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

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

High Court Should Not “DIG” Dart Cherokee Basin Case

supreme courtDart Cherokee Basin Operating Co. v. Owens, which raises right-of-removal issues under the Class Action Fairness Act (CAFA), is among the more important civil justice cases being heard by the Supreme Court this term. Legal commentators are virtually unanimous in concluding that the trial court adopted an overly restrictive standard governing removal of cases from state to federal court. Yet, as Columbia Law Professor Ronald Mann noted in a recent column for ScotusBlog, questioning during the October 7 oral argument revealed that the Court may be reluctant to decide the case at all. Every question posed to counsel for Petitioner focused on “vehicle” issues, not on the merits of his CAFA arguments. Several justices even suggested that the case might be dismissed as improvidently granted—which would be a terrible mistake.

On closer examination, the procedural posture issues that troubled the Court at oral argument turn out to be insubstantial; they should not dissuade the Court from addressing the Question Presented by the petition. Moreover, as explained in Washington Legal Foundation’s amicus brief, it is critical that the Court retain jurisdiction in this case to unwind the judicially created doctrine that motivated the mistake below in the first place. Dart Cherokee provides the Court an ideal opportunity to end the rule of construction whereby federal courts continue to narrowly construe federal removal statutes against the party seeking removal, contrary to Supreme Court precedent and despite the utter lack of any textual basis for doing so. Continue reading

White House Boosts Fictional “Food Addiction” Concept to School Kids

BSFriesAs we’ve discussed numerous times here, some nutrition nanny activists, regulators, and plaintiffs’ lawyers have embraced and promoted the concept that food can be “addictive.” The term grabs people’s attention, conjuring up disturbing mental images of helplessness and withdrawal. It’s no wonder, then, that the notion of “food addiction” is often invoked in the context of greater government regulation, taxes, and advertising restrictions designed to redirect our dietary choices.

On September 26, the concept received its highest profile reference yet, from First Lady Michelle Obama, during an interview broadcast to millions of students on the in-school “Channel One News.” When asked about the criticism the federal government’s new school lunch rules have faced, the First Lady responded:

It’s natural. Change is hard. And the thing about highly processed, sugary, salty foods is that you get addicted to it. I don’t want to just settle because it’s hard. I don’t want to give up because it’s expensive. I don’t want that to be the excuse.

The interview appears to have been very carefully scripted, so her mention of “addiction” was hardly spontaneous or casual, nor was her referencing it in the context of “highly processed, sugary, salty foods.” Federal government regulation is taking direct aim at those demonized products and their ingredients.

For instance, the Department of Agriculture has proposed banning the sale of certain foods in public schools that don’t meet “Smart Snacks” guidelines, as well as banning advertising of those products in schools. Also, as part of its update of the Nutrition Facts label affixed to all packaged foods, the Food and Drug Administration (FDA) is proposing a new “added sugars” item. FDA is pursuing this mandate even though the agency acknowledges that no chemical difference exists between naturally occurring and added sugars in food. The “added sugars” mandate would also expose federal regulators to constitutional challenges under the First and Fourth Amendments, as leading food regulation attorneys Richard Frank and Bruce Silverglade argue in a September 26 WLF Legal Backgrounder.

The First Lady’s reference to “food addiction” was ill-advised, especially considering the age and maturity level of her captive audience on Channel One News. The concept of addiction has been significantly dumbed down and politicized over the past few decades to the point where it has almost lost any objective meaning. Reputable scientists have questioned not only the methodology behind “food addiction” studies, but also the researchers’ motivation.

The “Let’s Move” effort led by the First Lady advances the indisputably worthy goal of a healthier America, but that goal cannot be met by fomenting faulty food addiction concerns. Such a concept creates a serious moral hazard—people struggling to lose weight may throw up their hands because they believe addiction to (insert high-calorie product) has taken hold. Talk of addiction, and the choice-restrictive public policies it fuels, also diverts attention and resources from actual solutions to obesity in America.

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

Missouri Supreme Court Invalidates State’s Legislative Cap on Punitive Damages

Behrens_MGuest Commentary

by Mark A. Behrens, Shook, Hardy & Bacon L.L.P.*

On September 9, the Supreme Court of Missouri struck down the state’s legislative limit on the amount of punitive damages that can be imposed on defendants. Under the cap, punitive damages could not exceed the greater of $500,000 or five times the net amount of the judgment. Lewellen v. Franklin arose from an unremarkable fraudulent misrepresentation and unlawful merchandising suit. In finding that the statutory damages cap violated Lewellen’s right to a jury trial, the Court followed a 2012 decision invalidating the state’s cap on non-economic damages in medical liability cases, Watts v. Lester E. Cox Medical Centers.

This holding is an extreme outlier.  Virtually every other state court that has considered the constitutionality of punitive damages caps has held that such laws do not violate the jury trial right because the jury’s fact-finding function is preserved.  The jury continues to resolve disputed facts with respect to liability and assessment of legally available remedies.  Once the jury has decided these issues, the constitutional mandate is met—or at least is virtually every other state in the country.  Nationally, both state and federal courts consistently have upheld the constitutionality of punitive damages caps. Continue reading

Move by Biotech Company Tees Up Court Consideration of Attorneys’-Fee Clause in Corporate Bylaws

DelawareThe Wall Street Journal Law Blog reported today that Philadelphia-based (but Delaware-incorporated) biotechnology company Hemispherx BioPharm Inc. has injected itself into the middle of a growing dispute over attorneys’ fees in shareholder class action lawsuits. (A hat-tip to the Institute for Legal Reform, whose must-read daily email referenced the WSJ Law Blog piece) Prompted by a May 14 Delaware Supreme Court decision, ATP Tour, Inc. v. Deutscher Tennis Bund, et al., Hemispherx earlier this month adopted a provision in its corporate bylaws that shareholder plaintiffs must pay the company’s legal fees if Hemispherx prevails in a shareholder-initiated lawsuit. The provision applies retroactively to pending suits, and lawyers for shareholders in a class action against Hemispherx have asked the Delaware Chancery Court to invalidate the bylaws.

A July 11 Washington Legal Foundation Legal Backgrounder, Is Delaware High Court Ruling an Ace for Merging Companies Served with Shareholder Suits?, discussed the ATP Tour decision and assessed how it could be applied to deter frivolous shareholder class actions. Authored by Snell & Wilmer LLP attorneys Greg Brower and Casey Perkins, the paper explains that ATP Tour involved not a public company, but a private membership corporation which included in its bylaws a fee-shifting provision. The Delaware Supreme Court, answering a question certified to it by the U.S. Court of Appeals for the Third Circuit, held that the fee-shifting provision was a matter of private contract, and nothing in the state’s corporate law prohibited its inclusion in ATP’s bylaws.

The authors went on to examine whether Delaware statutory or common law would permit public companies to include such a fee-shifting mechanism in their bylaws. They found that a recent Delaware Chancery Court case, Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corporation, et al., strongly supported the legality of fee-shifting through bylaws.  Brower and Perkins concluded:

Chevron and ATP Tour together make it clear that Delaware law is intended to give broad leeway to corporations, private and public, to adopt bylaws not otherwise prohibited by law, and that duly adopted bylaws are presumed to be part of the contract between the company and the member or shareholder. This means that publicly-traded companies and their shareholders ought to be able to freely contract for the details of their relationship, including details such as where disputes between them will be litigated, and whether the losing party in such litigation should have to pay the legal fees of the prevailing party. Such contracts are part of the fundamental structure of the corporate law of Delaware—or, it seems, of any other state for that matter.

Given the financial implications for the securities fraud class action bar and the promise such provisions hold for public companies, the Hemispherx case is likely just the first skirmish in what will be a drawn-out, intense battle over fee-shifting through corporate bylaws.