Federal Circuit rules ITC has no authority over the importation of digital files
The U.S. Court of Appeals for the Federal Circuit has struck down the International Trade Commission’s (ITC) attempt to expand its jurisdiction, ruling in ClearCorrect Operating, LLC v. International Trade Commission and Align Technology Inc. that the agency does not have the authority to block the importation of infringing digital files.
The decision overturns the ITC’s cease and desist order on digital files that ClearCorrect had imported into the United States. The case had drawn broad interest because of its potential to give the agency the power to regulate Internet traffic. While the film and music industries had advocated for increased regulation, the Internet Association had opposed the move, saying it would have sweeping implications for the Internet.
“The commission’s ruling would have given it more jurisdiction,” says John M. Augustyn, a member in Leydig’s Chicago office. “Some movie and music industry advocates were hoping that it would be an additional way to prevent piracy.”
In Section 337 of the Tariff Act of 1930, Congress granted the ITC the authority to remedy unfair acts that involve the importation of “articles.” While the agency has traditionally used this power to block the import of physical items, this particular case involved digital models sent electronically to the United States.
Align filed a complaint with the ITC, alleging that ClearCorrect had infringed its patents for producing orthodontic appliances, or aligners. ClearCorrect scanned physical models of its patients’ teeth and sent them to ClearCorrect Pakistan, which developed digital models for the aligners and sent them electronically to the United States. The ITC issued a cease and desist order to ClearCorrect to stop importing the digital models into the country, and ClearCorrect appealed to the Federal Circuit.
In its opinion, the court found that the word “articles” in the Tariff Act refers solely to material goods, citing several dictionaries for support. Even if the statute was open to interpretation, the court wrote, “it is very unlikely that Congress would have delegated the regulation of the Internet to the Commission, which has no expertise in developing nuanced rules to ensure the Internet remains an open platform for all.”
The case raises an interesting point about how the Internet has changed the intellectual property landscape, Augustyn notes.
“Back in 1930, regulating Internet traffic was not an issue. We occasionally run up against this situation in the intellectual property field, where statutes are behind the current technology,” he says. “Based on the Federal Circuit’s decision, if Congress wants to expand the ITC’s jurisdiction to the Internet, it will need to revise the statute itself.”
For those filing infringement cases at the ITC, the decision is a reminder to ensure that the allegations involve physical goods. From a patent application standpoint, Augustyn adds, the decision should encourage applicants to draft claims that include physical items so that they fall under ITC jurisdiction.
“Sometimes, that is not feasible, but the overall goal is to protect your intellectual property as much as possible,” he says.
Federal Circuit ruling on laches in patent cases offers continued protection to defendants
The U.S. Court of Appeals for the Federal Circuit has ruled that defendants in patent infringement cases can still use the doctrine of laches to bar the recovery of pre-suit damages, giving them continued protection against long-delayed patent suits.
The Federal Circuit’s decision in SCA Hygiene Products v. First Quality Baby Products comes in the wake of the Supreme Court’s “Raging Bull” decision, which says that defendants in copyright cases cannot use laches to bar pre-suit damages. The appeals court makes a distinction between patent law and copyright law, stating that because Congress codified laches as a defense in the 1952 Patent Act, “we have no judicial authority to question the law’s propriety.”
The ruling will likely come as a relief to innovators in many industries, who may not be aware of existing patents applicable to their work, according to Wesley O. Mueller, a member in Leydig’s Chicago office.
“Companies may make substantial investments in their products, and years later, a patent comes to light,” Mueller says.“For that reason, I think it makes sense not to change the law.”
Laches is an unreasonable delay in pursuing a claim that prejudices the opposing party. Prejudice can take many forms, from a company increasing production of a product to expanding its sales and marketing activities.
The Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer Inc. addresses laches in the copyright context. In the case, Petrella, whose father wrote the screenplay for the movie “Raging Bull,” asserted that MGM’s movie violated the screenplay’s copyright. Although the movie was released in 1980, Petrella did not bring suit until 2009. The Supreme Court held that because Congress created a three-year statute of limitations for bringing damages in copyright cases, the doctrine of laches was no defense to an infringement suit brought within the statutory period.
SCA Hygiene Products v. First Quality Baby Products also involved a delayed claim, with SCA writing to First Quality in 2003, alleging that the company had infringed its patent for protective underwear. After First Quality responded that it believed the patent was invalid, the two companies did not communicate again until SCA sued for patent infringement in 2010.
In a 6-5 vote, the Federal Circuit ruled en banc that the doctrine of laches still applies to patent suits in the wake of “Raging Bull.” The Supreme Court case deals with separation of powers, saying that since Congress had set a statute of limitations in copyright cases, the court system did not have the authority to change Congress’ intent. The law is different in the patent context, the Federal Circuit concluded. Section 282(b)(1) of the Patent Act states that defenses to infringement include “unenforceability,” and the principal author of the act noted that unenforceability would include laches, estoppel and misuse.
“The Federal Circuit concluded that there is no separation of powers issue, because Congress intended for laches to be a defense in patent cases,” Mueller says.
Laches does not apply to ongoing royalties, except in extraordinary circumstances, so a defendant who successfully uses laches to bar pre-suit damages may still have to compensate the plaintiff for ongoing infringement, Mueller notes. Courts may also consider whether to grant injunctions based on laches in copyright and patent cases.
Dossier Access initiative offers ‘one-stop shopping’ for patent information
The U.S. Patent and Trademark Office (USPTO) has launched Dossier Access, an online service that provides patent applicants with English-language access to the dossiers of patent applications around the world. The goal is to make it easier for patentees to monitor and manage intellectual property globally.
Gathering detailed patent information from individual offices has traditionally been a time-consuming task, and some patent offices did not make the information available, according to Jeremy M. Jay, a member in Leydig’s Washington, D.C., office.
“Dossier Access provides one-stop shopping,” Jay says. “This is a much more efficient way of accessing the information.”
Dossier Access is part of the Global Dossier Initiative, which aims to streamline and modernize the global patent system. In addition to the USPTO, participating offices include the European Patent Office, Japan Patent Office, Korean Intellectual Property Office, and the State Intellectual Property Office of the People’s Republic of China. Other plans in the works include the ability to share documents between offices and an online portal that applicants can use to access or provide information globally.
“The long-term goal is to standardize patent office procedures,” Jay says. “This service is a preliminary step toward that goal.”
- The Supreme Court has agreed to review the U.S. Court of Appeals for the Federal Circuit’s standard for awarding enhanced damages after overturning a similar two-part standard for awarding attorney fees in Octane Fitness v. ICON Health and Fitness. The high court will review the Federal Circuit’s test for awarding enhanced damages in Stryker Corp. v. Zimmer and Halo Electronics v. Pulse Electronics, which states that a patentee must show by clear and convincing evidence that there was an objectively high likelihood that the infringer’s actions constituted infringement, and that this likelihood was either known or so obvious that it should have been known to the accused infringer.
Looser direct infringement liability standard benefits patentees
In its recent Akamai Technologies Inc. v. Limelight Networks Inc. decision, the en banc U.S. Court of Appeals for the Federal Circuit loosened the standard for direct infringement liability in cases where a third party performs one or more steps of a method claim. The case is particularly relevant to the computer and software industries, where patent claims frequently require more than one party to perform the steps.
“This is clearly a pro-patent decision that will make it easier for owners to enforce their patents,” says Aaron R. Feigelson, a member of Leydig’s Chicago office. “Before this decision, some cases fell through the cracks.”
The case involved Akamai’s method patent for delivering content over the Internet, which Akamai sued Limelight for infringing in 2006. While a jury found Limelight responsible for infringement, Limelight countered that it was not liable because its customers had performed the “tagging” and “serving” steps of the patent. A district court ruled as a matter of law that the company had not infringed Akamai’s patent.
In a unanimous en banc decision, the Federal Circuit reversed that ruling, setting a new standard for liability. Previously, an entity was responsible for direct infringement when it directed or controlled another’s performance of the steps. The Federal Circuit expanded those circumstances to include situations where an entity “conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance,” or when the two parties form a joint enterprise. Since Limelight required customers to perform the patent claim steps in order to use its service, the court found, it met the new liability standard.
In light of the Federal Circuit’s decision, Feigelson cautions that companies should be aware of the increased risk of direct infringement liability.
“This plugs a loophole in the law,” he says. “Companies trying to avoid infringement cannot merely rely on a third party’s performance of some of the patent steps.”
Some companies had already attempted to resolve this issue by drafting claims so that only one entity performs the steps, Feigelson notes. While the new standard will better protect existing patent claims that involve multiple actors, he says, drafting claims from a single party-perspective is still a good practice to follow.
The Federal Circuit does not issue unanimous en banc decisions frequently, Feigelson adds, making this decision noteworthy.
“The fact that the court could speak with one voice here and set down a definitive standard suggests that this will be a long-lasting decision,” he says.
Recent copyright decisions help define fair use in the digital age
The meaning of fair use in the Internet age is evolving in the wake of two recent copyright cases, The Authors Guild v. Google Inc. and Lenz v. Universal Music Corp.
“These two appellate decisions illustrate the power and prominence of the fair use question in the digital environment,” says Kevin C. Parks, a member of Leydig’s Chicago office.
Under the Copyright Act of 1976, the fair use defense allows for the use of copyrighted material in certain contexts. The law sets out four factors for determining whether a given use is “fair” and not infringing: 1) the purpose and character of the use, 2) the nature of the copyrighted work, 3) the portion of the material used, and 4) whether the use diminishes the copyright’s commercial value.
The first factor takes center stage in The Authors Guild v. Google. Since 2004, Google has scanned more than 20 million books submitted by major libraries as part of its Google Books Library Project, compiling them into a vast, searchable database. The search function allows searchers to read short snippets from the underlying books.
A group of authors sued Google, claiming that the project robbed them of sales and potential licensing revenue. The district court sided with Google, and the U.S. Court of Appeals for the 2nd Circuit affirmed, reasoning that Google had used the copied material for new, “transformative” purposes; thus, the project qualified as a noninfringing fair use.
“The notion of ‘transformative use’ can now dominate the fair use inquiry,” says Mark J. Liss, a member in Leydig’s Chicago office.
Copyright holders’ responsibilities regarding fair use are the focus in Lenz v. Universal Music Corp. After Stephanie Lenz posted a YouTube video of her toddler dancing to Prince’s “Let’s Go Crazy,” Universal Music, which controls the copyright, sent YouTube a takedown notice under the Digital Millennium Copyright Act (DMCA). Lenz succeeded in having the video reinstated, but nevertheless sued Universal for the damages caused by the allegedly improper notice.
Lenz argued that Universal had an obligation to consider whether the video qualified as a fair use before requesting the takedown. The U.S. Court of Appeals for the 9th Circuit recently agreed, clearing the way for a jury to determine whether Universal’s takedown policies included appropriate consideration of fair use.
“Historically, fair use has been used only as a defense to infringement, but a heightened role is now emerging,” Parks says. “With respect to DMCA takedown procedures, copyright holders must now consider fair use even prior to alleging infringement.”
The Lenz trial should shed more light on the specific steps copyright holders must take before issuing takedown notices specifically, Liss adds.
“But as a general and more practical matter, copyright owners are well-advised to carefully consider fair use in evaluating potential infringements,” he says.
Illinois Super Lawyers and Rising Stars have selected 21 Leydig attorneys for inclusion on their 2016 lists.
Leydig received national and metropolitan Tier 1 rankings in the 2016 edition of U.S. News – Best Lawyers® “Best Law Firms.”
Acquisition International Magazine has named Leydig Best for Intellectual Property Transactions – Illinois and Best Overall IP Law Firm – USA in its 2015 Legal Awards.
Leydig welcomes to its offices:
- Counsel Robert Hess holds a law degree from Suffolk University Law School. He has an undergraduate degree in biochemistry from Cornell University and a Ph.D. in biophysics from the University of Wisconsin. Robert has worked as a patent attorney and patent agent in both private and corporate practice for nine years.
- Associate Lulu Lin holds a law degree from the University of Michigan. She has an undergraduate degree in microbial biology from the University of California, Berkeley.
- Associate Kristina Swanson holds a law degree from The John Marshall Law School. She has an undergraduate degree in microbiology from the University of Illinois.
Xavier Pillai will speak at the American Chemical Society National Meeting in San Diego, California, which will be held March 13-17.