The IMPACT 2013 Venture Summit is an opportunity for growing technology and health care companies, along with innovative early stage businesses, to pitch their company to prominent investors.  IMPACT 2013, also offers networking opportunities with business community leaders and panel sessions that offer relevance, value and expert knowledge.

IMPACT 2013 will take place October 22 and 23, 2013 in Philadelphia.  We at  Fox Rothschild LLP are proud to be the host sponsor of IMPACT 2013, and we look forward to seeing you there.

Click here to learn more and apply to be a featured company at IMPACT 2013.

In a per curiam opinion published May 10, 2013, the Court ruled that the method and computer-readable medium claims of four patents were not directed to patent-eligible subject matter. The patents at issue were U.S. patents 5,970,479; 6,912,510; 7,149,720; and 7,725,375. In broad terms, the patents covered methods and systems for managing risk, such as the risk that may arise from one party failing to perform an obligation (such as pay a debt or honor a warranty) to another party.

The Court’s five-judge panel opinion determined that the claims merely covered an “abstract idea.”  In support of this determination, the panel’s opinion noted:

The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept . . . a basic building block of human ingenuity, untethered from any real-world application. Standing alone, that abstract idea is not patent-eligible subject matter.

Many of the claims required more than just facilitating a trade. Specifically, the claims also required discrete processing steps such as limitations requiring creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions. Nonetheless, the panel’s opinion stated:

None of those limitations adds anything of substance to the claim. . . With the term “shadow record,” the claim uses extravagant language to recite a basic  function required of any financial intermediary in an escrow arrangement — tracking each party’s obligations and performance.

In dissent, Judge Moore noted:

If all of these claims, including the system claims, are patent-ineligible, this case is the death of hundreds of thousands of  patents, including all business method, financial system and software patents as well as many computer-implemented and telecommunications patents.

While the five-judge panel’s opinion parsed the specific language of the claims at hand, it provided few bright-line rules to guide future decisions. The panel stated that “adding generic computer functions to facilitate performance provides no substantial limitation and therefore is not “enough” to satisfy § 101,” but it did not generally state what types of functions should be considered “generic” and what functions would add enough technical substance to make a claim cover more than an abstract idea.

Many of the Court’s judges disagreed with not only the result, but also with the reasoning of the five-judge panel. Ten judges participated in a total of seven different opinions in the case. While seven judges agreed that the method and computer-readable medium claims were not patent-eligible, only five of them adopted the specific reasoning of the lead opinion. Half of the judges specifically found the system claims to be patent-eligible. In dissent, three of the judges asserted that all of the claims were patent-eligible.  

Recognizing this fracture, Judge Newman noted that the Court’s decision was supposed to remedy the Court’s inconsistent precedent regarding Section 101, but that “[t]his remedial effort has failed.”

It is difficult to find concrete guidance within the Court’s fractured decision for patent applicants, patent holders, and defendants in future cases. However, the following observations may help patent applicants in future cases:

• In view of the court’s split regarding system claims, software and business method patent applicants should consider ensuring that the application includes at least one system claim.

• When drafting claims for automated processes, applicants should include at least one claim element that is not inherent in any existing concept. For example, in a concurring-in-part opinion joined by two other judges, Judge Rader found that steps such as creating “shadow records,” obtaining values of previously created accounts, adjusting balances and issuing credits were steps inherent in the concept of an escrow.” To the extent that a claim merely automates previous manual processes, the Court may be more likely to find the claim not patent-eligible.

To be sure, the CLS Bank decision will be front and center in future court actions involving software and business method patents. It’s also likely that the decision will be appealed to the Supreme Court. This blog will closely monitor future developments and court decisions that relating to the opinion.

Under the AIA, entities who have been charged with infringement of a covered business method (CBM) patent can challenge the patent’s validity in an additional proceeding after the 9-month post-grant review (PGR) period for other types of patents have has expired.  The AIA currently defines a CBM patent as one that claims “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration or management of a financial product or service.”  Parties who are sued for infringement of a CBM patent may take advantage of PGR proceedings within one year after being named in a lawsuit or otherwise charged with infringement.

The very short bill, S. 866, introduced by Senator Chuck Schumer (D-NY) on May 6, 2013, would expand the AIA’s CBM program in two ways.  First, it would eliminate the program’s sunset provision, which states that the CBM program will end after 8 years.  Second, and more broadly, it would expand the CBM definition beyond those involving financial products or services to include any “enterprise, product, or service.”  Under this definition, any patent covering “operations used in the practice, administration, or other operations of an enterprise, product or service” would be subject to challenge as a CBM patent.

The rules implementing the CBM opposition program took effect in September 2012.  Since then,  over 20 CBM challenges have been filed, and the first hearing before USPTO’s Patent Trial and Appeal Board for a CBM review occurred on April 17, 2013.

When a person dies, the person’s heirs may want to take control of their loved one’s social media accounts to post memorials, information about funeral arrangements and other notices. This activity may or may not be consistent with what the account holder intended to  occur after death. If the person’s will contains detailed instructions and passwords, then the heirs will have a clear direction. However, this is not often the case.

Google recently announced a new feature that will help account holders plan for how they would like to leave their digital footprints after they die. Will this feature prompt other social media sites to follow suit?  Several of the most popular sites’ post-mortem options are:

• Google:  Launched in April 2013, the Google Inactive Account Manager service allows you to control what happens to your Google+, GMail, Picasa and other Google accounts if they are inactive after a period of time. The account holder selects the time period and specifies what happens — such as delete the account, send data to a trusted friend, etc. The account holder can even choose different settings for different Google services.
• Facebook:  At the time of this writing, Facebook does not have an automatic service that allows an account holder to direct what happens after death. Instead, a Facebook account remains active until deleted.  Alternatively, a deceased account holder’s heirs can request that the person’s profile be converted to a memorial profile.
•  Twitter:  Like Facebook, Twitter has no automated function for advance planning. However, it does have specific procedures for deactivating Twitter accounts after the account holder passes away.
• LinkedIn:  LinkedIn provides a verification of death form that can be used to ask the service to delete the account of a departed LinkedIn member.

Court: too close to call

A recent Second Circuit court decision appears to establish a broad fair use exception for the use of artistic works in new works.  However, a careful look at the case — and especially at the examples which the court considered too close to call as a matter of law — could leave artists feeling confused about just how broad the exception really is.

The case of Cariou v. Prince involved several photographs by Patrick Cariou. Cariou published his photographs in a book entitled Yes Rasta.  Artist Richard Prince altered and incorporated 25 of Cariou’s photos into various paintings and collages. Prince displayed his works in various exhibitions, and he also sold reproductions of a few of them.

Cariou sued Prince for copyright infringement, and the district court originally ruled in favor of Cariou. However, on appeal the Second Circuit reversed the lower court’s decision on 20 of the images, and it remanded the case for further consideration on the remaining five images.

In its discussion, the Court listed the four factors for considering whether a particular use of a copyright is “fair.” The Court focused on the element of “purpose and character of the use” and examined prior caselaw relating to “transformative” works, which “lie at the heart of the fair use doctrine’s guarantee of breathing space.” It noted that prior Second Circuit decisions found a transformative work to be one that transforms the original “in the creation of new information, new aesthetics, new insights and understandings.”

In this case, the Court found most of Prince’s works to be transformative for several reasons, including:

• Cariou’s original photos were “serene and deliberately composed; Prince’s modifications were “crude and jarring . . . hectic and provocative.”
• Cariou’s works were in black-and-white, printed in a 9-1/2″ x 12″ book; Prince’s modifications added color, and increased sizes at least tenfold.

The Court found that Prince’s modifications gave the 20 images a “new expression” and “new aesthetics.”  The Court also considered other fair use factors, such as the effect of the use on the potential market, and found no significant adverse impact on Cariou’s market.

However, the Court was careful to issue cautionary words about broad interpretations of its ruling:

Our conclusion should not be taken to suggest, however, that any cosmetic changes to the photographs would necessarily constitute fair use. A secondary work may modify the original without being transformative.  For example, a derivative work that merely presents the same material but in a new form, such as a book or synopses of a television show, is not transformative.

Despite that setup, the Court did not establish a bright line test to help explain when a work moves out of the realm of being merely derivative and into the realm of being transformative.  Indeed, the Court’s instruction to remand the decision on five of the images back to the district court, rather than simply reverse the decision on all 25 images, provides little guidance for situations that could be close calls.

An example of one of those remanded as “too close to call” is Prince’s image entitled Graduation, reproduced above alongside an image of the Cariou’s original.  Here, the Court discussed Prince’s addition of a guitar, larger hands, obscured facial features and blue tint.  Despite finding Cariou’s original photo as “serene” and Prince’s image as creating a “sense of discomfort,” the Court stated that that “we cannot say for sure whether Graduation constitutes fair use or whether Prince has transformed Cariou’s work enough to make it transformative.”

Thus, while the decision may provide some comfort for many artists who truly transform underlying artistic works, it may leave other artists struggling to understand exactly how much “transformation” is needed to be “transformative.”

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Originally published in 2000, the FTC guide addresses how companies who are engaged in online advertising should provide the various disclosures that are required by the laws that the FTC enforces. These disclosures include those required to prevent a claim that a particular advertisement is misleading or deceptive.   Examples include:

• disclosures of certain warranty terms;
• disclosures of energy information on certain home heating and cooling equipment under the Energy Labeling Rule; and
• disclosures relating to non-independent endorsements.

The original guide encouraged advertisers to avoid using hyperlinks for disclosures that involve product cost or certain health and safety issues

The new guide recognizes the space constraints associated with mobile devices, and it acknowledges that hyperlinks may be the best option in such situations.  The new guide explains that a hyperlink that leads to a required disclosure should:

• be obvious;
• be labeled to convey the importance, nature and relevance of the linked information;
• be used in a consistent manner;
• be placed as close as possible to the information that it qualifies;
• take consumers directly to the disclaimer; and
• be monitored for appropriate adjustments based on consumer click-through rates.

In every situation, the new guide repeats the original guide’s mantra that online disclosures be “clear and conspicuous.” For example, a link should not merely be placed alongside an ad.  Rather, it should be labeled in a way that the consumer understands its relevance.

As an example, the guide explains that the following ad sent via Twitter:

may be misleading because it does not disclose that the tweet comes from a paid celebrity endorser, and because it does not disclose whether the listed weight loss is typical. Although the hyperlink leads to the disclaimer, the hyperlink is not labeled, and its relevance is not explained.

The guide explains that these issues may be addressed without a hyperlink with only a few additional characters, as follows:

In this ad, the initial four characters “Ad:”  disclose that the tweet originates from a paid endorser. In addition, the typical weight loss results are disclosed without any hyperlink at all.

The new guide contains many other examples involving tweets, social media sites and mobile apps.

Supap Kirtsaeng moved from Thailand to the United States to study mathematics at Cornell University. Frustrated over the high cost of textbooks at the school, he asked friends and family to purchase books in Thailand — where they were available at a much lower retail price — and ship them to him in the U.S.   Recognizing the business opportunity, Kirtsaeng began reselling the imported books on eBay.  Over time, Kirtsaeng generated about $600,000 in revenue from his textbook resale business.

Publisher John Wiley & Sons, Inc. was not a fan of Kirtsaeng’s business.  Wiley sued, arguing that Kirtsaeng’s importation business infringed Wiley’s exclusive right to distribute copies of the books under Section 106(3) of the Copyright Act, as well as Section 602′s prohibition against importation of copies.   A lower court agreed with Wiley and awarded Kirtsaeng $600,000 in damages.

However, the Supreme Court reversed the lower court’s decision.  In Kirtsaeng v. John Wiley & Sons, Inc., the Court applied the “first sale” doctrine of Section 109 of the Act, which states:

the owner of a particular copy … lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of the copy

The Court stated that the first sale doctrine trumped both Section 109 and Section 602, so long as the imported copy was lawfully made abroad.

The decision will likely have U.S. publishers reassess their foreign pricing and distribution strategies.  Publishers also may line up behind the ongoing actions of the  U.S. Trade Representative to negotiate a new trade agreement that may effectively ban the practice of parallel importation between participating countries despite the Court’s decision.

Some commenters have also noted that the case involved physical textbooks, and the Court’s opinion did not say whether it does (or does not) apply to digital content such as MP3s and e-books. Indeed, the question of whether digital content is subject to the first sale doctrine at all is the topic of a pending lawsuit against ReDigi, Inc., in which a music publisher also argues that the “sale” of MP3s does not transfer ownership of any copies, but rather grants an end-user license that can only be transferred with the publisher’s permission. [UPDATE:  On April 1, 2013, a District Court ruled that when ReDigi transfers an MP3 from one computer to another, it makes an unauthorized copy of a phonorecord, even through the original phonorecord no longer exists after the transfer.]

So, while the Court’s decision certainly expands the ability to import copyrighted goods lawfully made abroad, the full scope of the decision’s impact will not be easy to assess without additional court or government action.

[Image created by:  gka]

• utility patent application total filing, search and examination fees:  $1,600 (increase of $340)
• provisional application filing fee:  $260 (increase of $10)
• issue fee:  $960 (decrease of $780)
• request for continued examination:  $1,200 for the first one (increase of $270), and $1700 for the second one.
• maintenance fees:  increased by $450 at the first stage, $700 at the second stage, and $2,590 at the third stage.

Applicants who don’t mind delaying the examination process can defer some of the initial fees by filing a basic filing fee of $280, and deferring the search and examination fees to a later date.

The 7.5-year and 11.5-year maintenance fees may spur some patent holders to abandon non-business critical patents:  patent holders who wish to maintain a patent must pay $3,600 at the 7.5-year point, and $7,400 at the 11.5-year point.  The new maintenance fees total over $12,000 for the life of a patent.

Applicants who qualify as either a small entity or a micro-entity will be entitled to reductions in the standard fees listed above.

The new fees also establish hefty charges for the new post grant patent review proceedings that are available under the America Invents Act:

• Ex parte reexamination:  $12,000
• Inter partes review:  $23,000
• Post grant review:  $30,000

Some charges will go down for applicants who follow procedures that are more efficient for the USPTO.  For example, an applicant can avoid the $2,000 Appeal Brief fee if the applicant can settle the case with the Examiner before forwarding the Appeal Brief to the Patent Trial and Appeals Board for review.  In addition, recording assignments will now be free if filed electronically.

A summary of the fee increases is available at the USPTO website via this link.

[Photo credit:  401(k) 2013]

The Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act of 2013 proposes to allow defendants who prevail in patent lawsuits to recover costs from the plaintiff if the plaintiff is not: (i) the inventor or the original assignee; (ii) a party who made substantial investment through production or sale of an item covered by the patent; or (iii) a university or research institution.

According to co-sponsor Congressman Jason Chavetz (R-UT):

The SHIELD Act ensures that American tech companies can continue to create jobs, rather than waste resources on fending off frivolous lawsuits. This bill combats the problem of patent trolls by moving to a ‘losers pays’ system for software and hardware patent litigation.

The bill has already been amended to go beyond software and hardware patents, but it still raises some potentially significant issues.

For example, many companies who make and sell products covered by patents currently place the patents in a holding company for tax or other accounting purposes.  The bill does not expressly exempt such patent holders from the “loser pays” provisions.

In addition, the law only awards damages to the defendant “upon entry of a final judgment” of non-infringement or invalidity.  Because of the high cost of patent infringement, most patent cases settle well before they reach a final judgment. Will the new bill encourage defendants to take a case all the way to final judgment, given the large investment of time and corporate resources required to do so? It is not clear how defendants can value — and whether they can recover — such costs under the SHIELD Act.

It may take a few amendments — or perhaps additional bills in future sessions of Congress — before issues like the ones described above are resolved. Despite these issues, the SHIELD Act may be a first step toward a broader set of patent litigation reforms.