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Message Received: US Courts Are Appropriate, More Convenient Venue to Adjudicate US IP Disputes

Addressing personal jurisdiction and forum non conveniens in a software licensing dispute, the US Court of Appeals for the Fourth Circuit upheld a district court’s exercise of personal jurisdiction over a Dutch entity and the court’s decision to not dismiss the case for forum non conveniens. dmarcian, Inc. v. dmarcian Europe BV, Case Nos. 21-1721; -2005 (4th Cir. Feb. 14, 2023) (Wilkinson, Heytens, Hudson, JJ.)

dmarcian is a North Carolina-based software company that developed software to help email users authenticate incoming emails. A Dutch businessman who owned Mailmerk contacted dmarcian to offer to market the software in Europe. While dmarcian was initially unreceptive to the offer, the two parties eventually reached an oral agreement for Mailmerk to rebrand as dmarcian Europe BV (dmarcian BV) and sell the dmarcian software in Europe and Africa.

A dispute arose when dmarcian BV claimed ownership of portions of the dmarcian source code. dmarcian BV filed suit in the Netherlands, eventually filing for and winning injunctive relief in the Netherlands when dmarcian terminated dmarcian BV’s license. dmarcian then filed suit in the Western District of North Carolina asking for a preliminary injunction against dmarcian BV, which dmarcian BV opposed with a motion to dismiss for forum non conveniens. The district court denied the motion to dismiss and entered a preliminary injunction that precluded dmarcian BV from operating outside of Europe and Africa and required dmarcian BV to stop using the registered “dmarcian” trademark without a disclaimer. The district court later found dmarcian BV in contempt for violating the preliminary injunction and ordered dmarcian BV to pay $335,000 in sanctions. dmarcian BV appealed the injunction and the sanctions.

dmarcian BV argued that the district court did not have personal jurisdiction. The Fourth Circuit rejected that argument, finding that the North Carolina long-arm statute authorized jurisdiction over dmarcian BV. The Court found that the application of the long-arm statute to dmarcian BV complied with due process because dmarcian BV worked closely with the dmarcian team in North Carolina (e.g., receiving sales leads, attending virtual meetings, coordinating software development), dmarcian BV sought out dmarcian to initiate business, and there was a strong interest in protecting intellectual property rights in North Carolina.

The Fourth Circuit also upheld the denial of the dismissal for forum non conveniens because the Dutch court was not an adequate alternative forum since Dutch courts cannot effectively adjudicate US trademark claims. The Fourth Circuit found that any judgment by the Dutch court would have little effect in the United States and would deny relief to dmarcian for the infringement of its rights.

The Fourth Circuit upheld the preliminary injunction grant, finding that the district court properly applied US and North Carolina law extraterritorially and that dmarcian was likely to succeed on all claims. The Court found that US laws properly applied and that dmarcian was likely to succeed on the following claims:

  • Copyright infringement, because there was a registered copyright, dmarcian BV reproduced elements of the source code outside of the licensing agreement, and [...]

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PTO Introduces Intellectual Property Identifier Tool

On January 18, 2023, the US Patent & Trademark Office announced the launch of its new Intellectual Property (IP) Identifier tool. This tool is designed for those who are less familiar with IP and assists users in determining whether they have IP and identifies what IP protections are available to support their business, invention or brand. The tool also briefly explains patents, trademarks, copyrights and trade secrets.

The IP Identifier tool comprises two modules: The Basic IP Identifier and the Advanced IP Identifier. The Basic IP Identifier module consists of six questions that allow users to quickly identify the type of IP they should protect. The Advanced IP Identifier module explains the specific types of IP and includes links to additional resources, including how to file an application for protection. A third module, Managing Your IP Assets, is currently under development.




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PTO Update: COVID-19 Prioritized Examination Extended, Non-DOCX Filing Fee Deferred and More

On December 22, 2022, the US Patent & Trademark Office (PTO) announced the fifth extension of the Modified COVID-19 Prioritized Examination Pilot Program. The pilot program had been set to terminate on December 31, 2022, and is now extended to February 15, 2023. The program was implemented to support the acceleration of innovations in the fight against COVID-19. Under the pilot program, an applicant may request prioritized examination without payment of the prioritized examination fee and associated processing fee if the following criteria are met:

  • The patent application’s claim(s) cover a product or process related to COVID-19.
  • The product or process is subject to an applicable US Food & Drug Administration approval for COVID-19 use.
  • The applicant meets other requirements noted in the COVID-19 Track One Notice.

For more information, see the Federal Register notice.

The PTO also announced on December 29, 2022, that the new fee for filing nonprovisional utility patent applications that do not conform to the PTO requirements for submission in DOCX format will be deferred to the new effective date of April 3, 2023. The fee was originally scheduled to become effective on January 1, 2023. For more information, see the Federal Register notice.

The PTO and the US Copyright Office announced on December 23, 2022, that the deadline for submitting written comments on intellectual property considerations related to non-fungible tokens (NFTs) has been extended from January 9, 2023, to February 3, 2023. The dates for the public roundtables directed to patents, trademarks and copyrights, respectively, also have changed as follows:

  • The first roundtable, Trademarks and NFTs, is now set for January 24, 2023 (originally scheduled for January 12, 2023).
  • The second roundtable, Patents and NFTs, has been moved to January 26, 2023 (originally scheduled for January 10, 2023).
  • The third roundtable, Copyrights and NFTs, has been moved to January 31, 2023.

The roundtables will be livestreamed, and the PTO and Copyright Office will post instructions for the public to register to view them live. Click here for more information about the topics that will be discussed. For more information about the schedule change, see the Federal Register notice.

The PTO also announced that small entity filing fee discounts are increased from 50% to 60% and micro entity filing fee discounts are increased from 75% to 80%. The discount increases went into effect on December 29, 2022, when US President Joe Biden signed into law the Consolidated Appropriations Act, 2023, which included the Unleashing American Innovators Act of 2022. The new PTO fee schedule can be found here.




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Ninth Circuit Provides Clarity on the Scope of Receiverships

The US Court of Appeals for the Ninth Circuit affirmed an order denying the defendants’ motion to discharge a receiver who had been appointed to aid in the execution of a judgment for violations of the Copyright Act. WB Music Corp et al. v. Royce International Broadcasting Corp., Case No. 21-55264 (9th Cir. Aug. 31, 2022) (Tashima, Watford, Friedland, JJ.)

The receivership in this appeal arises from litigation that commenced in 2016 in the US District Court for the Central District of California by a cohort of music publishers for broadcasting the plaintiffs’ music on radio networks in violation of the Copyright Act. In 2017, the district court found the defendants jointly and severally liable for copyright infringement.

A jury awarded the plaintiffs statutory damages totaling $330,000 and the district court entered a judgment in that amount. The defendants continuously refused to satisfy the judgment, and after much litigation, the court entered an amended judgment for an additional $1.25 million and attorneys’ fees of more than $900,000.

The defendants’ only assets were their Federal Communications Commission (FCC) licenses. The district court ultimately appointed a receiver who was entrusted with “the power and authority to take charge of and manage [the defendants’] [r]adio stations’ assets, businesses, and affairs,” as well as the ability to solicit offers for the sale of the stations. The court’s order also provided that the receiver would incur a monthly fee and a commission on the sale of any of the radio stations.

The defendants moved ex parte for an order to compel the plaintiffs to accept payment of the amended judgment—asserting that they were prepared to wire funds in the amount sufficient to cover the amended judgment and post-judgment interest—but refused to agree to pay costs incurred by the plaintiffs’ post-judgment proceedings. Per the district court’s order, the defendants were to deposit with the court funds sufficient to satisfy the amended judgment. The order further provided that the receivership would not terminate unless the defendants paid all costs incurred post-judgment. The court entered a second amended judgment approximately four months later, which included additional unpaid sanctions and fees.

The defendants ultimately deposited the required funds with the district court; however, the funds were never released to the plaintiffs. The defendants then filed a motion to terminate the receivership and enjoin the sale of their radio stations on three grounds: (1) the receiver did not take an oath as required under California law; (2) the court lacked the discretion to refuse to terminate the receivership and (3) the court abused its discretion in denying the motion. The motion was opposed by the plaintiffs, who argued that the receivership should not be terminated without ensuring that the receiver was compensated for his services. The receiver opposed the motion, arguing that terminating the position would enable the defendants to “evade a range of liabilities” as there were still large creditors with outstanding judgment liens. The district court denied the defendants’ motion and the defendants appealed.

Agreeing with First Circuit [...]

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Too Quick to Be Lit—Need to Serve That Complaint First

The US Court of Appeals for the Eleventh Circuit reversed a default judgment and monetary award in favor of the plaintiff, which was issued in a case where the plaintiff filed (but never served) an amended complaint in a copyright infringement action. The Court concluded that the amended complaint stated a new claim for relief but was not properly served on the defendants in accordance with the Federal Rules of Civil Procedure. Anthony Campbell v. Rayshawn Bennett et al., Case No. 21-10978 (11th Cir. Sept. 7, 2022) (Wilson, Branch, Lagoa, JJ.) (Lagoa, J. concurring)

In 2015, Anthony Campbell (professionally known as Rackboy Cam) wrote and recorded a song called “Everything Be Lit,” and registered his copyright with the US Copyright Office in February 2017. Later, in 2018, Rackboy Cam filed suit against June James, Rakim Allen, Rayshawn Bennett (professionally known as YFN Lucci) and Think It’s a Game Records (TIG) for copyright infringement based on Bennett’s 2016 recording and release of a similar song, “Everyday We Lit.” The complaint alleged infringement under 17 U.S.C. §§ 106 and 501 and sought “an award of … actual damages, trebled, as well as all profits Defendants derived from infringing the Plaintiff’s Copyright in the Work,” statutory damages and injunctive relief.

James and Allen failed to respond to the initial complaint and the district court entered a default against them. Rackboy Cam later filed an amended complaint, requesting for the first time an award of actual damages in the form of “all profits Defendants derived, jointly and severally,” from the infringing work. In the amended complaint, Rackboy Cam did not request statutory damages. As before, James and Allen did not respond. Rackboy Cam ultimately settled with the other defendants, and they were dismissed from the action.

The district court ultimately entered a default judgment against James and Allen, awarding almost $1.5 million in profits, jointly and severally, as well as prejudgment interest, a permanent injunction, a perpetual 50% running royalty against future infringement and costs to Rackboy Cam.

James moved the district court to set aside the default, arguing that he was not properly served with the initial complaint—an argument rejected by the district court. The district court concluded that because James defaulted prior to the filing of the amended complaint, and since the amended complaint did “not allege or request new or additional relief from Allen and James,” the plaintiff was not required to have served it on James under Fed. R. Civ. P. 5. Rackboy Cam then moved for entry of a default judgment and requested the above award. The district court granted the motion and James appealed.

The issue before the Eleventh Circuit was whether the amended complaint contained a new claim for relief—joint and several liability for profits—and whether Rackboy Cam was therefore required to serve the amended complaint.

Under Rule 5, service of a pleading filed after the initial complaint is not required on a party who is in default for failing to appear, unless the pleading asserts a [...]

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Foreign Video-Hosting Website Can’t Escape Long Arm of the Law

Focusing on the first prong of the minimum contacts test (whether the foreign defendant purposefully directed its activities at the United States) the US Court of Appeals for the Ninth Circuit reversed a district court holding that it lacked specific personal jurisdiction over the operators of a Japanese-language video-hosting website and remanded the case for further analysis under Fed. R. Civ. P. 4(k)(2), the federal long-arm statute. Will Co. v. Lee, Case No. 21-35617 (9th Cir. Aug. 31, 2022) (Wardlaw, Gould, Bennett, JJ.)

Will is a Japanese adult entertainment producer with more than 50,000 videos registered with the US Copyright Office. Will sells access to its content on its website, where it makes more than $1 million per year from US consumers. Defendants Youhaha Marketing and Promotion (YMP) and Lee own and operate ThisAV.com, a Japanese-language video-hosting website similar to YouTube. ThisAV.com allows users to upload and view videos for free alongside advertisements posted by third-party vendors.

After discovering 13 of its videos on ThisAV.com, Will sent the defendants take-down notices pursuant to the Digital Millennium Copyright Act (DMCA). When the defendants failed to honor the takedown notices, Will sued for copyright infringement. The defendants moved to dismiss the lawsuit for lack of personal jurisdiction because Lee is a permanent resident of Hong Kong currently residing in Canada, and YMP is registered in Hong Kong (where it operates ThisAV.com). Will countered that the lower court had specific personal jurisdiction over the defendants because their display of the copyrighted videos was sufficiently connected to the United States. The district court granted the defendants’ motion to dismiss, concluding that the content on ThisAV.com was not “expressly aimed” at the United States, and that the defendants had not caused “jurisdictionally significant harm,” since only 4.6% of the site’s viewers were from the United States. Will appealed.

The principal issue on appeal was whether the defendants had “purposefully directed” the content of ThisAV.com at the United States under the minimum contacts Calder test, which asks whether the defendant (1) committed an intentional act (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.

The Ninth Circuit summarily concluded that YMP and Lee had committed intentional acts by operating ThisAV.com and purchasing the domain name and domain privacy services. However, whether Lee and YMP had “expressly aimed” ThisAV.com at the United States was a closer question. The Court noted that “mere passive operation of a website” is insufficient to show express aiming. Instead, the operator must have “appealed to and profited from an audience in that forum.” The Court first determined that the defendants had “profited from” the US market because US consumers viewed advertisements posted on the website more than 1.3 million times, and the defendants were paid by third-party advertisers based on views. The Court further concluded that the defendants had intentionally “appealed to” the US market by enabling the website to be quickly accessible to US consumers with reduced [...]

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Novel Derivative Sovereign Immunity Defense Struck as Forfeited

The US Court of Appeals for the Sixth Circuit affirmed a district court decision implementing a preliminary injunction and striking a new defense first asserted in an amended complaint as untimely and frivolous. ACT, Inc. v. Worldwide Interactive Network, Inc., Case Nos. 21-5889; -5907; -6155 (6th Cir. Aug. 23, 2022) (White, Bush, Reader, JJ.)

ACT publishes WorkKeys, a product designed to assess job performance skills. Three of the product’s assessments (Applied Mathematics, Locating Information and Reading for Information) were at issue in this case, and all included various “Skill Definitions” that describe the skills tested by the assessments. ACT and Worldwide Interactive Network (WIN) worked together from 1997 to 2011. During that time, WIN had the authority to develop and sell WorkKeys. After the business relationship ended, WIN began developing and promoting its own assessment tests.

In 2018, competing bids between ACT and WIN to provide educational material to the state of South Carolina showed that WIN’s “Learning Objectives” that were virtually indistinguishable from ACT’s Skill Definitions. ACT brought suit against WIN asserting claims, including copyright infringement, based on WIN’s alleged copying of ACT’s Learning Objectives. The district court granted partial summary judgment to ACT in March 2020 with the additional claims to go to trial, but trial was seriously delayed by COVID-19. During this time, WIN revised its Learning Objectives and claimed they no longer infringed. The district court ordered ACT to amend its complaint to include new allegations regarding the revisions. ACT complied. WIN then asserted a new derivative sovereign immunity defense in its amended answer, to which ACT objected. The district court agreed and struck the defense as untimely and frivolous. The district court entered a preliminary injunction in August 2021 barring WIN from distributing the original and revised Learning Objectives and assessments. WIN appealed, contesting the preliminary injunction and the striking of the defense.

After explaining its jurisdiction, the Sixth Circuit examined whether the district court had abused its discretion in imposing an overly broad preliminary injunction. Both the district court and the Sixth Circuit agreed that ACT was likely to succeed on its copyright claim. WIN’s argument on this issue was primarily based on its belief that the Skill Definitions were not creative or original to ACT and therefore were not copyrightable. The Court stated that while ACT’s selection of the skills was likely not copyrightable, the descriptions and arrangement of the skills were likely protectable. The Sixth Circuit also determined that the district court did not erroneously presume irreparable harm because it did not rely on a presumption but independently found irreparable harm. The Sixth Circuit also stated that the district court properly weighed the parties’ competing interests in the preliminary injunction and found minimal legitimate interest for WIN based on WIN’s business model essentially being infringement of ACT’s intellectual property.

The Sixth Circuit then explained why the district court properly struck the derivative sovereign immunity defense. While states generally enjoy sovereign immunity from suit, private contractors can sometimes obtain certain immunity in connection [...]

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DMCA Scienter Requirement Not Satisfied without Evidence of Knowledge of Inducement or Concealment

Interpreting a provision of the Digital Millennium Copyright Act (DMCA), 17 U.S.C. § 1202(b), for the first time, the US Court of Appeals for the Eleventh Circuit affirmed a summary judgment ruling that the plaintiff failed to satisfy the second scienter requirement of § 1202(b) by not showing that the defendant knew, or had reasonable grounds to know, that its actions would induce, enable, facilitate or conceal a copyright claim. Victor Elias Photography, LLC v. Ice Portal, Inc., Case No. 21-11892 (11th Cir. Aug. 12, 2022) (Newsom, Marcus, JJ; Covington, Distr. J.)

Victor Elias is a professional photographer who takes photographs for hotels and resorts throughout the United States, Mexico and the Caribbean. Between 2013 and 2017, Elias took pictures for Starwood Hotels & Resorts and Wyndham Hotel & Resorts. As part of his process, Elias embedded copyright management information (CMI) into the image files.

During this period and into 2018, Starwood and Wyndham contracted with Ice Portal (a division of Shiji at the time of the appeal) to process thousands of images, including 220 images taken by Elias, and make them available to online travel agents. This processing included converting the images to JPEG format, making copies in various industry-standards sizes and optimizing the files for faster display. The processing sometimes resulted in the loss of an image file’s metadata. In 2016, Elias discovered infringing online uses of his images that lacked the embedded CMI. He filed suit against Ice Portal, contending that the stripping of metadata resulted in loss of his embedded CMI, which violated two sections of the DMCA: 17 U.S.C. §§ 1202(a) and 1202(b).

Following discovery, the district found that Elias could not “satisfy the ‘second scienter requirement’ of the statute” and granted Shiji’s motion for summary judgment. Relying on the 2018 Ninth Circuit case Stevens v. Corelogic, the district court found that Elias had not established that Shiji “knew or had reason to know that its action would induce, enable, facilitate, or conceal infringement.” The court determined that Elias failed to demonstrate that the removal of CMI “is the reason, or even the likely reason, for the infringing use of the images,” or that “Shiji was even aware that searching for terms embedded in the extended attributes was a method used by copyright holders to find infringement on the internet.” Elias appealed.

Because this was a novel issue for the Eleventh Circuit, the Court interpreted § 1202(b) as an issue of first impression. After considering the plain terms of the statute and the opinions of sister circuits, the Court agreed with its sister circuits that to satisfy the scienter requirement of §1202(b), a plaintiff “must make an affirmative showing . . . [that] the defendant was aware [of] or had reasonable grounds to be aware of the probable future impact of its actions.”

Elias urged the Eleventh Circuit to adopt a standard that would only require a plaintiff to demonstrate that CMI was knowingly removed without consent and that the defendant either “knows, or has [...]

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Publisher’s Fair Use Defense Dries Up

The US Court of Appeals for the Ninth Circuit overturned a district court’s summary judgment, rejecting an accused publisher’s argument that their use of copyrighted photos embedded in articles was fair use under the Copyright Act. McGucken v. Pub Ocean Ltd., Case No. 21-55854 (9th Cir. Aug. 3, 2022) (Ikuta, Nguyen, Owens, JJ.)

Elliot McGucken captured and edited photographs of an ephemeral lake that formed on the desert floor in Death Valley. He posted his photos to Instagram and licensed them to several websites that ran articles about the lake. Pub Ocean posted an article about the lake with some digression on loosely related topics. It used 12 of McGucken’s photos, among others, without seeking or receiving a license. McGucken filed suit for copyright infringement. The district court sua sponte granted summary judgment for Pub Ocean, concluding that it was entitled to a fair use defense. McGucken appealed.

The Ninth Circuit reversed after applying the four-factor test in determining whether fair use applies:

  1. The purpose and character of the use
  2. The nature of the copyrighted work
  3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole
  4. The effect of the use upon the potential market for or value of the copyrighted work.

Factor 1: The Purpose and Character of the Use

The Ninth Circuit explained that the question under the first factor is whether the infringing work is transformative and whether it is commercial. Higher transformation in new works means the other factors, including commercialism, are less significant. For-profit news articles are generally considered commercial uses. The Court explained that a work conveying factual information does not transform a copyrighted work when it uses a “clear, visual recording” of the infringing work’s subject.

The Ninth Circuit found that Pub Ocean’s article used the photos for the exact purpose for which they were taken—to depict the lake. The Court disagreed that the article was transformative when Pub Ocean merely “recontextualiz[ed] or repackage[ed] [ ] one work into another.” The Court also disagreed with Pub Ocean’s argument that the fair use defense was strengthened by its purpose of news reporting (one example of fair use listed in 17 U.S.C. § 107). The Court explained that the category of news reporting alone is not sufficient to sustain a per se finding of fair use. The Court also noted that Pub Ocean’s minor cropping and arrangement of photos in the article’s text, even if considered marginal transformation, was too weak to favor fair use.

Factor 2: The Nature of the Copyrighted Work

Under the second factor, the question is the extent to which the copyrighted work is creative and whether it is unpublished. The Ninth Circuit found that McGucken’s photos were creative because they were the product of many technical and artistic decisions. The Court also explained that the publication of the photos on Instagram and in articles failed to weigh in favor of fair use. Citing Dr. Seuss, the Court explained that “while [...]

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Rage against the Machine: Inventors Must Be Human

The US Court of Appeals for the Federal Circuit found that an artificial intelligence (AI) software system cannot be listed as an inventor on a patent application because the Patent Act requires an “inventor” to be a natural person. Thaler v. Vidal, Case No. 21-2347 (Fed. Cir. Aug. 5, 2022) (Moore, Taranto, Stark, JJ.)

Stephen Thaler develops and runs AI systems that generate patentable inventions, including a system that he calls his “Device for the Autonomous Bootstrapping of Unified Science” (DABUS). In 2019, Thaler sought patent protection for two of DABUS’s putative inventions by filing patent applications with the US Patent & Trademark Office (PTO). Thaler listed DABUS as the sole inventor on both applications. The PTO found that the patent applications lacked valid inventorship and sent a Notice of Missing Parts requesting that Thaler identify a valid inventor. Thaler petitioned the director to vacate the notices. The PTO denied the petitions, explaining that a machine does not qualify as an inventor and that inventors on patent applications must be natural persons. Thaler then pursued judicial review in the district court. The district court agreed with the PTO, concluding that an “inventor” under the Patent Act must be an “individual,” and that the plain meaning of “individual” is a natural person. Thaler appealed.

The sole issue on appeal was whether an AI software system can be an “inventor” under the Patent Act. The Federal Circuit started with the statutory language of the Patent Act, finding that it expressly provides that inventors are “individuals.” The Court noted that while the Patent Act does not define “individual,” the Supreme Court has explained that the term “individual” refers to a human being unless there is some indication that Congress intended a different reading. The Federal Circuit also found that this result was consistent with its own precedent, which found that neither corporations nor sovereigns can be inventors; instead only natural persons can be inventors.

The Federal Circuit rejected Thaler’s policy argument that inventions generated by AI should be patentable to encourage innovation and public disclosure. The Court found that these policy arguments were speculative, lacked any basis in the text of the Patent Act, and were contrary to the unambiguous text of the Patent Act. The Court also rejected Thaler’s reliance on the fact that South Africa has granted a patent with DABUS as an inventor, explaining that the South African Patent Office was not interpreting the US Patent Act. The Court concluded that since Congress has determined that only a natural person can be an inventor, AI cannot be an inventor.

Practice Note: The Federal Circuit’s decision comes on the heels of a decision from the US Copyright Office Review Board finding that a work must be created by a human being to obtain a copyright. The Federal Circuit also noted that it was not confronted with the question of whether inventions made by human beings with the assistance of AI are eligible for patent protection.




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