Process Mechanics

Social: VanL on LinkedIn VanL on Hacker News Code: VanL on Github VanL on Bitbucket Me: About VanL VanL's physical location

Quick thoughts on TC Heartland

I just read the transcript of the oral arguments in TC Heartland, and my initial impression is that Kraft—the respondent/one who wants to uphold the current venue interpretation—is starting out in a very difficult situation. Take, for example, this exchange (emphasis added in bold):

JUSTICE BREYER: (Speaking of the legislative history) But did it say, if you pass
this, don't worry about getting rid of 1400, because this gets rid of it? I mean, did they say anything like that at all?

MR. JAY: No. Because 1400 still serves a function.... But... I think it's important to note that under our view, 1400(b) does do work. It is the venue statute. So you have to show either that the defendant reside—all defendants reside there, or all defendants are subject to suit there under the other—under the second half. That's different from what the general venue statute provides, which, for example, can base venue on the residence of only one defendant. There is significance; there is work left to be done for 1400(b).

Translated from legalese, Mr. Jay (for Kraft, the respondent) is arguing that his client's preferred interpretation doesn't simply make 1400(b) (the patent-specific venue statute) irrelevant.

But the fact that he is needing to argue this point is problematic for his case.

Prior coverage here.

Copyrights and Patents at the Supreme Court

It is IP month at the Supreme Court this month, with two decisions issued (Star Athletica v. Varsity Brands and SCA Hygiene Prods. v. First Quality Baby Prods.) and two cases being argued (Impression Prods., Inc. v. Lexmark International, Inc. and TC Heartland LLC v. Kraft Foods Group Brands LLC). Of these, Impression Products and TC Heartland are likely to have the largest impact.

Impression Prods., Inc. v. Lexmark International, Inc.

In Impression Products, Lexmark sold printer cartridges overseas subject to a declaration that they could not be refilled, but instead had to be returned to the company. Impression lawfully bought the cartridges, refilled them, and imported them into the United States. (NB: I mentioned Impression Products last week in the context of commenting on one of the amicus briefs and its associated economic analysis.)

The key issue in Impression Products is "patent exhaustion" - the doctrine that a patent holder exhausts all rights in a patented product when there is an authorized, lawful sale. Unlike in copyright, where the "first sale" doctrine has been codified for about a century, patent exhaustion is largely a matter of federal common law.

What further complicates this case is the fact that the sales were overseas. Patent law is territorial; patent exclusivity only applies within the borders of a nation where a patent has been granted. It is not clear whether an authorized sale in another jurisdiction would exhaust rights within the US.

Impression Products was argued earlier this week, and it is somewhat unclear which way the court will go. Justice Breyer made a number of comments about not restricting trade, and I think that the Court will be very mindful of the potential transaction costs it may impose if downstream buyers need to run a patent clearance on each item (and each patentable subcomponent of each item) that they buy. My best guess is that this will be the key policy issue that the justices will focus on.

That said, the extraterritoriality is a significant hurdle for Impression Products. In some ways it doesn't make sense or seem "fair" that a sale in another jurisdiction would result in "spooky action at a distance" using up patent rights in the United States. I would not be surprised at all if the Court tries to split the difference on this issue somehow (perhaps the "sale" occurs where it was authorized?).

TC Heartland LLC v. Kraft Foods Group Brands LLC

TC Heartland has the biggest opportunity to upset the existing order in the patent world. Technically, this is about the venue statute relative to patents - i.e., where it is acceptable to sue a corporation for patent infringement. I'll quote from the amicus brief filed on behalf of the Internet Association and others:

In the nineteenth century, Congress passed a statute to restrict venue in patent cases, 28 U.S.C. § 1400(b), in order to correct the abuses under the general venue statute that allowed alleged infringers to be sued almost anywhere. This Court repeatedly interpreted the statute narrowly, but has not considered the statute since the Nixon Administration. More recently, the Federal Circuit has concluded that venue in patent cases is synonymous with personal jurisdiction. Combined with its embrace of an expansive theory of personal jurisdiction, the Federal Circuit effectively has held that venue over an alleged corporate infringer is proper in almost any district in the country. Stated differently, the statute that was passed to restrict venue in patent cases has now been interpreted to allow more expansive venue over corporations in patent cases than in non-patent cases.

Extensive statistical evidence and academic research demonstrate that the Federal Circuit’s approach has resulted in rampant forum shopping. By 2001, 29% of all patent cases were filed in only five of the 94 districts, and 44% of a ll patent cases were filed in 10 districts. Since that time, forum shopping has dramatically accelerated. Between 2007 and 2015, 52% of all patent cases were filed in only five districts, and 66% of all patent cases were filed in 10 districts. In the first half of 2015, 52% of all patent cases were filed in only two districts, the Eastern District of Texas and the District of Delaware, the district in which this case arose. In 2015, a single judge in the Eastern District of Texas handled one-third of all patent cases nationwide. Recent studies have concluded that the most popular patent districts compete to adopt procedures that will—and do—attract plaintiffs to their districts.

The "single judge" that the brief refers to is Rodney Gilstrap, sitting in the Federal Courthouse in Marshall, Texas. Judge Gilstrap's court has become an effective national court for patent litigation, and his court rules affect litigation against companies located nation- (and world-)wide. The Federal Circuit has been aware of the concentration of patent cases in the Eastern District of Texas for many years, but they have not only refused to act, but have found that venue is proper, leading to the current case.

My sense—and I'm definitely not alone in this—is that the Supreme Court didn't take this case to agree with the Federal Circuit's interpretation. A summary affirmance could have done that. The question for me is how far does the opinion go. Will it say that venue has never been appropriate for many of these companies? If so, that may result in a loss of subject matter jurisdiction for some cases, forcing the courts to dismiss cases that are in process. We'll see.

Star Athletica v. Varsity Brands

In Star Athletica, the court was asked to determine whether copyright law protected cheerleader's uniforms. This was an unsettled question because copyright law explicitly excludes functional works, and clothes have usually been considered to be primarily functional. But that doesn't mean that any artwork on clothing is unprotected. Rather, the copyright statute says:

"...the design of a useful article, as defined in this section, shall be considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.

In the case of cheerleader's uniforms, the artistic aspects are so mixed with the functional aspects that it was unclear whether those artistic elements were sufficiently independent of the utilitarian aspects of the uniforms.

The Supreme Court declined to impose a strict rule, saying that copyright would apply: "if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article and (2) would qualify as a protectable pictorial, graphic, or sculptural work either on its own or in some other medium if imagined separately from the useful article." The Court also said that not all clothing designs would be protectable under copyright, but that the cheerleading designs in this case passed the test.

This seems to me to be a case of the Court exercising judicial restraint. The decision simply re-emphasized the already-existing rule within the statute and didn't make any sweeping pronouncements. There will definitely be a new crop of lawsuits trying to figure out what it might mean for a design to be distinct enough to be "imagined separately" from the underlying article, but the answer to the question of copyright in clothing designs ends up being a rousing "it depends."

SCA Hygiene Prods. v. First Quality Baby Prods.

In SCA, the court ruled on an defense called laches and whether it applies in patent cases. Laches is an "equitable" (i.e., judicially-created) defense that amounts to "use it or lose it" - you might lose your ability to file a lawsuit if there is an unreasonable delay in filing. It is the common-law version of a statute of limitations.

In this case, the Court said that the time frame for damages in the patent statute was effectively the same as a statute of limitations, and so laches should not apply.

This is slightly odd logic, in that the six-year lookback for patent damages is a "reverse" statute of limitations, running backwards from filing rather than forward from the time that the injury (i.e., patent infringement) first occurred. However, the practical impact will probably be slight. For the past several decades, courts have only allowed laches as a defense when there were extraordinary circumstances leading to reliance by the accused infringer.

Recent news in IP (Week of Mar. 10, 2017)

A few recent articles that have caught my eye:

The House Has Passed H.R.720: The Lawsuit Abuse Reduction Act of 2017

Source: Benesch's Sixth Circuit and Ohio Class Action-Plus Report

This is deep in the weeds if you don't follow civil trial procedure, but this could be a big deal. Any time a lawyer files something with a court, they are required to certify that the filing is done in good faith, is not frivolous, etc. This is codified in Federal Rules of Civil Procedure as Rule 11.

Currently, if a lawyer is caught doing something that the court considers in bad faith, the judge has the right to impose a variety of punishments, including fines that the lawyers or their clients must pay personally. As a practical matter, though, rule 11 motions are hardly ever made and the results are usually closer to a stern dressing-down than a penalty.

The linked bill (H.R. 720, the Lawsuit Abuse Reduction Act of 2017) changes rule 11 so that penalties are mandatory. It makes rule 11 challenges and findings much more serious.

From an IP perspective, one of the key enablers of patent litigation abuse is the ability patent plaintiffs to file cursory, technically incorrect, or astoundingly vague claims - and to keep defendants in the dark about the scope of their arguments until forced to make things clearer by the court... a year or more later.

I have frequently felt that filings that are clearly incorrect based upon publicly available information should be sanctionable under rule 11. If this bill passes, perhaps they may be.

Autonomous Driving in California: A New Frontier or Business as Usual?

Source: Squire Patton Boggs

This is reporting on some of the new autonomous driving regulations that are being promulgated by the California DMV. This is a final draft, so now it goes into the formal rulemaking process.

Even with the loosening up that these rules represent, it is still harder to test and deploy autonomous vehicles in California than in a lot of other states. This is a California currently has the most testing taking place, probably due to Silicon Valley, but there is apparently some willingness to test and deploy in other states that have a more accommodating regulatory stance.

I've been interested in this area for a while. I've been doing some study for my panel at the Connected and Automated Vehicle Workshop hosted by the Greater Austin-San Antonio Corridor Council. We are on the front end of a very large industry - this is a space to watch.

How tech’s ruling class stifles innovation with efficient infringement

Source: IPWatchdog

Another day, another hyperbolic IPWatchdog article. This takes a perfectly reasonable article (Tech’s Ruling Class Casts a Big Shadow) wondering whether there is too much consolidation in the tech industry and uses it, without support, to accuse the largest tech companies of "efficient infringement" - i.e., consciously violating IP rights because it is allegedly cheaper to litigate than to license.

I'll probably write something more about this in the future, but I have a hard time believing that efficient infringement exists on a commercially significant scale - and anyone who has been through multi-million dollar patent litigation would agree. This is especially true in light of recent Supreme Court rulings that make treble damages for willful infringement much easier to get. That's not to mention that any lawyer that recommended efficient infringement to a client would be committing malpractice and be potentially on the hook.

No, the problem is not with any mythical "efficient infringement," no matter how much some folks would like to elevate that to an evil on the same level as patent trolling. The problem is that people tend to overvalue and overstate the reach of their IP in the context of real business transactions, and so they are disappointed when they try to license and there are no takers.

An Economic Argument Against Mandatory Patent Exhaustion

Source: Patently-O

A guest post on Patently-O by Randy Barnett of Volokh Conspiracy fame, ahead of the Impression Products v. Lexmark argument at the Supreme Court.. He argues that the best policy is a "presumptive exhaustion" regime where the presumption can be overcome via clear contractual language.

I'm not sure I agree, but I take almost anything Randy Barnett says seriously. It's a good argument, at least with reference to the theory. But from a practical perspective, I don't think that the "presumptive exhaustion" would actually work. Specifically, the effect of a "presumptive exhaustion" doctrine would be mostly indistinguishable from a "no exhaustion" doctrine.

Why? Because lawyers are businesspeople too, and within seconds of the release of an opinion establishing presumptive exhaustion there would be lawyers offering client alerts saying, "Update your contracts now to maintain your patent rights!" There would surely be some one-time fallout for non-renegotiable contracts. But within weeks there would be a new slide in the "contract mistakes to avoid" CLE and non-exhaustion would become a new standard term in almost every contract.

Recent news in IP (Week of Mar. 3, 2017)

A few recent articles that have caught my eye:

The importance of balanced patent policy

Source: The Hill

I recommend this article for some clear thinking about the proper scope of patent enforcement.

At issue is a case at the ITC, in which a radiotherapy machine that has been judged to infringe some patents. Typically, this would result in the ITC putting in place an exclusion order barring the import of the infringing machines. In this case, however, there are evidently some people who are arguing that the public interest in having these medical devices available weighs against the entry of the exclusion order.

As the linked piece points out, this argument is bollocks. There are licensed, equally-functional alternatives to the infringing machine available from multiple sellers on the market, and the proposed exclusion order only bars the import of new infringing devices, and leaves the existing radiotherapy machines in place.

The patent law in the United States (as with most forms of IP) is a bargain designed to provide the structure that allows temporary market exclusivity in return for disclosure. When there is a clear-cut case like this, enforcing the patent law (and thus issuing the exclusion order) is the right thing to do.

IPR: Not Just for Litigants

Source: RPX Blog

One of the occasional strains in the drumbeat bemoaning IPRs is that organizations that have not been sued on patents still are able to challenge the patents in IPR and CBM proceedings. The linked article is RPX fighting back with data.

The summary is that non-litigants are relatively frequent IPR filers (top three non-litigant filers are ranked 12th, 35th, and 38th, respectively) and that, by and large, they do a relatively good job. RPX in particular looks good here, with a high institution and win rate.

Ropes & Gray Ending Patent Business

Source: Patently-O

Storied IP firm Ropes & Gray is leaving the patent prosecution business behind - presumably including a lot of the patent prosecutors it acquired from Fish & Neave a few years ago.

I would guess that this is a story of moving "up the stack" and focusing on more-lucrative litigation, with a side of reducing malpractice risk (don't blow deadlines!). Patent prosecution is a difficult business to make highly lucrative. Most companies impose caps or flat fees for patent prosecution, and that makes it harder to support the $800+ or $1000/hour fees that very large law firms want.

The Real Difference Between Google and Apple

Source: Design

An interesting take on the "innovation signatures" of Apple and Google - basically a graph-based visualization of patent co-authorship. The big takeaway is that Apple's inventing activity is more highly concentrated, and that is representative of the greater concentration within Apple.

Unfortunately, IPWatchdog took this as an excuse to take a whack at Google. Only a motivated analysis would take the finding that Google has more patents than Apple (12.3K vs 10.9k), with more inventors (8.9k vs. 5.2k), in a wider variety of areas, and use that as "proof" that Google is less innovative and is a poster child for the non-existent boogeyman of "efficient infringement."

Recent news in IP (Week of Feb. 27, 2017)

A few recent articles that have caught my eye:

Clearing the Underbrush: How to Fight Low Quality Patents Related to Commoditized Technology that Threaten Innovation

Source: IPWatchdog

I was surprised to see this opinion piece on IPWatchdog, as it takes the stance that there are some parts of the tech stack (the lower, "commodity" portions) that should be largely exempt from a lot of patent activity and that patenting, investment, and enforcement should be focused on the top, "differentiating" part of the stack. It is an unusual argument to be featured on IPWatchdog.

I am sympathetic to the argument that commodity functionality should largely be out of the realm of patent activity, but that is because most commodity stuff is old - far older than people think. The issue is not that certain parts of the stack should be free from patenting, but that a lack of specificity in patent claiming and enforcement allows a patent originally targeted at a particular niche to be reinterpreted to read on older, more broadly deployed tech.

I also think that it misses the point that there is both "commodity" and "differentiating" tech at each layer in the stack. The innovations may not be clearly visible if someone is not familiar with the underlying technology, but innovative things are going on at all layers of the stack.

Federal Circuit Sticks By Its Bad Law on Personal Jurisdiction In Patent Cases

Source: EFF Deeplinks

The issue brought up in this blog is interesting - What are the minimum actions needed to establish personal jurisdiction for purposes of a declaratory judgment action? The standard rule is that sending demand letters is not enough to establish personal jurisdiction (and frequently not enough to establish a case or controversy).

In the particular case cited (Xilinx, Inc. v. Papst Licensing GmbH & Co. KG, Fed. Cir. 2017), Xilinx was able to establish that Papst's actions were sufficient to establish jurisdiction in their particular case - but the Federal Circuit kept their same rule for the general case.

What hasn't been brought up so far is what effect TC Heartland may have on the DJ rules. The Supreme Court has been... shall we say unsympathetic?... to a number of the fixed rules that the Federal Circuit has established to govern patent cases. I don't see that this would necessarily be all that different. I wouldn't be surprised if this will be another area for appellate activity after TC Heartland comes down.

Patent Trolls and Small Business Employment

Source: Working Knowledge (Harvard Business School)

This is an NBER working paper evaluating the results of anti-patent troll legislation that has been working its way through the legislature in a number of states. It appears that these legislative efforts have a significant effect, which I didn't expect. Key finding:

"We find that the passage of this legislation leads to a 2% increase in employment at small firms in high-tech industries.... By contrast, the laws have no significant impact on employment at larger or non-high-tech firms. Anti-troll legislation is also associated with fewer business bankruptcies. Financing appears to be a key channel driving our findings: in states with an already established VC presence, the passage of anti-troll laws leads to a 19% increase in the number of firms receiving VC funding."

Oil States Energy Services v. Greene’s Energy Group

Source: Patently-O

The Supreme Court has asked the USPTO to comment on whether the PTO can cancel claims through the IPR/CBM/PGR process. There has been a drumbeat from a number of people (most cogently, Robert Greenspoon of Flachsbart and Greenspoon) arguing that patent rights are private rights, only subject to Article III tribunals, and it is a violation of the constitution for an Article II agency to cancel a patent.

The fact that the Supreme Court is asking for comment indicates that they think this is a subject worthy of consideration. But I ultimately don't think this will be successful. First, as long as Chevron deference is the law of the land, the PTO's own interpretation and rulemaking will be accorded significant weight. (In practice, I think that it would be accorded some weight even without Chevron deference.) Second, Dennis Crouch argues that rights don't need to be exclusively public or private; the courts are comfortable with quasi-private rights. Third, I think that this entire argument misses the context of the previous inter partes reexamination proceedings, which were similar in many respects.