Legal Geek No. 29: Will Spiderman Toy Dispute Overturn 50 Year Patent Law?

Welcome back to Legal Geek! This week, we mix all of our favorite things for this holiday season: toys for Christmas, superheroes, and 50-year old patent law precedents at the Supreme Court. The Supreme Court granted cert this week to decide the Kimble vs. Marvel Entertainment case, which involves all of these awesome things.

https://archive.org/details/LegalGeekEp29

In a 1964 patent case entitled Brulotte, the Supreme Court deemed that a patent licensee, who pays a patent owner royalties to be able to manufacture and sell goods covered by the patent, is absolved of any further duties after the patent expires following its normal 20 year term. In other words, for 50 years the law has been that a patent owner cannot continue to demand payment of royalties from licensees following expiration of a patent, because public policy dictates that the invention go into the public domain at that point.

That doctrine is now directly under fire thanks to complicated cases like the Kimble case the Supreme Court will hear in early 2015. Kimble received a patent in 1991 for gloves capable of shooting foam string from the palm, just like Spiderman. Or as Andrew Allen would put it...(insert theme music)

He approached Marvel with this idea and an oral agreement was reached that Marvel would not exploit this idea. However, in 1997, a Web Blaster toy which was exactly this type of Spiderman glove hit the market from Marvel.

Kimble sued for patent infringement and breach of contract, and when he won on the contract claims but lost on the patent claims, the parties settled before appeal. This settlement led Marvel to buy out the patent and pay royalties on all future sales of this type of toy. Despite the patent expiring in 2010, the settlement agreement had no set termination date.

A new dispute over this settlement agreement led to another breach of contract lawsuit two years ago, and Marvel asked for declaratory judgment in view of the 50-year old Brulotte patent doctrine. Basically, Marvel argued that the now-expired patent rights released Marvel of any further obligations to pay royalties.

The District Court and the Court of Appeals have ruled in favor of Marvel by using this 50-year old doctrine. The Supreme Court taking this issue means the status of the Brulotte doctrine is unclear, at best. This hybrid contract and patent set of facts is the perfect type of case to determine whether expiration of patent rights trump any other contractual agreements to pay royalties for an idea.

Though it is clear that patented ideas should go into the public domain after 20 years to keep the patent system working as intended, it is not clear whether this need to put things in the public domain is so strong as to override private contractual agreements between two parties. To this end, Marvel had the opportunity to negotiate and write this settlement contract better than it did, so it's unclear why this party should now benefit from a rule intended to protect everyone else in the public.

It's unlikely we will see Justices Scalia and Ginsburg shooting webs at one another during oral argument, but the business makers and innovators in our nerd world will help determine just how far 50-year old patent law precedent can be applied. And there may not be enough spiderwebs available to hold together this seemingly overreaching patent doctrine, at least as it is currently applied. 

Bottom Line: I personally expect some minor changes to be implemented to this doctrine for special fact situations just like this where a contract likely should not be disturbed by a patent expiring. If nothing else, this is another fun and nerdy set of toys and facts to see the Supreme Court grapple with this term.

Finally, Apologies for the brief hiatus, thank you for those who sent kind words and segment requests over the past two weeks.

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Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy

Legal Geek No. 28: FTC Stabs at the Patent Troll

Welcome back to Legal Geek. This week, we take a look at a landmark FTC consent order and settlement issued earlier this week, the consent order imposing limits on a patent troll for the first time.

https://archive.org/details/LegalGeekEp28

The Federal Trade Commission is a government entity that has the dual mission of protecting consumers, specifically by stopping unfair and deceptive practices in the marketplace, and of promoting competition, specifically by enforcing antitrust laws. The FTC has come across this segment's radar for antitrust before, but now we see the consumer protection branch in full effect.

Whenever a complaint is received from one or more consumers by the FTC about deceptive business practices, the agency investigates the complaints and brings lawsuits to force changes in conduct for bad actors. That's what happened here against MPHJ Technology Investments and its law firm.

Patent assertion entities, also referred to as patent trolls, are one example of potential bad actors in the marketplace. These patent assertion entities buy up vague and broad patents for the express purpose of threatening lawsuits to many businesses to strong-arm them into patent licenses which become significant revenue streams based on the purchased patents. This trend has been strong for a decade in the patent world, but most efforts to curtail this practice in Congress and elsewhere have been ineffective or slow in coming about.

However, the FTC may have just opened a new viable attack against such patent assertion entities because MPHJ has been forced in this consent order to stop sending threatening letters making misstatements about the number of other companies who have already agreed to license the patents and misstatements about threatening litigation when no real preparation or intent to sue is there. Further violations of this nature will now come with a $16,000 fine per incident, and considering MPHJ has already sent out over 9,000 letters, that price tag could rise into the millions if the deceptive conduct continues.

The primary reason patent trolls are such a drain on the marketplace is that they wield all the power with very little downside, as companies often will pay these entities to avoid expensive and lengthy patent litigation. By taking away the ability to baselessly threaten litigation, patent trolls lose much of the power that makes this a top issue. Therefore, as the FTC opens a 30 day public comment period for us to comment on this consent order, it seems like a good idea to flood the FTC with positive comments reinforcing this decision.

Bottom Line: this FTC decision may have an initial small effect against only one bad actor patent assertion entity, but the potential for this to happen to other patent trolls could finally change the landscape in this long-fought battle over patent rights. The FTC may have finally solved how to protect innovators while clearing out true abuses of the patent system.

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Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitz

Legal Geek No. 27: Does Settling Patent Lawsuits Open Door for Class Action Liability?

Welcome back to Legal Geek. This week, we take a look at the new fad in class action lawsuits called "pay for delay" antitrust suits and whether these lawsuits will chill the overwhelming desire companies have to settle patent infringement and invalidity lawsuits.

https://archive.org/details/LegalGeekEp27

Back in 2008 AstraZenica was embroiled in patent litigation over the wildly popular heartburn medicine called Nexium. Various generic drug makers wanted to invalidate the patents on the drug in order to jump into the lucrative market well before these patents would expire in late 2014. However, as many patent lawsuits do, this case settled before a final disposition on terms not disclosed to the public.

Thus, the exact terms of the agreement between Astrazenica and other companies like Ranbaxy were not known. But there's at least some evidence that this agreement included a large payment of money to Ranbaxy for the promise to drop the lawsuit and not make a generic version of Nexium until the middle of 2014. Now these former competitors in court are forced to defend together against a class action lawsuit in Massachusetts claiming that this payment and delay of the generic release is in violation of the Sherman Act.

We've briefly discussed class action suits before on this segment, and the biggest hurdle was cleared a year ago when the class of consumers who could sue was certified by the court. The court is now hearing oral arguments in the case this week, and the plaintiff drug stores and consumers are painting a picture of unfair gaming of the patent system by AstraZenica paying for a delay in the generic drug release, thereby artificially keeping prices on Nexium inflated for the final five or six years of patent coverage.

These pay for delay suits are a relatively new fad brought on by recent Federal Circuit and Supreme Court case law. As applied to the patent context, it seems to imply that companies like Ranbaxy who challenge the validity of a patent cannot drop that suit because they must serve the interests of fair market competition and consumer protection from negotiated monopolies. But is that a good thing for the patent system or judicial system?

If a duty to the consumers is created by filing and pursuing a lawsuit or claim to invalidate a patent, then any settlement or payment could end up leading to a claim (no matter how true) of pay for delay conspiracies...which means more patent litigations will fill court dockets for longer periods of time rather than being settled. In addition, patents are all about exclusivity and the right to monopolize innovations for a short period of time before it becomes public domain, so it seems strange that merely settling a case about patents could give rise to a claim of antitrust violations.

Perhaps the recent advent of post grant review proceedings for patents, which cannot be withdrawn or stopped once initiated, will help alleviate this problem by enabling challenges to a patent's validity without risking a settlement that could lead to claims of antitrust conspiracy later. 

Bottom Line: efficient and quick settlement of patent lawsuits reduces a major drain on the court system, and if this pay for delay theory works for the class action lawsuit against Astrazenica, that's bad news for the marketplace generally as more companies will tie up resources fighting long battles in court. Nobody wins in that situation except the lawyers, and take it from a lawyer, that's not what you want to happen.

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Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy or in the comments below.

Legal Geek No. 26: Are Smartwatches A Legal Problem?

Welcome back to Legal Geek. This week, we answer a listener question about whether new Smartwatches like Apple Watch and Google Wear will violate traffic laws regulating video screens in vehicles.

https://archive.org/details/LegalGeekEp26

Listener James T. on Twitter [@jthatcher79] asked whether the new smartwatches will violate second monitor laws like California's vehicle code section 27602. Let's take a look at this specific law and then the ramifications across the country.

The California law prohibits operation of a motor vehicle if a television receiver, a video monitor, a video screen, or any other similar means of visually displaying a video signal for entertainment or business applications is operating and is located in the motor vehicle in front of the back side of the driver's seat, or located so as to be visible to the driver while driving. Exceptions to this rule include vehicle information displays, GPS displays, a mapping display, video feeds enhancing or supplementing the view around the vehicle such as back up cameras, and equipment that has an interlock device or is otherwise configured to disable the video screen for all non-exception uses during operation of the vehicle.

When parsing this law, the initial question is whether a smartwatch will be considered a means similar to a TV receiver or video screen for displaying a video signal for entertainment or business applications. Considering smartphones and similar devices have been interpreted as covered by these types of laws, the answer is most likely yes. Indeed, this California code section made national news a year ago for generating the first traffic violation tickets to people wearing Google Glass while driving. Its' hard to imagine the revenue-generating traffic cops will pass on the opportunity to bulk up a ticket fine with extra violations for smartwatch wearers.

The second question is whether smartwatches fall into any of the exceptions to the rule. Clearly the key question will be whether the smartwatch is configured to disable all use except for mapping and GPS. At this point, there is no indication this will be the case, which means wearing smartwatches (by the letter of the broad California law) likely violates this traffic law.

Just like with Google Glass, this isn't exactly what the law was written to cover. So expect any early tickets that do happen to be challenged in court, which will perhaps lead to more clear legislation regarding whether smartwatch manufacturers have to include interlock or similar features disabling the device in a moving vehicle. The law always takes a while to catch up to new technologies, and this is no different.

But for now, the Bottom Line is, at least in my view, smartwatches could lead to traffic ticket violations under California code 27602.

Many states have similar laws outlawing use of non-hands-free cell phones or television and video monitors. So while each state law is different and requires different analysis, the previous discussion of the California law likely applies equally in many states. So for now at this very early stage of the legal process, buyer beware...you may want to slip the smartwatch off should you get pulled over for speeding.

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Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy or in the comments below.

Legal Geek No. 25: Mandatory Phone Kill Switches?

Welcome back to Legal Geek. This week, we take a look at a new law signed into effect in California last month and how it could make cell phones more secure than ever.

https://archive.org/details/LegalGeekEp25

California lawmakers enacted a new law which forces all smartphone manufacturers to provide automatically enabled Kill Switch technology on all phones sold after July 1, 2015. This Kill Switch technology is like the Activation Lock on Apple products, closely related to the Find my iPhone features. These Kill Switches enable an owner of a phone to remotely lock down and "brick" the phones, erasing all data and making the phone unusable.

The primary goal is deterring theft, as upwards of 70% of all robbery and theft crimes in bigger cities like San Francisco are related to smartphones. The resale market is so lucrative on these products and they have become so ubiquitous that it should come as no surprise this is the latest consumer product to get a lot of attention from thieves. But much like technological advances used to make cars harder to steal, it's only a matter of time before legislation and technology also secures this type of personal asset from thieves.

The early results speak for themselves, as iPhone theft in places like New York City have dropped 17-20% following the addition of the automatic Activation Lock feature.

The most important part of the law is that the phones must have this Kill Switch functionality enabled upon purchase, even if the option to opt-out is provided. If you've purchased an iPhone 6, you've already seen this change. Most consumers will not take the time to opt out, which means an extra layer of security will be present on almost all phones on the market in California within a year or two. That should slow the rate of violent crime for this particular type of consumer product.

California is the biggest market in the country, so what happens there will likely also cause phone manufacturers to adopt those standards nationwide (whether or not the other states also pass similar legislation). About the only party that opposes these types of laws are phone insurance companies that stand to lose significant market share if phones are more secure and less subject to loss/theft claims being required.

Much like the Delaware data destruction law covered a couple weeks ago on this segment, this is the type of pro-consumer law that benefits us all. Kudos to California for helping advance this safety technology in the phone field.

Bottom Line: Less robberies and thefts mean a more secure society, and everybody wins in that scenario. That's a rarity in lawmaking, so enjoy it for this week.

Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy or in the comments below.

Legal Geek No. 24: Electronic Car Repo Man

Welcome back to Legal Geek. This week, we take a look at the rise of subprime auto loans and the legality of electronic devices that lenders are using to ensure timely payments from these high-risk borrowers.

https://archive.org/details/LegalGeekEp24

According to a report this week in the New York Times, subprime auto loans, which are car loans made to those with low credit scores below 640, are accounting for nearly 30% of all auto loans in 2014. This represents the biggest boost for selling cars to people with bad credit since before the market crash of 2008.

But in about a quarter of those loans, the lenders are installing electronic devices called starter interrupters, which disable a car's ignition when the borrower is late to make a payment. This is effectively a new technological form of electronic repossession of the vehicles, and lenders say these devices are critical to negating the risk usually associated with subprime auto loans.

Of course, reports are out there which say the lenders use the devices to track the borrower's movements Big Brother style and that some lenders disable cars at highly inconvenient times, such as when stalled out at a stoplight. But are the lenders breaking consumer laws by extorting payments in this manner?

Some lenders are employing virtual repo men who actually give borrowers a chance by calling them multiple times and waiting 30 days before using the starter interrupter. But others are acting far more quickly, and many times without notice. These types of lenders would likely be breaking some old laws in many states giving rights to borrowers to have a chance to settle debts before the repo man is allowed to come.

Although state laws vary, the terms of auto loan contracts are typically forced to allow for at least 30 days of being behind on payments before the right to repossess is allowed. And any repossession cannot include a breach of the peace, meaning use of physical force or opening a closed garage, for example. It could be argued these devices do breach the peace when used away from a home or workplace setting.

Of course, the device manufacturers and lenders believe this disabling of the vehicle is not actually a repossession. It will be interesting to see how that theory works out if challenged many times in court.

Bottom Line: This is a gray area of law, but states will eventually be forced to define exactly how these new technologies are governed in the auto loan context. One would expect that the largely defenseless struggling consumers will win the day eventually, but for now, the banks hold all the power and wield it heavily, whether actually legal or not.

Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy or in the comments below.

Legal Geek No. 23 - Delaware Data Destruction

Welcome back to Legal Geek. This week, we take a look at the new personal data destruction law put into effect in Delaware and how this may be the most important development in the hot field of privacy law to date.

https://archive.org/details/LegalGeekEp23

A few weeks ago, Delaware's legislators and governor signed into law a new data destruction policy that requires complete destruction of personal identifying information held by companies after it is no longer being used. More specifically, the law states that entities must "destroy…a consumer's personal identifying information within its custody and control that is no longer to be retained by the commercial entity...by shredding, erasing, or otherwise destroying or modifying the personal identifying information in those records to make it entirely unreadable or indecipherable through any means."

This sounds good and it follows the lead of many other states which have put in consumer privacy protection laws, but is it the biggest win for consumer privacy in the war against identity theft? I think it is this important for a number of reasons.

First, the law applies to a wide variety of data sets that would be maintained by companies, as any data set including personal identifying information is included in the destruction obligation. With personal identifying information requiring only a non-encrypted consumer's name in combination with any other personal item such as social security number, credit card number, tax information, or bank account number, this should ensure any possible consumer data will be subject to destruction immediately upon the company's intent to stop using the information. The law also has broad applicability to paper and electronic records, including those stored in the cloud.

Second, the law as written appears to broadly apply to all companies subject to Delaware law, which would include the nearly 50% of companies in the U.S. which have chosen to incorporate in Delaware because of favorable business and tax laws there. The law has no exceptions for size, revenue, or charitable status, so all of these companies would now be subject to these tough privacy laws for protecting consumers.

Third, the law has bite on the enforcement side, allowing for the Attorney General to bring regulatory actions as well as allowing for private lawsuits with increased treble damages possible for individual consumers in court. The law applies clear encouragement for companies to destroy documents and information securely, limiting the chance that careless or negligent actions will lead to mass amounts of identity theft.

Bottom Line: companies are storing more and more consumer private data these days, and the attacks of hackers leading to identity theft are becoming more common. This law in Delaware encourages either encryption of all consumer data or destruction of data in a responsible and prompt manner when not being used, which should limit the leaks and openings most often exploited by identity thieves and hackers. Considering the potential coverage of about half of U.S. companies, this is the best state law consumer advocates could ever hope for and is a huge win in the war against identity theft.

Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy or in the comments below.