Valpo Law Blog

Analysis of current legal issues and cases in the Seventh Circuit Court of Appeals

Category: Intellectual Property

Practicality of Actual Injury in Data Breach

Backlit keyboard

By: Duke Truong
J.D. Candidate, 2017
Valparaiso University School of Law

Imagine being one of four million members under the care of Advocate Health and Hospitals Corporation (Advocate) and waking up to news that thieves have stolen your confidential information.  This is exactly what happened the morning after July 15, 2013, when burglars stole four password-protected computers from Advocate.   The computers contained patient’s confidential information: social security numbers, Medicare and Medicaid data, medical record numbers, health insurance data, and medical diagnoses along with names, addresses, and date of birth.  Advocate, whom patients entrusted with the duty of protecting their data, did not notify them of the breach until August 23, 2013.  Despite these facts, no proof of improper access or improper use of the confidential information actually occurred.

Matias Maglio and other affected patients brought a class action suit against Advocate in the circuit court of Lake County and Kane County.  Both lawsuits alleged claims of negligence, invasion of privacy, and violations of the Consumer and Deceptive Business Protection Act and the Illinois Personal Information Act.  Yet, plaintiffs failed to allege any unauthorized uses of their private information.  Despite the fact plaintiffs did not suffer any actual injury, they moved forward with their lawsuits anyhow.

Advocate moved to dismiss the complaints under the Rules of Civil Procedure for failure to state a claim and for lack of standing.  The plaintiffs did not suffer an injury-in-fact and only speculated that their stolen confidential information may lead to increased risk of identity fraud.  The doctrine of standing requires a plaintiff to raise issues of a real injury to which the law can recognize so to provide a remedy.  The complaints only alleged future, uncertain risk of identity fraud. The district courts of Lake County and Kane County dismissed the complaints in May and July of 2014, respectively.

However, the plaintiffs appealed to the Appellate Court of Illinois on grounds that the lower courts erred in its decisions.  The appellate panel consolidated the cases from the two counties and affirmed the district court’s decisions in Maglio v. Advocate Health and Hospitals Corporation on August 6, 2015.

The appellate panel reiterated that plaintiff’s failure to establish any specific injury makes the lawsuits insufficient.  To date, only two of the 4 million members suffered actual identity theft and they are not parties in the lawsuits.  The court held that this fact alone does not prove that plaintiffs face certain imminent risk of substantial harm.  Speculating about a future injury or harm is not grounds for a claim in the court of law.  To move forward, plaintiffs must show that their medical records were in fact disclosed to third parties.

Although the breach did not result in unauthorized use of information, speculation is not a cause for action.  To help lessen the burden on the courts, plaintiffs have to make sure their claims contain actual injuries otherwise it is a waste of resources for parties involved.  It may seem minor to determine actual injury, but the practicality is priceless.  As society increasingly depend on technology to store confidential information, employers (especially healthcare providers) should make data security one of the top priorities.  Employers should consider safeguards such as encryption and periodic audits to lessen the likelihood of a data breach. Proper training about HIPAA, security regulations and data privacy laws will further guard against a breach.

Pharmaceutical Patent Rises from the Dead in Federal Circuit

Chemical formula of olmesartan medoxomil, sold under the trade name Benicar.

Chemical formula of olmesartan medoxomil, sold under the trade name Benicar.

We’ve talked about patent zombies here before. Now how about a zombie patent?

On March 31, the Court of Appeals for the Federal Circuit issued its decision in Apotex Inc. v. Daiichi Sankyo, Inc. The case was a grueling three-sided fight between an original drugmaker and two generic drugmakers over the legal effect of a paperwork error at the Food and Drug Administration that kept a legally “dead” patent on the books.

The core question was whether generic drugmaker Apotex could sue the original drugmaker Daiichi for declaratory judgment that Daiichi’s legally dead (but still on the books) patent was really dead.

The problem was that federal courts only have jurisdiction where there is a justiciable case or controversy. Here, there was no controversy: everybody agreed that Daiichi’s patent could not be enforced. But under the law, Apotex could start selling its generic drug much sooner if it got a declaratory judgment that the patent would not be infringed. Was that enough to get the case into court?

Judge Richard Taranto wrote for the three-judge panel, concluding that Apotex could in fact sue. The requirements for federal jurisdiction and standing were met, the court ruled, because despite the lack of controversy over the patent itself, there was still a valuable legal right at stake.

The case was governed by the Hatch-Waxman pharmaceutical patent framework, as amended in 2003. Patent cases in general are not known for being especially easy to decipher. But Hatch-Waxman patent cases take on a special opacity. The citations alone can be eye-watering.

For example, a key provision in this case was 21 U.S.C. § 355(j)(5)(D)(i)(I)(bb)(AA), which governs the relevant exclusivity period.

(Go on, follow that link and see if you can figure out how the exclusivity period is determined.)

The facts are as headache-inducing as the law, but here are the essentials:

Drugmaker Daiichi holds two patents on the drug olmesartan, which treats high blood pressure. One patent expires in 2016 while the other expires in 2021. Daiichi has disclaimed the later-expiring patent (US Patent 6,878,703), rendering that patent null and void.

Thus, generic drugmakers should be able to start making and selling olmesartan in 2016.

But the FDA keeps a record of all patents on approved drugs, called the Orange Book. If a patent on a drug is listed in the Orange Book, the FDA won’t approve a generic version.

The FDA should have removed the second patent from the Orange Book when Daiichi disclaimed the patent. But for some unknown reason, it did not. And that failure to remove the patent from the Orange Book had some odd legal effects.

The first generic drugmaker to apply for the right to market a future generic version, Mylan, had filed a certification contesting the patent’s validity.

In enacting (and later amending) Hatch-Waxman, Congress wanted to give generic drugmakers a strong incentive to challenge bad patents. Rather than paying money or handing out fancy trophies, Congress decided to give a drugmaker who challenges a patent an exclusivity period during which no other drugmaker can market a generic version: a temporary duopoly.

So in this case, because it challenged the patent, Mylan would get a 180-day period during which it could market its generic version of olmesartan without any competition except for the original drugmaker. But under the statute, it would forfeit that 180-day period if a third drugmaker got a declaratory judgment against the patent.

And that sets up the bizarre shell game in this case. Daiichi had already irrevocably disclaimed the patent: the patent had legally ceased to exist. But because the patent was still listed in the Orange Book, Mylan still had a 180-day exclusivity period as its reward for challenging the now-void patent.

Since the underlying purpose of Hatch-Waxman was to get generic drugs to market quickly, Judge Taranto concluded that it would make no sense to interpret the statute as preventing a suit like Apotex’s. The Apotex suit would precisely serve the purpose of the statute in clearing the way for faster, wider generic competition.

But in deciding that the courts could hear Apotex’s claim, the Federal Circuit significantly expanded the scope of subject-matter jurisdiction in patent law: a court can now hear a suit for declaratory judgment against a patent even when there is no controversy about the patent at all.

The case now returns to the Northern District of Illinois, where it is likely that Apotex will quickly get a declaratory judgment of non-infringement and be able to offer its own generic olmesartan in 2016.

By: Samuel Henderson
Valparaiso University Law School
J.D. Candidate, 2016

Patent Exhaustion Runs Out of Gas in Federal Circuit

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Approximately one-sixth of all active US patents, including the ones in this case, are smartphone-related.

By: Samuel Henderson
Valparaiso University Law School
Patent Translator and J.D. Candidate, 2016

On February 10th, the Federal Circuit issued its opinion in Helferich Patent Licensing v. New York Times. The Court reversed a 2013 ruling from the Northern District of Illinois that had used the doctrine of patent exhaustion to throw out this controversial smartphone patent infringement suit.

The patents in question, which cover methods of sending text alerts that contain a hyperlink to additional content, will live to fight another day as the case now returns to the Northern District.

The core question in the case boils down to this: if I have separate patents on sending and receiving a certain kind of text message, and I give you a license for receiving those messages, can I still sue the person who sends a message to you?

The district court said no, but the Federal Circuit said yes.

The defendants in the case, led by the New York Times, are a number of prominent national companies that have SMS notification services or apps that send users links to breaking news and updates.

The plaintiff was Helferich Patent Licensing of Chicago. Nearly all makers of cell phones in the United States have purchased licenses from it.

The Federal Circuit’s Judge Richard Taranto wrote for the three-judge panel. (Unlike most federal cases in our region, patent cases go to the Federal Circuit on appeal, rather than the Seventh Circuit.)

The case turned on the question of patent exhaustion. Under the exhaustion doctrine, having once licensed a use of the invention in a product, the patentee can’t sue a subsequent purchaser of that product for infringing the patent. So, as both parties agreed, Helferich couldn’t sue the people using Helferich-licensed smart phones to receive text messages.

But the actual situation in this case was a bit more complex. One set of claims in the Helferich patents (the “handset claims”) covers cell phones that are designed to receive text messages that contain URLs and convert them into links. Another set (the “content claims”) covers the preparation and transmission of text messages that contain the appropriate URLs. Helferich licensed the handset claims to the handset makers, but did not license the content claims.

Despite that distinction, the trial court had ruled that Helferich’s content claims described an invention that was necessary for the devices covered by the handset claims to function properly, and therefore Helferich could not sue for infringement. Helferich had exhausted its rights, the trial court ruled, by licensing the handset claims.

Reversing the trial court, Judge Taranto wrote that not only were the content claims a distinct invention, but patent exhaustion could not apply because—unlike all previous cases in which the courts had found exhaustion—it was not the buyers or users of the handsets who were accused of infringing the content claims. Rather, the defendants were separate third parties who weren’t even using the handsets themselves.

The defendants had argued that the content claims all “required” a handset (in order for the message to be received), but the New York Times could send out text alerts even if nobody on its staff had a handset.

Although patent law is mostly a creature of statute, the doctrine of patent exhaustion is entirely judge-made. As a result, the court was able to indulge in a bit more historical inquiry than usual, reviewing more than 150 years of precedent on the exhaustion doctrine.

In particular, Judge Taranto drew an analogy to a noted 19th century case, Aiken v. Manchester Print Works, that involved two related patents, one on a knitting machine and one on a needle for that machine. In that case, the court held that selling a license to the machine did not exhaust the patent on the needle. The customer could repair the needle that came with the machine, but making a new one would be infringement. Although only a trial court case, Aiken was later cited approvingly by the Supreme Court.

This case, as Judge Taranto noted, was even less friendly to the defendants than Aiken: “[H]ere, it is not even the owner of X but someone else who is using Y, to the indirect benefit of X’s owner.” Without an unprecedented expansion of the exhaustion doctrine, an indirect benefit to the user of one invention could not possibly exhaust the plaintiff’s claims against a different user of a different invention.

This case is a significant win for patent owners. In 2013, the district court decision in this case provoked considerable consternation because it seemed to indicate that patentees could not license different claims separately – that the courts might read a license of one set of claims as barring suits on any related claims, even from entirely different patents against different infringers. The Federal Circuit’s decision restores certainty on that score.

But for Helferich itself, even if the case survives the likely Supreme Court review, the victory may prove Pyrrhic. After the Supreme Court lowered the boom on software patents last year in Alice v. CLS Bank, it is difficult to see how the content claims can survive a proper review for subject-matter eligibility.

And in fact, the New York Times has reportedly filed for reexamination of six of the seven patents at issue in this case.

Thus, the ultimate fate of the Helferich patents will likely be decided not in the Supreme Court or the district court, but in the humble halls of the Patent and Trademark Office.

You can view the docket and selected briefs from Helferich v. New York Times here.

Generic drugmaker loses in Hatch-Waxman patent case

Structure of bivalirudin, via Wikimedia Commons.

Structure of bivalirudin, via Wikimedia Commons.

“Life is short, the art long, opportunity fleeting, experiment perilous, decision difficult.”

The world has changed beyond measure since Hippocrates laid down that maxim 2400 years ago. Yet that fundamental difficulty of knowing what to expect in the context of medicine was at the heart of a cutting-edge pharmaceutical patent decision that Judge Amy J. St. Eve handed down in the Northern District of Illinois on October 27.

The patent in suit, US Patent 7,582,727, filed in 2008, covers “pharmaceutical formulations of bivalirudin and processes of making the same.” Specifically, the patent covers a way of producing it with a reduced level of the common “Asp9” impurity, in which the ninth amino acid is degraded from asparagine to aspartic acid. Bivalirudin is used as an anticoagulant for IVs.

The plaintiff and patent owner was The Medicines Company (TMC) of New Jersey, which sells bivalirudin under the brand name Angiomax. TMC is the sole seller of bivalirudin, and naturally would like to stay that way as long as possible.

The defendant was Pennsylvania-based generic drugmaker Mylan Pharmaceuticals, which had filed an Abbreviated New Drug Application (ANDA) for generic bivalirudin with the FDA.

An ANDA is part of the Hatch-Waxman framework for simplifying pharmaceutical patent litigation: when a generic drugmaker files an ANDA, the original and generic drugmakers can fight the patent issues out in court before any actual damages arise.

 

Several other drugmakers had also filed ANDAs for generic bivalirudin, but most settled quietly in return for a chance to start selling their generic in 2019 rather than 2028. Unlike those cases, and unlike another patent case we covered recently, this one went all the way to trial.

Defendant Mylan argued the patent was anticipated because TMC had previously produced at least one batch that was within the claimed purity range. But Judge St. Eve found that this batch was not representative. After all, as Hippocrates could have told us, the outcomes of compounding medicines are variable. One batch may come out with low impurities, and the next one may not.

Mylan next argued the patent was obvious because any person of skill in the art would have known that they needed to use TMC’s technique (lowered pH) in order to slow the reaction that caused the Asp9 impurity. But Hippocrates won the day again. Judge St. Eve pointed to Federal Circuit precedent stating that “in the medical arts ‘potential solutions are less likely to be genuinely predictable,’ as compared with other arts.” TMC’s technique might have been one possibility among dozens for addressing the impurity problem, but there was no reason to think it was especially likely to work—until it did.

Mylan finally argued the patent was not enabled, because even a person of skill in the art would have had to engage in undue experimentation in order to achieve the claimed level of purity. It pointed to erratic production results: a contractor had produced a batch with high impurity levels even though the contractor claimed to have used TMC’s method. But here, Judge St. Eve ruled, a different kind of uncertainty afflicted Mylan’s case: there was no reason to believe that the contractor had really followed the assigned procedures.

Having thus found the patent valid, Judge St. Eve turned to whether Mylan’s proposal would infringe on it. Here the court leaned heavily on a Federal Circuit precedent, Sunovion Pharmaceuticals v. Teva Pharmaceuticals USA. Under Sunovion, an ANDA infringes the original drugmaker’s patent whenever the ANDA would permit the generic manufacturer to make an infringing drug—even if the ANDA also allows a wide range of noninfringing drugs, and even if the generic manufacturer promises not to infringe. In this case, TMC’s patent covered Asp9 impurity levels from 0 to 0.6%, and Mylan’s ANDA covered impurity levels from 0 to 2.0%. Because Mylan’s ANDA did not specifically exclude the 0 to 0.6% range, Judge St. Eve concluded, it ineluctably infringed TMC’s patent.

This outcome goes to show the paradoxical state of pharmaceutical patent law today. The original bivalirudin patent expires next month, but under the Sunovion rule, competing drugmakers seemingly cannot bring generic versions to market unless their ANDA specifically disclaims the purity range staked out by the newer patent.

And it is surely no coincidence that no drugmaker has been able to clear that hurdle to date. After all, the FDA is unlikely to look kindly on a proposal for a minimum level of impurities in an injectable drug.

In any event, although TMC was victorious in Illinois, its trials are not yet over. In a Delaware case earlier this year, drugmaker Hospira eked out a win: the District of Delaware found TMC’s patents valid but not infringed. That case is now on appeal to the Federal Circuit.

By: Samuel Henderson
Valparaiso University Law School
Patent Translator and J.D. Candidate, 2016

Seventh Circuit Doesn’t Take Whirlpool to the Cleaners

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Co-written by: Samuel Henderson and Andrew Kitchel
Valparaiso University Law School
J.D. Candidates, 2016

On October 16, the Seventh Circuit ended a nine-year battle between Whirlpool and a former supplier in a case that combined aspects of contract and patent law. The court ruled that the companies had a license agreement rather than a requirements contract, which meant the supplier couldn’t get benefit of the bargain damages. Judge Frank Easterbrook wrote for the three-judge panel.

Our story begins in windswept Decatur, Illinois, “Pride of the Prairie,” where for many years the Grigoleit Company made knobs for Whirlpool’s household appliances.

In the 1980s, Grigoleit obtained two patents on a “knob with decorative end cap and method of manufacturing it” and a “knob with decorative end cap.”

Despite their unassuming names, these inventions were not trivial. As the district court said,

“Gri[go]leit’s patented technology was . . . addressed at getting away from glued assemblies for decorative caps of appliance knobs. . . . The technology and method obviated the need for gluing the cap to the knob and permitted efficiencies in assembly.”

All was fine and dandy until 1991, Whirlpool decided it was going to switch from Grigoleit to Phillip Plastics. Whirlpool preferred Phillips because its plastic knobs coincided with Whirlpool’s patent technology.

In 1993, the two companies entered into an agreement in which Whirlpool agreed to use Grigoleit’s knobs for its estate and roper lines of automatic laundry machines. In return for using the Grigoleit’s Knobs, Whirlpool was not obligated to pay Grigoleit royalties so long as it also gave Grigoleit serious consideration for other product lines for which Grigoleit could sufficiently provide knobs.

Here is the agreement’s exact contractual language, with emphasis added to make the key connecting phrases stand out:

“Whirlpool shall not be obligated to pay Grigoleit any monies as royalties for the right, license, and privilege granted herein so long as Whirlpool continues to purchase from Grigoleit Whirlpool’s requirement for present styling of knobs for the “Estate” and “Roper” brand lines of automatic clothes washers and dryers and so long as, in the opinion of an arbitrator established in accordance with the procedures of a recognized and independent arbitration service, Whirlpool continues to give serious consideration to Grigoleit by working with and purchasing from Grigoleit various appliance components, when in regards to such components it is reasonable to believe Grigoleit can provide more than parity in technology, quality, service, delivery and price in comparison to other qualified suppliers in the Whirlpool supplier base at such time.”

The agreement and the patents expired in 2003, but the battle was just beginning.

Whirlpool had complied with that first “so long as,” using only Grigoleit knobs for its Estate and Roper lines. But as the arbitrator later found, it did not comply with the second one: it failed to consider Grigoleit even for products where its knobs could have been very competitive.

Perhaps wisely, the arbitrator ducked the issue of damages, finding Whirlpool liable only for “payment of money royalties or damages as the courts may determine.”

In 2005, Grigoleit sued in the Central District of Illinois, arguing that the companies had a contract, and therefore it was entitled to the profits it would have made if Whirlpool had used Grigoleit knobs for other product lines as promised. Whirlpool argued that the conditional language meant only that if Whirlpool didn’t comply, it would have to pay royalties on Grigoleit’s patents.

Five years later, the district court ruled in Whirlpool’s favor. Four years after that, the court defined a rough formula for royalties. The parties quickly stipulated that the amount of the royalties by that formula would be $140,000.

Grigoleit then appealed to the Seventh Circuit, arguing again that the agreement was a requirements contract and that it should get its lost profits from Whirlpool’s breach.

Judge Easterbrook was unpersuaded.

Against Grigoleit’s argument that the agreement would lack consideration from Whirlpool under the district court’s reading, Judge Easterbrook noted that Whirlpool agreeing to pay royalties without Grigoleit having to show that its patents were both valid and infringed was already a “substantial promise by Whirlpool.”

Grigoleit also argued it should have been paid lost profits due to the oral negotiations the parties undertook by deciding not to set a per piece royalty, in effect, allowing only contract damages to be in play. Judge Easterbrook disarmed this argument by citing to the integration clause of the agreement, which disclaimed any understandings between the parties that did not appear in the contract.

With this, the two-decade grudge match finally drew to a close.

You may not spend a lot of time thinking about them, but let it never be said that appliance knobs are a simple business. Here is just one of the many drawings from the second Grigoleit patent:

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That has almost as many different parts as the disputed sentence in the contract!

The Grigoleit Company stopped producing knobs (or anything else) in 2009. Its only visible activity in recent years involves this lawsuit and another one against Whirlpool in Michigan that ended in 2013.

That raises an interesting terminological question. If a company that does nothing besides file patent suits is a “patent troll,” what is the proper term for a company that used to make things but now exists only to pursue patent-related litigation based on the things it used to make?

A patent half-troll? A patent zombie?

Software Patent Survives Motion to Dismiss in Northern District of Illinois

The representative drawing from US Patent 5,826,245.  Note pseudorandom tag generator (28, 29).

The representative drawing from US Patent 5,826,245. Note pseudorandom tag generator (28, 29).

On September 29th, Judge Virginia Kendall of the Northern District of Illinois denied Citigroup’s motion to dismiss a patent infringement suit brought by Card Verification Solutions, LLC, based on a software patent.

This was the first time any Illinois or Indiana court applied the Supreme Court’s Alice v. CLS Bank decision from earlier this year, in which the high court substantially raised the bar for software patents. Indeed, the Northern District is just the tenth trial court nationwide to issue a decision applying Alice.

The patent in question bears the title “Providing verification information for a transaction.” It covers a method of securely authenticating a credit card transaction over an unsecure network. In fact, the patent’s claims cover virtually all such methods that involve sending the authentication information in two separate packets to thwart interception.

The motion in question was of course every Civ Pro student’s friend: the Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. Specifically, Citigroup argued that after Alice, the patent was invalid on its face, as a matter of law. But Judge Kendall found one interpretation of the claim that might survive the Alice test.

The Alice test has two steps. First, a court must decide whether the invention is directed to an abstract idea. If not, then it is OK in terms of subject matter (though it may be invalid for other reasons). If it passes the first step, the court then has to decide whether the invention adds a sufficiently inventive “something more” to that abstract concept.

In step one, Judge Kendall found that the patent was indeed directed to an abstract idea (verifying a transaction). But in step two, she noted that the diagrams and specification included a major limitation on the patent’s scope: the inclusion of pseudorandom tag generating software.

The classic test of an “abstract idea” is whether it simply automates a process that could be done with pencil and paper. But as Judge Kendall wrote,

The question whether a pseudorandom number and character generator can be devised that relies on an algorithm that can be performed by a human with nothing more than pen and paper poses a factual question inappropriate at the motion to dismiss stage. Without discovery on the issue, the Court is bound to make all reasonable inferences in favor of Card Verification.

The rationale for the decision aside, this patent exemplifies many of the concerns raised by the Electronic Frontier Foundation and others regarding software patents.

Not only is the patent extremely broad, but when the original inventor assigned his patent rights in 2009, the buyer was Mount Hamilton Partners. Mount Hamilton is widely regarded as a “patent troll.”

In 2013, Mount Hamilton assigned the patent to Card Verification Solutions. Despite its plausible name, Card Verification Solutions seems to have been created in 2013 for just one purpose: to file infringement suits based on this patent.

Those suits are all you will see if you Google the company:

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A PACER search shows that all the other suits have been settled; only Citigroup is still fighting the patent:

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The patent’s sole inventor was one Erik Sandberg-Diment. Mr. Sandberg-Diment was a familiar name in software in the 80s and 90s—but not for his technical expertise. Rather, he was famous for his accessible writing about software. (His columns are occasionally resurrected by those who like to laugh at the prognostications of yesteryear.)

There is nothing wrong with non-experts getting patents on their inventions. But in view of the broader issues around software patents, you have to wonder whether this might just be a case of a commentator making an educated guess as to where the technology is going, and then getting a patent on that guess.

As it happens, Mr. Sandberg-Diment’s writings were collected in a volume titled They All Laughed When I Sat Down at the Computer. Who’s laughing now? Not Citigroup. Nor any of the other defendants who have already settled. Perhaps not even Mr. Sandberg-Diment, depending on how much he sold his rights for.

This case is noteworthy as an exception to an emerging rule: other courts applying Alice have granted almost all such motions to dismiss in software patent cases. That trend has led some to question whether software patents can survive the Alice test at all.

Comparing this opinion to the other decisions, it looks like Judge Kendall came to a different result because she applied a different standard. Other courts have decided motions to dismiss based only on the information in the “Claims” section of the patent, but Judge Kendall looked at the entire specification (which mentions the “pseudorandom tag generator” omitted from the claims).

Judge Kendall’s approach has some plausibility. After all, there has not yet been a Markman claim construction hearing in the case. Thus Citigroup was asking the court to decide whether the patent claims were valid before it decided what those claims mean. On that note, Judge Kendall denied Citigroup’s motion without prejudice, leaving it free to raise the issue of abstraction again later on.

At such an embryonic stage in the lawsuit, perhaps it is reasonable to consider any reading of the claims that the specification would support. (At least one advocate of software patents has already expressed hope that Judge Kendall’s approach will be adopted more widely.)

On the other hand, the growing concerns about software patents and their effect on innovation might lead courts to favor dismissing suits quickly, rather than putting the accused infringer of an invalid patent through a lengthy and expensive discovery process.

What do you think? Is “providing verification for a transaction” too broad to be patentable—even if it involves pseudorandom tag-generating software? And was the Northern District too friendly to the patentee in incorporating information from the specification into the claims? Or have other courts been too harsh?

By: Samuel Henderson
Valparaiso University Law School
Patent Translator and J.D. Candidate, 2016

Fighting For Your Right To Party

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By: Alex Steciuch
Valparaiso University Law School
J.D. Candidate, 2015

Some people just do not like parties. Paul Soglin (pictured above left) might be one of them. Despite attending the first Mifflin Street Block Party at the University of Wisconsin-Madison and proving how hard he liked to politically party by getting arrested protesting the Vietnam War, now Mayor of Madison Paul Soglin decided to shut down the very same party he started years before. This did not set well with the locals and Sconnie Nation, a local business that runs an on-campus t-shirt store, decided to channel that anger through the popular medium of tank tops and t-shirts, putting the image shown (above right) on a t-shirt.

The t-shirt stirred up some major feelings in Madison, but unfortunately for Sconnie, it was nothing but outrage for Mr. Kienitz, the original photographer of the image. Kienitz sued Sconnie for copyright infringement over its use of his photo. The partiers at the federal district court and the Seventh Circuit panel hearing the case both found for Sconnie Nation, holding that Sconnie’s use of the image constituted fair use and a complete defense to the copyright infringement claim.

The Seventh Circuit strictly applied the four factors of fair use to the facts. Unfortunately for Kienitz, none of the factors worked in his favor. Despite the commercial nature of selling t-shirts, the Court found that the t-shirt itself was political protest under factor one. Sconnie’s goal was to criticize the mayor’s forced cancellation of the block party, not to make money off of the t-shirt.

Factor two was less than helpful to Kienitz, as the nature of the copyrighted work undermined his position. He received no royalties for his copyrighted work, and it was posted on a public website for viewing and downloading for free.

Factor three was pivotal for the Court however. According to the court, the original work bore very little similarity to the final product put out by Sconnie. As Judge Easterbrook puts it “Defendants removed so much of the original that, as with the Cheshire Cat, only the smile remains….What is left, besides a hint of Soglin’s smile, is the outline of his face, which can’t be copyrighted.”

Factor four, noted as being usually the most important factor in fair use considerations, was a non-issue for the court. Kienitz’ potential market for his photo and the value of the copyrighted work was not harmed by this t-shirt being sold, nor was the t-shirt a replacement for the original work.

The Court was not without some pity towards Kienitz. They might not have agreed with his arguments but they did believe some of his arguments had some merit, chief among them that Kienitz’ future commercial opportunities could have been hurt by Sconnie’s use of his image. Just because Sconnie’s use did not hurt Kienitz here, does not mean that it will not cause future harm. The Court notes that Kienitz operates his business by promising his clients that their photos will only be used for dignified uses. If he cannot make good on that promise, there may be a risk that fewer people will hire him and he will be hurt financially.

Although the Court makes this argument for Kienitz in the closing paragraph of the opinion, it still decides that it is not enough to save the Kienitz photograph from the fair use defense.  Nevertheless, perhaps the Court opens up a new possibility of collecting damages on an infringement claim. If copyright holders cannot collect damages for infringements on things like parodies or substantially altered images as in the case here, could they succeed alternatively on the fact that the fair use itself has harmed their future commercial success?

Factor four of the fair use defense test only speaks to “the  effect  of  the  use  upon  the  potential  market  for  or  value  of  the  copyrighted  work.” If the market effect of the use is not on the value of the copyrighted work, and is instead on the copyright holder himself or his ability to gain future work, an entirely different issue may need to be examined. Fair use, as described by the court here, may not be a complete defense to a claim like that as it was here. The Seventh Circuit, in a rather brief closing paragraph, may have inadvertently just lent support to an alternate theory of damages in copyright infringement cases in the same opinion it asserted that it would adhere strictly to the statutory definition of fair use.

No matter the can of worms the Seventh Circuit may have opened for the future, for now, Sconnie Nation can continue its fight for college students in Wisconsin to party. Party on Sconnie Nation, party on UW-Madison.

Auto Parts and Egyptian Goddesses: Another Design Patent Bites the Dust

Maat, the ancient Egyptian goddess of law, via Wikimedia Commons

Maat, the ancient Egyptian goddess of law, via Wikimedia Commons

On September 3, the Southern District of Indiana granted summary judgment for the defendants in Butler v. Balkamp Inc., a patent case.   Cars and car parts are a huge part of the Indiana economy, so it’s no surprise that this rare Hoosier patent case is automotive-related.

The patent in suit was D500,646, a design patent for a tool handle to be used with socket wrench sets.  The accused product was the family of Spinning Impact Extensions from Indiana’s own Balkamp, which is a distributor in the NAPA Auto Parts System.

Design patents differ from the more familiar “utility patents” in that they protect only the ornamental aspects of a product.  For the most part, design patents have been an obscure backwater of intellectual property law, though the recent case of Apple v. Samsung(which hinged on design patents for the iPhone)has given them a higher profile.

The Southern District of Indiana is part of the Seventh Circuit, but patent cases are appealable only to the Federal Circuit.  The district court’s decision thus hinges on the Federal Circuit’s 2008 Egyptian Goddessruling, which overturned a century of precedent on design patents.

In Egyptian Goddess, the Federal Circuit replaced an old rule that required juries to decide whether an accused product infringed on the patent’s “point of novelty” with a new rule that only required that the accused product be similar enough (from the vantage point of an “ordinary observer” familiar with the prior art) that the observer might confuse the accused product with the patented design.

Many practitioners expected Egyptian Goddess to usher in a golden age of design patent enforcement, but it hasn’t lived up to the hype.  In fact, since Egyptian Goddess, design patent infringement actions have overwhelmingly failed at the summary judgment stage.  Because the factual inquiry is less complex, it seems, a court can more easily conclude that “there is no genuine dispute as to any material fact,” and throw the case out before it ever reaches a jury.

In this case, looking at the “overall visual impression” of the product, the Southern District found that “it was obvious that the accused product embodies an overall effect that was clearly dissimilar from that of the patented design and thus could not cause confusion in the marketplace.”  The Court drew particular attention to the “boxier and sharper” look of the accused product, and to the straight edges and lack of knurling at each end of the cylindrical body, which “gives the visual effect of there being three distinct sections of the Spinning Impact Driver.”

Side-by-side comparison of the plaintiff’s design and the defendants’ product, from page 11 of the court’s opinion.

Side-by-side comparison of the plaintiff’s design and the defendants’ product, from page 11 of the court’s opinion.

Interestingly, the opinion entirely ignored a survey that the plaintiffs conducted, by which they attempted to show that the allegedly infringing design was actually perceived as confusingly similar when viewed by a sample of actual customers who had actually been exposed to the prior art.

You might think that the Court would at least have explained why it didn’t consider that evidence worthy of attention, but apparently the Court didn’t think such an explanation was necessary.  Even when faced with empirical evidence of what ordinary observers think, the Court seemed to prefer to consider the “ordinary observer” as a mental construct, rather than an objective entity whose perceptions could be objectively measured.

What do you think?  Are the designs shown above similar enough to confuse the average customer?  And when a court conducts an “ordinary observer” test, should it have to take notice of the evidence of what ordinary observers really think, or can it freely substitute its own thinking?

By: Samuel Henderson
Valparaiso University Law School
Patent Translator and J.D. Candidate, 2016

Posner Lays the Smack Down on Banana Lady

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By: Chris Freiberg
Valparaiso University Law School
J.D. Candidate, 2015

In a scathing judicial opinion published Monday, Seventh Circuit Judge Richard Posner not only dismissed the copyright lawsuit of a woman in a giant banana costume, but also wrote that federal courts in Wisconsin should consider enjoining her from filing any more frivolous lawsuits.

Catherine Conrad is a woman from Madison, Wisconsin who makes her living singing and dancing in a banana costume, which is something I didn’t know was a legitimate career choice until Monday, but now has me reconsidering my decision to go to law school.

The defendant, AM Community Credit Union, hired Conrad to perform a singing telegram at a trade show.

Conrad, pursuing the case pro se, claimed the defendants failed to tell the audience any pictures they took of her were only for personal use; she even considered posting pictures on Facebook to be a violation of her copyright.

In an eight-page opinion (which includes an awesome picture of Conrad in her banana costume), Judge Posner tears Conrad’s arguments apart under well-settled law that her performances cannot be copyrighted; Posner argued, had she recorded her performance or had a written “dance notation”, it may have passed for a copyrightable medium of expression.  Conrad also failed to prove she had a copyright claim on pictures of her performing because it was unlikely the defendants created a derivative work with some element of originality.

While not ruling on Conrad’s copyright of her own personal banana costume, the opinion does note the court’s surprise at discovering just how common banana costumes are, citing a Google search.

Judge Posner then laid the smackdown on Conrad for the 17 frivolous lawsuits she filed in state and federal courts since 2009, noting that she has racked up an impressive $150,000 in judgments and sanctions against her.

“She once sued event organizers who mailed persons attending the event a postcard that had a picture of her in her banana costume,” Posner wrote. “On another occasion she sued persons who videotaped her performance but declined to post the video on their website after she demanded a $40,000 license fee.”

The judge concludes what might be the greatest judicial opinion of all time by telling the Western District of Wisconsin that it should consider barring Conrad from filing further lawsuits until she can settle her legal debts.

This is normally where I would ask if people agree with the court’s decision or not, but I think the only question that can be asked here is how amazing was Judge Posner’s opinion?

Google and Android (Timing is Everything)

Thomas McNamee
J.D. Candidate, 2015
Valparaiso University Law School

In an example of how long an appeal can sometimes take, the Seventh Circuit has affirmed a district court’s grant of summary judgment in a case that was argued nearly two years ago.  On April 4, 2014, the Seventh Circuit Court of Appeals upheld a finding that Google did not infringe on Erich Specht’s Android Data mark, because Mr. Specht abandoned the mark. By abandoning the mark, Mr. Specht forfeited his ability to assert any rights to it.

The decision tells an interesting “he said – she said” tale of facts in which the two sides debated timelines, events, and evidentiary matters for the right to the “Android” name. In 1998, Mr. Specht created a company called Android Data Corporation. His trademark “Android Data” was approved and registered in 2002, but by the end of the year the business was unsuccessful and all assets, including the trademark, were transferred to another of Specht’s companies. While Mr. Specht’s company continued to struggle, and the use of the “Android Data” mark diminished, Android, Inc. started up and was developing what is now the Android operating system for smart phones. Google purchased this start up in 2005. The purchase and attempted use of the “Android” mark led to the lawsuit, the district court’s grant of summary judgment to Google, and the appeal that was decided by the Seventh Circuit.

The question was whether Mr. Specht abandoned the trademark after 2002, when the business was essentially non-functioning. Citing myriad authorities, the court determined the trademark was abandoned and Specht has no rights to the mark. In determining abandonment, “a trademark is abandoned if its ‘use in commerce’ has been discontinued with no intent to resume use.” 15 U.S.C. § 1127. The code also states that “nonuse for 3 nonconsecutive years shall be prima facie evidence of abandonment.” Because Specht ceased using the mark for commerce in 2002, and Google first used the term “Android” in 2007, Google had become the senior user of the mark due to Mr. Specht‘s abandonment (3 year discontinuance). Furthermore, because of Google’s continuous and uninterrupted use of the “Android” mark since 2007, it holds the rights to the mark against the world.

In civil cases of this nature, the decision rests on the evidence. Google presented what it needed to document its use of the mark, while Mr. Specht failed to do so by only offering items that were not concrete.

 

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