Massachusetts Creates Tax Credit Program for Angel Investors

By Thomas Carey. Chair of our Business Practice Group

On August 10, 2016, Governor Baker signed HB4569 into law, creating a tax credit program intended to spur angel investments into local high-tech start-ups, particularly those in the fields of digital e-health, information technology and healthcare. The program will permit investors in qualifying businesses to take a tax credit of 20% of the amount invested – or 30% if the business is in a Gateway Municipality.  This tax credit program is limited to $25 million annually, with the credits being doled out by theMassachusetts Life Sciences Center.

Companies wishing to be qualified for the program must have (i) a principal place of business in Massachusetts, (ii) a fully-developed business plan with short- and long-term forecasts including R&D, profit and loss, cash flow and details of angel investor funding, (iii) 20 or fewer full-time employees (at least half of whom work out of the company’s principal place of business), and (iv) less than $500,000 in gross revenue in the prior fiscal year.

The program does not cover investments in hedge funds, venture capital funds, retail operations, real estate, professional services, gaming or financial services.

Investors must be accredited investors, as defined by the SEC. Their qualifying investments are limited to $125,000 in any one business per year and $250,000 total for any one business.  No single taxpayer can claim more than $50,000 in tax credits in a year but investors may defer claiming tax credits for up to three years. Qualifying investors may not be the principal owner of the business and be involved in it on a full-time basis. More...

Recent Decisions Shed Light On How to Avoid Enhanced Damages for Patent Infringement

By Dorothy Wu Chiang. A member of our Patent Practice Group

In its June 2016 decision in Halo Electronics Inc. v. Pulse Electronics, Inc., whichwe covered in our June issue, the Supreme Court loosened the conditions under which a trial court may award enhanced damages to a patent owner. Haloemphasized that trial courts must retain discretion to punish “egregious” behavior by an infringer, based on the infringer’s knowledge at the time of the conduct in question. A defendant’s ability to muster a plausible defense after the fact should be of no consequence if its infringement at the time was willful and egregious.

This standard suggests that a company may take proactive measures that can prevent its behavior from being perceived as egregious. Specifically, before engaging in conduct that might infringe a competitor’s patent, a company might do well to obtain an opinion of counsel on the validity of that patent and the likelihood of infringing it. Already, some post-Halo decisions demonstrate that the presence or absence of such contemporaneous legal advice may affect a judge’s decision whether to assess enhanced damages against an infringer.

WBIP, LLC. v. Kohler, Co. involved competitors in the marine generator business. An internal Kohler memo requesting funding for developing products to compete with Westerbeke Corporation indicated that Kohler was aware of Westerbeke’s patents. Kohler took no action to evaluate the scope of the patents or avoid their claim limitations. Moreover, Kohler’s other activities demonstrated that it had deliberately tried to “plunder” Westerbeke’s business; Kohler employees had visited Westerbeke representatives at a trade show, questioned them about their technology, and released a competing product within a year.

Westerbeke assigned its patents to WPIB, which sued Kohler for infringement before Halo was decided.  The trial judge ruled that Kohler had willfully infringed WBIP’s patents and granted WPIB enhanced damages of 50%. Kohler appealed, and the Federal Circuit affirmed the district court in view of the Halo decision that had issued just weeks earlier. Halo required the Federal Circuit to review the enhanced damages based on whether the trial court had abused its discretion in awarding them. This deferential standard means that a trial judge’s award of enhanced damages is unlikely to be overturned.  More...

On-Sale Bar Clarified for Drugmaker

By Samuel Petuchowski, Ph.D.. A member of our Patent Practice Group

A patent application should be filed as soon as possible. Not only do patent rights go to the first inventor to file a patent application, but no invention may be patented if it has been publicly disclosed more than a year before an application is filed.

US law applicable to patent applications filed prior to March 15, 2013, that is, before the America Invents Act (AIA) took effect, specifically barred patenting anything more than one year after the first instance of its being sold or offered for sale.

In the case of The Medicines Company (“MedCo”) v. Hospira, Inc., MedCo ordered three batches of the anti-coagulant drug bivalirudin to be made by a manufacturing contractor, Ben Venue Laboratories, using a process that Medco later patented. While the market value of a commercial batch would have been about $10 million, no one could have sold the drug to consumers because FDA approval was still pending at the time.

When MedCo later sued Hospira for patent infringement, one of Hospira’s defenses was that MedCo’s patent application came too late, since it was filed more than a year after MedCo paid Ben Venue to make the preliminary batches for validation purposes.

The policy underlying the “on-sale” bar as it existed in Section 102(b) of the pre-AIA Patent Act was to preclude an inventor from profiting from the commercial use of an invention for a prolonged period before sharing it with the public by filing a patent application.  However, the statute sought to give the inventor a “reasonable” time to discern the potential value of an invention before undertaking the patenting process.  In 1998, the Supreme Court, in its decision in Pfaff v. Wells Electronics Inc., established a two-part test to determine whether an offer for sale occurred that would bar patenting more than a year later: The invention had to be the subject of a “commercial offer for sale” and had to be “ready for patenting.” More...

Insurance Coverage for Data Breaches: A Pig in a Poke for Retail Establishments?

By Thomas Carey. Chair of our Business Practice Group

P.F. Chang’s China Bistro Inc., which operates over 200 restaurants in the United States, purchased a cyber insurance policy from Federal Insurance Company. Federal marketed the policy as “a flexible insurance solution designed by cyber risk experts to address the full breadth of risks associated with doing business in today’s technology-dependent world” that covers “direct loss, legal liability, and consequential loss resulting from cyber security breaches.”  (Emphasis supplied).

During the underwriting process, Federal classified PF Chang’s as a high-risk client because it conducts more than six million transactions per year with customer credit cards, begetting extensive exposure to customer identity theft.  PF Chang’s paid an annual premium of $134,000 for the policy.

In 2014, while the policy was in effect, PF Chang’s received notification from the United States Secret Service of a potential data breach involving credit and debit card numbers stolen from its restaurants.  The company immediately conducted an investigation and determined that 33 of its restaurants were potentially affected.

PF Chang’s notified its insurer, which ultimately reimbursed more than $1.7 million of costs resulting from the data breach. This reimbursement covered the cost of conducting a forensic investigation and, defending litigation filed by (a) customers who alleged their credit card information was compromised, and (b) a bank that issued credit cards that were allegedly compromised. More...

Fast-Forwarding Privacy: A Video Tape Rental Statute in the Digital Era

By Thomas Carey. Chair of our Business Practice Group

Contentious Supreme Court nominations began with that of Robert Bork, whose originalist views led him to proclaim that there is no constitutional right to privacy. Americans, he believed, have only such privacy rights as may be conferred by statute.  Little did he imagine that his own personal experience would lead to just such a statute.

While Judge Bork’s nomination to the Supreme Court was in the balance and with his views on privacy very much in the news, a reporter obtained a list of the videos that Judge Bork and his family had rented from a local video store and published the list. The backlash from this incident led to the 1988 Video Privacy Protection Act (VPPA).

The VPPA provides a civil remedy against a “video tape service provider” that knowingly discloses personally identifiable information (PII) concerning its “consumers.”  “Consumer” is defined to include “any renter, purchaser, or subscriber of goods or services” from the video tape service provider. The VPPA authorizes courts to award punitive damages and attorneys’ fees to successful plaintiffs.

Given the demise of Blockbuster, this piece of legislation might be no more than an historic curiosity.  But judges with a penchant for more imaginative interpretations of statutes than Judge Bork would have countenanced have breathed new life into this statute, making it relevant to today’s cellphone app developers.

Two ongoing class action lawsuits have resulted in opinions that represent a lively conversation among those trial judges and appellate courts that have considered the VPPA’s vitality in the mobile phone era.  The most recent opinion was a breakthrough success for privacy advocates.

Cartoon Network and USA Today each developed free cellphone apps that allowed users to access video content. The apps would also transmit data to aggregators that would identify the videos that were watched. The data included the Android ID1 and, in the case of USA Today, the GPS coordinates, of the user’s device.

Users of these apps filed class action lawsuits alleging violations of the VPPA. In both cases, the defendants argued that the plaintiffs were not “subscribers” within the meaning of the VPPA because the services were free, and that sharing the Android ID was not the disclosure of PII for purposes of that statute.  Earlier cases had held that a device identifier was not PII, so precedent seemed to be on their side.

The first of these cases to go to trial involved The Cartoon Network.  In 2014, a federal trial court in Georgia granted a motion to dismiss the complaint.  The court said the user qualified as a “subscriber” to the Cartoon Network service even though it was free, but that the Android ID was not PII.

Next up was Gannett, the publisher of USA Today. Gannett contended that the Android ID cannot be PII because it identifies an object, rather than a human being. A federal judge in Massachusetts rejected that argument, pointing out by analogy that, while a home address describes an object, not a person, there can be little doubt that it is PII. More...

Functional Software’s Limited Copyright Coverage: Jury Finds Google’s Limited Use of Oracle’s Java™ Code Was Fair

By David Blau. A member of our Patent Practice Group

In 2010, Oracle sued Google over its implementation of the Java platform in smartphones running its Android™ operating system (OS). The Java platform is used to write and run programs written in the Java programming language and includes, among other things, the Java Virtual Machine and the Java application programming interface packages (“APIs”) that permit software developers to perform common functions without having to write equivalent code from scratch.

The APIs contained declaring code that reflects the structure, sequence, and organization (“SSO”) of the APIs. Although Google developed its own version of the Java Virtual Machine, for compatibility purposes Google literally copied the declaring code of 37 APIs and with it the SSO of those APIs.

In 2012, the trial court ruled that the APIs were not protectable under copyright law because they were essentially functional, not expressive. (Functional items are protectable, if at all, only under patent laws.)  The Federal Circuit reversed the trial court in 2014, ruling the SSO of the APIs to be protectable under copyright.  The appeals court instructed the trial court to consider whether the doctrine of fair use absolved Google of any liability in this case.  On May 26, 2016, a jury found that Google’s use of the declaring code was fair use, thus absolving Google of copyright liability in connection with its use of the APIs.

Fair use is a defense to copyright infringement, and helps balance the copyright owner’s property interest with the public’s interest in making some limited use of copyrighted works.  Uses of copyrighted works are often fair when portions of the work are copied for commentary, parody, scholarship, news reporting, or educational purposes.  Judges and juries will consider whether the use is commercial or educational, whether it transforms the underlying work, whether the work is more expressive or factual, how much and how important the portions copied were to the work as a whole, and whether the copying has (or could have) a negative financial impact on the copyright owner.  After weighing all of these factors, the jury determined that Google’s use of the Java API was fair, and thus not an infringement of copyright.

The origins of the legal dispute date to 1991, when the Java language was created at Sun Microsystems. Java slowly developed into a fully-featured platform, and in 1995 it was announced that Java would be included in one of the first web browsers, Netscape Navigator.  Java shortly became a valuable asset to Sun, which nevertheless released the bulk of its implementation as free and open source software (FOSS) in 2006. More...

Patent Owners Beware: Preliminary Response in Inter Partes Review Takes On New Significance

 

 

 

 

 

By Robert Asher and Emmanuel Filandrianos. Members of our Patent Practice Group

Inter partes review (“IPR”) has become the forum of choice for challenging the validity of a patent. Introduced in 2012 as part of the America Invents Act, it is a relatively new proceeding in the U.S. Patent and Trademark Office conducted by a panel of judges from the Patent Trial and Appeal Board (the “Board”). IPRs begin with a petitioner requesting that the IPR be instituted. Within three months of the request, the patent owner may choose to file a preliminary response arguing that the IPR should not be instituted.

If the Board is persuaded that the petitioner has not demonstrated a reasonable likelihood that it will prevail in its challenge of at least one claim, the IPR will be denied. Conversely, the Board may institute the IPR if it determines that the petitioner has a reasonable likelihood of invalidating at least one claim. If the IPR is instituted, the patent owner must respond with a “patent owner response” within three months of the institution date. The petitioner then gets a chance to file a “reply to the patent owner response.” The parties may also have an opportunity for oral argument thereafter. The entire procedure will be concluded with a final written decision from the Board within one year of the institution of the IPR.

Before May 2, 2016, the Board’s regulations provided an unfair advantage to petitioners at the pre-institution stage. Specifically, petitioners could have an expert in the field provide expert testimony in support of the petition, whereas patent owners were not allowed to use their own expert to support arguments made in the preliminary response. This oddity in the law allowed petitioners to rely on an expert to advance their claim-construction theory, while patent owners could only rely on attorney argument. The rules have since changed to allow patent owners as well to submit expert testimony in the preliminary response.

Even with this change, patent owners remain at a disadvantage in the pre-institution phase because of time constraints. Petitioners usually have months, even up to a year, after being sued for infringement to file their petition. Patent owners, by contrast, have only three months to provide their preliminary response. While petitioners have ample time to find an expert and put together the petition, patent owners have to find a suitable expert and prepare the preliminary response in a matter of months. More...