppardmullin.com or 415.774.3252.

MCLE: This activity complies with standards for Minimum Continuing Legal Education prescribed by the California State Bar and is approved for 1.0 hour of MCLE credit. Sheppard Mullin Richter & Hampton LLP is a State Bar of California approved MCLE provider.

Produced by: Martine Paris, Editor, Content NOW and Sheppard Mullin Richter & Hampton LLP

Gucci's Attempt to Extend Trademark Infringement Liability to Credit Card Merchant Service Providers Survives Motion to Dismiss

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 30 Jun 2010 08:35:08 -0800

Judge Harold Baer in Gucci America, Inc. v. Frontline Processing Corp., No. 09 Civ. 6925 (HB), 2010 WL 2541367 (S.D.N.Y. June 23, 2010), ruled that Gucci had sufficiently alleged facts to defeat a motion to dismiss in a suit brought against three defendant credit card merchant service providers for trademark infringement. The litigation stems out of an earlier action, Gucci America, Inc. v. Laurette Co., Inc., No. 08 Civ. 5065 (LAK) (S.D.N.Y. June 3, 2008), in which Gucci successfully sued defendant Laurette for operating a website, "TheBagAddiction.com," which sold counterfeit Gucci designs. Gucci later brought suit against three credit card merchant companies, Durango Merchant Services (a Wyoming corporation), Frontline Processing Corporation (a Nevada corporation principally operating in Montana), and Woodforest National Bank (a Texas corporation), alleging that those companies aided and assisted Laurette and other similar website operators in infringing Gucci's marks. According to the allegations set forth in Gucci's complaint, Durango established credit card processing services for web companies like Woodforest and Frontline that sold counterfeit products. Gucci brought trademark infringement and counterfeit claims against Laurette based upon website sales of counterfeit Gucci products. Gucci alleged that the credit card processing services established by the three defendants were essential to Laurette's sale of counterfeit Gucci products, and, for that reason, Durango, Frontline, and Woodforest were equally responsible for direct, contributory, and vicarious trademark infringement under the Lanham Act and New York state law. The defendants moved to dismiss the action on the grounds that the court lacked personal jurisdiction and that Gucci had failed to state a claim.

]]> The district court ruled that the court had personal jurisdiction over the credit card merchant service provider defendants because they operated interactive websites available in New York, billed themselves as available for nationwide business, and have a small number of clients in New York, availing themselves to the benefits of the jurisdiction.

With regard to the trademark infringement claims, the district court ruled that, although Gucci had not sufficiently pleaded facts to support either its direct or vicarious liability theories, Gucci's claims against all three defendants could proceed on a contributory infringement theory based upon allegations that defendants knowingly supplied services to websites and had sufficient control over infringing activity to merit liability. In analyzing Gucci's direct infringement claim, the district court held that: (i) the defendants had not used Gucci's mark "in commerce"; (ii) knowledge alone of another party's sale of counterfeit or infringing items is insufficient to support direct liability, and (iii) the defendants did not themselves advertise or sell infringing products. Frontline, slip op. at 15, 2010 WL 2541367, at *11. The district court also found that the facts alleged by Gucci did not support the inference that the defendants had "the type of control over a company like Laurette as a whole, i.e., akin to joint ownership, necessary for vicarious liability." Id., slip op. at 16, 2010 WL 2541367, at *11. However, in analyzing the contributory infringement claim, the district court ruled that Gucci pleaded sufficient facts to infer that Durango had intentionally induced trademark infringements by promoting its payment system as a means to infringe, and that Woodforest and Frontline "exerted sufficient control over the infringing transactions and knowingly provided its services to a counterfeiter." Id., slip op. at 17-23, 24, 2010 WL 2541367, at *12-16, 17. It is significant to note that Judge Baer's decision cited both the Second Circuit 's recent decision in Tiffany v eBay, 600 F.3d 93 (2d Cir. 2010) and the Ninth Circuit's decision in Perfect 10, Inc. v. Visa Int'l Serv. Ass'n, 494 F.3d 788 (9th Cir. 2007). In citing Perfect 10, the district court noted that: "While in Perfect 10 the credit card services may not have been needed for a website to display infringing photographs, the infringement here occurred through the sale of the counterfeit products. 'It's not possible to distribute by sale without receiving compensation, so payment is in fact part of the infringement process.'" Frontline, slip op. at 23, 2010 WL 2541367, at *16 (quoting Perfect 10, 494 F.3d at 814 (Kozinski, J., dissenting)). This distinction was a key point in the district court's conclusion that "[i]f, as Gucci alleges, the Laurette website was functionally dependent upon Woodforest and Frontline's credit card processing services to sell counterfeit Gucci products, it would be sufficient to demonstrate the control needed for liability." Frontline, slip op. at 23, 2010 WL 2541367, at *16.

While the district court's decision is a ruling on a motion to dismiss, and certainly not a final decision on the merits of the case, the district court's holding states that liability can potentially extend to credit card merchant service providers, who are "a step down the 'food chain'" and play a more indirect role in trademark infringement. This presages further litigation against the credit card merchant service providers and others who fund online counterfeiting.

Authored By:

Tyler E. Baker
(212) 634-3086
TBaker@sheppardmullin.com