Concurrence in Federal Circuit’s “Ultramercial” Ruling Sends Pointed Message to Patent Litigants

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

The recent Federal Circuit decision in Ultramercial v. Wild Tangent continues the trend of courts invalidating software and business method patents made vulnerable by the Supreme Court’s decision in Alice Corp. v. CLS Bank International. The Ultramercial decision also continues the wave of “patent reform” in the courts, at the Patent Office, and in Congress. Software and business method patent owners and applicants should be concerned by these recent developments, and alleged infringers should be encouraged. The concurring opinion by Judge Mayer describes how an early determination of patent eligibility during litigation may help stem “[t]he scourge of meritless infringement claims [that] has continued unabated for decades.”

The Federal Circuit invalidated Ultramercial’s patent as being directed to an abstract idea, which is not patentable subject matter under 35 U.S.C. § 101. The asserted patent, U.S. Patent No. 7,346,545 (“the ’545 Patent”), is optimistically titled, “Method and system for payment of intellectual property royalties by interposed sponsor on behalf of consumer over a telecommunications network.” The main patent claim includes eleven specific steps for displaying an advertisement in exchange for access to copyrighted media. However, the appellate court determined that the patent “describes only the abstract idea of showing an advertisement before delivering free content” and is therefore invalid.

In spite of the eleven steps enumerated in the method claim, the court held that merely adding additional routine steps to an abstract idea “does not transform an otherwise abstract idea into patent-eligible subject matter.” Furthermore, although the claims of the ’545 Patent were tied to a general purpose computer, “adding a computer to otherwise conventional steps does not make an invention patent-eligible” either. Continue reading

Copyright and Patent Holders Advance Separate Market-Based, Self-Help Initiatives

copyrightIntellectual property (IP) rights and innovation are inextricably intertwined. It’s not surprising, then, that in the spirit of innovation, some IP owners have taken proactive steps to advance and defend their own property rights. They understand that reliance on current or future government action is no panacea. In separate developments this past week, some of the world’s most successful copyright holders adopted a creative approach to bolster those rights, while leaders of three different patent “self-help” entities explained their unique strategies at a Washington Legal Foundation (WLF) briefing.

Copyrights and WhereToWatch. Pirated online file peddlers and their apologists routinely argue that they are meeting consumers’ unfulfilled demand for affordable access to digital music, movies, and TV shows. As we noted in a WLF Legal Pulse post last month, however, “Huge music libraries can be accessed for free or low cost at outlets such as Spotify, Pandora, Amazon Music, and iTunes. Online options for TV and movie content continue to multiply. Copyright-infringing consumers can no longer claim that they seek pirated content because it isn’t digitally available for a reasonable price.” A September 23, 2014 report by KPMG provides empirical supports that argument. It found, for instance, that 96% of the top 20 movies for the years 2000 to 2010 were available through legal online distributors. Also, 96% of television’s top 100 shows in 2012 were available. Continue reading

Why “King v. Burwell” Obamacare Case Is Not “NFIB v. Sebelius” Redux

supreme courtThe Supreme Court’s decision to hear King v. Burwell means that the Court, for the second time in three years, will be deciding an issue that will have a major impact on the Obama Administration’s ability to implement the Affordable Care Act. The ACA’s requirement that individuals purchase health insurance or else pay a penalty barely survived a constitutional challenge in June 2012 when the Court voted 5-4 in NFIB v. Sebelius to uphold the mandate as a proper exercise of Congress’s power under the Taxing Clause. The claim raised in King—that individuals who purchase insurance on the federal government’s healthcare exchange are not entitled to the tax subsidies available to those purchasing on state exchanges—would, if accepted by the Court, have an impact on the ACA every bit as great as a decision striking down the individual mandate. That fact has caused some commentators to draw spurious parallels between the two cases. Many Obamacare partisans who dismissed the NFIB constitutional challenge as a “shameful” and hypocritical “solicitation of right-wing judicial activism,” are making the same accusation against the King challenge.

The accusations were inaccurate in NFIB; they are hopelessly wrong when applied to King. Before such unfounded criticism of King takes hold, it is important to emphasize major distinctions between the two cases. The petitioners in NFIB were asking the Court to take a decisive step: to strike down legislation adopted by Congress and signed by the President. Those petitioners, in my opinion, raised highly plausible (and indeed, partially successful) arguments in support of their constitutional claims. However, a majority of the justices—mindful of separation-of-powers concerns that arise whenever they are asked to override the will of Congress and the President—followed the Court’s long-held preference that, in the words of Chief Justice Roberts, “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.” Continue reading

WLF Briefing: Private Ordering Solutions Advance Patent Non-Aggression

This November 10, 2014 WLF Media Briefing, Toward Patent Non-Aggression: Market-Based Approaches to Deterring Legal Risks and Neutralizing Litigation, featured presentations by three innovators whose ideas are minimizing operating companies’ exposure to abusive patent lawsuits:

  • Keith Bergelt, CEO of the Open Invention Network;
  • Kevin Jakel, CEO of Unified Patents, Inc.; and
  • Tim Kowalski, Senior Patent Counsel to Google Inc. and Director, License on Transfer Network

Our speakers make reference to PowerPoint slides, which can be downloaded here.

If you would prefer to watch the presentation in higher resolution video where you can view the slides synched with the presentations, WLF has posted it in its online archive of on-demand videos here.

Nutrition Nannies Win Only 1 of 4 High-Profile Ballot Initiatives

election2014The 2014 election featured four high-profile attempts by the national food nanny movement to impose its agenda through municipal and state ballot initiatives. Voters in Oregon and Colorado rejected mandatory “genetically-modified organism” (GMO) food-labeling measures, while voters in two California cities split on sin taxes for “sugary” drinks.

Food Labeling. Exactly 2/3 of Colorado voters said “no” to the Colorado Right to Know Act. The vote on Oregon’s Measure 92 was considerably closer, with the “no’s” outnumbering the “yes’s” 50.7% to 49.3%. Each initiative trumpeted the superficial appeal of  consumers’ “right-to-know,” and both made the oft-repeated misleading or false claims in their legislative “findings” sections that GMOs in food are unregulated, unsafe, and unhealthy. Much like California’s unsuccessful Proposition 37 initiative, the Oregon and Colorado proposals were riddled with labeling exemptions, including food served at restaurants and alcoholic beverages. Oregon’s proposal would have also unleashed the plaintiffs’ bar on food processors through a “private attorney general” enforcement provision.

Thin Taxes? Two California municipalities, San Francisco and Berkeley, held votes on soda excise taxes. The Berkeley measure, which passed by a large margin, imposes a one-cent-per-fluid-ounce tax on all soda, energy drinks, coffee syrups, sweetened tea, and other packaged “sugary” drinks, while exempting milk and diet soda. The failed San Francisco initiative would have imposed a two-cent-per-fluid-ounce tax on sodas and other sugar-sweetened drinks, including some juices, coffees and flavored waters. It garnered 55% at the polls, but fell short of the 66% “yes” votes needed for measures whose revenues are aimed at a specific purpose. The initiative would have funded children’s nutrition and physical education programs. The revenues from Berkeley’s tax measure will go into the city’s general fund.

The Bigger Picture. Mandatory GMO-labeling proponents have now lost each of their four initiative campaigns. And they have failed in states where one might think voters would overwhelmingly support such progressive measures: California, Washington, Oregon, and Colorado. With 2015 being a slow year for elections, activists will likely turn their attention now to state legislatures. The negative opinions of hundreds of thousands of voters in the aforementioned states should speak volumes to politicians in other states about mandatory GMO labeling. In addition, as several WLF publications have explained (i.e. here and here)—and a suit against Vermont’s labeling mandate argues—such mandates infringe on federal authority to regulate food labels and tread on food producers’ constitutional rights. Policy makers should bear these points in mind, and keep a watchful eye on the legal challenge to Vermont’s law, when they are urged to embrace mandated labeling.

Nutrition nannies such as former New York City Mayor Michael Bloomberg have trumpeted the Berkeley vote as a watershed moment. Given the Berkeley electorate’s historical affinity for fringe movements and big government, the outcome is more likely an aberration than a harbinger. The result also should be considered counterproductive for the fight against obesity. It advances the entirely baseless notion that regressive taxes on soda and other disfavored beverages will benefit taxpayers’ health. Reliance on such taxes also detracts attention and energy from actual solutions to America’s expanding waistline. But considering the financial largesse of benefactors like Mr. Bloomberg and the zeal of his activist allies, the fight over manipulative sin taxes is likely to continue.

Also published by Forbes.com on WLF’s contributor page

SCOTUS Fishing for a Way to Overturn Conviction in “Yates” without Tossing Law Overboard

supreme courtIt is notoriously difficult—if not foolish—to predict the outcome of a Supreme Court case from the questions the justices pose at oral argument. The case of Yates v. U.S., concerning a commercial fisherman who was convicted and sentenced under the Sarbanes-Oxley Act, is no exception.

And yet, after today’s argument (transcript here), it appears that some members of the Court are grappling for a way to overturn Yates’s conviction without completely rewriting the statute.

Three years after Mr. Yates received an administrative fine for harvesting undersized fish, the U.S. Attorney indicted him for destroying a “record, document, or tangible thing” under the “anti-shredding” provision of Sarbanes-Oxley. The “tangible things” at issue, the government insisted, were undersized red grouper Yates evidently ordered crew members to throw overboard.

Although the government seemingly got the better of the statutory interpretation argument today, a number of justices appeared uncomfortable with the breadth of the government’s application of the statute. While conceding that the government made some good arguments, Justice Alito nevertheless told the government’s attorney, “[Y]ou are really asking the Court to swallow something that is pretty hard to swallow.” Many justices were concerned that the statute contains a 20-year maximum sentence and applies to any matter within the jurisdiction of any department or agency of the United States.

red grouper

red grouper

Even more troubling, the government attorney informed the Court that once a decision is made to prosecute, the U.S. Attorney’s Manual recommends that the “prosecutor should charge the offense that’s the most severe under the law.” That assertion drew concern from many justices, including Justice Scalia, who responded that if that is the DOJ’s position, then the Court would need to be much more careful about how extensively and broadly it construes severe statutes in the future. Justice Kennedy even went so far as to question whether the Court should even mention the concept of prosecutorial discretion ever again.

For his part, Justice Breyer exhibited keen interest in void-for-vagueness objections to the statute, expressing his concern that the language of the anti-shredding provision is so broad that it encourages arbitrary and discriminatory enforcement. Although counsel for Yates did not devote very much space to that issue in his merits briefs, that was precisely the issue that WLF focused on as amicus curiae.

Also published by Forbes.com on WLF’s contributor site

After “Smelly Washer” Trial Win, Challenges Await Whirlpool in Related Cases

WhirlpoolWhirlpool Corp. had major reason to celebrate last week; a federal jury rejected class-action claims that “Duet” front-load washing machines sold in Ohio between 2001 and 2009 were defective because of their alleged tendency to develop a moldy smell. This “smelly washer” case has drawn significant media attention in recent years after it twice reached the U.S. Supreme Court on the issue of whether the case should be certified as a class action. The High Court in 2013 vacated a U.S. Court of Appeals for the Sixth Circuit decision certifying a class of more than 100,000 Ohio consumers; but after the Sixth Circuit reaffirmed its decision on remand, the Supreme Court denied review this past February—thus setting the stage for the three-week trial that just ended last Thursday. But if history is any guide, plaintiffs’ lawyers will not willingly accept that the verdict binds all the absent class members (only two class members actually participated in the trial).

Indeed, the ongoing challenge Whirlpool faces underscores why plaintiff classes should rarely, if ever, be certified in consumer product defect cases. Federal Rule of Civil Procedure 23 states that suits seeking monetary damages are not appropriate for class action treatment unless common issues of fact and law “predominate” over individual issues of fact and law. As the Washington Legal Foundation explained in the brief it filed when this case was before the Supreme Court, individual issues (e.g., whether an individual plaintiff’s product was defective and whether that defect caused injury) will almost always overwhelm common issues of fact in the typical consumer product suit. Moreover, Rule 23 requires that the named plaintiffs demonstrate that they can adequately represent the interests of absent class members; if representation is inadequate (e.g., if their interests diverge from those of absent class members), due process case law dictates that absent class members are not bound by any judgment adverse to the class. Thus, the defendant in a certified consumer-product class action often faces a heads-you-win-tails-I lose dilemma: if a company goes to trial and loses to the class, it faces a massive liability award, but if it prevails at trial, absent class members are likely to resist any res judicata claim. Continue reading