Patent lawsuit map may shift as Supreme Court restricts venue in patent infringement cases

A much-anticipated decision from the U.S. Supreme Court has scaled back the ability of patent plaintiffs to choose the forum in which they file suit. By limiting a practice that many defendants consider to be forum shopping by patent plaintiffs, the Court’s decision may shift the geography of patent infringement lawsuits from the East Texas heartland to the coasts.  

In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Court considered the patent venue statute, 28 U.S.C. § 1400(b), which states: “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” The Court held that a patent infringement defendant “resides” only in its state of incorporation, and that “residence” does not include states where the defendant merely conducts business.

In the case, the defendant was organized under Indiana law and headquartered in Indiana. The plaintiff filed suit in Delaware, into which the defendant shipped product but otherwise had no physical or legal presence. The defendant argued that venue in Delaware was improper under the patent venue statute.

The Court agreed with the defendant. Focusing on the meaning of the phrase “where the defendant resides,” the Court held that the term “residence” means only an entity’s state of incorporation, and the term does not include states where an entity merely does business.

The case may deal a blow to the Eastern District of Texas, which has served as the epicenter of patent patent infringement litigation in recent years. However, the Court did not negate the second half of the patent venue clause, which also supports venue “where the defendant has committed acts of infringement and has a regular and established place of business.” Texas ranks second in a list of states where the most Fortune 500 companies are headquartered. Thus, at least some new cases that previously would have gone to the Eastern District of Texas may now shift to other Texas district courts such as the Northern District of Texas (in which Dallas is located) or the Western District of Texas (in which Austin is located).

It is even more likely that new patent filings will spread out to other venues such as the District of Delaware (where more than 2/3 of the Fortune 500, and more than 1 million companies in total, are incorporated) ; the Northern District of California (home to the tech giants of Silicon Valley); or the Southern District of New York (where more Fortune 500 companies are headquartered than in any other state).

The new decision also will make it harder for patent plaintiffs to sue multiple defendants in a single case. If the accused infringers are organized in different states and have different corporate office locations, the patent holder may need to file multiple suits in multiple states.

[Image credit:  Bram Janssens]

Tips for non-disclosure agreements with Chinese companies

In a previous post on IP Spotlight, I provided a few tips for negotiating non-disclosure agreements. In the post, I noted that a “form” NDA should only be considered a starting point. The parties should modify it as appropriate to fit the business situation and the type of information that is being disclosed.

Here’s an additional tip if the other party to the NDA is not a U.S. company:  if the other party breaches the agreement, you may be able sue that party in the U.S. and win, but the U.S. court’s judgment may be difficult to enforce in the other country.

This is a particular issue in China. Chinese courts typically will not enforce judgments of U.S. courts, and they may not enforce an NDA written in English and subject to U.S. law.

So how can U.S. companies obtain an enforceable NDA with a Chinese company?

One way is to make it in Chinese (or bilingual, in English and Chinese, with the Chines version controlling), and make it governed by Chinese law and subject to jurisdiction of the Chinese courts, or perhaps Hong Kong law and courts. Although this can be inconvenient for the U.S. company, the inconvenience may be a worthwhile.

Another option is to consider arbitration. While arbitration is not typically an ideal option for an NDA because only a court can grant a quick injunction to stop further disclosure of the information, foreign arbitration awards are generally enforceable in China. Most countries (including the U.S. and China) have signed the New York Convention for the Recognition and Enforcement of Arbitral Awards (http://www.newyorkconvention.org/).

So, consider a binding arbitration clause, and if the agreement will include an option for an injunction, that should be governed by Chinese law and issued by a Chinese court. Also, make it a bilingual agreement, with versions in English and Chinese.

Beware trademark renewal notice scams

At some point in time, most trademark registrants will receive an official-looking invoice from a so-called “trademark registration service” that purports to require payment of a fee to maintain the trademark registration.

My colleague Erika Koster recently published an alert about scams like this.  For Erika’s article on the Fox Rothschild “Above the Fold” blog, click here.

In the meantime, if you receive a trademark renewal notice and it is not from the law firm that is helping you apply for or maintain the registration, you can be fairly certain that it’s a fraud. If you are unsure, simply send it to your trademark attorney for a quick review and confirmation.

Federal Circuit finds credit reporting patent ineligible; calls it the “height of abstraction”

A recent Federal Circuit decision illustrates the high eligibility hurdles that fintech software patents continue to face in view of the Supreme Court’s 2014 Alice v CLS Bank decision.

In Clarilogic, Inc. v. FormFree Holdings Corp. (Fed. Cir. Mar. 15, 2017), the court addressed the eligibility of U.S. Patent 8,762,243, which was directed to methods for electronic account certification and  credit reporting. The representative claim of the patent was: Continue reading

SCOTUS: No laches in patent infringement cases; six-year limit on damages is the rule

A recent Supreme Court decision may make it easier for patent holders to assert older patents, as the decision significantly restricts the availability of laches (i.e., unreasonable delay) as a defense to a patent infringement claim.

The doctrine of laches allows a court to deny a claim if the plaintiff delayed filing the suit and the delay was unreasonable and prejudicial. The Patent Act also includes a six-year limit on the recovery of damages for patent infringement activities.

Until now, most courts interpreted these two legal doctrines as requiring a patent holder to promptly bring suit upon learning of infringing activity, and in any event no longer than six years from the date that the patent holder places the infringer on notice of the claim. The reason for this is to prevent a patent holder from lying in wait by sending a cease and desist letter but never seeking to resolve the dispute in court.

A recent Supreme Court decision has changed this long-standing interpretation. In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (Mar. 21, 2017), the patent holder (SCA) sent a letter accusing First Quality of infringement in 2003. In 2010 — seven years after sending the letter — SCA filed suit against First Quality. First Quality argued that SCA’s claim was time-barred under the doctrine of laches. The district court agreed and dismissed the case. The Federal Circuit affirmed, stating that laches prevents recovery of all damages, including those incurred during the 6-year period prior to filing the suit.

The Supreme Court disagreed, noting that “[l]aches is a gap-filling doctrine, and where there is a statute of limitations, there is no gap to fill.” Because Section 286 of the Patent Act imposes a six-year statute of limitations, the Court found that the Patent Act had no gap to fill:  “Laches cannot be interposed as a defense against damages where the infringement occurred within the period prescribed by §286.”

[Image copyright: Lightwise]

Supreme Court: useful articles such as clothing can include copyrightable elements

A new Supreme Court decision helps to clarify the extent to which copyright law can protect design elements of a useful article, such as an article of clothing.

The Copyright Act states that “useful articles” are generally not eligible for copyright protection. Because an article of clothing is useful, many courts have limited copyright protection for clothing to elements such as fabric prints. However, in Star Athletica, L.L.C. v. Varsity Brands, Inc., the Court ruled that a design element incorporated into clothing (or another useful article) is eligible for copyright protection if:

  • the element can be perceived as a work of art separate from the useful article; and
  • the element would qualify as a protectable pictorial, graphic or sculptural work if imagined separately from the article of clothing (or other useful article).

The Star Athletica case involved certain design elements of cheerleader uniforms, such as arrangements of lines, chevrons and colorful shapes. The designs shown above are two examples that the Court considered in the case.

The Court noted that for an element to qualify as a copyrightable work on its own, the element “cannot itself be a useful article.” Looking at the designs shown above, the Court characterized the arrangement of colors, shapes, stripes and chevrons as “surface decorations” that could be applied to another medium such as a painter’s canvas. The Court also discussed the example of “a design etched or painted into the surface of a guitar,” which could be replicated on an album cover and even replicate the shape of a guitar. The Court explained that such a design is eligible for copyright because the album cover would not replicate the guitar as a useful article.

Thus, the Court distinguished the work of art from the medium to which it is applied. With respect to uniforms, the Court noted that “the only feature of the cheerleading uniform eligible for a copyright in this case is the two-dimensional work of art fixed in the tangible medium of the uniform fabric.” In contrast, the Court explained that copyright does not “prohibit any person from manufacturing a cheerleading uniform of identical shape, cut and dimensions.” In other words, copyright protects a “surface design” but may not protect the surface on which the design is placed.

Can a patent expire before it issues?

 

In certain situations, yes.  Ordinarily, the term of a patent begins on the grant date and ends twenty years after the filing date of the patent. If the patent claims priority to an earlier-filed nonprovisional patent application, then the twenty-year term is calculated from the filing date of the earlier-filed application.

However, an unusual situation can arise if a patent claims priority to a patent application that was filed more than twenty years ago. A recent court decision from the Eastern District of Texas found such a situation in U.S. Patent 9,094,694. The application for the ‘694 patent was filed in July 2014, and the patent issued in July 2015. However, the ‘694 patent was a continuation of three previous patent applications, the first of which was filed in July 1995. Because of this, the effective filing date of the ‘694 patent was July 8, 1995 and its grant date was July 28, 2015 — more than twenty years after the effective filing date.

There are circumstances in which a patent’s term can be extended beyond the twenty-year term. For example, if a patent application’s processing is held up due to Patent Office delay, the term of the patent can be extended to account for that delay. However, this opportunity for patent term adjustment is lost if the applicant also causes certain delays during prosecution, such as by taking an extension of time or filing a supplemental amendment after filing an additional amendment.

In the case of the ‘694 patent, the USPTO determined that no patent term adjustment applied.  Thus, the term of the patent was not extended beyond the standard twenty-year term. The ‘694 patent also included a terminal disclaimer with respect to patent 8,769,561, which did have a patent term adjustment but which still expired in 2016. Thus, the court determined that the ‘694 patent expired before it granted.

The case discussed above is Bartonfalls LLC v. Turner Broadcasting System, Inc. (E.D. Tex. March 15, 2017).

[Image copyright:  W. Scott McGill]]