Patent Trolls in the Crosshairs: Vermont’s Aggressive Stance and the Emerging Federal Response

By Thomas Carey. Chair of our Business Practice Group, and Robert Williams, New England Law School summer fellow

 

Vermont Takes Charge
Vermont has begun a two-fronted battle against what it deems bad-faith patent-assertion entities (PAEs)[i], which some commentators, including some in the Obama administration, have disparaged as “trolls.”

On May 22, Vermont Governor Peter Shumlin signed into law H. 299, with the aim of ending “bad faith assertions of patent infringement” in the state by giving Vermont companies and the state attorney general the ability to sue for such litigation abuses.

Instead of defining the offending conduct, H. 299 lists factors meant to help judges spot bad faith, including sending a demand letter that lacks basic information about the infringement claim, demanding payment or a response within an unreasonably short period of time, failing to conduct an analysis of the target’s business or products or to compare them to the patent claims, and continuing to assert a patent that a court has found to be invalid. The target of such a demand can sue the PAE and seek damages, costs and fees.

On the same day, Vermont’s attorney general filed a civil complaint against MPHJ Technology Investments LLC under the Vermont Consumer Protection Act. The state’s complaint accused MPHJ of unfair and deceptive commercial practices by sending a series of letters to many small businesses and non-profit organizations in Vermont that falsely stated that “many” businesses had taken licenses to the MPHJ patents, falsely stated that MPHJ would sue those businesses that did not pay for licenses, and made these threats without undertaking any investigation of the actual business practices of the target companies.

The MPHJ patents included claims directed to the use of a scanner to send an image of a document by e-mail to someone on a corporate network. The complaint alleges that MPHJ operated in Vermont through a web of 40 special-purpose entities, presumably as a means of shielding itself from liability that might arise in individual lawsuits.

The lawsuit is not asserted under the new Vermont legislation, but under the Vermont consumer protection statute, which prohibits “unfair and deceptive” trade practices, language that has found its way into the laws of most states and originated with the Federal Trade Commission Act in 1914.

Is Vermont’s Initiative Stillborn Because of Federal Preemption?

Both the lawsuit and the new legislation are groundbreaking. But because patent rights are primarily governed by federal law, both will inevitably face preemption challenges. These challenges may arise when a state attempts to govern or regulate a subject that is exclusively a matter of federal law. Indeed, MPHJ has asked to transfer the lawsuit to federal court, arguing that the state law claim against it is preempted by federal patent law.

The Federal Circuit held in 1999 that federal patent law does not preempt allegations of state-law unfair competition that require a showing of bad faith. In a 2004 decision, it elaborated on this subject by saying that, to survive federal preemption, the allegedly bad-faith patent assertion “must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized.” This standard is referred to as “objective baselessness.” (More)

YourTrademark.Anything – Trademark Protection in the Age of the Limitless Internet

By Steven Abreu. A member of our Trademark Practice Group

Get ready for the next great land rush, because the Internet is about to expand. Top-level domains, now restricted to 22 variations like .com, .edu, .net and .gov will soon be limitless. Companies have already petitioned ICANN (the Internet Corporation for Assigned Names and Numbers) for the right to be the official registry of new top-level domains, which may now take the form of whole words like .health and .books.[i] These new domains are called “generic top-level domains.”[ii]

As trademark owners can attest, the Internet is already a difficult place to police unauthorized uses of intellectual property. Cyber-squatters register domain names that contain the legitimate trademarks of others (or commonly misspelled variants), hoping to trick unsuspecting visitors into viewing their webpages. With the availability of thousands of new domains, cyber-squatters will have thousands of new playgrounds. The coming expansion of domain names to a theoretically limitless number is cause for concern for the trademark owner.[iii]

The trademark rights-protection community is worried that a new generation of cyber-squatters is crouching at the door. However, trademark owners have gained certain protections within the new generic top-level domain regime through negotiations with ICANN. Some of these protections are already in place, and some are still being worked out. As the launch of several top-level domains is only months away, now is a good time to plan for the protection of one’s trademark rights.[iv]

The situation remains fluid, but we know enough now to advise trademark owners about a protection regime called the Trademark Clearinghouse. This is a system which will give owners of registered marks two important safeguards – also known as rights-protection mechanisms (RPMs).

• The Trademarks Clearinghouse has been established to protect trademark owners

The Trademarks Clearinghouse is essentially a verified list of registered marks eligible to receive the benefit of rights-protection mechanisms. RPMs were built into agreements between ICANN and the administrators of the new domains, known as registries. There are two mandatory RPMs and some optional RPMs. The availability of optional RPMs varies depending on the owner of the registry.

The two mandatory RPMs across all domains are: access to a sunrise period, in which a trademark owner can purchase a domain name before the general public; and notice of a potentially adverse third party domain name registration. (More)


[i] Some companies have applied to be appointed the official registry for a top-level domain so that they can levy registration charges on companies who wish to register individual domain names on that top-level domain. Other companies have applied so that they can own and administer an entire top-level domain for their own marketing purposes.

[ii] It is important to understand what a generic top level domain is and how the landscape of the internet may change in the coming years. Until now, in addition to the country-specific domain names like .ca (for Canada), there have been 22 top-level domains. The best-known of these is .com, but also among the 22 are .edu, .net, .tv, .biz, .info, .mobi and .xxx. Several of these top level domains are widely used, but many are not.

[iii] Whether or not web traffic will actually funnel to any of these new top-level domains is anyone’s guess. One might expect that people seeking information about healthcare or medicine may prefer to receive that information from websites parked at .health or .drug. If key players inside an industry begin to host information on industry-specific websites, it could spur a trend where search results are tailored to top-level domains related to an industry. (Google is the second-largest applicant for top-level domains and thus has a vested interested in the vibrancy of these new domains.)

[iv] Industry insiders expect the process of launching top-level domains to take off by late summer or early fall.

 

Reverse Payments by Drug Companies: The Supreme Court Declines to Adopt a Bright-Line Test

 

By Thomas Carey and Nancy Wilker, Ph.D. Mr. Carey is Chair of our Business Practice Group and Dr. Wilker is a member of our Life Sciences Group

The Federal Trade Commission has long opposed “reverse payments,” the practice by which a pioneer drug company selling a brand-name drug pays a generic drug company to not enter the market. These payments arise in connection with the settlement of litigation of an Abbreviated New Drug Application (ANDA) filed with the Food and Drug Administration. These ANDA litigations typically challenge the validity of the pioneer drug company’s relevant patents.

While the FTC has challenged such settlements on several occasions, it has usually lost. In several instances, federal appeals courts have held such settlements to be a valid exercise of the patent rights of the proprietary drug company.

The FTC had one recent victory before the Third Circuit Court of Appeals, which agreed that such payments were presumptively illegal. At about the same time, however, the Eleventh Circuit Court of Appeals dismissed a case brought by the FTC involving Androgel, a patent-protected drug sold by Solvay Pharmaceuticals. The FTC appealed the Androgel ruling to the Supreme Court, which agreed to resolve the split of authority among the circuit courts.

On June 17, a bare majority of the Supreme Court ruled in FTC v. Actavis, Inc. that neither side was right. It refused to apply the presumption of illegality that the FTC urged, but also refused to rule that any exercise of patent power is immune from antitrust scrutiny, as several lower courts had held. Instead, the court reverted to the “rule of reason,” an antitrust standard by which the trial court is asked to weigh the pro- and anti-competitive aspects of a business practice.

The court relied on two 1948 price-fixing cases that invalidated cross-licensing by multiple patent holders and involved agreements to charge minimum prices and, in one case, involved agreements that restricted trade in unpatented items. Applying these precedents to the Androgel settlement, the court held that reverse payments may be unlawful even though they appear to be an exercise of patent rights. The court reversed the dismissal of the FTC’s complaint and remanded the case for a trial on the merits. (more)

Myriad Genetics: The Supreme Court Rules That Isolated DNA Is Not Patent Eligible

 

 

By Kathleen Williams, Ph.D. and Amy DeCloux, Ph.D.  Members of our Life Sciences Practice Group

 

“The very first official thing I did in my administration – and it was on the very first day of it, too – was to start a patent office; for I knew that a country without a patent office and good patent laws is just a crab, and couldn’t travel any way but sideways or backways.”

Mark Twain, A Connecticut Yankee in King Arthur’s Court
 

The Patent Act of 1793, authored by Thomas Jefferson and clearly a favorite of Mark Twain’s, defined patent-eligible subject matter as “any new and useful art, machine, manufacture, or composition of matter, or any new useful improvement [thereof].” The Act embodied Jefferson’s philosophy that “ingenuity should receive a liberal encouragement.”
 

It is upon Jefferson’s carefully crafted definition of patent-eligible subject matter (codified in §101 of the Patent Act) that the U.S. Supreme Court rested its considerable weight in its ongoing effort to define patent-eligible subject matter.

The court’s long-anticipated decision in Association of Molecular Pathology. v. Myriad Genetics Inc., published on June 13, unanimously supported the premise that a gene in its isolated form cannot be the subject of a U.S. patent:

“We merely hold that genes and the information they encode are not patent eligible under §101 simply because they have been isolated from the surrounding genetic material.” (emphasis added).
 

The word “merely” is a key to understanding the overall effect—and narrowness–of the decision.
The Myriad litigation was begun by a group of plaintiffs, including the American Civil Liberties Union, who challenged Myriad’s patents by asserting isolated DNA to be a product of nature and thus not patent-eligible subject matter. The plaintiffs sought to invalidate all existing gene patents, to prevent the future issuance of patents claiming human genes, and thereby to eliminate barriers to competition for genetic tests.

While the ACLU achieved its nominal objectives, the Myriad decision should not significantly impede patent protection of genetic tests or commercialization of discoveries in human diagnostics and personalized medicine.

The science of predicting or diagnosing human disease has moved towards identifying mutation in many genes, no one of which on its own is predictive or dispositive. Thus, new diagnostics have moved beyond the isolation of individual genes and incorporate inventions that involve combinations of gene segments, where each gene segment has a naturally occurring sequence but the combination of sequences does not occur in nature. (More)

 

Gimme Shelter: When Does a Content-Sharing Website Incur Copyright Liability?

By Thomas Carey. Chair of our Business Practice Group

 The Digital Millennium Copyright Act (DMCA) insulates on-line service providers from copyright infringement claims if they:

1. Have a robust take-down policy,
2. Do not tolerate infringement of which they have actual or constructive knowledge, and
3. Do not receive a financial benefit directly attributable to infringing activity that they have the right and ability to control.

This “safe harbor” from liability is the focus of two recent cases involving YouTube and isoHunt.com, a BitTorrent site. The business of YouTube is to enable the uploading and streaming of video content provided by users.

BitTorrent sites, in turn, help users identify files available for copying on third-party computers using peer-to-peer technology (think “Grokster” on steroids, but constructed to better distance the website from the infringing activity).

The ever-thorny problem is that a tremendous number of the videos and files that are available on or through these websites infringe the rights of copyright holders.

Both YouTube and isoHunt derive their revenue largely from advertisers, not from subscription fees. YouTube’s servers actually contain the infringing material; isoHunt merely directs users to peer-to-peer networks where it can be found.

YouTube’s internal studies estimate that 75% – 80% of all YouTube streams contain copyrighted material. IsoHunt has no such internal documents. Yet YouTube has so far escaped liability based upon the DMCA safe harbor, while isoHunt has not. What accounts for this different result?

These cases involve an active dialogue between two courts of appeals that cite each other in their opinions: the Second Circuit, which took up the YouTube appeal; and the Ninth Circuit, which heard the isoHunt appeal.

The two courts agreed on two key aspects of the DMCA safe harbor: The question of constructive knowledge of infringement (which they call “Red Flag Knowledge”) requires actual knowledge of facts and circumstances that would lead a reasonable person to conclude that infringing activity was taking place; and the element of control referred to in the third qualification for safe-harbor protection listed above must involve something more than the ability to locate infringing material and terminate users’ access to it. (More)