by Lee Gesmer | Aug 28, 2014 | Patents
It would be difficult to find a more straightforward application of the Supreme Court’s recent ruling in Alice Corporation Pty. Ltd. v. CLS Bank International (June 14, 2014) than the Federal Circuit’s August 26th decision in Planet Bingo, LLC v. VKGS LLC (Fed. Cir. August 26, 2014) (non-precedential).
While practitioners and observers of patent law seemed to agree that Alice didn’t spell doom for software and business method patents, it was clear that it did mark the end for patents that do nothing more than recite a generic computerized implementation of an abstract idea.
While it is true that a patent may be obtained for “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” (link), the Supreme Court has held, in a series of decisions, that there is an implicit exception to the patent statute: laws of nature, natural phenomena, and abstract ideas are not patentable.
In Alice the Court held that “abstract ideas” are not patentable unless they contain an “‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.” While the precise line between an impermissibly abstract idea and a patentable process remained undefined in Alice (and may never be fully defined), one thing seems clear: once an invention is identified as an abstract idea, a generic computer implementation of that idea is not patentable.
Planet Bingo filed its patent application in 2000, long before the decision in Alice, and it was awarded the patent in 2002. The system described in the patent allows players to select their own numbers and store them for later use, allows players to print off game tickets at the Bingo-playing site with those pre-selected numbers, and enables Bingo hall operators to track and validate these sets of numbers.
Higgins & Jeong
However, obtaining a patent and enforcing it are two different things, and Planet Bingo ran headlong into a defense of patent ineligibility when it brought suit to enforce the patent against a competitor in federal district court in Michigan in 2012 (apparently only one of many cases filed by Planet Bingo). The federal district court declared the patent invalid under the Federal Circuit’s holding in Alice, and the Supreme Court’s 2014 decision in Alice sealed Planet Bingo’s fate when it appealed to the Federal Circuit.
In one of the first of what is likely to be many cases invalidating patents under Alice the Federal Circuit identified the steps set forth in the patent as an abstract idea because they are “mental steps which can be carried out by a human using pen and paper.” Furthermore, the Federal Circuit observed, these steps can be “carried out in existing computers long in use.” The patent lacked the “inventive concept” essential to transform the patent’s ideas into a patent eligible invention. Accordingly, the patent was held invalid.
For a similar case invalidating a patent that claimed a system of computerized meal planning which the court described as a “computer program that allows the user to create meals from a database of food objects, … to change those meals by adding or subtracting food objects, and to view the dietary impact of changes to those meals on a visual display,” see DietGoal Innovations LLC v. Bravo Media LLC (S.D.N.Y. July 8, 2014) (patent “recites nothing more than the abstract concept of selecting meals for the day, according to one’s particular dietary goals and food preferences”). This case also includes a helpful summary of the evolution of patent-eligibility in the Supreme Court from 1972 to 2014.
by Lee Gesmer | Aug 9, 2014 | Copyright
It may come as a surprise to some readers that fictional characters are protected by copyright law. Even if the actual words used to describe a character are not copied, a “well delineated” or “especially distinctive” character may receive copyright protection. Prominent examples from decided court cases include
Rocky (under-appreciated, sullen, heroic boxer) and
James Bond (British accent, tuxedos, “license to kill,” “stirred not shaken”). Unlike stock/stereotypical characters, Rocky and Bond have specific character traits and characteristics that entitle their creators (or owners) to claim copyright in these fictional characters. The more the character has unique, identifiable traits and plays a central role in the work in which the character appears, the stronger the copyright protection permitted by the courts. (If you’ve seen Guardians of the Galaxy, “Rocket Raccoon” is a classic example of a protectible character).
Who then, could be more entitled to a “character copyright” than the solitary, tobacco and cocaine-loving, deductive genius-detective Sherlock Holmes, one of the most popular and enduring fictional characters of the last century?* Clearly this character, as conceived by Sir Arthur Conan Doyle in works published between 1887 and 1927 meets this legal standard.
note: And don’t forget Dr. John H. Watson, who also was almost certainly a copyright-protected character.
Today, whatever copyright remains in the 56 stories and 4 novels published by Conan Doyle featuring Sherlock Holmes is owned by the Conan Doyle Estate, Ltd., and the Doyle Estate has in the past, quite properly, sought royalties for the publication of these works and use of the Holmes character. However, under U.S. copyright law the copyright in the 4 novels and 46 of the 56 stories (all published before 1923) have expired, leaving only the 10 post-1923 stories covered by U.S. copyright protection.
Enter Leslie Klinger, who sought to publish an anthology of contemporary stories that used the Holmes “character.” The Doyle Estate made it clear that if he did this it would lead to legal action; the Estate took the position that because 10 stories were still under copyright, its copyright in the Holmes character continued to be protected by copyright. Klinger couldn’t get his anthology published with this legal threat hanging over him, so he brought suit to challenge the Estate, and the case ended up before a 3-judge panel of the Seventh Circuit Court of Appeals. The decision, which concluded that the Holmes’ character had entered the public domain by reason of the pre-1923 publications, was written by the inimitable Judge Richard Posner, an erudite, famous (among legal-types) 7th Circuit judge.
Klinger’s argument was simple: if the character was created in the pre-1923 works and those works had entered the public domain, the Holmes character was also in the public domain. The Doyle Estate argued to the contrary, asserting that Holmes was a “complex” character whose full complexity was not revealed until the post-1923 stories were published, and therefore the character should remain under copyright until those stories enter the public domain. In other words, because the Holmes character continued to be developed after 1923 his character remains under copyright protection. The Doyle Estate also described this as the difference between a “round” and a “flat” character, characters that evolve in a series of works (round characters) and those who do not (flat characters).
The Seventh Circuit didn’t come close to buying the Doyle Estate’s argument. While some minor aspects of Holmes’ character evolved in the post-1923 works (for example, he developed a more favorable attitude toward dogs), at most these new features in the in-copyright stories would be protected. However, this would not serve to extend the copyright in the character features published in the works that are now out of copyright and in the public domain:
From the outset of the series of Arthur Conan Doyle stories and novels that began in 1887 Holmes and Watson were distinctive characters and therefore copyrightable. They were “incomplete” only in the sense that Doyle might want to (and later did) add additional features to their portrayals. The resulting somewhat altered characters were derivative works, the additional features of which that were added in the ten late stories being protected by the copyrights on those stories. The alterations do not revive the expired copyrights on the original characters. . . .
With the net effect on creativity of extending the copyright protection of literary characters to the extraordinary lengths urged by the estate so uncertain, and no legal grounds suggested for extending copyright protection beyond the limits fixed by Congress, the estate’s appeal borders on the quixotic. The spectre of perpetual, or at least nearly perpetual, copyright … looms, once one realizes that the Doyle estate is seeking 135 years (1887-2022) of copyright protection for the character of Sherlock Holmes as depicted in the first Sherlock Holmes story.
This, however, was not the end of the matter. Mr. Klinger sought the attorney’s fees he incurred in defending against this appeal, and in a decision dated August 4, 2014, the Seventh Circuit (again in an opinion written by Judge Posner), awarded him approximately $30,000 in fees. It is well known that Judge Posner is critical of owners of intellectual propertty who extort small sums from defendants who may not be infringing, but who chose to pay a small amount in settlement rather than a large sum for a successful defense. Judge Posner, writing for the same 3-judge panel, stated –
The Doyle estate’s business strategy is plain: charge a modest license fee for which there is no legal basis, in the hope that the “rational” writer or publisher asked for the fee will pay it rather than incur a greater cost, in legal expenses, in challenging the legality of the demand. … [Klinger] performed a public service—and with substantial risk to himself, …. The willingness of someone in Klinger’s position to sue rather than pay Doyle’s estate a modest license fee is important because it injects risk into the estate’s business model. As a result of losing the suit, the estate has lost its claim to own copyrights in characters in the Sherlock Holmes stories published by Arthur Conan Doyle before 1923. For exposing the estate’s unlawful business strategy, Klinger deserves a reward but asks only to break even. . . .It’s time the estate, in its own self-interest, changed its business model.
While Klinger won before the Seventh Circuit, this case may not be over – The Doyle Estate has indicated it intends to appeal to the U.S. Supreme Court.
Klinger v. Conan-Doyle Estate, Ltd. (7th Cir. June 16, 2014)(liability)
[Update November 6, 2014: The Supreme Court denied review of this case]
by Lee Gesmer | Aug 6, 2014 | Trade Secrets
This case, decided by the Massachusetts Supreme Judicial Court on July 28, 2014, shows how difficult it can be to recover damages in a trade secret case. The facts (boiled down) are straightforward. Lightlab manufactures optical coherence tomography systems (OCT). Lightlab had a joint development/non-disclosure agreement with Axsun. Axsun disclosed Lightlab secrets to Volcano, a competitor to Lightlab and would-be acquiror of Axsun. Lightlab obtained a preliminary injunction enjoining the use of its trade secrets by Axsun and Volcano, and also enjoining Volcano’s acquisition of Axsun until after the Lightlab/Axsun agreement expired in 2014, more than five years later.
At trial Lightlab was able to obtain a verdict for trade secret misappropriation (and related claims) from a Massachusetts Superior Court jury.
However, the trial was bifurcated, and before presenting its damages case to the jury Lightlab first needed to run the gauntlet of expert disqualification thrown down by the defendants (Axsun and Volcano). It failed to do this – outside the presence of the jury the trial judge questioned Lightlab’s damages expert for three days, following which she disqualified the expert, leaving Lightlab with no damages case to present.*
*In business and intellectual property cases damages are almost always established through the testimony of a damages expert.
Lightlab had some unfavorable facts to overcome in order to prove damages. The trial judge held Lightlab’s damages experts’ proposed testimony to be speculative (and therefore inadmissible) based on her findings that Lightlab –
- had no profitable sales of its OCT device since it began sales in 1999
- was unable to prove it had lost any sales as a result of the infringement
In addition to these key facts, Lightlab –
- had no guaranteed funding from its parent company to develop the new version of its product that was the basis for the expert’s damages theory
- had not (as of the time of trial in 2010) obtained FDA (or non-U.S.) regulatory clearance for its newest product
- had not yet invented the new generation of its product that was the basis for the expert’s anticipated damages testimony
The trial court judge also found that the expert had performed no market study to support certain assumptions he made concerning Lightlab’s market share through 2038, the 28 year period for which the expert claimed to have calculated damages.
The trial judge closed out the case with no trade secret damages awarded to Lightlab. Lightlab appealed, and the Massachusetts Supreme Judicial Court (SJC) affirmed the trial judge’s decision
It is notoriously difficult for a start-up company such as Lightlab, which had no history of profitability, to recover trade secret damages based on “future” lost profits. In an important sense Lightlab was a victim of its own success – it obtained a preliminary injunction against the use of its trade secrets before the defendants could utilize them, so the defendants never profited directly from the misappropriation.
Given the early preliminary injunction and the factors listed above Lightlab was faced with a seemingly near-insurmountable challenge to recover damages. To overcome this obstacle Lightlab advanced some cutting-edge arguments, the most interesting of which was that as a result of the misappropriation Lightlab had lost the “first mover advantage.” The “first mover advantage” theory is not described in any detail by the SJC in the Lightlab decision, but it is described by Pearson Education as follows (link):
The basis of first-mover advantage is [that] by being the first to enter a new market, the business gains an advantage over its actual and potential rivals. . . . If the business is first into a market, so the thinking goes, it can establish what the military thinkers would call ‘defensible ground’. First, it can capture market share much more easily without having to worry about rivals trying to capture the same customers. Second, when the rivals do come along – as they inevitably will – the first-mover and its management team will have advantages in the ensuing competition, such as familiar products, brand loyalty, the best retail outlets, up-and-running distribution systems, and so on. By beating rivals into the market, the first-mover can consolidate its position and compete more effectively, not only defending its previously acquired share but even continuing to expand.
However, the SJC found that Lightlab was able to cite almost no judicial authority in support of this damages theory: “Significantly, [Lightlab’s expert] acknowledged that nothing in the economic literature supports quantifying lost profits based on first mover advantage. … [The trial judge’s] conclusion that [the expert’s] use of first mover advantage in his methodology rendered that methodology incapable of being validated and tested was well within her discretion.”
Before closing out its opinion the SJC expressed its “concern” that traditional lost profits analysis may not be an adequate model for analyzing harm caused by misappropriation of trade secrets of a “start-up” business. “This fact,” the court stated, “should not render them ‘damage proof.'” The court stated that “other theories of damages may lend themselves to misappropriation of trade secret cases and that such theories may be ripe for testing in our courts.” However, the court did little to indicate what these “other theories” might be and, for Lightlab, this was too little too late.*
*The court’s only citation in connection with this comment was to a 2002 ABA publication, “Enforcement of Trade Secret Rights and Noncompetition Agreements”, pp. 23-32 (link)
There are other important issues addressed in this opinion, not touched on here, relating to damages, the judge’s role in excluding expert witnesses and the scope of injunctive relief in trade secret litigation. Trade secret decisions from the Supreme Judicial Court are few and far between, so Lightlab will be closely studied in trade secret litigation in Massachusetts for many years to come.
Lightlab Imaging, Inc. v. Axsun Technologies, Inc. (SJC, July 28, 2014)
by Lee Gesmer | Jul 22, 2014 | Copyright
It’s difficult to read Aereo’s section of Aereo and ABC’s July 9, 2014 joint letter to the U.S. District Court without experiencing a good dose of disbelief.
Until the Supreme Court issued its decision in ABC v. Aereo on June 25, 2014 (earlier blog post on that decision), Aereo insisted that it was not a cable company entitled to a compulsory license under Section 111 of the Copyright Act (17 U.S.C. section 111(c)). Aereo denied it was a cable system in filings with the district court and in its brief to the Supreme Court. At oral argument Justice Sotomayer questioned whether Aereo was a cable company, and Aereo’s attorney responded –
Now, we are not a cable service. The reason we’re not a cable service is because cable takes all signals and pushes them down. There’s a head in. It’s defined by statute. There’s a very particularized regulatory structure that deals with taking a lot of content and pushing it down to consumers. Aereo is an equipment provider.
However, after the Supreme Court decision Aereo tried to change its stripes. In the July 9th letter it states:
The Supreme Court has now ruled that “having considered the details of Aereo’s practices, we find them highly similar to those of the CATV systems in Fortnightly and Teleprompter. And those are activities that the 1976 amendments sought to bring within the scope of the Copyright Act. … Accordingly, Aereo is entitled to a compulsory license under the Copyright Act, 17 U.S.C. § 111. And because Aereo is entitled to a license under Section 111, the transmissions Plaintiffs have sought to enjoin do not infringe Plaintiffs’ rights under the Copyright Act.
Aereo has been careful to follow the law, and the Supreme Court has announced a new and different rule governing Aereo’s operations last week. Under the Second Circuit’s precedents, Aereo was a provider of technology and equipment with respect to the near-live transmissions at issue in the preliminary injunction appeal. After the Supreme Court’s decision, Aereo is a cable system with respect to those transmissions. . . .
The Supreme Court’s holding that Aereo is a cable system under the Copyright Act is significant because, as a cable system, Aereo is now entitled to the benefits of the copyright statutory license pursuant to the Copyright Act, 17 U.S.C. § 111(c). Aereo is proceeding to file the necessary statements of account and royalty fees. By holding that Aereo is a cable system, the Supreme Court has overruled WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 279 (2d Cir. 2012) to the extent it might apply to Aereo … .
The Supreme Court did not hold that Aereo is a cable system. “Highly similar,” for purposes of applying the public performance provision, yes. A cable system, no. Nor, as Aereo asserted in its letter to the court, did the Supreme Court “overrule” WPIX, Inc. v. ivi, Inc., 691 F.3d 275 (2d Cir. 2012), which held that “Congress did not … intend for § 111’s compulsory license to extend to Internet transmissions.”
It didn’t take long for the Copyright Office to point this out to Aereo. After the Supreme Court decision Aereo submitted royalty and filing fees of approximately $5,000 (about 1% of revenue) to the Copyright Office. In a July 16, 2014 letter the Copyright Office’s General Counsel, citing WPIX v. ivi, advised Aereo that “in the view of the Copyright Office, internet retransmissions of broadcast television fall outside the scope of the Section 111 license.”
To make matters worse (for Aereo), Aereo faces a double hurdle: under the federal Communications Act Aereo must negotiate and obtain “retransmission consent” from broadcasters, a process which, for reasons Jeff John Roberts explains on Gigaom, puts Aereo in an economically hopeless position.
Clearly, the decision-makers at Aereo are not fans of Kenny Rogers, or they would know it’s time to either walk away or to run.
It would be great to receive low-cost Internet access to broadcast television, but despite Aereo’s attempts to reinvent itself following the Supreme Court decision holding it to be a copyright infringer, it is extremely unlikely that service will come from Aereo.
by Lee Gesmer | Jul 11, 2014 | Copyright
[catch-up post] The First Circuit issued an copyright law opinion in March addressing a number of issues related to copyright law. However, the unwritten lesson of this case is that artists need to obtain ownership rights in writing. Failure to do so led to the unfavorable outcome the plaintiffs experienced in this case.
Before attempting to describe this decision (or the most interesting aspects of it), it’s worth pointing out that the First Circuit judge who wrote the opinion not only began his opinion with the famous Mark Twain quote (“only only one thing is impossible for God: to find any sense in any copyright law on the planet”), but added the comment that “Twain’s deity would fare little better with the tangled skein of copyright and contractual claims presented by the plaintiffs in this case.”
The First Circuit judge’s comment may be an understatement. The confusing facts make the decision difficult to follow. However, in essence the plaintiffs (Massachusetts musicians and producers of “Reggaeton” music) alleged that seven songs which they jointly composed and performed were modified and distributed by the defendants on the “Erre XI” album (image above), infringing the plaintiffs’ copyrights in the compositions in the songs.
The plaintiffs’ problems with this claim appear to stem from the fact that there were multiple contributors to the musical works at issue, but the artists and producers didn’t bother to enter into agreements assigning clear ownership to any one participant (or group of participants). The plaintiffs then got tangled up in the complexities of registration with the Copyright Office, and were unable to extricate themselves in time, leading to dismissal of the case.
The plaintiffs obtained registrations on four of the works (more on that below), but they hit a seemingly insurmountable obstacle when they attempted to register the compositions for three of the songs. Two years after they had filed for registration the Copyright Office still was unable to determine if the deposited recordings of these three songs were acceptable to register the compositions, and refused to issue registration certificates.*
*note: You can obtain a copyright in a composition by registering a notated copy (i.e., sheet music), or a phonorecord containing the composition. (link) In this case the plaintiffs attempted to obtain registrations based on phonorecords containing the compositions.
The reason for this refusal appears to be that that the plaintiffs had attempted to satisfy the copyright deposit requirement for compositions by submitting copies of the defendants’ allegedly infringing recordings rather than the plaintiffs’ original recordings, leading to no end of confusion at the Copyright Office.* Possibly (although the First Circuit opinion is unclear on this) the plaintiffs were unable to obtain the original recordings from the defendants.
*note: The Copyright Office described the snafu as “whether a copy of an unauthorized track, that contains the original composition embedded in the track, can be used as deposit material.” The Copyright Office explained that “in general, an unauthorized copy cannot be used as deposit material.”
The district court granted defendants’ motion for summary judgment, finding that the plaintiffs had not satisfied the registration precondition of the Copyright Act, observing that not only had they not obtained registration certificates on the three compositions, but they have not even “shown that they had submitted all the necessary application materials for registration.”
The First Circuit declined, as it has in the past, to take sides in the “application versus registration” issue. That is, before filing suit for copyright infringement must a plaintiff have completed the registration process, or is it sufficient just to have filed an application for registration? The First Circuit observed that the circuits are split on “whether the registration requirement is satisfied at the time the copyright holder’s application is received by the Copyright Office (the ‘application approach’) or at the time the office acts on the application and issues a certificate of registration (the ‘registration approach’).” However, the court was unwilling to decide the issue in this case, noting that there was insufficient evidence to show that the plaintiffs had even met the requirements for an application. Thus, the plaintiffs lost on three of the songs based on their failure to obtain a registration certificate or file a proper application.
Why did the plaintiffs lose on the four songs on which they did obtain registrations? Because, as the First Circuit explained, a musical composition and a sound recording of that composition are separate works, with their own distinct copyrights. Under the arcane registration requirements of the Copyright Office, a musical composition and a sound recording may be registered in a single application only if ownership of the copyrights in both is exactly the same, a requirement the plaintiffs admitted they could not satisfy in this case. Accordingly, the four recordings on which the plaintiffs did obtain registration were invalid.
The plaintiffs’ ineffective pleading appears to have contributed to the unfavorable outcome here. When, on appeal, the plaintiffs argued for a copyright on the sound recordings, the First Circuit noted that the allegations of the complaint were limited to the compositions. When the plaintiffs argued that the works were entitled to joint ownership, the First Circuit noted that the complaint failed to adequately allege a claim of joint ownership.
The case, which also addresses breach of contract, Lanham Act and other miscellaneous issues, is linked below.
Alicea v. Machete Music, 744 F.3d 773 (1st Cir. 2014)
