Can a Foreign Bankruptcy Upset the License Of a U.S. Patent? A Court of Appeals Says “No”

By Thomas Carey. Chair of the Business Practice Group

Since 1988, section 365(n) of the U.S. Bankruptcy Code has protected licensees of intellectual property from having their licenses rejected by an insolvent licensor. While this statute addresses certain contingencies and exceptions, the basic rule is that an insolvent licensor is not free to terminate (or ‘reject’) an intellectual property license the way it is free to shed itself of other contracts.

But what if the licensor is based overseas and licenses U.S. patents? In Jaffe v. Samsung Electronics Company, the Fourth Circuit Court of Appeals recently addressed that first-of-its-kind question.

Chapter 15 of the Bankruptcy Code includes a procedure, based upon a model law promulgated by the UN, by which the administrator of a foreign bankrupt company can ask a U.S. bankruptcy court for permission to control the bankrupt company’s U.S. assets and for an array of other privileges, including the right to prevent creditors from taking actions that would frustrate the foreign proceeding and the right to examine witnesses and seek the production of documents. In weighing such a request, a U.S. bankruptcy court is authorized to consider the interests of the insolvent, its creditors, and others affected by the request.

In 2009, Qimonda AG, a large German semiconductor manufacturer, filed for bankruptcy in Germany. Its principal asset was a portfolio of about 10,000 patents, roughly 4,000 of which were U.S. patents. These patents were subject to cross-license agreements with other industry players. Dr. Michael Jaffe was appointed as the German bankruptcy administrator for Qimonda.

Dr. Jaffe applied to the U.S. bankruptcy court for recognition under Chapter 15 of the Bankruptcy Code and for powers within the U.S. that a bankruptcy trustee in a U.S. proceeding would ordinarily have. The court granted the request, but made it conditional on compliance with section 365.

With Qimonda basically out of business, it had nothing to gain from the incoming license rights that it had obtained in the cross-licenses. Dr. Jaffe undertook to monetize the patent portfolio by notifying all parties to the cross-license agreements that the licenses were being terminated under the German bankruptcy proceeding. Dr. Jaffe’s plan was to re-license these patents for the benefit of Qimonda’s creditors, replacing the in-kind cross-licenses with royalty-bearing licenses.(More)

Trademark Falsely Suggesting Connection to a Native American People is Denied Registration

By Steven Abreu. A member of the Trademark Practice Group

 

A word that primarily refers to a group of people may not be registrable as a trademark in the United States if the word falsely suggests to consumers an association between the applicant and the identified group.

This principle explains the Trademark Trial and Appeal Board’s affirmance of a refusal to register an application for the mark LAKOTA, applied for in connection with herbal remedies in Class 5. In re Kent Pederson, Serial No. 85328868 (TTAB Dec. 30, 2013).

In an opinion stretching 43 pages, the Board set out the reasons why registration of LAKOTA was impermissible under section 2(a) of the Lanham Act. That statute prohibits registration of a mark that may falsely suggest a connection with persons, institutions, beliefs or national symbols. The trademark office has the burden to show that a mark falsely suggests such a connection through the application of a four-part test:

1. Is the mark the same as or a close approximation of a name previously used by another person or institution?
2. Would the mark be recognized as such, because it points unmistakably to that person or institution?
3. Is the applicant not connected with the person or institution named by the mark?
4. Is the fame or reputation of the person or institution such that when the mark is used with the applicant’s goods or services, a connection with the person or institution is presumed?

On the first two points, the Board agreed with the examining attorney that Lakota referred to the Native American people who are part of the Sioux Indian tribe. The dictionary definition and evidence, showing countless uses of Lakota to refer to the western part of the Sioux tribe, easily carried the day over the applicant’s argument that Lakota also referred to the name of the language spoken by the Lakota people and so could not unmistakably refer only to the people.

As to the third prong of the test, the applicant, Kent Pederson, offered evidence that his organization, through a licensee, is philanthropically connected to the Lakota people. However, the Board considered this philanthropy not sufficiently connected to commercial interests between Pederson and the Lakota people, especially regarding the applied-for goods. An actual commercial connection between the applicant and the identified person or institution is necessary to show that a connection made in the mind of a consumer is not “false;” mere philanthropy in favor of the identified person is not sufficient. (More)

How Will the Supreme Court Decide the Aereo Case?

By Timothy Murphy. Co-Chair of the Patent Practice Group

 

During oral argument last month for American Broadcasting Companies, Inc., et al. v. Aereo, Inc., Justice Scalia asked the attorney representing Aereo, “I mean, you could take HBO, right?” One had to wonder whether the Supreme Court has the time or the inclination to understand enough of the technology at issue to provide a well-reasoned opinion on whether Aereo is complying with copyright law.

The answer to Justice Scalia’s question is indisputably “no.” HBO is a cable channel and is not broadcast over the airwaves, as local television and radio stations are. Aereo’s business is a service that provides its customers with over-the-air broadcasts. Aereo uses arrays of small antennas, and each of its customers is assigned a separate antenna.

The television shows picked up by the customer’s antenna are made available by Aereo to the customer over the internet. Thus, the customer can watch a television show with a web browser, an iPad, or a similar device having an internet connection. Aereo also allows the customer to record television shows and saves the customer’s recorded shows in cloud storage dedicated to that customer. For this service, Aereo currently charges $8 a month, plus tax.

In short, Aereo is like a service provider that rents to each of its customers an antenna and a virtual, cloud-based DVR. Indeed, Aereo presents itself as a mere service provider when defending against the accusation of copyright infringement. If an individual set up an antenna and recorded onto a DVR a copyrighted show that was broadcast over the air, and that individual later watched the recorded show, it is well settled that that individual is engaged in a fair use of the copyrighted show and thus does not infringe the copyright in the television show.

In Sony Corp. of America v. Universal City Studios, Inc. (1984), the Supreme Court ruled that recording television shows for the purpose of “time shifting,” that is, watching the show at a later time, is fair use. Although the recording medium in the Betamax case was a video cassette, the logic is widely accepted as completely applicable to the more advanced technology of the DVR.

Aereo’s position is that—by providing individual customers with a separate antenna and separate cloud-based storage for their recorded television programs—it is simply helping the customers do what they are perfectly entitled to do on their own.

More than a dozen television and other media companies disagreed with Aereo’s characterization of its business and brought a copyright infringement action against Aereo in the Southern District of New York. They alleged that Aereo was “publicly performing” their television shows and thus must pay for a license from the plaintiff content providers, just as cable companies do.

The district court found in favor of Aereo, and that decision was upheld by the Second Circuit Court of Appeals.

An important precedent for these lower court decisions was Cartoon Network LP, LLLP v. CSC Holdings, Inc. (2d Cir. 2008). In the Cablevision case, as it is known, the cable company—which had already paid for a license to transmit the Cartoon Network’s television shows to its customers—provided to its customers a remote storage digital video recording service (“RS-DVR”). The Second Circuit in the Cablevision case found that this RS-DVR service was not “public performing” and thus did not infringe the Cartoon Network’s copyright.

This RS-DVR service is similar to the cloud-based storage provided by Aereo, so the Second Circuit relied on its earlier precedent in finding in favor of Aereo.

The questions from the Supreme Court justices during the oral argument in the Aereo case showed that they are trying to determine whether Aereo’s characterization of its business—that it merely helps its customers do what they are entitled to do on their own—was accurate, or whether Aereo was more like a cable company and thus required to pay a license fee to the television stations being picked up by the Aereo antennas. (More)

Greater Than the Sum of Its Parts: Patent Protection is Available for Combinations

By William Childs, Ph.D., J.D.. A member of our Patent Practice Group

 

Someone walks into your office and asks: Is it possible to patent a combination of known compounds based on an unexpected synergy between them? The answer remains ‘yes,’ and you should consider citing Sanofi-Aventis v. Glenmark in support.

In Sanofi, decided last month by the Federal Circuit, the patentee discovered that a combination of two active ingredients in a single dosage provided longer-lasting control than previously known treatments. When generic drug makers submitted an Abbreviated New Drug Application seeking permission to market this combination before the expiration of the patent, the owner and licensees of the patent sued for infringement.

The accused infringers argued that the patent was invalid on grounds of obviousness: Each ingredient, they said, was known to be effective for treating hypertension such that the combination of these ingredients would have been “obvious to try.”

The defendants further contended that any advantages from the obvious combination were merely unknown benefits that were not recognized at the time of filing.

The Federal Circuit reasoned that “it would not be ‘obvious to try’ when ‘the prior art gave either no indication of which parameters were critical or no direction as to which of many possible choices is likely to be successful.’”

Regarding unexpected results, the Federal Circuit reiterated the principle that “patentability may consider all of the characteristics possessed by the invention, whenever those characteristics become manifest.” This means that unexpected results discovered after the filing date or even issue date of a patent can weigh against a finding of obviousness. (More)

Court’s Reading of Statute Opens the Door For Extended Patent Terms for Many Applicants

By Alexandra Cavazos, Ph. D.. A member of our Patent Practice Group

 

Thanks to the Federal Circuit, longer patent terms are available for thousands of patents that have undergone prolonged examinations.

An extended term is of particular value in the pharmaceutical and biotechnology industries. Because of the high regulatory hurdles that new therapeutic molecules have to overcome, and because of the time that it takes to gain market acceptance for some new drugs, patents in these fields tend to be most valuable towards the end of their effective terms. Even a few extra days of patent term can translate into millions of dollars in sales for a blockbuster drug.

Novartis AG v. Lee centers on the interpretation of 35 U.S.C. § 154, the federal statute that awards patent applicants a day-for-day adjustment to their patent term for several kinds of USPTO-caused delays in the prosecution of their patent application. In particular, the statute guarantees applicants “no more than 3-year application pendency” but excludes “any time consumed by continued examination of the application requested by the applicant,” through a request for continued examination (RCE) (emphasis added).

The purpose of an RCE is to re-open and continue prosecution before the USPTO without having to file a new patent application. This may happen when all of an applicant’s claims have been rejected by the USPTO in a Final Office Action and the applicant wants another opportunity to amend its claims or offer evidence of their patentability. It may also happen when the applicant wishes to submit new prior art that pertains to the invention.

Prior to the Federal Circuit’s recent Novartis decision, the USPTO’s policy dictated that an RCE filing at any point during the pendency of a patent application would stop the USPTO’s three-year clock from running.

When this policy was applied to Novartis in 2010, it argued that once a Notice of Allowance was mailed to it, prosecution of the case was closed and thus the subsequent time up until the issue date of the patent was not time consumed by the RCE, but was instead time consumed by the USPTO.

In January 2014, the Federal Circuit agreed with Novartis on this point: “We reject the PTO’s view that the time after allowance, until issuance, is ‘time consumed by continued examination’ and so is excluded from adjustments given to the patentee. Such time from allowance to issuance undisputedly would count towards the PTO’s three-year allotment in a case not involving continued examination. This is no basis for distinguishing a continued examination case.”  (MORE)

Litigator’s Perspective: Winning Party in Patent Litigation Can Now More Easily Recover Attorneys’ Fees

By Brandon Scruggs. A member of our Litigation Practice Group

 

The Patent Act’s fee-shifting provision allows trial judges to award attorneys’ fees to the prevailing party in patent litigation in “exceptional cases.” Last month, the U.S. Supreme Court issued decisions in two cases on this subject, loosening the meaning of “exceptional” and requiring greater deference to a trial judge’s decision on whether to award attorneys’ fees.

In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Supreme Court addressed whether the Federal Circuit had set the “exceptional case” standard too high. In Brooks Furniture (2005), the Federal Circuit had held that to qualify as “exceptional,” a patent case needed to either (1) involve “material inappropriate conduct” or (2) be both “objectively baseless” and brought in “subjective bad faith.”

The Supreme Court overruled the Federal Circuit’s standard and held that awarding attorneys’ fees is a matter of district court discretion and should be evaluated on a case-by-case basis. Justice Sotomayor, writing for the court, criticized the Brooks Furniture standard as “mechanical” and “unduly rigid.” Since the statute does not define “exceptional,” the standard should be “inherently flexible.”

The Supreme Court held that an “exceptional” case that could support an award of attorneys’ fees is “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

The decision to award attorneys’ fees should be entrusted to the equitable discretion of the trial judge based on the “totality of the circumstances.” After all, who would know if a case is exceptional better than the judge who has observed the litigants’ conduct and positions for two or more years?

The Supreme Court also rejected the Federal Circuit’s requirement that an “exceptional case” must be proved by “clear and convincing evidence.” The Supreme Court noted that the statute imposes no specific burden of proof and seemed to suggest that the lower “preponderance of the evidence” standard (that is, more likely than not) may be proper. (More)

Contrary to Common Belief, Patents Can Survive Validity Challenges at the Patent Office

By John Stickevers. A member of our Patent Practice Group

The America Invents Act, which went into effect September 2012, introduced new proceedings for challenging a patent before the U.S. Patent and Trademark Office. Inter partes review (“IPR”) is one such proceeding. In the short time that IPRs have been available, more than 1000 petitions have been filed, with more than 600 petitions filed thus far in 2014 alone.

IPRs provide a new forum in which persons accused of infringement can contest the validity of patents in view of prior art. IPR proceedings are an administrative form of litigation, taking place before the Patent Trial and Appeal Board (“PTAB”) that includes written arguments, motion practice, expert testimony, depositions and oral arguments.

IPRs are labor-intensive proceedings that require an intimate understanding of patent law, a firm grasp of IPR complexities and procedures and a detailed strategy mapped out in advance. Without a strong foundation at the beginning, arguments may be lost or rendered unavailable to either the petitioner or the patent owner.

IPR proceedings have, to date, proved to be a mighty sword in the hands of defendants in patent litigations. Most of the PTAB decisions have resulted in the cancellation of all of the challenged patent claims. As of May 2014, the PTAB has instituted and decided 28 proceedings, with the petitioners enjoying better than an 80% success rate.

The length of the proceeding from the initiation of the IPR to the final oral arguments is, as mandated by the rules governing the process, a rapid twelve months. Indeed, the speed of disposition is one reason that patent defendants are increasingly likely to file IPR petitions when facing litigation. Another reason, of course, is the high rate of success so far for petitioners in IPRs that go to decision.

If you are a patent owner, all is not lost. For one thing, the PTAB allows the initiation of an IPR only when the board believes there is a reasonable likelihood that the petitioner will prevail on at least one of the challenged claims. The PTAB has reported that in more than 60 petitions the petitioner failed to meet the threshold burden of proof for instituting the IPR, while more than 70 other IPRs have resulted in a settlement favoring the patent owner.

Thus, the success of petitioners must be seen in context. Although they have won 80% of cases that have gone to decision, petitioners have failed to get out of the box in a large percentage of their challenges. The PTAB has taken up a total of 167 petitions and has not instituted 63 of the petitions. In these cases, patent owners prevail without the public fanfare of a written decision.

For example, last month, the PTAB refused to institute an IPR requested by Twitter, Yelp and Facebook for a patent owned by Evolutionary Intelligence LLC. In related decisions, the board ruled that the petitioners failed to establish a reasonable likelihood that they would prevail on at least one of the patent claims challenged. (More)