United States: Seven IP Cases to Watch In Early 2017

Last Updated: January 6 2017
Article by Richard S.J. Hung, Barbara Barath and Rachel S. Dolphin

SCA Hygiene AB v. First Quality Baby Products. LLC (Docket No. 15-927, S. Ct.)

In SCA Hygiene AB v. First Quality Baby Products LLC,the Supreme Court will consider "[w]hether and to what extent the defense of laches may bar a claim for patent infringement brought within the Patent Act's six-year statutory limitations period."

In its 2014 decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 695 F.3d 946, 952-53 (2012), the Supreme Court held that laches is not a defense to copyright infringement. The Court explained that laches, an equitable defense, does not limit the legal remedies available during the three-year statute of limitations period in Section 507(b) of the Copyright Act.

Although Section 286 of the Patent Act also limits the period in which a plaintiff can recover damages for patent infringement to six years prior to the filing of the complaint, the Federal Circuit has repeatedly held that the laches defense is available in patent cases.

  • In 1992, the en banc Federal Circuit heldthat the Patent Act codified the laches defense. A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1029 (Fed. Cir. 1992). The appellate court focused on Section 282(b)(1), which provides that "[n]oninfringement, absence of liability for infringement[,] or unenforceability" shall be a defense. The Federal Circuit reasoned that: (a) the laches defense does not conflict with Section 286; and (b) the merger of law and equity courts allows laches to bar legal relief. 960 F.2d at 1030-31.
  • In 2015, the Federal Circuit next held in a 6-5 en banc decision that laches remains a viable defense in patent cases despite the Supreme Court's 2014 Petrella decision. SCA Hygiene v. First Quality, 807 F.3d 1311 (Fed. Cir. 2015).1 The court highlighted distinctions between copyright and patent law, including that: (i) Section 286 of the Patent Act is not a statute of limitations, unlike Section 507(b) of the Copyright Act; and (ii) because the Patent Act imposes liability for innocent infringement, "innovators have no safeguard against tardy claims demanding a portion of their commercial success" with a laches defense. 807 F.3d at 1330 (citations omitted).

Before the Supreme Court, First Quality again argued that, "[a]bsent laches, nothing prevents a patentee from sitting silently on its rights while an innocent infringer invests substantial time and resources to independently develop and commercialize a product, only to have the patentee emerge six years later to seek the most profitable six years of revenues." Opp. Br. 18. More than thirty large companies, including Dell, Google, and Intel, submitted briefs supporting First Quality's position.

On its part, SCA Hygiene countered that it did not sit silently on its rights. SCA emphasized that it had already put First Quality on notice and is subject to a laches defense only because it submitted its patent to reexamination before filing suit. SCA further argued that policy considerations cannot trump the plain text of Section 286.

If SCA prevails, even patentees who intentionally delay bringing suits to lock in innocent infringers will not be barred from seeking damages by the laches defense.

Impression Prods., Inc. v. Lexmark Int'l, Inc. (Docket No. 15-1189, S. Ct.)

In Impression Products, Inc. v. Lexmark International, Inc., the Supreme Court will consider the scope of the common law doctrine of patent exhaustion.

The case involves Lexmark's sales of printer ink cartridges with two different options for the consumer. Option A was a typical sale that exhausted Lexmark's patent rights. Option B allowed for lower prices, but with post-sale restrictions barring multiple uses or resale. After Impression sold refilled cartridges that had been purchased from Option B consumers who had violated the post-sale restrictions, Lexmark sued Impression for patent infringement.

Lexmark prevailed before the Federal Circuit. The appellate court agreed with Lexmark that, when a patentee sells a patented article under otherwise proper restrictions on resale communicated to the buyer at the time of sale, the patentee does not confer authority on the buyer to engage in the prohibited resale or reuse.

The first question before the Supreme Court is whether a "conditional sale" that transfers title to a patented item, but also restricts the article's use or resale post-sale, avoids the patent exhaustion doctrine. The second question is whether a sale of a patented article (i) occurring outside the United States but (ii) with the U.S. patentee's authorization exhausts the U.S. patent rights in that article.

The parties agreed to various stipulations to simplify the issues for resolution. For example, they agreed that the restrictions were clearly communicated, that there were no patent misuse or antitrust issues, and that the lower price option reflected limitations on Lexmark's conveyance of patent rights.

Lexmark has argued that Section 271 of the Patent Act and Supreme Court and Federal Circuit precedent allow post-sale restrictions. Impression, by contrast, has argued that post-sale restrictions violate the exhaustion doctrine. In support of Impression's position, the Solicitor General has argued that the Federal Circuit's decision "would substantially erode the exhaustion doctrine" if left unchanged. (Brief for the United States as Amicus Curiae at 5.)

If the Supreme Court affirms the Federal Circuit's decision, patentees are likely to apply post-sale restrictions with greater frequency.

Life Techs. Corp. v. Promega Corp. (Docket No. 14-1538, S. Ct.)

Section 271(f)(1) of the Patent Act provides for infringement liability against an exporter of all or "a substantial portion of the components of a patented invention." At issue in Life Technologies Corp. v. Promega Corp. is what that phrase means.

The asserted patents claimed methods or kits for DNA testing andwere exclusively licensed to Promega. The defendant, Life Technologies, exported the enzyme Taq polymerase for use in genetic testing occurring outside the United States. A jury subsequently found Life Technologies' liable for infringement, based on its worldwide sales, due to its exportation of Taq polymerase from the United States.

The trial court granted judgment as a matter of law of non-infringement, and the Federal Circuit reversed. The appellate court held that "a party may be liable under § 271(f)(1) for supplying or causing to be supplied a single component for combination outside the United States." Promega Corp. v. Life Technologies Corp.,773 F.3d 1338, 1353 (Fed. Cir. 2014).

The specific question before the Supreme Court is "[w]hether the Federal Circuit erred in holding that supplying a single, commodity component of a multi-component invention from the United States is an infringing act" that "expos[es] the manufacturer to liability for all worldwide sales."

The Supreme Court's decision should clarify the scope of Section 271(f)(1). In particular, it should address whether a defendant can be exposed to liability for damages on its worldwide sales, based on its supply of a single component from the United States. If the Supreme Court affirms, U.S. entities will have to exercise greater caution when exporting components of a multi-component invention to avoid the risk of paying damages on worldwide sales.

In re Aqua Prods., Inc. (Case No. 2015-1177, Fed. Cir.)

Section 316(d) of the Patent Act governs the patentee's amendment of patent claims during inter partes review ("IPR") proceedings. Section 316(e) specifies that "the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence." Current Patent Trial and Appeal Board's regulations, however, place the burden on the patentee to show that an amended claim is patentable over the art of record in IPR proceedings.

Relying on these regulations, the Board denied Aqua Products, Inc.'s motion to substitute claims in an IPR proceeding. On appeal to the Federal Circuit, Aqua Products argued that the Board's procedures improperly place the burden of proof on the patentee and force the patentee to show non-obviousness. A panel initially affirmed the Board's decision.

The full Federal Circuit then granted en banc review to address certain procedural and substantive issues relating to the burdens of proof and timing in IPR proceedings. The first set of questions asks: "When the patent owner moves to amend its claims under 35 U.S.C. § 316(d), may the Patent Office require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. § 316(e)?"

The second set of questions asks: "When the petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?"

Many patentees have expressed concerns about the Board's low grant rate for motions to amend in IPR proceedings. The Federal Circuit's decision may relax the Board's processes and standards for granting such motions. Oral argument was held on December 9, 2016.

Lee v. Tam (Docket No. 15-1293, S. Ct.)

In Lee v. Tam, the Supreme Court will consider whether the disparagement provision in Section 2(a) of the Lanham Act, 15 U.S.C. 1052(a), is facially invalid under the Free Speech Clause of the First Amendment.

Simon Tam named his band THE SLANTS. The U.S. Trademark Office refused to register his mark as offensive to Asian-Americans, in violation of Section 2(a)'s disparagement provision. That provision permits the Trademark Office to refuse registration of a trademark if it "[c]onsists of . . . matter which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute."

The Trademark Office has relied on this provision to refuse registration of many marks over the years, including:

  • REDSKINS, Pro-Football, Inc. v. Blackhorse, 2015 WL 4096277 (E.D. Va. July 8, 2015);
  • STOP THE ISLAMISATION OF AMERICA, In re Geller, 751 F.3d 1355 (Fed. Cir. 2014);
  • HAVE YOU HEARD THAT SATAN IS A REPUBLICAN? (2010);
  • DEMOCRATS SHOULDN'T BREED (2007);
  • N.I.G.G.A. NATURALLY INTELLIGENT GOD GIFTED AFRICANS (1996); and
  • a mark depicting a defecating dog, Greyhound Corp. v. Both Worlds, Inc., 6 U.S.P.Q.2d 1635 (T.T.A.B. Mar. 30, 1988) (found to disparage Greyhound's running dog mark).

After the Trademark Trial and Appeal Board affirmed the Trademark Office's rejection, a Federal Circuit panel initially affirmed. It agreed that the disparagement provision does not violate the First Amendment. The panel decision was consistent with the court's longstanding precedent that Section 2(a) does not prevent trademark owners from using an offensive mark, but only from registering it.

Acting sua sponte, the full Federal Circuit then ordered en banc review of the free speech issue and held that Section 2(a) violates the First Amendment. The majority began by noting that:

Mr. Simon Shiao Tam named his band THE SLANTS to make a statement about racial and cultural issues in this country. With his band name, Mr. Tam conveys more about our society than many volumes of undisputedly protected speech. . . . Many of the marks rejected as disparaging convey hurtful speech that harms members of oft-stigmatized communities. But the First Amendment protects even hurtful speech. . . . The government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by the marks.

In re Tam, 808 F.3d 1321, 1328 (Fed. Cir. 2015). The majority then held that the anti-disparagement provision fails under strict scrutiny, as the provision is content discriminatory "beyond dispute" and viewpoint discriminatory "on its face." Id. at 1135.

The majority explained that the disparagement provision regulates the expressive aspects of the mark, and not its function as commercial speech. Per the majority, "it is always a mark's expressive character, not its ability to serve as a source identifier, that is the basis for the disparagement exclusion from registration." Id. at 1338. The majority indicated that it would find Section 2(a) to be unconstitutional even under the more forgiving First Amendment standard governing restrictions on commercial speech, as there is no substantial government interest in forbidding the federal registration of disparaging marks. Id. at 1357.

The majority rejected all three of the government's three arguments, i.e.,that: (1) Section 2(a) is immune from First Amendment scrutiny because it does not prohibit speech, but only registration; (2) as government speech, trademark registration is not subject to the First Amendment; and (3) Section 2(a) merely prevents a trademark registration program, which qualifies as a federal subsidy program. Id. at 1339-55. Dissenting, Judge Lourie agreed with the government's third argument.

Before the Supreme Court, the government has advanced only its third argument—that the government is not restricting speech, but merely declining to provide government assistance. Accordingly, the government's position is that the strict scrutiny standard (which normally applies to content- and viewpoint-based distinctions) is inappropriate.

The Washington Redskins football team, whose Fourth Circuit appeal from the cancellation of its registration remains pending, filed an extraordinary petition for "certiorari before judgment" to join Mr. Tam's case. The Supreme Court denied the Redskins' request.

The fate of the Redskins' and the Slants' trademarks—and other similar marks—now lies with the Supreme Court.

Star Athletica, LLC v. Varsity Brands, Inc. (Docket No. 15-866, S. Ct.)

In Star Athletica, LLC v. Varsity Brands, Inc., the Supreme Court will decide whether aesthetic features in a "useful article" warrant copyright protection.

The Copyright Act does not permit copyrighting the design of a useful article. An article's component features also cannot be copyrighted unless they are capable of being "identified separately from" and "existing independently of . . . the utilitarian aspects of the article." 17 U.S.C. § 101. Courts have long wrestled with how to determine whether component features are sufficiently "separable" from the design of an otherwise unprotectable object and thus copyrightable.

Varsity Brands sued Star Athletica for copying the designs of cheerleading uniforms. The district court granted summary judgment in Star Athletica's favor, determining that the configuration of stripes, chevrons, and color blocks on a cheerleading uniform could not be separated from the uniform's utilitarian function. On appeal, the Sixth Circuit reversed, holding that the designs were sufficiently "separable" as to qualify as copyrightable subject matter. Varsity Brands, Inc. v. Star Athletica, LLC, 799 F.3d 468, 471 (6th Cir. 2015).

The Supreme Court must now decide on "the appropriate test to determine when a feature of a useful article is protectable under § 101 of the Copyright Act." The Solicitor General has filed a brief in support of Varsity Brand, arguing that certain designs of useful articles should be copyrightable.

During the October 31, 2016 argument, Star Athletica argued that Varsity Brands' design is intertwined with the uniform's functionality, as it makes the wearer appear slimmer and taller. As a result, it cannot be copyrighted. On its part, Varsity Brands argued that the design is separable and does not serve a "utilitarian" function. Some of the justices expressed concern that Varsity Brands' interpretation would allow monopolies over clothing designs.

The Supreme Court's decision will clarify the standard for evaluating the "separability" of copyrightable features from non-protectable, utilitarian aspects of useful articles. Because clothing designs generally cannot be copyrighted under current law, the Court's decision may have significant ramifications for the fashion industry and other fields that combine aesthetics and function.

TC Heartland LLC v. Kraft Food Brands Group LLC (Docket No. 16-341, S. Ct.)

The patent venue statute, 28 U.S.C. § 1400(b), provides that patent infringement actions "may be brought in the judicial district where the defendant resides." In TC Heartland LLC v. Kraft Food Brands Group LLC, the Supreme Court may clarify whether Section 1400(b) is the sole provision governing venue in patent infringement actions.

Under the Federal Circuit's 1990 decision in VE Holding Corp. v. Johnson Gas Appliance Co.,a patentee may sue a corporate defendant in any district where personal jurisdiction exists over a corporate defendant. 917 F.2d 1574 (Fed. Cir. 1990). The Federal Circuit in VE Holding relied on a broad interpretation of 28 U.S.C. § 1391(c)(2) to reach this outcome. Under that section, a corporate entity is deemed to reside "in any judicial district in which such defendant is subject to the court's personal jurisdiction" "for venue purposes." Id. at 1583.

The Federal Circuit's decision in VE Holding arguably contradicts the Supreme Court's 1957 decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957).There, the Supreme Court held that Section 1400(b) "is the sole and exclusive provision" for venue in patent infringement actions and "is not to be supplemented by the provisions of 28 U.S.C. § 1391(c)." Id. (emphasis added). The Court further held that Section 1400(b)'s reference to "the judicial district where the defendant resides" means the "state of incorporation only" for corporate defendants. Id. at 226 (emphasis added).

But the Federal Circuit in VE Holding distinguished Fourco as predating Congress's 1988 amendment to Section 1391(c), illustrated below:

Pre-1988 Text

1988 Text

A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.

For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.

Because the phrase "this chapter" refers to Chapter 87 of Title 27 (which includes Section 1400(b)), the Federal Circuit reasoned that Fourco must no longer be good law. VE Holding, 917 F.2d at 1579.

TC Heartland is an Indiana limited liability company and is headquartered in Indiana. After Kraft sued TC Heartland in the District of Delaware in 2014, TC Heartland moved to dismiss or transfer the case under 28 U.S.C. § 1406. TC Heartland emphasized that it: (i) is not registered to do business in Delaware; (ii) has no local presence in Delaware; (iii) has not entered into any supply contracts in Delaware; and (iv) has not solicited sales in Delaware. It conceded, however, that it shipped orders of the accused products into Delaware.

The trial court denied TC Heartland's motion. On petition for a writ of mandamus, the Federal Circuit affirmed, relying on VE Holding.

TC Heartland's petition for certiorari to the Supreme Court drew the support of many amici, including former Federal Circuit Chief Judge Paul Michel. The Supreme Court granted certiorari to decide the following question: "Whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 U.S.C. § 1391(c)."

VE Holding and its progeny have made it easier for plaintiffs to file suits in forums that reputedly are friendlier to plaintiffs, such as the Eastern District of Texas or the District of Delaware. The Supreme Court's decision may limit the districts in which patentees can bring infringement lawsuits and thus favor defendants.

Footnote

1.The Federal Circuit also rejected its prior precedent that laches bars only pre-suit relief. The court explained that, when considering whether to grant an injunction, a district court "must weigh the facts underlying laches [as part of] the [Supreme Court's] eBay framework." 807 F.3d at 1333.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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