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Not With a Bang but a Whimper

by Paul Devinsky | May 27, 2021 | Copyrights

In a non-precedential Order issued by the US Court of Appeals for the Federal Circuit—on remand from the US Supreme Court’s April 2021 decision upholding Google’s fair use defense to Oracle’s copyright infringement claim—the Court recalled its mandate in the case “solely with respect to fair use,” leaving intact the Federal Circuit’s May 2014 judgment favoring Oracle on the question of copyrightability. Oracle America Inc. v. Google LLC, Case Nos. 17-1118; 1202 (Fed. Cir. May 14, 2021)(PER CURIAM). After recalling its mandate, the Federal Circuit issued its order without further briefing by the parties.

Tax Court Allows Partial Deduction, Requires Partial Capitalization of Generic Drug Approval Legal Expenses

by Brian Moore | May 13, 2021 | Patents

The US Tax Court determined that a pharmaceutical manufacturer’s legal expenses incurred to defend against a patent infringement suit were eligible for an immediate deduction as ordinary and necessary business expenses, while legal expenses incurred as part of an abbreviated new drug application (ANDA) were not eligible for an immediate deduction and thus had to be capitalized and then amortized over 15 years. Mylan, Inc. & Subsidiaries v. Commissioner, 156 T.C. No. 10 (Apr. 27, 2021) (Urda, J.)

The ANDA process allows for faster approval of a generic drug if the manufacturer can show that the generic drug is sufficiently similar to an approved brand name drug. As part of the ANDA process, the generic manufacturer must file statements certifying that the generic drug does not infringe any brand drug patents, or that such patents are invalid. The generic manufacturer also must send a notification to the holder of any patents covered by the certification statements.

Mylan filed several ANDAs for generic versions of brand name drugs, including Celebrex, Lunesta and Nexium, during the tax years at issue in the case. Considerable legal expenses were incurred as part of filing the ANDAs and making the required certifications and notifications. As a result of those certifications and notifications, patent holders brought approximately 120 patent infringement suits against Mylan. Mylan defended itself against the infringement suits, incurring litigation expenses.

In general, taxpayers may take an immediate deduction for ordinary and necessary business expenses. However, taxpayers must capitalize expenditures that create or enhance a distinct asset or otherwise generate benefits for taxpayers beyond a single tax year. Special rules apply to determine whether expenses related to an intangible asset should be capitalized. The income tax regulations provide that a “taxpayer must capitalize amounts paid to a governmental agency to obtain, renew, renegotiate, or upgrade its rights under a trademark, trade name, copyright, license, permit, franchise, or other similar right granted by that governmental agency.” Taxpayers must also capitalize an amount paid to facilitate an acquisition or creation of an intangible.

Litigation expenses for patent suits may be deducted or must be capitalized depending on the nature of the litigation. Defense of title claims are treated as the acquisition or disposition of a capital asset and must be capitalized. In contrast, patent infringement claims arise in tort and can be deducted in the year the expense is incurred.

Applying these rules to Mylan’s legal expenses, the Tax Court held that expenses related to the preparation of the ANDA, including the certifications and notices, were capital expenses to acquire or create an intangible asset and had to be recovered incrementally over 15 years. However, the Tax Court held that the costs of defending against patent infringement suits is an ordinary and necessary business expense for a generic drug manufacturer and permitted Mylan to deduct its litigation expenses in the year the expense was incurred.

If it’s Not Legit, You Can’t Admit

by Paul Devinsky | Apr 15, 2021 | Patents

The US Court of Appeals for the Federal Circuit affirmed a district court ruling of non-infringement based on the inadmissibility of unauthenticated printouts of source code as evidence. Wi-LAN Inc. v. Sharp Elecs. Corp., Case No. 20-1041 (Fed. Cir. Apr. 6, 2021) (Dyk, J.)

In 2015, Wi-LAN brought two separate patent infringement suits against Sharp Electronics and Vizio, both of which alleged direct and induced infringement of various claims of two Wi-Lan patents. The cases were managed in parallel by the district court, but consolidated on appeal. In both cases, the district court entered a stipulation of non-infringement with respect to one of the patents, which “relates generally to multimedia encoders and specifically [to] an integrated multimedia stream multiplexer,” based on Wi-LAN’s concession that it could not prove infringement under the district court’s construction of two claim terms. On appeal, the Federal Circuit had little difficulty concluding that the district court’s constructions were correct and affirming its ruling of non-infringement.

With respect to the other patent, the district court granted summary judgment of non-infringement, holding that Wi-LAN lacked sufficient admissible evidence to prove direct infringement. The involved patent is directed to “methods to display interlaced video on [a] noninterlaced monitor,” also known as “deinterlacing.” The deinterlacing functions of Sharp and Vizio’s televisions reside on each of the television’s “system-on-chip.” To establish that the source code underlying these deinterlacing functions practiced the patented methods, Wi-LAN filed (and subsequently dismissed without prejudice) additional lawsuits against third-party chip manufacturers from which it obtained source code printouts—purportedly reflecting the implementation of the deinterlacing process in a specified list of chips used in Sharp and Vizio’s televisions—along with declarations from employees of the manufacturers purporting to authenticate the source code printouts. The district court held that the source code printouts were inadmissible and that Wi-LAN therefore had failed to raise a genuine issue of material fact as to non-infringement. On appeal, Wi-LAN presented three theories as to why the district court erred in finding this evidence inadmissible, all of which the Federal Circuit rejected.

First, Wi-LAN argued that the source code printouts constituted a business record and thus were admissible as an exception to the hearsay rule under Federal Rule of Evidence 803(6). Specifically, Wi-LAN argued that it properly authenticated the printouts through the declarations of the chip manufacturers’ employees. The Federal Circuit acknowledged that declarations are typically used at summary judgment as a proxy for trial testimony, but explained that they cannot be used that way unless the witness would also be available to testify at trial. Because Wi-LAN conceded that it did not think it would be able to force the chip manufacturers’ employees to testify at trial, the Court found that the declarations could not be used as a substitute for trial testimony to authenticate the printouts and that the printouts therefore were not properly authenticated pursuant to Rule 803(6)(D).

Wi-LAN also argued that the declarations themselves constituted a business record. Because they were procured specifically for the purpose of litigation, however, [...]

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Purple Pain: Warhol’s Prince Series Isn’t Fair Use of Photographer’s Image

by Sarah Bro | Apr 8, 2021 | Copyrights

In a case spanning nearly 40 years of art and touching the estates of two of the world’s most well-known artists, the US Court of Appeals for the Second Circuit clarified its position on the application of the fair use doctrine and its protection of transformative works. In doing so, the Second Circuit reversed the district court’s finding of fair use and held that a series of prints and illustrations of the musical artist Prince created by the visual artist Andy Warhol were substantially similar to a 1981 portrait photograph of Prince taken by the photographer Lynn Goldsmith. The Court remanded for further proceedings. The Andy Warhol Foundation for the Visual Arts, Inc. v. Lynn Goldsmith, et al., Case No. 19-2420-cv (2d Cir. Mar. 26, 2021) (Lynch, J.) (Sullivan, J., joined by Jacobs, J., concurring) (Jacobs, J., concurring).

In 1984, Goldsmith’s agency licensed her 1981 photograph of Prince to Vanity Fair for use as an artist reference for creating a rendering of Prince to accompany Vanity Fair‘s profile of the artist. What Goldsmith did not learn until more than 30 years later, shortly after Prince’s untimely death, was that the artist commissioned by Vanity Fair to create the Prince drawing was Andy Warhol, and that Warhol had also used the photograph to create an additional 15 silkscreen prints and illustrations, known as the Prince Series. In 2017, Goldsmith notified The Andy Warhol Foundation for the Visual Arts (AWF), as the successor to Warhol’s copyright in the Prince Series, of her claims of copyright infringement. AWF responded with a lawsuit seeking a declaratory judgment that the Prince Series works were non-infringing or, in the alternative, qualified as fair use of Goldsmith’s photograph. Goldsmith countersued for infringement. Relying on the Second Circuit’s 2013 holding in the copyright case Cariou v. Prince, the district court granted summary judgment to AWF, agreeing with its assertion of fair use and considering the Warhol work to be “transformative” of the original. Goldsmith appealed.

The appeal required the Second Circuit to consider, de novo, the four fair use factors under § 107 of the Copyright Act: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (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; and (4) the effect of the use upon the potential market for or value of the copyrighted work.

The Court focused its analysis on the first fair use factor, and specifically the extent to which the Prince Series works were transformative of the original. The transformative nature of a work is determined by whether the new work merely supersedes the “objects of the original creation,” or whether it “instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.” The Court noted that the assessment of a transformative work is less clear where the [...]

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Thank You to Our Readers

by McDermott Will & Schulte | Mar 31, 2021 | Trademarks, Uncategorized

We greatly appreciate our readers over the past year and are pleased to share that we were recently recognized for our intellectual property thought leadership in the 2021 JD Supra Readers’ Choice Awards, which acknowledge top authors and firms for their thought leadership in key topics during all of last year.

Sarah Bro, a regular contributor to IP Update, was recognized as “Top Author” for trademarks. She focuses her practice on trademark prosecution, enforcement and brand portfolio management, as well as licensing, due diligence, copyright, right of publicity and domain name matters. Through our various blogs and thought leadership pieces, we are dedicated to maintaining our position as a leading firm for intellectual property work and keeping clients abreast of significant and relevant topics in the industry.

Subscription to RSS Feed Doesn’t Trigger Implied-License Defense

by Jackie Toney | Mar 17, 2021 | Copyrights

The US Court of Appeals for the 11th Circuit affirmed a district court’s grant of judgment as a matter of law against an alleged copyright infringer on its implied-license defense, finding that a blog operator’s publication of entire articles through a really simple syndication (RSS) feed does not give rise to an implied license without substantial evidence showing an intent to grant a license. MidlevelU, Inc. v. ACI Information Group, Case No. 20-10856 (11th Cir. Mar. 3, 2021) (Pryor, J.)

MidlevelU published a free blog designed to attract potential customers in the midlevel healthcare market. MidlevelU made the full text of its blog articles (instead of only headlines and article summaries) available in an RSS feed. ACI is a content aggregator that subscribed to the blog’s RSS feed. ACI copied and published more than 800 entries from MidlevelU’s blog by including those articles in a curated index of abstracts and full-text articles of academic blogs. ACI had no license agreement with MidlevelU.

After discovering the ACI’s activities, MidlevelU registered 50 of its most recent articles for copyright protection with the US Copyright Office. MidlevelU also sent ACI a cease-and-desist letter demanding that its content be removed from ACI’s index. ACI removed the content from the index and coded links to index entries for MidlevelU’s articles so that they would redirect to the MidlevelU’s website. Months later, MidlevelU discovered that, although its content was no longer available on the index website, it still appeared in the website repositories of university libraries. These entries credited ACI as the content’s publisher and directed visitors to view the blog’s full-text content in the “subscribers only” section of the blog aggregator’s website.

MidlevelU sued ACI in federal district court, alleging copyright infringement of the registered articles. ACI asserted an implied-license defense. Relying on the Latimer case, which sets forth the test for implied license in work-for-hire situations, the district court entered judgment as a matter of law in MidlevelU’s favor, finding that there could be no implied license because the ACI could not meet the “creates a work at another person’s request” element of the Latimer test. ACI appealed.

The 11th Circuit found that the district court read Latimer too broadly by applying its holding outside of the work-for-hire context, but the Court nevertheless affirmed the district court’s decision because a jury could not have reasonably inferred from the evidence that the MidlevelU impliedly granted a license to ACI. The Court noted that it had never held that the Latimer test was the only way to prove an implied license. An implied license may arise from circumstances outside of work-for-hire situations: “Creating material at another’s request is not the essence of a license: an owner’s grant of permission to use the material is.”

When an owner clearly manifests consent to use of its copyrighted material, the owner impliedly grants a non-exclusive license. Citing Fields, a district court case in the search-engine web crawler context, ACI argued that an implied license arose because the MidlevelU did [...]

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Ahoy There: If License Terms Not Clearly Intended to Be a Condition Precedent, It’s a Covenant

by Paul Devinsky | Mar 4, 2021 | Copyrights

The US Court of Appeals for the Federal Circuit held that the US Court of Federal Claims erred by failing to consider defendant’s non-compliance with the terms of an implied license, vacating the claims court’s finding of non-infringement and remanding the case for a calculation of damages. Bitmanagement Software GmbH v. U.S., Case No. 20-1139 (Fed. Cir. Feb. 25, 2021) (O’Malley, J.) (Newman, J., concurring).

Bitmanagement Software filed suit against the US government for infringement of its copyrighted graphics-rendering software, BS Contact Geo. The claims court found that Bitmanagement had established a prima facie case of copyright infringement based on the US Navy’s copying of the software onto all computers in the Navy Marine Corps Intranet, but found that the Navy was not liable for infringement because Bitmanagement had granted the Navy an implied license to make such copies. Bitmanagement appealed, arguing that:

The claims court erred in finding an implied-in-fact license between the parties.
An implied-in-fact license was precluded as a matter of law.
Even if an implied-in-fact license existed, the claims court erred by failing to consider whether the Navy had complied with the terms of the license.

The Federal Circuit did not disturb the claims court’s findings with respect to the existence of an implied license authorizing the Navy to make copies of Bitmanagement’s software.

The Federal Circuit further declined to apply its preclusion rule as set forth in Seh Ahn Lee, i.e., that “the existence of an express contract precludes the existence of an implied-in-fact contract dealing with the same subject matter,” because the Navy and Bitmanagement never actually entered into an express contract with one another. Rather, both parties entered into express contracts with a third party, Planet 9, through which they intentionally chose to conduct their business. The express contracts “do not capture or reflect the discussions that occurred between the Navy and Bitmanagement directly,” nor do they cover the topic of the implied license between the parties, “i.e., the license to copy BS Contact Geo onto all Navy computers.”

With respect to Bitmanagement’s claim that the Navy failed to comply with the terms of the implied license, the Court considered whether a term requiring the Navy’s use of Flexera, a license-tracking software, was a condition that limited the scope of the license, or merely a covenant. The Court explained that a term of a license is presumed to be a covenant—addressable only in contract—rather than a condition, unless it is clear that the term was intended to be a condition precedent. Accepting the lower court’s factual findings that “Bitmanagement agreed to [the] licensing scheme because Flexera would limit the number of simultaneous users of BS Contact Geo, regardless of how many copies were installed on Navy computers,” the Court found that the required use of Flexera was a condition of the license. The Court found there was no reason Bitmanagement would have entered into an implied license that allowed mass copying of its software without the use of Flexera because, absent [...]

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A Closed Book: No Past Infringement, No Reading Between the Lines into the Future

by Jodi Benassi | Feb 18, 2021 | Copyrights

The US Court of Appeals for the Sixth Circuit affirmed a district court’s grant of summary judgment in favor of the defendant, finding no current or future copyright infringement. OverDrive Inc. v. Open E-Book Forum dba International Digital Publishing Forum, Case No. 20-3432 (6th Cir. Jan. 27, 2021) (Sutton, J.)

OverDrive is a digital reading platform and a member of International Digital Publishing Forum, a nonprofit trade association dedicated to the development of electronic publishing standards. The Forum has an intellectual property policy, approved by Overdrive and its other members, which provides that while its members retain copyrights in their contributions, they also grant the Forum a license to “reproduce, adapt, distribute, perform, display, and create derivative works” of any copyrighted contributions to EPUB, the leading eBook file format. The license also allowed the Forum to sublicense others to do the same.

In 2016, the Forum entered into an asset-transfer agreement with the World Wide Web Consortium, an international organization dedicated to developing web standards. The agreement granted the Consortium a “license to use” the Forum’s intellectual property to carry out digital publishing activities. The agreement further provided that the Forum would dissolve and its intellectual property rights, including any in EPUB, would be owned by the Consortium. The Consortium began developing improvements to EPUB. Shortly thereafter, the Forum and the Consortium entered into a second agreement, which provided that the Consortium’s license to “use” the intellectual property encompassed a license to “reproduce, adapt, distribute, perform, display and create derivative works.” In the second agreement the Forum agreed to begin the dissolution process only if and only when it transferred its intellectual property to the Consortium.

OverDrive sought a declaratory judgment that the Forum had violated and would violate its copyrights in EPUB. OverDrive claimed that the Forum infringed its copyrights by giving the Consortium access to EPUB. At the close of discovery, the Forum moved for summary judgment, which the district court granted for two reasons. First, it found that the Forum’s license defeated the infringement claim. Second, it found the claim for future infringement was not ripe. OverDrive appealed.

The Sixth Circuit agreed that the “use” license granted by Overdrive gave the Forum the right to “reproduce, adapt, distribute, perform, display and create derivative works” of Overdrive’s EPUB copyrights, and permitted the Forum to use the copyrighted work in these ways. The license also gave the Forum an unrestricted right to grant sublicenses with respect to those same copyrights. In turn, the appellate court concluded that the Forum permissibly sublicensed EPUB to the Consortium, including any of OverDrive’s copyrights in EPUB.

In support of its claims of future copyright infringement, OverDrive argued that once the Forum dissolved, the Consortium would lose its sublicense and its work on EPUB would then constitute copyright infringement. The Sixth Circuit disagreed. The ripeness doctrine two-question inquiry asks:

Does the claim arise in a concrete factual context and concern a dispute that is likely to come to pass?
What is the hardship [...]

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No Matter How Many Touched the Flowers, Single Infringement Begets Single Statutory Damages Award

by Sarah Bro | Feb 11, 2021 | Copyrights

In a dispute over the alleged infringement of a floral print textile design, the US Court of Appeals for the Ninth Circuit affirmed the plaintiff’s ownership of a valid copyright, but reversed and remanded for further proceedings on the issue of statutory damages, finding that the Copyright Act permits only a single award of statutory damages where multiple named defendants infringed one work. Desire, LLC v. Manna Textiles, Inc., et al., Case No. 17-56641 (9th Cir. Feb. 2, 2021) (Bennett, J.) (Wardlaw, J., concurring in part, dissenting in part). Judge Wardlaw’s dissent argued that the majority’s ruling limiting statutory damage awards was contrary to controlling Ninth Circuit precedent

Desire, a Los Angeles-based fabric supplier, sued Manna Textiles and several manufacturer and retail defendants for willful copyright infringement when Manna created a fabric design based on Desire’s two-dimensional floral print textile design, which Desire registered with the US Copyright Office in June 2015. Manna sold the copied floral textile design to the other defendants, which created and sold women’s garments made from the fabric.

After a jury trial, the jury found that Manna and two other defendants willfully infringed Desire’s textile design, and that two other defendants innocently infringed the design, and awarded statutory damages ranging from $10,000 to $150,000 against each defendant. The defendants appealed.

The Ninth Circuit readily affirmed the district court’s holding that Desire owned a valid copyright in its textile design, and noted that the district court was correct to extend broad copyright protection to the design. In particular, the Court confirmed that the Desire floral textile was sufficiently original and independently created, and that the originality of the stylized (rather than “lifelike”) flowers warranted broad protection.

The Ninth Circuit dedicated the majority of its opinion to its finding that the district court erred in permitting multiple awards of statutory damages. First, the Court determined that the district court correctly apportioned joint and several liability among the defendants by assessing which defendants were responsible for which acts of infringement based on the defendants’ distribution or sale of the fabric among one another or to end consumers. In short, based on a particular defendant’s upstream or downstream position in the distribution chain, and the “but for” cause of infringement within the chain, a defendant could be jointly and severally liable with certain other defendants, but not all defendants could be jointly and severally liable with all other defendants.

When statutory damages under 17 USC § 504(c)(1) (c)(1) are elected in lieu of actual damages and profits, ) the number of statutory damages awards available in a particular matter depends on the number of individual works infringed and the number of separate infringers. Here, the Ninth Circuit affirmed that there was only one work at issue (Desire’s floral print textile) and considered whether the Copyright Act authorizes multiple statutory damages awards where one infringer is jointly and severally liable with all other infringers, but the other infringers are not completely jointly and severally liable with one another. “No” was [...]

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2020 IP Law Year in Review: Patents

by Amol Parikh and Cecilia Choy, PhD | Jan 28, 2021 | Patents

Executive Summary

In 2020, the US Supreme Court and Court of Appeals for the Federal Circuit continued to refine key aspects of intellectual property law on issues that will have an impact on litigation, patent prosecution and business strategy. This Special Report discusses some of the most important decisions.

The Federal Circuit issued several panel decisions clarifying the bounds of patent-eligible subject matter in the area of life sciences and computer technology. In the life sciences space, the court found several patents satisfied the conditions for patent eligibility. For example, the Federal Circuit found patent-eligible claims directed to preparing a fraction of cell-free DNA enriched in fetal DNA, claims directed to a method of operating a flow cytometry apparatus with a number of detectors to analyze at least two populations of particles in the same sample to be patent eligible, and claims directed to a method of treating type 2 diabetes mellitus using a DPP-IV inhibitor. In the area of computer technology, the court clarified that claims directed to an improvement to computer networks were patent eligible, but that claims directed to applying longstanding commercial practices to generic computer components remain ineligible. Given the uncertainty of patent eligibility law, questions surrounding life sciences and computer-related technology will continue to be raised in cases.

The Supreme Court issued one decision in 2020, in which it found that the Patent Trial and Appeal Board’s application of the time bar for filing a petition for inter partes review (IPR) is not appealable. The Federal Circuit issued two en banc decisions, including one decision confirming discussing the use of the phrase “consisting essentially of” in patent claims and patent eligibility of mechanical inventions.

Following on the heels of the Supreme Court’s 2017 TC Heartland v. Kraft Foods decision addressing patent venue, the Federal Circuit addressed patent venue in Hatch-Waxman litigation. The court explained that for the purposes of determining venue, infringement occurs only in judicial districts where actions related to the submission of an abbreviated new drug application (ANDA) occur, and not in all locations where future distribution of the generic products specified in the ANDA is contemplated. This ruling may have far-reaching consequences, including the ability for ANDA defendants to effectively control venue for litigation.

Patents

2021 Outlook

The Supreme Court is set to hear at least two patent cases and one copyright case this term. In The United States of America v. Arthrex, Inc., the Court will consider whether PTAB judges are unconstitutionally appointed and the other addressing whether assignor estoppel and in Minerva Surgical, Inc. v. Hologic, Inc., et al., the Court will consider whether the doctrine of assignor estoppel bars an assignor from asserting invalidity of an assigned patent in district court. [...]

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