Legal Geek No. 105: The Patent "Rocket Docket" is Grounded

Welcome back to Legal Geek. This week, we review one of the first big Supreme Court decisions coming in the last few weeks of the 2017 term, the patent law venue dispute decided this week in TC Heartland vs. Kraft Foods.

https://archive.org/details/LegalGeekEp105

The law governing where patent lawsuits can be filed geographically has been a hot subject of debate as the patent troll problem intensified in the last two decades.  The patent law states that a lawsuit can be filed where a defendant resides, or has a regular and established place of business.  The definition of resides has been open to some differing interpretations.

Back in 1957, the Supreme Court ruled as to all venue statutes, patent and otherwise, that a company "resides" in the place it is incorporated.  For many companies, that it Delaware.  In 1990, the Federal Circuit Court of Appeals decided in a patent case that a recent amendment to the general venue rules would be applied to patent cases such that in effect, any court in a state where a defendant company did business would be where a company "resides," and therefore could be a proper venue for a patent infringement lawsuit.  In other words, patent plaintiffs could forum shop and place lawsuits wherever they wanted in the U.S.

That decision of the Federal Circuit led to some patent-owner favoring districts like the rural Eastern District of Texas to receive a higher share of the patent lawsuits filed in America.  Indeed, that Eastern District of Texas was so popular that it became known as the Rocket Docket, referring both to speed and the local NASA presence.  In the last 3 years alone, more than 40% of all U.S. patent infringement suits were filed in this one remote federal district court. 

This particular case was between two sellers of drink mix products.  Heartland is headquartered and incorporated in its home state of Indiana, and while it ships product to consumers in Delaware, it has no business offices or significant presence there.  Kraft is headquartered in Delaware, like many big companies, and it sued Heartland in Delaware for patent infringement.  Heartland tried to get the lower courts to move the case to their home district of Indiana, but this was unsuccessful.  The open forum rules that the Federal Circuit applied in 1990 were applied once again, and Heartland was deemed to reside in Delaware thanks to having consumers there.

The Supreme Court reversed in a unanimous decision.  The Court determined that the 1990 decision by the Federal Circuit that greatly expanded the definition of where a corporation resides was inconsistent with the statute and Congressional intent, and therefore, the old 1957 precedent applies that residence means only the place of incorporation.  Thus, this case is remanded to the lower courts where it will likely now be moved to Indiana.

The broader implications of this decision are huge for U.S. patents.  The Eastern District of Texas is not a residence for most companies, and so the Rocket Docket will immediately lose most of its caseload in all likelihood.  Districts like Delaware, where many companies incorporate for favorable tax treatment, and North California, home to a high number of tech companies, will likely be inundated with many more patent cases.  Furthermore, the threat of being dragged by a patent troll into any jurisdiction they want that may be favorable to patent owners is immediately kaput.

Some interesting questions remain like how is this rule applied to foreign defendants, and what happens to the likely 50%or more of pending cases ongoing in improper districts at this point?  This decision only dealt with the "resides" definition and therefore gives no clarity as to what constitutes the other way venue is proper in patent cases, which is a regular and established place of business.

Regardless, the Bottom Line is, forum shopping is likely dead in patent litigation now, and that should even things out across the courts of this country in a more balanced and equitable manner.  This is a net positive for patent law, and it likely lessens the need for immediate Congressional action to reform the venue part of patent law. 

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Legal Geek No. 104: Stupid Patent Award creates International Free Speech Clash

Welcome back to Legal Geek. This week, we review an international free speech squabble that has arisen between the Electronic Frontier Foundation in the U.S., and a patent owner named GEMSA in Australia.

https://archive.org/details/LegalGeekEp104

The EFF is a powerful non-profit organization that has defended the rights of privacy and free expression online for nearly three decades.  In many top copyright law disputes, especially those involving definitions of the scope of fair use, the EFF is often involved and usually on the side of expanding fair use, or curtailing copyright protections.  The EFF is also critical of patents, especially so-called patent trolls who enforce overly broad patents against big money defendants.

In 2014 the EFF began awarding a Stupid Patent of the Month award, for just these types of patents.  In June of last year, the award winner was Australian company GEMSA, who was trying to enforce against many parties a U.S. patent claiming exclusive rights for the online use of a virtual cabinet to illustrate data storage.  In short, GEMSA was invading America like other Australians of the past...(land down under)

The EFF claimed that GEMSA basically argued it had the right to sue anybody who runs a website, and that such a result was unconscionable.  GEMSA didn't take kindly to that, and they filed suit in Australia and obtained a court order from the Supreme Court of South Australia by alleging that the EFF article was filled with misleading and deceptive statements.  If this sounds like a libel suit in the U.S., you've got the right idea. 

However, Australia is one of many countries that has a low bar for proving defamation type claims and therefore is more restrictive of free speech than the U.S.  Thus, the court ordered the EFF to take down the article and refrain from commenting any more on GEMSA under threat of imprisonment in Australia.

Of course, the EFF sits in the U.S., land of the free speech and home of the brave litigants.  So the EFF filed suit last month in U.S. Federal Court, seeking a protective order against the Australian court's decree, calling such repugnant to the U.S. constitution and the rights of free speech.  Under U.S. law, critical speech like the Stupid Patent award is typically protected expression, unless it crosses the narrow lines defining libel.  Without truly false statements, the EFF almost certainly wins under the U.S. standard.  That will make any judgment against the EFF unenforceable in America, even if it would be enforceable in Australia.

The Bottom Line is, this squabble over bad patents and free speech reveals the very distinctive laws and standards applied when doing business worldwide in many countries.  Even though the result is likely two home-cooked court orders favoring the local business or organization over the foreign entity, the fact that we have this conflict at all reveals the unique constitutional protections we enjoy in America, a core tenant of why the EFF exists in the first place.  Likewise, it also shows how tough the Patent Office's job is, as it tries to reach fair conclusions of what should be granted a patent monopoly while Applicants rightfully seek the broadest protection they can get.

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Legal Geek No. 103: The IP Lawyer's Perspective on the Nerdy T-Shirt Market

Welcome back to Legal Geek. This week, based on a popular Ars Technica article in the subreddit from frequent contributor Sewell2, we cover this IP lawyer's perspective on why the nerdy T-shirt market thrives in an economy with tons of intellectual property.

https://archive.org/details/LegalGeekEp103

Just over two years ago on this segment, I discussed why small fan art and goods sellers at summer game and comic conventions often fall under the radar and avoid copyright and trademark infringement claims.  As a refresher, the primary reason is that it is very expensive to pursue every small infringement of a popular IP, and if there's no significant money to be earned, it does not always make business sense to pursue such infringement claims.  Another reason is that these fans typically enhance the market for the original owner's products, not the opposite.

The Ars Technica article is basically about the same subject, except that T-shirt sellers are more prominent overall and do what appears to be good business online and at booths in these conventions.  Often, the shirts include well known characters, logos, or sayings, usually with some additional twist.  So the question posed is a good one...how does this industry stay in business despite the constant threat of trademark or copyright infringement enforcement?

The first answer provided in the article is that many of these shirt sellers keep no significant inventory, only printing different designs from artist submissions every day or week, and only based on actual consumer demand.  Although this is still technically IP infringement in some cases where  fair use does not apply, the lack of a constant money stream from any one intellectual property makes it nearly worthless for an IP owner to try and stop the sales after the fact (or recover the profits from the small amount of sales made).  The business model is tailored to keep moving the target, which is wise from an IP standpoint.

A second answer provided is that these websites comply with all DMCA takedown notices promptly, just like other user generated content sites like YouTube.  With copyright infringement being the potential biggest threat thanks to the potential for large statutory damages instead of lost profits and the like, compliance with the DMCA seems to be a great idea in the current IP market.  Of course, the DMCA covers the digital marketing and display of the shirt images, and the actual sales themselves or the artists making the work could still be pursued for infringement, so it's not really a perfect solution for protecting the T-shirt makers.

The third answer was provided in a similar manner as I did on this segment before, that the actual money involved is small enough to not be worth pursuing in many cases, especially considering the fan backlash that would happen against the original IP owner for enforcing their rights.  It's just the economic reality of IP law and enforcement.  It's also why these types of cases have been limited to contexts like the Star Trek Axanar case, where a lot of money came in suddenly via crowdfunding and competed directly with the products of the original IP owner. 

The Bottom Line is, the Ars Technica article is correct in stating that it's a tangled web of business realities and legal defenses such as fair use that keep this T-shirt business afloat.  Most IP owners and developers enforce their rights based on their own level of tolerance, and that seems to be a fair solution for this market.  Regardless, most of these IP owners aren't heavy into the T-shirt or apparel business, so they may not feel the need to fight over this ground.  But make no mistake, a lot of this is IP infringement and a business risk, even if the rights are not often enforced.

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Legal Geek No. 102: The Patent "On-Sale Bar" Changes Clarified under AIA

Welcome back to Legal Geek! This week, we review a Court of Appeals decision this week that clarified whether changes have occurred to the on-sale bar in patents after the America Invents Act of 2011, also known as the AIA.

https://archive.org/details/LegalGeekEp102

The AIA was the most recent major reform by Congress to U.S. patent laws, and it included some significant changes such as giving patent priority rights to the first inventor to file an application, instead of the first person who invented a given invention.  The wording of what serves as prior art to a patent application was also updated.

That latter item is what was in controversy in the case decided this week.  Two pharmaceutical companies were doing battle over four patents related to the anti-nausea drug Aloxi, but there had been a purchase agreement made between the patent owner and another party (privately) in early 2001, more than a year before filing these patent applications in 2003.  There is a one year grace period for sales before patent applications, but that did not apply here in view of these facts.

The recently amended on-sale bar of the patent law states that an applicant is entitled to a patent unless the invention was in public use, on sale or otherwise available to the public before a patent is filed.  The key difference from the old statute was the addition of the "otherwise available to the public" language. 

The argument boils down to whether the added words "or otherwise available to the public" just applies to the words "on sale" or is another separate type of disclosure that triggers a bar date.  Before the AIA, there were decades of court precedents that deemed even private sales to still qualify as bar date triggers that could block patents.  In other words, it did not matter before the AIA whether sales were public or not.

The alleged infringer was arguing that this status quo of precedent should not change under the new AIA language, while the patent owner argued that only public sales that publicly disclose the details of an invention triggered a bar to patentability.  The Federal Circuit disagreed with the patent owner, effectively confirming that the on-sale bar remains much the same as it was before the AIA. 

This is a big result because an opposite conclusion would potentially gut the effectiveness of an on-sale bar, by allowing private sales and commercialization efforts more than a year before being forced to file a patent application.  Indeed, the Patent Office itself had sided with the patent owner on this issue and that turned out to be wrong!  In this case, all the patents were therefore deemed invalid and the generic drug can hit the marketplace unscathed by patent infringement.

The Bottom Line is, when Congress changes laws in even minor ways, there are always viable arguments regarding how far the changes go.  This case settles a question that had been openly debated about the on-sale bar for the last 5 years, and it maintains the long standing limits on how far the U.S. patent grace period can be stretched by potential patent applicants.  Furthermore, we can always count on big pharmaceutical companies to test the limits of patent law and help us clarify our laws.

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