by Lee Gesmer | Oct 15, 2007 | Patents
Patent Law. Patent lawyers and their clients spend a lot of time worrying about willfulnesss. If a patent is infringed and the infringement is “willful,” the consequences can include treble damages and liability for the patent owner’s attorneys fees. The idea of paying the other side’s legal fees can be a terrifying prospect for most patent infringement defendants. Think of it as writing a blank check to your opponent’s lawyers.
To avoid this fate, a lot of time and money is spent before the fact on “clearance opinions”, that is, an opinion of a patent lawyer that a particular item or process does not infringe pending or issued patents. A good opinion (meaning an opinion by competent counsel, who is given all relevant information, and who conducts the analysis in advance of any legal claim or threat) is often viewed as an insurance policy when it comes to wilfullness. After all, if reputable counsel has told you that your product doesn’t infringe a patent, what more could you possibly do to establish that you have not willfully infringed?
Of course, many infringement actions are brought against defendants who have not bothered to obtain such an opinion (either due to cost concerns or ignorance), in which case the risk of willfulness can be a major factor in the risk analysis of the lawsuit.
But just what is “willfulness”? Until just a few years ago, merely failing to obtain a legal opinion gave rise to an inference of willfulness. However, that presumption was eliminated by the Federal Circuit (the specialized appeals court that reviews all patent cases decided by the district courts) in 2004 in the case of Knorr-Bremse Systeme Fuer Nutzfahrzeuge Gmbh v. Dana Corporation.
Most recently, in August 2007, the Federal Circuit went a step farther in its en banc decision in In re Seagate Technology, LLC. In this case the court created a two part test for willfulness:
first, a patent owner must prove “by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. . . . The state of mind of the accused infringer is not relevant to this objective inquiry. And second, the patent owner must prove that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”
This presents a tough standard for a plaintiff claiming willful infringement. One might even read it to say that unless the alleged infringer knew of the patent it allegedly infringed, it hasn’t met the standard. Ignorance (at least sincere ignorance, rather than willful ignorance) is bliss. And, this standard is only the most recent move in a trend dating back at least 15 years in which the Federal Circuit has made it increasingly difficult for patent holders to establish willfulness.
The precise application of this “objective” standard will have to be worked out case-by-case by the trial courts and future decisions of the Federal Circuit, but it is clear that the pendulum continues to swing in the direction of safety for infringers in the realm of willfulness, just as it it does in other, more substantive, areas of patent law.
by Lee Gesmer | Jul 25, 2007 | Courts
Justia.com is a very cool new legal research site that I stumbled upon. What I particularly like is its “front end” for research in the Case Management/Electronic Case Files (ECF) system, which has become extremely comprehensive since most federal district courts now mandate electronic filing.
One part of the site, Federal District Court Filings and Dockets, gives much easier access to the ECF system than the ECF front end, which I’ve always found to be awkward. Justia allows you to look (for example) for all patent cases filed between any two dates, either nationally or in a particular district. Ultimately, Justia dumps you into the ECF system, and you have to be a paid subscriber to access PDF files at eight cents a page.
The site has a number of other interesting areas to explore, such as a Supreme Court center and a searchable collection of legal blogs and podcasts.
by Lee Gesmer | Jul 19, 2007 | Courts
Andy Updegrove provided me with an article by Roger C. Cramton, Professor Emeritus at Cornell Law School, which Andy (a Cornell Law alum) thought was particularly interesting, and I thought it was worth sharing here. The article, entitled Reforming the Court: How Long is Too Long (published in a Cornell Law alumni magazine) is based on the introduction to a book by Professor Cramton and Professor Paul Carrington of Duke Law School, entitled Reforming the Court: Term Limits for Supreme Court Justices.
Of course, the titles of the book and article state the authors’ thesis. The article, based on the introduction to the book, is thought provoking. Here are a few “facts” taken from the article:
- Between 1970 and today the average length of service on the Supreme Court has grown from 15 years to 26 years
- During that time the average age at which a Justice retires from the Court has increased from 68 to 79
- Statistically speaking, John Roberts, who was appointed at age 53, has a life expectancy of 30 years, and could be sitting as Chief Justice in 2037, or even much later
- Before the recent vacancies created by the death of Chief Justice Rehnquist at age 80 and the retirement of Justice O’Connor at the tender age of 75, the Court’s membership had been unchanged for 11 years
The idea behind the book and article is that in 1789, when life under the U.S. Constitution began, life expectancy at age 50 was half what it is today; the Founders never anticipated that Justices would sit so long, or that the Court could remain unchanged for so long. The authors propose what they think is a reasonable solution: limit any one USSC Justice’s term to life or 18 years, whichever is shorter (no, they didn’t actually express it that way, my joke). After 18 years, an aspiring Justice who wants to keep working can stay busy riding the circuits on the U.S. Courts of Appeals.
In the United States, most people seem to be anxious to retire (relatively) young and enjoy life. Studies have shown that by age 65 fewer than 18% of males are in the work force.Why is Justice Stevens still sitting at age 86 (32 years after being appointed by Gerald Ford)?
Professors Cramton and Carrington attribute this to the increasingly cushy nature of the job. Consider: each Justice writes only 8 or 9 opinions a year (the total number of decisions is down by about half in the last 20 years, and down much more from early in the 20th Century), has three highly qualified and motivated law clerks to help with this workload, a six week winter break and a three month summer recess, free world travel (paid for by various organizations), professional accolades, and enormous political power in our three-headed system of government. And, of course, no real “boss” to speak of. The other Justices can yell at you, but they can’t fire you. Of course, because USSC Justices don’t try cases they don’t suffer the stresses of the courtroom, which can be significant on both lawyers and judges.
Should this change?I think it should. I agree that Supreme Court Justices should not spend 30 or 40 years, into their 80s (and with modern medical technology, maybe their 90s or longer, who knows?), in such a position of power and influence.Is a Constitutional Amendment that would put the equivalent of term limits on Supreme Court Justices in the cards? Don’t hold your breath (or delay your retirement).And, I’d hate to be the lawyer that has to defend any legal attack on such an amendment, should it make it to the Supreme Court.
Footnote: Of course, this “nine old men” business has had its turn before, as far back as 1937. John Grisham made great fun of nonagenarian USSC Justices in his 1992 book, The Pelican Brief. (“He was ninety-one, paralyzed, strapped in a wheelchair and hooked to oxygen. His second stroke seven years ago had almost finished him off, but Abraham Rosenberg was still alive, and even with tubes in his nose his legal stick was bigger than the other eight. . . . Rosenberg insisted on writing his own opinions . . . slow work, but with a lifetime appointment, who cared about time?”).
by Lee Gesmer | Jul 3, 2007 | Miscellaneous
I’d fallen behind on some reading, but in catching up I noticed two copyright “fair use” cases that I thought were pretty interesting.
The first was decided by the 9th Circuit Court of Appeals in California. This case is similar to a situation that we encounter often, but on a scale that I’ve never seen before. Briefly, the L.A. County Sheriff’s Department entered into a license that allowed it to make approximately 3600 copies of a software program on its computers. Through inadvertence, poor record keeping, or poor supervision, the Sheriff’s Department installed the software on approximately 6,000 computers. Exceeding the scope of a license is copyright infringement, and the software owner so claimed. The Sheriff’s Department’s main line of defense was that it’s actions were “fair use.” In all the cases I’ve handled of this nature, it had never occurred to me to assert a fair use defense, and I don’t regret my failure to come up with this imaginative defense. The Sheriff’s Department lost on all of the “fair use factors.“
Amazingly, this case went through trial and then appeal, with the Sheriff’s Department losing at every stage, and the software owners being awarded a fairly large judgment for its troubles. This is representative of how difficult it is to sue a government entity. They often will fight long beyond the point that a private defendant would have recognized the economics of the situation and settled the dispute.
Rex non potest peccare. A link to the full decision is here.
The second case involved the publication of a 480 page coffee-table style book that is a chronological history of the Grateful Dead. The book, entitled Grateful Dead: The Illustrated Trip, contained around 2000 images and illustrations. Unfortunately for the publisher, it included seven images from Grateful Dead event posters and tickets owned by the Bill Graham Archives (Bill Graham, the famous rock promoter died in 1991; his archives are now owned by Wolfgang’s Vault).
Although the book publisher had attempted to license the seven images before publication, it had been unable to strike a deal with the Bill Graham Archives. Regardless, the publisher used the images, apparently hoping to plead copyright fair use, should it be forced to defend its actions.
After the Bill Graham Archives brought suit for copyright infringement, the federal district court in New York dismissed the case based on the fair use defense. The second circuit upheld this decision after engaging in a fairly exhaustive analysis of the fair use doctrine in this context. Critical to the court’s conclusion was the fact that the chronological arrangement of the images was “transformative,” that their use in the book emphasized their historical value, and that the images were used in reduced form.
Decision here.
In my opinion, the federal appeals courts were “two for two” in these fair use decisions.
by Lee Gesmer | Jun 29, 2007 | Antitrust
As recently as 1977 virtually all “vertical restraints” were per se illegal under the federal antitrust laws. This included “nonprice” restraints, which are agreements between firms operating at different levels than the manufacturer that restrict the conditions under which firms may resell goods. An example might be a restriction on the locations from which a retailer may sell a manufacturer’s product.
Supreme Court precedent also restricted both vertical “maximum” price restrictions (example: “you may not price this product higher than $12/unit”) and vertical “minimum” price restraints (example: “you may not price this produce at less than $10/unit”).
However, over the last 30 years the Supreme Court has, in effect, withdrawn each of these antitrust prohibitions, holding that these restraints must be subject to the “rule of reason” (requiring an economic examination in every case to determine whether the harms outweigh the benefits), rather than the per se doctrine (per se illegal = automatically illegal; no excuse will do).
In 1977 the Supreme Court dropped the per se rule on “nonprice” restraints in the case of Continental T.V., Inc. v. GTE Sylvania, Inc. I had the pleasure (is there an emoticon for sarcasm?) of writing a Law Review Note on that case: Sylvania and Vertical Restraints on Distribution, 19 Boston College Law Rev. 751 (1978).
Twenty years later, in State Oil Co. v. Khan, the second leg of this three-legged stool was removed when the Supreme Court held that maximum vertical price restraints should not be subject to the per se rule of illegality. In and of itself this was not a big deal, since manufacturers rarely set maximum prices. The real battle, all antitrust lawyers knew, lay with the third, and most controversial, leg of the chair: minimum vertical price-fixing.
Since the 1997 Khan ruling left the per se rule against minimum price restraints intact, for the last ten years it has remained per se illegal for a manufacturer to dictate the minimum price at which a product may be sold. In other words, it has remained per se illegal for a distributor (or a manufacturer that sells directly to retailers) to prevent distributors and retailers from price cutting. Hence, the phrase “manufacturer’s suggested retail price” or “MSRP.” Most likely, you have never seen the phrase “manufacturer’s required retail price.”
Yesterday, in a five to four decision written by Justice Kennedy (often seen as the swing vote on this Court), the Supreme Court overruled the per se rule on vertical minimum price fixing that almost every living American has lived with his or her entire life. In Leegin v. PSKS, Inc., the Court swept away the almost 96-year old per se rule against vertical minimum price fixing, holding that henceforth this practice, too, will be judged under the “rule of reason.”
The rationale behind this ruling? In a nutshell, the Court was convinced that “interbrand” (as opposed to “intrabrand”) competition is sufficient to protect consumers. This leaves the possibility, therefore, that a monopolist, or a manufacturer with overwhelming market power, will still be prevented from vertical minimum price fixing. However, because the practice no longer is per se illegal, proving the harmful impact on competition in any given case will be far more costly, difficult and unpredicatable. It has been observed by one commentator that litigating a rule of reason case is one of the most costly procedures in antitrust law (H. Hovenkamp, The Antitrust Enterprise 105 (2005)). As a result of the Leegin decision, far fewer cases will be brought.
Will this make business happy? Almost certainly it will. We have had countless clients express their dismay over the rule that prevented them from imposing minimum prices on their dealers. This has been even more true as the Internet marketplace has emerged, since sellers can advertise price cuts so easily on the Web. Why should a retailer maintain a storefront and an experienced on-site sales staff when it can be undercut so easily online?
Will this change in the law be good for consumers in the long run, as the Supreme Court majority believes? Measuring the benefits and detriments of a rule such as this in an economy as complex as ours is well near impossible. The Supreme Court’s decision was based entirely on economic theory rather than empirical economic evidence. When considering this one must, of course, recall the oft-quoted comment of John Kenneth Galbraith: “The only function of economic forecasting is to make astrology look respectable.”
What is clear, however, is that a generation of antitrust lawyers will have to learn to change their tune when a client asks: “Can I tell all my distributors (or retailers) that they cannot sell below a specific price?” And keep an eye out for that label – “manufacturer’s required retail price.”
