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Welcome to the Snell & Wilmer intellectual property and technology litigation blog! Check here for useful news and information about patent, trademark, copyright, trade secret, and other IP and technology litigation developments.
On August 11, 2014, the Ninth Circuit Court of Appeals held that unincorporated associations have the capacity to own their own trademarks and to sue to enforce them. In Southern California Darts Ass’n v. Zaffina, No. 13-55780, the Court affirmed the United States District Court for the Central District of California’s entry of summary judgment and issuance of a permanent injunction against a former member of “SoCal”—a forty-year-old unincorporated association—who incorporated a same-named, competing corporation.
Even though SoCal is unincorporated, the Court affirmed summary judgment, holding that SoCal owns its marks. Unincorporated associations must be evaluated on a case-by-case basis, but “[t]here is no reason . . . why such questions in specific circumstances should preclude the universe of unincorporated associations from owning trademarks. . . . An entity of this character may engage in commercial activities, and may use names and marks in connection with those activities.”
Under California law, SoCal lacks the capacity to sue as a corporation because its corporate powers were suspended by the State of California in 1977. See United States v. 2.61 Acres of Land, 791 F.2d 666, 668 (9th Cir. 1985) (applying California law). But Rule 17(b)(3)(A), Federal Rules of Civil Procedure, permits an “unincorporated association” to “sue or be sued in its common name to enforce a substantive right existing under the United States Constitution or laws.” So the Court held SoCal was permitted to bring suit in federal court as an unincorporated association for the purpose of enforcing its trademark rights.
Today, the Supreme Court in Alice Corp. v. CLS Bank unanimously held that all of Alice’s asserted claims were drawn to patent-ineligible abstract ideas. The Court reaffirmed the framework established in Mayo v. Prometheus for determining whether a claim contains one of the implicit exceptions to patent-eligible subject matter: laws of nature, natural phenomena, and abstract ideas.
Under Mayo, the Court must first “determine whether the claims at issue are directed to one of those patent-ineligible concepts.” If the claim contains a patent-ineligible concept, then the court must determine whether the additional elements “transform the nature of the claim” into a patent-eligible application, through an “inventive concept,” which is an element or combination of elements “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.” The Court held, “merely requiring generic computer implementation fails to transform [ineligible matter] into a patent-eligible invention.”
The Court held Alice’s claims were drawn to the abstract idea of intermediated settlement: mitigating the “risk that only one party to an agreed-upon financial exchange will satisfy his obligation.” It is an abstract idea because it is a “fundamental economic practice long prevalent in our system of commerce,” similar to the concept of “risk hedging” found to be an abstract idea in Bilski v. Kappos. Then the Court held that each claim does no more than require a generic computer to perform generic computer functions, and the recited hardware in the claims fails to “[offer] a meaningful limitation beyond generally linking the use of the methods to a particular technological environment.” The Court distinguished its prior decision in Diehr, noting that the claims there were patent-eligible not because of a computer, but “because they improved an existing technological process.”
Section 101 of the Patent Act does not explicitly proscribe laws of nature, natural phenomena, or abstract ideas. But the Court has now “interpreted § 101 and its predecessors in light of [these implicit] exceptions for more than 150 years.” Unless Congress acts, determining patent-eligible subject matter will continue to involve a complex analysis of those 150 years of precedent.
Much has been written about what the Supreme Court decided in Limelight Networks, Inc. v. Akamai Technologies, Inc. However, the case is more important for what the Court did not decide, than for what was actually decided. On June 2, the Supreme Court reversed a Federal Circuit decision concerning what constitutes indirect infringement of a patent. In doing so, the Court’s decision signals a significant possibility of future changes in the law concerning what constitutes direct infringement of a patent.
In 2008, the Federal Circuit decided in the Muniauction case that in a patent claiming a method or a process as the invention, direct infringement required a single entity to perform all of the steps of the claimed method. During oral argument of the Limelight Networks case before the Supreme Court, Chief Justice Roberts suggested that the Federal Circuit law governing direct infringement “makes it pretty easy . . . to get around patent protection.” The Chief Justice said, “All you’ve got to do is find one step in the process and essentially outsource it . . . or make it attractive for someone else to perform that particular step and you’ve essentially invalidated the patent.”
In Limelight Networks, the Supreme Court noted that a natural consequence of the Federal Circuit’s Muniauction decision was that it permitted “a would-be infringer to evade liability by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls.” Some commentators have suggested that this is a problem in patents directed to software inventions involving the Internet, because a patented method for such software can involve method steps that are performed by a user or customer who is not controlled or directed by the would-be infringer.
In Limelight Networks v. Akamai Technologies, the Federal Circuit attempted to close this loophole by changing the law governing indirect infringement, or more specifically, the law governing inducement of infringement. The approach taken by the Federal Circuit was to allow liability for inducement of infringement even if there was no single entity that performed all of the steps of the patented method, (in which case there would be no direct infringement under the Muniauction rule).
In the Limelight Networks decision, the Supreme Court refused to allow the Federal Circuit to make this change in the law governing inducement of infringement. The Court held that there can be no inducement liability unless there is direct infringement. The Court acknowledged the concerns that the Federal Circuit attempted to address. But the Court stated, “the possibility that the Federal Circuit erred by too narrowly circumscribing the scope of [direct infringement] is no reason for this Court to err a second time by misconstruing [the patent statute] to impose liability for inducing infringement where no [direct] infringement has occurred.” The Court also said, “[a] desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability.
The Muniauction rule was not before the Supreme Court in this case. However, the Limelight Networks opinion concluded with a suggestion that the Federal Circuit “will have the opportunity to revisit the [direct infringement] question if it so chooses.” Thus, future changes in the Federal Circuit’s Muniauction rule governing direct infringement of a patent appear likely.
A patent must be “definite”: it must particularly point out and distinctly claim the invention. 35 U.S.C. § 112 ¶ 2. Otherwise, the patent is not valid. 35 U.S.C. § 282 ¶ 2(3). On June 2, 2014, the Supreme Court in Nautilus v. Biosig Instruments unanimously decided the appropriate standard for determining whether a patent claim is definite, rejecting the Federal Circuit’s standard.
Biosig owns U.S. Patent No. 5,337,753 for an exercise heart-rate monitor of the kind on a cylindrical treadmill grip, where the user grips two sets of sensors, one with each hand. Each set of sensors has two electrodes “in a spaced relationship with each other,” according to the patent claims. The district court found this phrase to be indefinite, rendering the claims invalid. But the Federal Circuit reversed, applying its definiteness standard, finding the phrase was neither “insolubly ambiguous” nor “not amenable to construction.”
The Supreme Court surveyed the history of the Patent Act, finding the definiteness requirement has been “largely unaltered” since 1870. Definiteness requires a “delicate balance” between the “inherent limitations of language” and affording “clear notice” of what the invention is; definiteness “mandates clarity, while recognizing that absolute precision is unattainable.” Because the Federal Circuit’s standard would “tolerate imprecision” for claims falling just short of being insolubly ambiguous, that standard “lacked the precision” § 112 ¶ 2 demands.
Reversing the Federal Circuit, the Supreme Court held the proper standard for definiteness finds a patent invalid if the claims “fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” The issue presented to the Court was purely a legal one—the proper standard for definiteness—so the Court did not address whether the clear and convincing evidentiary burden applies. The Court remanded to the Federal Circuit to determine whether Biosig’s claims are indefinite under the appropriate standard.
The Supreme Court found it relevant that vague patent claims breed uncertainty among competitors, and that “absent a meaningful definiteness check . . . patent applicants face powerful incentives to inject ambiguity into their claims.” Nautilus is the Court’s effort to “[eliminate] that temptation.”
The Patent Act provides, in 35 U.S.C. § 285, that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” In 2005, the Federal Circuit restrictively interpreted the statute in Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., holding that a case is “exceptional” only where (1) “there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation . . . or like infractions,” or (2) the litigation was brought in bad faith and is objectively baseless. The Federal Circuit also required clear and convincing evidence to establish entitlement to attorneys’ fees under the statute.
In Octane, the Court rejected the “rigid and mechanical formulation” of Brooks Furniture and held that an “exceptional” case is “simply one that,” based on the totality of the circumstances, “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case [i]s litigated.” A district court may, in its discretion, award fees in the rare case in which a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so “exceptional” as to justify attorneys’ fees. A district court also may find a case exceptional if it evinces either subjective bad faith on the part of the plaintiff or exceptionally meritless claims. Finally, the Court rejected the clear and convincing evidence standard of proof, holding that § 285 instead requires proof of an exceptional case only a preponderance of the evidence.
In Highmark, the Federal Circuit, applying a de novo standard of review, had partially reversed the district court’s grant of attorneys’ fees under § 285. The Supreme Court vacated and remanded, holding that an appeal of an award of fees under § 285 is reviewable only for abuse of discretion.