On two issues of first impression, the Fifth Circuit held that mitigation was not an absolute defense to statutory damages under the Copyright Act, and not a complete defense to Digital Millennium Copyright Act (“DMCA”) statutory damages.

Oil Daily is a newsletter published by Plaintiff EIG; it analyzes the North American oil industry.  Defendants Kayne Anderson[1] collectively are an investment firm whose business is tied to energy securities, and from 2004 to 2014, a partner at Defendants purchased a subscription to Oil Daily.  In violation of the Oil Daily subscription terms, however, that partner shared[2] the newsletter with additional Kayne Anderson employees and others, each of whom had no subscription.  EIG found out about the unauthorized sharing in 2007 and in 2014, it filed suit for copyright infringement and violations of the DMCA, seeking statutory damages.

In defense of its actions, one of Kayne Anderson’s defensive theories was mitigation, specifically, that if EIG had pursued action earlier, then Kayne Anderson’s subsequent infringement could have been avoided, and thus EIG should not receive damages for later infringing acts.  At trial, the jury held that EIG could have mitigated many of the instances of infringement, and EIG was ultimately awarded statutory damages for only thirty-nine of the infringed works (rather than the 1,646 possible for copyright infringement and 425 violations of the DMCA), as well as partial attorney’s fees and costs.  Both parties appealed to the Fifth Circuit.

EIG’s appeal concerned whether the alleged failure to mitigate could be a complete defense to copyright and DMCA statutory damages, rather than just a limiting factor on the amount of damages.  The Fifth Circuit ultimately determined that the failure to mitigate is not a complete defense.

In its reasoning, the Fifth Circuit determined that both the nature of the common law principle of mitigation and the Copyright Act’s and DMCA’s statutory purposes mandated that mitigation could not be a complete defense.  The purpose of statutory damages within the Copyright Act is as a significant deterrent to infringement in addition to providing copyright owners compensation.  Further, mitigation is meant to apply to post-injury consequential damages, not preventing damage before an injury occurs.  While a plaintiff’s consequential damages may be relevant to the amount of statutory damages to which the plaintiff is entitled, the failure to mitigate those damages is not a bar to receiving the deterrent statutory damages.

This holding may mean increased liability for infringing a large number of works over a period of time when copyright plaintiffs seek statutory damages.  Mitigation, however, may still be a complete defense to actual damages.

A new proposed legislation relating to the patent laws has been submitted in the United States House of Representatives—the Inventor Rights Act of 2019.  The proposed legislation concerns new rights and privileges that are limited to inventor-owned patents, or patents owned by entities controlled by their inventors.  As part of that ownership, the inventor must be in possession of “all substantial rights.”  As such, if enacted, the legislation would only apply to a small number of patents currently issued.

The act proposes a number of revisions to title 35 of the United States Code, several of which are quite significant:

As stated in the preamble of the submitted text of the legislation, these proposed changes would provide major incentives for inventors to retain control of their patents, and are intended to be somewhat of a course correction for what the legislative sponsors feel is a trend against inventors in the modern patent system.  Whether these changes would serve to protect inventors and achieve the stated goal of continuing to incentivize invention, or merely provide a new set of powerful tools for other participants in the patent system to take advantage of, remains to be seen.

In what amounts to the next in a long line of cases addressing the subject, the Patent Trial and Appeal Board issued an opinion again confirming that membership in an organization committed to filing IPRs does not rise to the level of “real party in interest.” 

RPX Corporation (“RPX”) filed a petition for inter partes review (“IPR”) of a patent owned by Publishing Technologies, LLC (“Publishing Tech.”).  The patent had previously been asserted against and found not infringed by Google, Inc. (“Google”).  Google is a long-term member of RPX, which is an organization dedicated to mitigating patent risk by, inter alia, acquiring patents, licensing its patent portfolio to its members, and filing IPRs to challenge the validity of third-party patents.  The Patent Act provides “[a]n inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”[1]  It was undisputed that Google had been served with such a complaint more than a year prior to the IPR, and was thus time barred from filing an IPR itself.  Publishing Tech. argued that Google, by virtue of its long-standing membership in RPX, was both a real party in interest to the petition and a privy to RPX and thus the IPR was time barred.    

“To decide whether a party other than the petitioner is the real party-in-interest, the Board seeks to determine whether some party other than the petitioner is the party or parties at whose behest the petition has been filed.”[2]  Such an inquiry “demands a flexible approach that takes into account both equitable and practical considerations, with an eye toward determining whether the nonparty is a clear beneficiary that has a preexisting, established relationship with the petitioner.”[3]  The PTAB made clear that Google’s RPX membership did not alone make it a real party in interest.  Critical to this conclusion was RPX’s representation that it always acted alone, funding its own petitions and discouraging input from its members.  Further, the PTAB noted that the RPX membership agreement imposed no obligation on RPX to file IPRs or discuss them with its members.  The PTAB likewise found Google not to be a privy of RPX because the evidence did not demonstrate that Google was likely to receive any benefit from the petition.  Without being deemed a real party in interest or privy, the time bar applicable to Google could thus not be applied to RPX, and the PTAB allowed the petition to proceed.

This is not the first time this argument has been unsuccessful at the PTAB.  Interestingly, a group such as RPX would not have Article III standing to challenge the validity of a patent in district court unless it faced an assertion of infringement.  Yet, in the PTAB, such a group can freely challenge the validity of a patent, and the argument goes that such a challenge benefits the members of that group by giving them a free bite at the proverbial apple, and allows the group to circumvent the time bar that would apply to the member.[4]  While it was not the case for Google here, one can envision situations in which a party-member clearly benefits from the organization filing an IPR.  As it stands, however, these relationships do not rise to the level of constituting a real party in interest or privy.  Patent owners nonetheless have not relented in their effort to convince the PTAB that members should be determined real parties in interest, perhaps setting the stage for an appeal to the Federal Circuit. 

The Federal Circuit recently affirmed an award of attorney’s fees for a patent infringement defendant where, as part of its ‘exceptional case’ analysis under 35 U.S.C. § 285, the lower court considered not only the substantive strength of the plaintiff’s position, but also its business model and history of litigation.  Blackbird Tech. LLC v. Health in Motion LLC, No. 2018-2393 (Fed. Cir. Dec. 16, 2019).  For context, Blackbird Technologies (“Blackbird”) is a ‘patent assertion entity’ (“PAE”), a type of non-practicing entity that is owned and controlled by attorneys and earns revenue by acquiring patents and monetizing them through litigation.  The Federal Circuit’s approval of justifying the award based, in part, on Blackbird’s business model and litigation track record means that the decision, though aimed at Blackbird, shot across the bow of all similarly structured PAEs.

In October 2016, Blackbird sued Health in Motion LLC (“HIM”), a manufacturer of exercise equipment, for infringement of a patent directed towards a cable exercise machine having a housing containing cable exit points and a common source of resistance for the cables.  In June 2017, Blackbird offered to settle for just $80K.  HIM declined, demanding that Blackbird pay $120K based upon the probability of a fee award.  As discovery proceeded, Blackbird offered successively smaller settlements: $50K in October 2017, $15K in April 2018, and finally a royalty-free license near the end of discovery in May 2018.  HIM instead committed to prevailing on the merits and moved for summary judgment.  Blackbird opposed, but shortly after the motion was briefed, abruptly filed a voluntary dismissal, executed a covenant not to sue, and filed a motion to dismiss for lack of subject matter jurisdiction, all without prior notice to HIM.  This bid to defeat jurisdiction failed; in June 2018, the Court dismissed Blackbird’s claims with prejudice but denied its motion and authorized fee motions.  Shortly thereafter, the Court awarded HIM their full fees and expenses of over $363K.

In considering whether the case was “exceptional” under 35 U.S.C. § 285, the Federal Circuit found no abuse of discretion in the District Court’s findings as to the substantive strength of Blackbird’s litigation position (i.e., that Blackbird relied upon flawed claim constructions and infringement contentions that should have been evident in pre-suit due diligence).  It also found Blackbird’s sequence of “nuisance value settlement offers” to support a finding of unreasonable litigation conduct.   Finally, it found no abuse of discretion in the District Court’s consideration of the need to “deter future abusive litigation” as justification for the fee award based upon Blackbird’s history of having filed 110 infringement suits without one final decision on the merits.  This last finding is perhaps most significant for PAEs at large because, among other reasons, Blackbird’s performance is not far out of step from other similarly structured entities. Professors Allison, Lemley, and Schwartz’s recent analysis of NPE patent litigation outcomes reveals that PAEs underperform not only operating companies, but also other types of non-practicing entities, prevailing in only 9.5% of the final patent rulings they face (versus 30.6% for operating companies and 21.4% for NPEs as a class).  PAEs similarly trail in nearly every other type of interim or final patent determination.  PAEs should take heed of this developing threat to their operating model.  Defendants, meanwhile, should take note that, in some cases, adopting a “fight hard” strategy may not just pay off, but pay for itself.

Professor Dennis Crouch did a great job of summarizing the Supreme Court’s ruling last week in Peter v. NantKwest, wherein the Court found that the Patent and Trademark Office could not shift its litigation costs to applicants who choose to challenge the PTO’s decisions in district court.  We recommend everyone read his summary, posted on the Patently-O Blog, here.

The Federal Circuit recently ruled that Fisher & Paykel Healthcare Limited (“Fisher”) lacked standing to appeal an inter partes review (“IPR”) decision that Fisher had instituted against ResMed Limited (“ResMed”), finding Fisher failed to satisfy its burden of asserting future plans which would create “a substantial risk of future infringement” or be likely to “cause the patentee to assert a claim of infringement.”[1]

ResMed owns U.S patent 9,027,556 (“’556 patent”) which covers masks used in the treatment of sleep disordered breathing.  After ResMed accused Fisher of infringement, Fisher petitioned the Board for an IPR on the ’556 patent.  The Board, in its Final Written Decision, found Fisher failed to establish any of the claims of the ’556 patent were unpatentable.  After Fisher appealed the Board’s Final Written Decision, the parties settled the underlying infringement suit and ResMed motioned to dismiss Fisher’s appeal based on Fisher’s lack of standing.

On appeal, the Federal Circuit noted that under Article III of the Constitution, a courts judicial power is limited to “Cases” or “Controversies.”[2]  The court held that while a party does not need Article III standing to file an IPR petition, an appellant bears the burden of establishing Article III standing to appeal a decision from the Board.  Furthermore, Article III standing on appeal from a Final Written Decision requires an appellant, who is not currently facing a suit of infringement or immediate threat of suit for infringement, demonstrate current or planned use of features found in the patent at issue.

Fisher was unable to satisfy its Article III burden.  The decision does not address the fact that Fisher appears to have had standing at the time it filed its appeal.  Rather, Fisher claimed it was continuing to develop products which might cause ResMed to bring an infringement suit in the future, Fisher did not provide the Federal Circuit with any details on how Fisher’s future products would incorporate features of the ’556 patent to create a substantial risk of future infringement.  As such, the Federal Circuit granted ResMed’s motion to dismiss Fisher’s appeal and maintained the Board’s Final Written Decision.

Parties filing IPR petitions should remember while anyone may file an IPR petition, not every party can prove standing to appeal an IPR Final Written Decision.  Until the Supreme Court or Congress decides otherwise, petitioners may attempt to satisfy Article III standing on appeal by delaying settlement of its infringement suit, or demonstrating concrete plans to pursue allegedly infringing conduct.

In T.C. Heartland v. Kraft Foods Group Brands, LLC,[1] the United States Supreme Court clarified that only the patent venue statute, 28 U.S.C. § 1400(b), without interpretation of the general venue statute (28 U.S.C. § 1391(c)) controls venue for patent infringement actions, and concluded that a domestic corporation accused of patent infringement “resides” only in its state of incorporation.  Prior to T.C. Heartland, the Eastern District of Texas was the center of patent infringement filings due to its rocket docket for patent cases and its reputation for being friendly to patent holders.  Even after T.C. Heartland, however, the Eastern District of Texas remains a hotbed for patent infringement cases and transferring out of that venue can be difficult. Three separate cases,[2] each decided on November 27, 2019 by Chief Judge of the Eastern District of Texas Rodney Gilstrap, exemplify the difficulty of transferring out of that court; in each he denied a motion to transfer venue pursuant to 28 U.S.C. § 1404.  Understanding courts’ rationales for denying venue transfer can be crucial to patent defendants seeking a friendly venue.

In determining whether to transfer the case, the court first answers the threshold inquiry of whether the case could have been filed in the requested venue in the first place.  If yes, then the court analyzes several public and private factors (as of the time the action was filed) to determine whether the “transferee venue is clearly more convenient than the than the venue chosen by the plaintiff.”[3]  Although these factors are not exhaustive and a single factor is not dispositive, a court also does not merely tally up the factors.

In each of Quest NetTech, Rembrandt Wireless, and Vocalife, the court appears to have apportioned more weight to the public factor of administrative difficulties due to court congestion than it did to private factors such as access to proof and ability to secure witness attendance.  For example, in Quest NetTech, the only factor weighing against transfer was that the median time to trial for patent cases was shorter in the Eastern District of Texas than the Northern District of California, yet the court still denied the transfer of venue.  Regarding the other transfer factors, a potential movant can glean guidance as to the weight of the factors from this trio of opinions, such as:

Private Transfer Factors Quest Rembrandt Vocalife
Relative ease of access to sources of proof For Against Against
Availability of compulsory process to secure attendance of witnesses Neutral Slightly for Neutral
Cost of attendance for willing witnesses Slightly for Against Neutral
Other practical problems that make trial easy, expeditious, and inexpensive Neutral Against Neutral
Public Transfer Factors      
Administrative difficulties flowing from court congestion Against Against Against
Local interest in having localized interests decided at home Neutral Neutral Neutral
Familiarity of the forum with the law that will govern the case Neutral Neutral Neutral
Avoidance of unnecessary problems of conflict of laws or application of foreign law Neutral Neutral Neutral

Defendants who find themselves in what they consider unwelcome venues may have difficulty transferring to venues with “slower” dockets.  However, filing motions to transfer with specificity to the other transfer factors may allow defendants to overcome the heavily weighted court congestion factor.

Plaintiff Tapatio, known for its ubiquitous hot sauce bottles labeled with red arching font and a yellow-clothed Mexican horseman in a sombrero, sued the defendant for using the mark “Tiowaxy” in connection T.H.C.-infused hot sauce. The Tiowaxy bottle bears the same red arching font and imagery. Tapatio moved for a permanent injunction and default judgment on its trademark infringement, unfair competition, and dilution by tarnishment claims, as the defendant never filed any opposition papers. 

The judge found that Tapatio had adequately plead its claim for trademark infringement, in part, because “Plaintiff’s products and the ‘Tiowaxy’ products are in direct competition with each other and thus ‘are in the closest proximity under the likelihood of confusion analysis.’ . . . Both Plaintiff and Defendant use the same marketing channels, including Instagram and other social media platforms, and hot sauce is an inexpensive product likely to be an ‘impulse’ purchase by most consumers, which increases the likelihood of confusion.” Tapatio Foods, LLC, 2019 WL 6168416, at *3. Further, the magistrate judge found that Tapatio had adequately alleged tarnishment, because Tapatio is a famous mark and the defendant’s hot sauce was infused with T.H.C., satisfying the traditional tarnishment requirement that the alleged infringing mark involve either drugs or sexual activity. 

Notably, the magistrate judge did not question Tapatio’s allegations that traditional hot sauce and THC-infused hot sauce were not only directly related, but directly competing products. As marijuana and other related active products are currently illegal under federal law, those in the marijuana industry that act lawfully according to state law are, nevertheless, unable to obtain federal trademark protection for their products at this time. As a result, a common strategy for such businesses is to develop their trademark portfolios by concurrently branding and selling related, but non-leaf-touching, products in the hope that, one day, they will be able to claim that the leaf-touching product warrants the protection of those earlier priority dates. By finding that non-T.H.C. and T.H.C.-infused products are both directly related and directly competing, the magistrate judge appears to have blurred the line between leaf-touching and non- leaf-touching product markets, thereby strengthening not only trademark rights of non-leaf-touching mark holders, but also the rights of participants in the marijuana industry who may seek to bring common law trademark claims against non-leaf-touching product competitors.

Columbia Sportswear (“Columbia”) sued Seirus Innovative Accessories (“Seirus”) for infringement of both a utility and a design patent relating to a heat management element in cold-weather outerwear. The design patent was directed to a wave-pattern design weave. Seirus established that the utility patent was anticipated and obvious, a finding sustained on appeal, but the district court granted summary judgment of infringement on the design patent claim, and a jury awarded damages of approximately $3 million. Seirus appealed the grant of summary judgment, arguing that the district court ignored several minor differences in the accused design:

 The Federal Circuit agreed and reversed the finding of summary judgment, remanding the case for a jury trial on infringement. Specifically, the appeals court found that the district court improperly dismissed minor differences, on a piecemeal basis as each individually not impacting the overall visual impressions, such as differences in the size, thickness, and orientation of the wave pattern, rather than considering the similarity of the overall visual impression of the designs from the standpoint of an ordinary observer. Columbia, at 18. Additionally, the district court wrongly ignored the logo, relying on a previous Federal Circuit case L.A. Gear Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1125 (Fed. Cir. 1993). Now, the Federal Circuit finds that when a logo is part of the design, it is proper to consider a logo’s appearance and placement alongside other potential differences in the infringement analysis. 

In Airbus S.A.S. v. Firepass Corp., the Federal Circuit reversed the Patent Trial and Appeal Board’s finding that had held a patent directed to an athletic training and therapeutic chamber (used to simulate training at high altitude) was not analogous art against claims directed towards fire suppression methods. Case No. 2019–1803 (Fed. Cir. Nov. 8, 2019). This decision aligns the criteria for determining whether art is analogous with the assessment of the knowledge of a person of ordinary skill in the art prescribed by KSR Int’l v. Teleflex Inc. and its progeny. 

The core dispute in Airbus v. Firepass was whether a prior art patent (“Kotliar”) directed to a chamber for simulating high altitude training by reducing oxygen content, was analogous art to claims directed to preventing or suppressing fires in enclosed and human-occupied spaces (such as the cabin of an aircraft) via oxygen deprivation. During the inter partes reexam proceeding from which the Airbus appeal arose, the examiner rejected the challenged claims as obvious in view of Kotliar in further view of various secondary references directed towards oxygen deprivation-based fire suppression methods. Appealing the rejection to the Board, Firepass asserted that Kotliar, which was invented by the same inventor as the challenged claims, was not analogous art. The Board agreed, finding that there was no articulated rational link between Kotliar, which was directed towards “human therapy, wellness, and physical training” and the problem confronting the inventor (i.e. “fire suppression/prevention”). The Board refused to consider Airbus’ argument to the contrary—that various background references showed that reducing oxygen concentration within breathable limits was a known method for fire suppression—because the examiner did not specifically use those references to support the rejection. 

The Federal Circuit has long required that only references “analogous to the claimed invention” be considered as prior art for purposes of obviousness. This restriction prevents hindsight from clouding an obviousness determination. Two separate tests govern whether a reference constitutes analogous art: (1) whether the art is from the same field of endeavor, regardless of the problem addressed and, (2) if not, whether the reference still is reasonably pertinent to the particular problem with which the inventor is involved. The latter test asks whether a person of skill in the art would have reasonably looked to a reference in attempting to solve the problem at hand. The Federal Circuit in Airbus held that the Board correctly concluded that Kotliar and the challenged claims were not from the same field of endeavor, but erred by failing to consider Airbus’ evidence that Kotliar was nonetheless reasonably pertinent art. On appeal, the Board contended that precedent requiring consideration of such background references, such as Randall Mfg. v. Rea, 733 F.3d 1355 (Fed. Cir. 2013), was directed only towards determining whether there was a motivation to combine references (per KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007)). The Court disagreed, and held that the background knowledge possessed by a person of ordinary skill in the art was equally relevant to assessing whether art is analogous as it was to assessing motivation.